CHINA CONSTRUCTION REALTY LTD v. SINO BUSINESS SERVICES PROPRIETARY LTD AND OTHERS

HCA1294/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1294 OF 2005

------------------------

BETWEEN

------------------------

-----------------------

J U D G M E N T

-----------------------

1.  The trial in this matter was only between the plaintiff and the 5^th defendant, Lucky Dragon Limited (“Lucky Dragon”) due to the fact that default judgment had been entered against the 1^st, 2^nd, 3^rd, and 4^th defendants pursuant to the Order of Recorder E. Chan made on 24 March 2006. Initially, default judgment had also been entered against Lucky Dragon by the same Order of the Recorder, but the default judgment against Lucky Dragon was set aside by the Order of Chung J dated 2 February 2007 upon the application by Lucky Dragon.

2.  This Judgment therefore deals only with the claim of the plaintiff against Lucky Dragon.

3.  The plaintiff’s claim against Lucky Dragon is essentially based on two causes of action namely :

(a)   section 60(1) of the Conveyancing and Property Ordinance (“the Ordinance”); and

(b)   conspiracy to injure the plaintiff.

4.  In a nutshell, the plaintiff’s case is that the plaintiff is a creditor of the 1^st defendant pursuant to a judgment obtained by the plaintiff in the amount of AUS$46 million plus interests and costs in the Victoria Supreme Court in Australia, as well as being a creditor of the 3^rd defendant by reason of a construction loan provided to the 3^rd defendant by the plaintiff in the sum of US$7.3 million.

5.  It is the plaintiff’s case that the 1^st, 2^nd and 3^rd defendants had procured the transfer of assets by the 4^th defendant to Lucky Dragon pursuant to the Lucky Dragon Agreement with the intent to defraud the plaintiff as a creditor of the 1^st defendant and with the intention of putting the assets of the 1^st, 2^nd and 3^rd defendants out of reach of the plaintiff, which has resulted in the plaintiff being unable to obtain payment or satisfaction of the judgment sum which it obtained in the Victoria Supreme Court.

6.  It is also the plantiff’s case that Lucky Dragon had actual or constructive notice that the Lucky Dragon Agreement entered into between Lucky Dragon and the 4^th defendant was procured by the 1^st, 2^nd, and 3^rd defendants with the intent to defraud the plaintiff or to evade their liabilities to the plaintiff.

7.  The defence raised by Lucky Dragon to the plaintiff’s claim against it is based on section 60(3) of the Ordinance in that the disposal of the assets to Lucky Dragon under the Lucky Dragon Agreement was for valuable consideration and made in good faith by Lucky Dragon without notice of the intent to defraud the plaintiff as a creditor.

BACKGROUND

8.  The plaintiff is a company incorporated in the British Virgin Islands (“BVI”) on 28 March 1995 and is a subsidiary of China Construction Finance Ltd (“CCFL”), which in turn is a wholly-owned subsidiary of China Construction Holdings Limited (“CCHL”).  CCHL is a company incorporated in Bermuda and was listed on the Australian Stock Exchange.

9.  The 1^st defendant was at all material times a company incorporated in the State of Victoria, Australia.

10.  The 2^nd defendant was at all material times a company incorporated in the BVI and a wholly owned subsidiary of the 1^st defendant.

11.  The 3^rd defendant was at all material times a company incorporated in the BVI and was owned as to 90% by the 2^nd defendant.

12.  The 4^th defendant was at all material times a company incorporated in the BVI.  Before 26 June 1997, the plaintiff owned 90% of the shares of the 4^th defendant (the “WIW shares”).

13.  Lucky Dragon was a company incorporated in Western Samoa on 8 April 2003.

14.  On 26 June 1997, an agreement was entered into between the plaintiff and the 1^st defendant (the “CCR/SBS Share Sale Agreement”) whereby the WIW shares were sold by the plaintiff to the 1^st defendant for AUSS$46,500,760.00.

15.  When the CCR/SBS Share Sale Agreement was entered into between the plaintiff and the 1^st defendant, the 4^th defendant held 80% of the equity interests in Dalian Jinshitan Baotong Real Estate Development Co. Ltd (“Dalian Jinshitan”), 100% of the equity interests in China International Club Ltd (“CICL”) and 100% of the equity interest in China Entertainment Ltd (“CEL”), all of which were companies incorporated in China.

16.  CEL and Dalian Jinshitan respectively held 60% and 40% of the equity interest in Dalian International Entertainment Co. Ltd (“DIEC”).

17.  CICL and Dalian Jinshitan respectively held 60% and 40% of the equity interests in Dalian International Foreigners’ Entertainment Club Co. Ltd (“DIFEC”).

18.  DIEC and DIFEC together held the land use rights (the “Dalian Land Use Rights”) in respect of the land at a development site at Area 6 in the Dalian National Resort, Dalian, Liaoning Province, in China (“the Dalian Land”).

19.  The plaintiff therefore, immediately before entering into the CCR/SBS Share Sale Agreement, had the ultimate predominant ownership and control of the Dalian Land Use Rights which was effectively what was sold to the 1^st defendant by the sale of the WIW shares.

20.  Dalian Jinshitan, CEL and CICL were at all material times engaged in a project to develop the Dalian Land (“the Dalian Project”).

21.  After the CCR/SBS Share Sale Agreement was entered into, the plaintiff duly transferred the WIW shares to the 2^nd defendant as directed by the 1^st defendant.

22.  On or about 6 November 1997, the 2^nd defendant acquired 90% of the shares of the 3^rd defendant.  On the same day, the 1^st and/or 2^nd defendant caused the transfer of the WIW shares from the 2^nd defendant to the 3^rd defendant.

23.  On 5 January 1998, the 3^rd defendant acquired the remaining 10% of the shareholding in the 4^th defendant from Asia Management Ltd.

24.  Thereby, the 1^st defendant obtained the ultimate control over the 4^th defendant.

25.  Pursuant to the CCR/SBS Share Sale Agreement, the purchase price was to be paid by the 1^st defendant as follows :

(a)   AUS$500,760.00 on or before 14 July 1997;

(b)   AUS$10,000,000.00 on or before 31 December 1998;

(c)   AUS$10,000,000.00 on or before 31 December 1999; and

(d)   AUS$26,000,000.00 on or before 31 December 2000.

26.  The first payment of the purchase price in the sum of AUS$500,760.00 was duly made by the 1^st defendant to the plaintiff.

27.  Pursuant to Clause 2.3 of the CCR/SBS Agreement, the plaintiff also provided the 3^rd defendant with a construction loan in the sum of US$7.3 million (“the Construction Loan”) which was drawn down on 30 September 1998.  The Construction Loan has not been repaid to date.

28.  By letter dated 13 November 1998, the 1^st defendant purported to repudiate the CCR/SBS Share Sale Agreement and thereafter failed to make any further payment of the balance of the purchase price.  The 1^st and 2^nd defendant failed or refused to return the WIW shares or any part thereof to the plaintiff.

29.  The plaintiff then commenced legal proceedings against the 1^st and 2^nd defendants in the Victorian Supreme Court on 9 November 2001 in action no. 8253 of 2001(“the Victorian Proceedings”) seeking damages for breach of contract or alternatively, the return of the WIW shares.

30.  In the Victorian Proceedings, the plaintiff applied for and obtained an interlocutory injunction preventing the 1^st defendant from disposing of the shares it held in the 2^nd defendant and also preventing the 2^nd defendant from disposing of the shares it held in the 3^rd defendant.  In the course of the injunction applications, the 1^st and 2^nd defendant had represented on affidavit that the 1^st defendant had not transferred or disposed of its shareholding in the 2^nd defendant nor did it intend to dispose of any of its assets before the trial in the Victorian Proceedings.  The 2^nd defendant also represented on affidavit that it had not transferred or disposed of its shareholding in the 3^rd defendant nor did it intend to dispose of any of its assets before the trial in the Victorian Proceedings.  These representations were contained in the affidavit of Lee Sai Ming sworn on 17 March 2003.

31.  In the affidavit of Wayne William Kelcey (a solicitor representing the 1^st and 2^nd defendants in the Victorian Proceedings) sworn on 28 March 2003, it was further represented or at least the impression given that the 1^st and 2^nd defendants and their subsidiaries (including the 3^rd and 4^th defendants) held the shares in Dalian Jinshitan, CEL and CICL (“the Shares”) and retained ownership and control over the Dalian Land Use Rights and that they intended to continue to do so.

32.  In the settlement proposal dated about 26 May 2003 in respect of the Victorian Proceedings, the 1^st and 2^nd defendants further represented that they held and controlled and would continue to hold and control the Shares and the Dalian Land Use Rights through the 3^rd and 4^th defendants.

33.  By an undertaking given by counsel for the 1^st and 2^nd defendants in the Victorian Proceedings on 28 May 2003, the 1^st and 2^nd defendants implicitly represented that they still held and controlled and would continue to hold and control the Shares and the Dalian Land Use Rights through the 3^rd and 4^th defendants.

34.  However, without the knowledge of the plaintiff at the time, the holding company of the 1^st defendant, i.e. Sino Securities International Limited (“SSI”), sold its entire shareholding in the 1^st defendant to Central Business Asia Limited (“CBA”) for AUS$500,000 in around February 2003.  The effect of such sale by SSI of its entire shareholding in the 1^st defendant to CBA was to vest some other party with the ownership of the 4^th defendant and hence control of the Dalian Project and who can dispose of such assets without recourse to the plaintiff despite the Victorian Proceedings which were ongoing at the time and despite the interlocutory injunctions obtained by the plaintiff therein on 20 March and 3 June 2003.

35.  At that time, also unbeknown to the plaintiff and to the court in Victoria, the 1^st, 2^nd and 3^rd defendants had procured the 4^th defendant to enter into an agreement (“the Lucky Dragon Agreement”) whereby the 4^th defendant sold the Shares to Lucky Dragon in or around April/May 2003.  As a result of the Lucky Dragon Agreement, Lucky Dragon obtained from the 4^th defendant the ultimate predominant ownership and control of the Dalian Land Use Rights and the Dalian Land.

THE LUCKY DRAGON AGREEMENT

36.  The Lucky Dragon Agreement was entered into in Hong Kong and executed by Shirley Yeung (“Ms Yeung”) on behalf of Lucky Dragon and Chan Ka Wai on behalf of the 4^th defendant.

37.  The Lucky Dragon Agreement was undated, but in answer to the plaintiff’s requests for particulars, it was said by Lucky Dragon that the Lucky Dragon Agreement was executed on or about 30 May 2003.

38.  Under the Lucky Dragon Agreement, the consideration for the Shares comprised of an initial payment of HK$2,000,000.00 (“the Initial Payment”) and the balance was to be payable by Lucky Dragon by any one of four alternative means set out in Schedule 2 to the Lucky Dragon Agreement (“the Performance Payment”).

39.  The Initial Payment was purported to have been made in three installments as follows :

(a)   HK$140,000.00 on 9 April 2003;

(b)   HK$503,692.50 on 26 May 2003; and

(c)   HK$1,356,307.50 on 20 June 2003.

40.  The Performance Payment was one of the four alternative means set out in Schedule 2 to the Lucky Dragon Agreement as follows :

(a)   Lucky Dragon would be responsible for all taxes and cost in relation to the development of the Dalian Land and the 4^th defendant would be entitled to 10% of the amounts received or receivable by Lucky Dragon for the sale of the properties on the Dalian Land.  Payment would be made within 30 days after completion of the account of the companies and on condition that Lucky Dragon receives such payment;

(b)   Lucky Dragon would deliver not less than 10,000 square metres of completed commercial building (exclusive of interior decoration) in the Dalian Project to the 4^th defendant before 31 December 2006;

(c)   Lucky Dragon would pay HK$50 million to the 4^th defendant before 31 December 2006; and

(d)   a combination of (b) and (c) above on the basis that the 10,000 square metres of completed commercial building was worth HK$50 million.

41.  The Completion Date stated in the Lucky Dragon Agreement was 28 May 2003.

42.  Up to the time of trial herein, Lucky Dragon has not paid any part of the Performance Payment to the 4^th defendant.

43.  The plaintiff came to know of the Lucky Dragon Agreement and the purported sale of the Shares by the 4^th defendant to Lucky Dragon only in or around September 2003 when this was disclosed by Messrs Jerrard & Stuk, the new solicitors in Australia acting for the 1^st and 2^nd defendants in the Victorian Proceedings.  Even so, Messrs Jerrard & Stuk was criticized by the Hong Kong solicitors for the 1^st defendant for having disclosed the Lucky Dragon Agreement to the plaintiff.

44.  At the trial of the Victorian Proceedings, the 1^st and 2^nd defendant as well as Chan Ka Wai admitted that the Shares had been sold to a “third party”.  Chan Ka Wai further admitted that the 4^th defendant had received HK$2 million and the balance of the consideration would be deferred until 31 December 2006.

JUDGMENT IN THE VICTORIAN PROCEEDINGS

45.  On 26 March 2004, the plaintiff obtained judgment in the Victorian Proceedings against the 1^st and 2^nd defendants after trial (“the Victorian Judgment”) for the amount of AUS$46,000,000.00 together with interests in the sum of AUS$20,899,797.00 (“the Judgment Sum”) and costs.

46.  The 1^st defendant failed to pay the Judgment Sum as a result of which and upon the plaintiff’s application, it was wound up by the Federal Court of Australia on 14 April 2005.

47.  To date no part of the Judgment Sum has been paid to the plaintiff.

PLAINTIFF’S CASE AGAINST LUCKY DRAGON

48.  As already stated above, the plaintiff’s case against Lucky Dragon is based on two causes of action, namely section 60(1) of the Ordinance and conspiracy to injure.  It is also based on the plaintiff being a creditor of both the 1^st and 3^rd defendants.

49.  Section 60(1) provides as follows :

“ Subject to subsections (2) and (3), every disposition of property made, whether before or after the commencement of this section, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.”

50.  It is the plaintiff’s case that the 4^th defendant was a subsidiary of the 1^st, 2^nd and 3^rd defendants and under their control and direction.  At the time of the Lucky Dragon Agreement, Chan Ka Wai was a common director of the 1^st, 2^nd and 4^th defendants and that it was Chan Ka Wai who had signed the Lucky Dragon Agreement on behalf of the 4^th defendant.

51.  On that basis, the plaintiff says that the transfer of the Share by the 4^th defendant to Lucky Dragon pursuant to the Lucky Dragon Agreement was procured by the 1^st, 2^nd and 3^rd defendants and the Lucky Dragon Agreement was entered into and effected by the 4^th defendant with intent to defraud the plaintiff being a creditor of the 1^st and 3^rd defendants.

52.  Particulars of the conduct of the 1^st to 3^rd defendants are pleaded in paragraph 47 of the Amended Statement of Claim.

53.  It is also the plaintiff’s case that Lucky Dragon had actual or constructive notice that the Lucky Dragon Agreement was procured by the 1^st to 3^rd defendants with the intent of defrauding the plaintiff or evading their liabilities to the plaintiff.  In this respect full particulars have been given by the plaintiff in paragraph 50 of the Amended Statement of Claim.  In gist the plaintiff says as follows :

(a)   the sale of the Shares pursuant to the Lucky Dragon Agreement was at an undervalue.  It is the plaintiff’s case that the market value of the Dalian Land as at May 2003 was RMB251 million, but the agreed consideration in the Lucky Dragon Agreement was at most HK$52 million and of which only HK$2 million had been paid to date;

(c)   Lucky Dragon had actual notice of the Victorian Proceedings and that reference to same had been made in the Lucky Dragon Agreement; and

(d)   the parties to the Lucky Dragon Agreement insisted on executing same without obtaining any prior independent legal advice, despite having been specifically advised to do so.

54.  The plaintiff further contends that the Lucky Dragon Agreement was not a bona fide arms length transaction for the following reasons :

(a)   Lucky Dragon was not a company of any substance and it was only acquired from an offshore agent in or about April 2003. Lucky Dragon was struck off the Register of International and Foreign Companies between 18 February 2005 and 28 July 2005 for non-payment of Government fees and it was only upon the application by the plaintiff (under section 197(6) of the International Companies Act 1987) that it was restored on the Register by Order of the Supreme Court of Samoa dated 29 July 2005;

(b)   Ms Yeung, the ostensible owner/controller of Lucky Dragon was not a person of any substance either and could not have been in a position to finance a multi-million dollar venture such as the development of the Dalian Land;

(c)   the purported Mainland joint venture partner of Lucky Dragon to develop the Dalian Land, being Quingdao Yuzhe Property Development Company Ltd (“Quingdao Yuzhe”) was also not an entity of any substance and had not injected any capital into the development; and

(d)   the signing and making of the Lucky Dragon Agreement was not preceded by any genuine negotiations between the 4^th defendant and Lucky Dragon.

55.  It was also the contention by the plaintiff that it was inherently improbable that the 1^st to 4^th defendants would procure the Shares to be transferred merely to an innocent third party, but more likely that they would procure the transfer of the Shares to a party who would agree to abide by their orders and control such that although the 4^th defendant had ostensibly been divested of the Shares but the 1^st to 4^th defendants would continue to enjoy the benefit of the Shares through Lucky Dragon, at the same time the Victorian Judgment becoming an empty judgment for the plaintiff.

56.  Upon such basis, the plaintiff says that the Lucky Dragon Agreement is voidable by virtue of section 60(1) of the Ordinance as it constitutes a disposition of property by the defendants with intent to defraud the plaintiff as creditor and that Lucky Dragon has actual or constructive notice of the intent by the 1^st to 3^rd defendants to defraud the plaintiff.

57.  It is also the plaintiff’s case that by reason of such conspiracy, the plaintiff has suffered loss and damage by being unable to enforce the Judgment Sum against or recover any effective value from any assets of the 1^st defendant.

58.  The relief sought by the plaintiff are, inter alia, as follows :

(a)   a declaration tht the Lucky Dragon Agreement constitutes a disposition of property by the defendants with intent to defraud the plaintiff as a creditor of the 1^st and 3^rd defendants;

(b)   an order that the Lucky Dragon Agreement and the purported sale and transfer of the Shares to Lucky Dragon be set aside;

(c)   all necessary orders of disclosure, account and inquiry to enable the plaintiff to be informed of the present ownership, whereabouts and status of the Shares;

(d)   all necessary orders compelling Lucky Dragon to take all reasonable steps to re-vest the legal and beneficial ownership of the Shares to the 4^th defendant;

(e)   damages for conspiracy; and

(f)   all necessary and consequential assessments, accounts and enquiries.

LUCKY DRAGON’S DEFENCE

59.  Basically, Lucky Dragon relies on section 60(3) of the Ordinance by way of defence to the plaintiff’s claim.

60.  Section 60(3) provides as follows :

“ This section does not extend to any estate or interest in property disposed of for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of disposition, notice of the intent to defraud creditors.”

61.  Lucky Dragons says that the Lucky Dragon Agreement was entered into by it in good faith and for valuable consideration.

62.  Lucky Dragon further says that it had neither actual nor constructive notice that the Lucky Dragon Agreement was procured by the 1^st to 3^rd defendants with the intent to defraud the plaintiff as a creditor.

63.  In particular, Lucky Dragon says that it had no knowledge :

(a)   of the deceptive conduct and the deliberate concealment of the Lucky Dragon Agreement on the part of the 1^st to 3^rd defendant from the plaintiff; and

(b)   of the Victorian Proceedings.

64.  Lucky Dragon also says that the sale of the Shares to Lucky Dragon under the Lucky Dragon Agreement was not conducted at an undervalue.

65.  In effect therefore, Lucky Dragon says that the Lucky Dragon Agreement was an agreement entered into at arms length with the 4^th defendant and that Lucky Dragon was not a party to any conspiracy to injure the plaintiff.

THE ISSUES IN DISPUTE

66.  As already stated above, default judgment had already been entered against the 1^st to 4^th defendants by the Order of Recorder E. Chan dated 24 March 2006.  That default judgment against all of the 1^st to 4^th defendants had not been appealed against nor set aside.  It must follow therefrom that it had already been adjudged against the 1^st to 4^th defendants, inter alia, that they had procured the entering into of the Lucky Dragon Agreement with the intent to defraud the plaintiff being a creditor or the 1^st and 3^rd defendants for the purpose of section 60(1) of the Ordinance.

67.  Therefore the remaining issue for the court to decide in the present case in respect of the plaintiff’s claim under section 60 of the Ordinance is whether Lucky Dragon can bring itself within the requirements to the exception pursuant to section 60(3) of the Ordinanceby showing that the Lucky Dragon Agreement was entered into by Lucky Dragon for valuable consideration and in good faith or upon good consideration and in good faith without notice of the intent to defraud the plaintiff.

68.  I say this because there is no dispute between the plaintiff and Lucky Dragon that in so far as the law goes, the onus is upon Lucky Dragon to show that it comes within the exception provided for in section 60(3) of the Ordinance.

THE FACTUAL EVIDENCE OF THE PLAINTIFF

69.  The plaintiff called two witnesses of fact at the trial, Mr Shan Chang (“Mr Shan”), a director of the plaintiff, and Mr Edward John Maitland (“Mr Maitland”), the Australian solicitor who represented the plaintiff in the Victorian Proceedings.

70.  The evidence of both Mr Shan and Mr Maitland were contained in their respective witness statements which both adopted as their evidence-in-chief.

71.  Mr Shan’s evidence related mainly to the background matters in this case, including the sale by the plaintiff to the 1^st defendant of the WIW shares under the CCR/SBS Share Sale Agreement, the failure of the 1^st defendant to pay the balance of the purchase price of AUS$46 million, the claim made by the plaintiff in the Victorian Proceedings and the conduct of the 1^st defendant in the Victorian Proceedings, the failure to disclose the Lucky Dragon Agreement in the Victorian Proceedings and how the plaintiff came to know of the Lucky Dragon Agreement on or about 25 September 2003, the Victorian Judgment given in favour of the plaintiff in the Victorian Proceedings and the failure of the 1^st defendant to satisfy the Judgment Sum.

72.  Mr Shan also gave evidence relating to Chiu Hon Sang (“Chiu”) who was at one time a director of both the plaintiff and its parent company, CCHL, and who was also a key executive personnel of the plaintiff responsible for the development of the Dalian Project in its early stages in 1996.

73.  In this respect, Mr Shan’s evidence was that Chiu had ceased to manage the Hong Kong office of CCHL by the end of 2001 and was no longer a director of the plaintiff with effect from 8 September 1998.

74.  Mr Shan also produced a copy of the Minutes of Meeting of CCHL dated 4 January 2002 showing that a resolution was passed to compel Chiu to hand over all the documents of the Group and that this resolution was communicated to Chiu by internal memo dated 5 January 2002.  Further a letter from the plaintiff’s solicitors to Chiu’s solicitors dated 8 January 2002 demanding the return of all assets of the plaintiff by Chiu.

75.  Mr Maitland gave evidence of what happened in the Victorian Proceedings.

76.  There was minimal cross-examination of the two witnesses called by the plaintiff and their evidence was largely unchallenged.

THE FACTUAL EVIDENCE FROM LUCKY DRAGON

77.  As for Lucky Dragon, it had originally intended to call two factual witnesses, namely Ms Yeung and Mr Peter Choi (“Mr Choi”).  Both of them had given witness statements in these proceedings.

78.  However, Ms Yeung did not appear at the trial despite her being made aware of the trial dates well before the trial started.  As a result, Lucky Dragon was only able to call Mr Choi to give factual evidence in this matter.

79.  Mr Choi is a director of Lucky Dragon and his evidence as contained in his witness statement, which he adopted as his evidence-in-chief, can be summarized as follows.

80.  Mr Choi is a Canadian citizen with a B.A. degree from the University of Toronto.  He returned to Hong Kong in 1978 and assisted his father and uncle in their garment business.  He has known Ms Yeung for many years and have maintained close contact with her even after his marriage.

81.  Lucky Dragon is an offshore company acquired from an agent in Samoa in or about April 2003 with its registered office being that of the agent in Samoa.

82.  Mr Choi came to know one Han Kwong Li (“Han”), a PRC national, while in his garment business and had introduced Han to Ms Yeung.  In around the lunar New Year of 2003 Han recommended to Ms Yeung a real estate project in Dalian (i.e. the Dalian Project) and introduced Chan Ka Wai of the 4^th defendant to Ms Yeung.  Han died in Beijing some two years ago.

83.  Chan Ka Wai then explained in great detail the Dalian Project and the structure of the companies involved in the joint venture and their relationship as well as the history of the Dalian Project which goes back to 1997.  Chan Ka Wai explained that the Dalian Land is a piece of prime property of about 400,000 sq. metres within the Golden Pebble Beach National and Recreational Resort and the Dalian Project when completed would comprise of shopping area, water theme park, entertainment area, luxury villa and apartment.  But due to insufficient capital to develop the Dalian Project, the 4^th defendant is desirous to dispose of the whole of its interest and equity in the Dalian Project.

84.  Chan Ka Wai showed copies of the land use certificates for the Dalian Land and also a copy of a Chinese agreement dated 16 December 2002 between DIEC, DIFEC and Qingdao Yuzhe as well as a supplemental agreement thereto dated 16 December 2002 (“the Qingdao Agreements”) and told them that the 4^th defendant’s predecessor in title had entered the Qingdao Agreements with Wong Jing Li, the Chairman and Legal Representative of Qingdao Yuzhe which is wholly owned by a state owned enterprise, China Railway Shisiju Group Corporation Limited.  However, due to serious personal conflicts and differences between the two of them, the Dalian Project had remained dormant and the parties are at a stalemate and have not proceeded with the Qingdao Agreements.  Chan Ka Wai further added that the Qingdao Agreements is a clear indication that the Dalian Project is a commercially viable one and has great potential.

85.  Chan Ka Wai indicated that the 4^th defendant is considering selling 100% of its equity in the Dalian Project at RMB100 million.

86.  Ms Yeung asked Mr Choi to assist her to study the project and he, Ms Yeung together with Han went to Dalian to inspect the Dalian Land. They saw that the land was raw and undeveloped and a local friend of Han in Dalian told them that construction work had been suspended for some 5 years before 2003 due to insufficient capital.  There were 2 plots of land but construction work had only started on one plot for one year after the land use certificates had been issued in 1998.  The development should have been completed by 2001, but the capital injected was less than 25% required by law and the construction area was less than 1/3 of the development area.  Furthermore, various debts had been incurred and if unpaid, interest would accrue and there was a real risk that the PRC Government would take back the land.

87.  After studying the documents supplied to them and with the knowledge from their inspection, Ms Yeung and Mr Choi agreed that the project was attractive.  They then negotiated with Chan Ka Wai to come down on the price which they thought was too high and unacceptable.

88.  Mr Choi and Ms Yeung realized at the time that Lucky Dragon did not have the finance to complete the Dalian Project without a partner therefore they were looking for a partner from the outset with strong financial backing and who could inject funds to complete the project.

89.  At that time, Ms Yeung indicated to Mr Choi that she was agreeable to giving Mr Choi a 5% bonus share in Lucky Dragon in consideration for his services.

90.  Ultimately, the Lucky Dragon Agreement was entered into with the 4^th defendant.  It was executed on or about 30 May 2003 in the solicitor’s office of Messrs Raymond Chan Kenneth Yuen & Co. in the presence of Raymond Chan, a solicitor.  The Lucky Dragon Agreement was prepared by the 4^th defendant.

91.  Under the Lucky Dragon Agreement, Lucky Dragon purchased from the 4^th defendant 80% equity of Dalian Jinshitan and all of the shares in CEL and CICL for HK$52 million on the terms stated therein.

92.  Moreover, it was also agreed in the Lucky Dragon Agreement that Lucky Dragon will have to discharge the “Dalian Liabilities” which is defined in the Lucky Dragon Agreement as :

(a)   a judgment sum of RMB21,360,478.55 against DIFEC;

(b)   just under RMB11 million being land use right premium for the Dalian Land; and

(c)   arrears of taxes of some RMB7 million.

93.  The total amount of the Dalian Liabilities come to RMB38,802,158.35.

94.  Since Lucky Dragon became the only shareholder of CEL and CICL, Ms Yeung was appointed a director of CEL and CICL.

95.  The initial payments comprising HK$140,000.00, HK$503,692.50 and HK$1,356,307.50 were paid to the 4^th defendant by Mr Choi in cash after he had collected cash from trading debtors of Ms Yeung in Shenzhen.  The cash collected by Mr Choi was used to pay off these initial payments.

96.  Mr Choi denied that Lucky Dragon had notice of the Victorian Proceedings and says there is no reference to same in the Lucky Dragon Agreement.  The “proceedings” referred to in the Lucky Dragon Agreement refers to proceedings in the PRC in relation to the Dalian Project which was disclosed by Chan Ka Wai to Ms Yeung during their negotiations.

97.  Mr Choi says that Lucky Dragon is a bona fide purchaser and never had any business dealings with the 1^st to 3^rd defendants.  In fact he had never heard of the 1^st to 3^rd defendants and had no knowledge of the disputes between the plaintiff and the 1^st to 4^th defendants or the Victorian Proceedings.

98.  Mr Choi further says that the plaintiff well knew of the Lucky Dragon Agreement before 25 September 2003 and had acknowledged Lucky Dragon’s ownership of the Dalian Project for the following reasons.

99.  In about May/June 2003 Chan Ka Wai had told Ms Yeung and Mr Choi that the Legal Representative of DIEC and DIFEC was Chiu who was nominated by the plaintiff (since the 4^th defendant had not the opportunity to nominate someone to replace him) and that the seals and chops of DIEC and DIFEC as well as the original Land Use Right Certificate of the Dalian Land were in the possession of the plaintiff.  Chan Ka Wai further said he will arrange for Ms Yeung to see Chiu at his office at 22^nd floor of New World Tower 2.

100.  Mr Choi did not attend such meeting, but later he was told by Ms Yeung that after Chan Ka Wai had explained to Chiu that Lucky Dragon has taken over the Dalian Project and is the new owner of CEL and CICL therefore is entitled to possession of the Land Use Right Certificate and the chops and seals of DIEC and DIFEC, Chiu informed Ms Yeung that he was nominated to be Chairman and Legal Representative of both DIEC and DIFEC because he was a director of the plaintiff, and that he was willing to step down from those positions any time at the request of Lucky Dragon.

101.  Ms Yeung also handed to Mr Choi two originals of the Land Use Right Certificates in respect of the Dalian Land which was handed over to Ms Yeung by Chiu.

102.  As for the seals and chops, Mr Choi was told by Ms Yeung that Chiu had told her to collect them from one Cheung Lei, being one of the plaintiff’s staff, in the PRC.  Mr Choi then arranged to collect the seals and chops as per the instructions given him by Ms Yeung.

103.  Mr Choi was also told by Ms Yeung that she had asked Chiu about the Qingdao Agreements and was told by Chiu that he, as the Legal Representative of DIEC and DIFEC had entered the Quingdao Agreements for the development of the Dalian Project but that there was serious personal conflicts between Wong Jing Li and the predecessor in title of the 4^th defendant.  Chiu also gave the telephone number of Wong Jing Li to Ms Yeung at her request and Chiu also said that Wong Jing Li had strong financial backing from a PRC corporation and gave Ms Yeung a copy of a letter from the Construction Bank of China as proof.

104.  By the Qingdao Agreements, DIEC and DIFEC had agreed to contribute the Dalian Land and Qingdao Yuzhe had agreed to put up the capital for construction for the approved coverage area of some 260,000 sq metres in respect of the Dalian Project.  The value of the Dalian Land was deemed, under the Qingdao Agreements to be RMB200 million.

105.  After the Lucky Dragon Agreement was signed, Ms Yeung agreed with Mr Choi to approach Wong Jing Li to ascertain his attitude re the Qingdao Agreements and if Wong Jing Li was not interested to proceed, then they would approach other investors for the Dalian Project.

106.  Mr Choi contacted Wong Jing Li and met him at the Shanghri-la Hotel in Shenzhen.  Mr Choi made it known to Wong Jing Li that Lucky Dragon had taken over the Dalian Project from the 4^th defendant and was keen to have Qingdao Yuzhe as its partner in the Dalian Project on the terms of the Qingdao Agreements.  Wong Jing Li did not respond one way or the other.

107.  Mr Choi then invited Wong Jing Li to Hong Kong to “break the ice”.  In Hong Kong, Mr Choi went all out to entertain Wong Jing Li.  After about a month or two, Wong Jing Li indicated that he found Lucky Dragon to be a more suitable partner than the 4^th defendant’s predecessor in title and agreed to proceed with the project.  Wong Jing Li assured Mr Choi that he would procure Qingdao Yuzhe to perform its obligation under the terms of the Qingdao Agreements.

108.  On 24 July 2003 resolutions were duly passed to remove Chiu as the Legal Representative, Chairman and director of DIEC and DIFEC and Wong Jing Li appointed in his place.  Lucky Dragon then applied to the PRC Business Registration Bureau to formally make that change to the record on or about 15 August 2003.  Thereafter Wong Jing Li took charge of DIEC and DIFEC and took over the seals and chops, the financial documents and records as well as the title deeds of the Dalian Land.  The staff of DIEC and DIFEC were also appointed by Wong Jing Li.  Lucky Dragon took no part in the operation and management of DIEC and DIFEC.  All documents relating to DIEC and DIFEC as well as bank statement evidencing the injection of capital by Qingdao Yuzhe were not accessible to Lucky Dragon.

109.  In 2003 Wong Jing Li negotiated and discussed with Luen Gat Fung of the Land Development Bureau of the Dalian government but Lucky Dragon was not aware of the details of those discussions.  However the PRC Government did not take back the Dalian Land.  Wong Jing Li only informed Lucky Dragon of the outcome of those negotiations.

110.  Wong Jing Li also procured Qingdao Yuzhe to settle the Dalian Liabilities in stages spanning over 18 months.  Qingdao Yuzhe had effectively discharged Lucky Dragon’s financial obligations under the Lucky Dragon Agreement.

111.  About RMB250 million was injected into the bank account of DIFEC.  With the new capital, 48,000 sq metres of residential property was built as well as a parking lot of some 16,000 sq metres.  A commercial shopping mall in Phase 1 of some 4,000 sq metres had also been built.

112.  A club house and additional residential units are currently under active construction.

113.  In October 2004 DIEC and DIFEC started to sell those completed residential units with about 220-230 units having been sold at the average price of about RMB4,000 per sq metre, but Lucky Dragon has not received any of the sale proceeds as yet.

114.  In November 2006 Wong Jing Li died in a traffic accident in Dalian.  Thereafter the father of Wong Jing Li, being the administrator of the estate of Wong Jing Li, took over the affairs of Qingdao Yuzhe as well as DIEC and DIFEC.  Wong Jing Li’s father also took possession of the chops and seals of DIEC and DIFEC thereby effectively taking over control of those companies.

115.  After Wong Jing Li’s death, Lucky Dragon came to know from an officer of the Land Bureau that the title deeds of the Dalian Land had been pledged and that there was a court order made against DIEC and DIFEC in favour of a company known as (濟南環山房地產開發有限公司) (“the Jinan Company”).  Inquiries from the two mortgagee banks revealed that Wong Jing Li had obtained a loan of some RMB300 million by pledging the Land Title Deeds.  The borrowers of the loan were two PRC companies.

116.  Lucky Dragon then came to realize that the funds used by Qingdao Yuzhe to discharge the Dalian Liabilities and the further capital to develop the Dalian Project came from such loan without the knowledge or approval of Lucky Dragon.  Lucky Dragon had all along thought that such capital came from Qingdao Yuzhe.

117.  Ms Yeung then confronted the father of Wong Jing Li as to these matters who claimed he was unaware of the actions of Wong Jing Li before his death.  Shortly thereafter, in about May 2007 Wong Jing Li’s father together with the accountant of DIEC and DIFEC misappropriated large sums of money of DIEC and DIFEC and absconded taking away or destroying much of the financial records of both companies.  A report was made to the Dalian Police in about mid-June 2007, but neither of the two has as yet been apprehended.  DIEC and DIFEC also reported the loss of the respective company chops and seals to the police and obtained replacements thereof.

118.  Moreover, Qingdao Yuzhe had ceased operation shortly after the death of Wong Jing Li, but the date of which Lucky Dragon did not know.

119.  In about April or May 2007, Mr Choi was contacted by one Li Yu Keung who claimed to represent the Chairman of the Jinan Company, Li Ping Mei.  Mr Choi then met Li Yu Keung in Dalian at which meeting Li Yu Keung told Choi that Li Ping Mei is a prominent businessman in Jinan and had entered an agreement with Qingdao Yuzhe to develop the Dalian Project and had advanced RMB100  million into DIEC and DIFEC.  Mr Choi then told Li Yu Keung of Lucky Dragon’s entitlement under the Qingdao Agreements.

120.  Li Yu Keung then said to Mr Choi that in consideration of Lucky Dragon procuring the nominee of Li Ping Mei to be the Legal Representative of DIEC and DIFEC and Lucky Dragon handing over the chops and seals of DIEC and DIFEC, Li Ping Mei would agree to take over DIEC and DIFEC, finance the Dalian Project and to give to Lucky Dragon its original interest under the Qingdao Agreements.

121.  After discussing it over with Ms Yeung, Mr Choi informed Li Yu Keung that they would agree to the proposal of Li Ping Mei.

122.  As a result, Li Ping Mei’s nominee was appointed the Legal Representative of DIEC and DIFEC and the chops and seals of DIEC and DIFEC were handed over to Li Yu Keung.

123.  Mr Choi also stated that he believed that as a safety measure to protect its interest, the plaintiff had deliberately retained the land use right certificates of the Dalian Land and in addition ensured that Chiu, being one of the plaintiff’s directors, remained as the Legal Representative of DIEC and DIFEC as well as retaining the chops and seals of those two companies.

124.  The plaintiff had co-operated fully with Lucky Dragon by authorizing Chiu to step down as the Legal Representative and by handing over the chops and seals to Lucky Dragon thereby relinquishing control over DIEC and DIFEC and also by handing over the land use right certificates to the Dalian Land, the most valuable assets of DIEC and DIFEC.

125.  Mr Choi also said that even more suspicious is the fact that Chiu, on the instructions of the plaintiff, entered into the Qingdao Agreements in December 2002 when the so called Victorian Proceedings was commenced as early as 2001 and there is no explanation why the plaintiff permitted Chiu to do so.

126.  Mr Choi therefore believed that the plaintiff has concealed material facts from this court.  It is strange, said Mr Choi, that when the Dalian Project turned successful, the plaintiff took out these present proceedings and suspected conspiracy between the plaintiff and the 4^th defendant to injure Lucky Dragon.

127.  Mr Choi had tried to contact Chan Ka Wai but could not locate him.

128.  Lastly, Mr Choi stated that Lucky Dragon’s application to set aside the default judgment obtained by the plaintiff against Lucky Dragon was heard by Mr Justice Chung on 2 February 2007 and who granted Lucky Dragon’s application.  In so doing Mr Justice Chung accepted that Lucky Dragon was a bona fide purchaser without notice.

129.  The entirety of the evidence-in-chief of Mr Choi was what was contained in his witness statement when he adopted his witness statement as his evidence-in-chief.  That witness statement of Mr Choi was dated 5 June 2009.  There was no supplemental witness statement from Mr Choi and no further update to the contents in that witness statement of Mr Choi when he was giving his evidence-in-chief in the witness box.

THE FURTHER EVIDENCE FROM MR CHOI DISCLOSED ONLY DURING CROSS-EXAMINATION

130.  During the cross-examination of Mr Choi by counsel for the plaintiff, the following matters were, inter alia, disclosed or revealed for the first time in this matter.

131.  Firstly, that Ms Yeung had transferred all her shareholdings in Lucky Dragon to Mr Choi in November 2009.

132.  In this respect, when first asked in cross-examination whether Ms Yeung was still the majority shareholder of Lucky Dragon, Mr Choi’s anwer was that Ms Yeung had transferred “some” shares to him after he was appointed a director of Lucky Dragon in June 2009.  Only when asked for details as to how many shares Ms Yeung had transferred to him, that Mr Choi reluctantly admitted that Ms Yeung had transferred “all” of Lucky Dragon’s shares to him in November 2009.

133.  Mr Choi went on to say that he did not check whether the shares transferred to him by Ms Yeung represented the entire shareholding of Lucky Dragon or whether there were other registered shareholders as those were not important matters to him.  He did not remember how many shares were transferred to him and had never obtained any share certificates for the Lucky Dragon shares from Ms Yeung nor had he even asked Ms Yeung for the share certificates.

134.  When asked why this pertinent matter was not previously revealed to the plaintiff and to the court, Mr Choi answered that he considered such matter as being between him and Ms Yeung only. Mr Choi also said that in February 2011, just before this trial started, he had only informed the solicitors of Lucky Dragon that Ms Yeung had transferred to him the 5% shares in Lucky Dragon which had been promised to him by Ms Yeung previously but did not tell the solicitors that 100% of Lucky Dragon’s shares had been transferred to him back in November 2009.

135.  When Mr Choi was further cross-examined and confronted with the relevant Instrument of Transfer and Bought and Sold Notes (which were only disclosed upon the court’s order during the trial) Mr Choi had to further admit that the shares of Lucky Dragon were not transferred to him directly from Ms Yeung, but from one Zhang Gaimin whom Mr Choi said he did not know at all and, when he had asked, was told by Ms Yeung not to bother about the identity of such person.

136.  Secondly, it was also revealed for the first time when Mr Choi was being cross-examined that Ms Yeung had resigned as a director of Lucky Dragon on 15 June 2009 (the same day that Mr Choi was appointed a director of Lucky Dragon).

137.  From Lucky Dragon’s register of shareholders and directors which were retrieved from the Samoan agent of Lucky Dragon (and which had never been discovered by Lucky Dragon before the trial started) as a result of the court’s order made during this trial, it was revealed that :

(a)   Ms Yeung was initially the sole shareholder of Lucky Dragon, but all her shares were transferred to Zhang Gaimin on 15 June 2009, who then transferred all of the shares to Mr Choi on 18 November 2009.  Currently Mr Choi is the sole shareholder of Lucky Dragon; and

(b)   Ms Yeung and one Choi Ming Sun were appointed the first directors of Lucky Dragon on 9 May 2003.  They both resigned as directors on 15 June 2009 with Zhang Gaimin and Mr Choi appointed on the same day in their place.  Zhang Gaimin resigned as director on 18 November 2009 leaving only Mr Choi as director of Lucky Dragon.

138.  The identities of Zhang Gaimin and Choi Ming Sun remain unexplained.  However, it is the evidence of Mr Choi that Choi Ming Sun is in fact one of Wong Jing Li’s nominee directors of DIEC and DIFEC which is supported by the company search records produced by Lucky Dragon.

139.  The above information is to be looked at against the evidence of Mr Choi in cross-examination that all along, Ms Yeung had told him that she was the sole director and shareholder of Lucky Dragon.

140.  Thirdly, it was also revealed for the first time during the cross-examination of Mr Choi that Lucky Dragon has sold all its shares in CICL and CEL (which holds 60% of DIFEC and DIEC thus representing 60% interest in the Dalian Project) to the Jinan Company in April 2009.  Mr Choi further confirmed that after this sale Lucky Dragon has no further interest in the Dalian Project at all.

141.  Mr Choi further confirmed that this sale, although it took place in April 2009, had never been told to the solicitors acting for Lucky Dragon (this probably explains why when the case was opened by counsel for Lucky Dragon, there was absolutely no mention of this matter in counsel’s opening).

142.  In this respect, the evidence from Mr Choi was that there was a written agreement entered into between Lucky Dragon and the Jinan Company relating to the sale (“the 2009 Jinan Agreement”).  The terms were that Lucky Dragon agreed to transfer all its shares in CICL and CEL to the Jinan Company for RMB68 million payable in 4 tranches as follows :

(a)   RMB8 million in April 2009;

(b)   RMB10 million in December 2009;

(c)   RMB25 million in June 2010; and

(d)   RMB25 million in December 2010.

143.  The negotiations leading to the 2009 Jinan Agreement were conducted between Mr Choi and Li Yu Keung acting on behalf of Li Ping Mei but the 2009 Jinan Agreement was executed by Ms Yeung on behalf of Lucky Dragon.

144.  Mr Choi does not know who drafted the 2009 Jinan Agreement and he has not seen it before.  Copies of same were kept by Ms Yeung and Li Ping Mei.  Ms Yeung could not be contacted and from enquiries with Li Yu Keung, Mr Choi was told that Li Ping Mei would not agree to provide a copy of the 2009 Jinan Agreement to him.

145.  Lucky Dragon had not sought legal advice and no due diligence was conducted by the Jinan Company as regards the CICL and CEL shares which it purchased.

146.  As for the payment by the Jinan Company, Mr Choi’s evidence was that the first two tranches (totalling RMB18 million) had already been paid by the Jinan Company.  Such sums were remitted to the accounts of various PRC companies introduced by companies which Mr Choi had dealings with since Lucky Dragon had no bank account and he was told by Li Yu Keung that it was “inconvenient” for such large sums to be deposited into a personal bank account.

147.  When asked for the names of the PRC companies into whose accounts these sums were deposited Mr Choi said he could not remember the names of those companies but that those companies had issued receipts to the Jinan Company for the amounts so deposited and that he would have to go back to the PRC to obtain copies of such receipts before he could give the names of those companies.

148.  Mr Choi also said in evidence that the RMB18 million had not been divided between him and Ms Yeung, but if he needed money for his other business, he could ask those companies to remit funds to his designated accounts and to inform Ms Yeung for her to keep the relevant records.  However, Mr Choi cannot say how much of the RMB18 million has been used and how much of it remains nor does he know where the money is now kept save as to say that the money is kept in different bank accounts in the mainland and it is only Ms Yeung who has the relevant records.

149.  As for the outstanding balance of the RMB50 million, that entire amount has not yet been paid by the Jinan Company despite the lapse of the deadline for payment.  The reason for the non-payment was that Li Ping Mei had indicated that there was much debt relating to the Dalian Project which had not been settled and the Jinan Company would not be paying the balance as yet.  However, no legal action has been taken by Lucky Dragon to enforce payment.  Mr Choi expected Ms Yeung to have chased for payment and it was not necessary to take legal action in the PRC but to wait to see how things go.

150.  Mr Choi also admitted that no security had been obtained in respect of the outstanding payment from the Jinan Company and he does not know if the shares in CICL and CEL had indeed been transferred to the Jinan Company given the outstanding payment.

151.  Moreove, Mr Choi agreed that no valuation of the shares in CICL and CEL had been conducted before their sale.  He and Ms Yeung simply accepted the offer of RMB68 million from the Jinan Company as they considered that figure to be a substantial figure.  No negotiation on the price was conducted and no counter-offer made by Lucky Dragon.

152.  Mr Choi also said that the present action was not disclosed to the Jinan Company, despite the fact that he realized that the subject matter of the sale to the Jinan Company is the very subject matter of this action and he believed that the Jinan Company does not know of the present action.  Mr Choi did not think it necessary to inform the Jinan Company of this action as they wanted to avoid creating trouble and also because he was of the view that the Lucky Dragon Agreement was lawful and proper and that Lucky Dragon should be successful in the outcome of this action.  Mr Choi also added that he had never considered what would happen if Lucky Dragon was not successful in the present action.

153.  Fourthly, Mr Choi revealed for the first time during the cross-examination of him that pursuant to an oral agreement made with Qingdao Yuzhe, Qingdao Yuzhe had agreed to pay the RMB50 million Performance Payment to the 4^th defendant on behalf of Lucky Dragon.

154.  When asked why this was never mentioned in his witness statement, Mr Choi said he was never asked that in his witness statement.

155.  Fifthly, Mr Choi initially stated in cross-examination that according to his knowledge, prior to the transfer of CICL and CEL to the Jinan Company pursuant to the 2009 Jinan Agreement, Lucky Dragon had all along been the only shareholder of CICL and CEL. Subsequently, but still during his cross-examination, when Mr Choi knew that the offshore agent of CICL had made available the register of shareholders to both parties’ solicitors, Mr Choi changed his evidence and disclosed for the first time that in fact the shares in CICL and CEL had previously been transferred to Wong Jing Li in June 2003. This matter had never been mentioned previously by Mr Choi either in his witness statement or in his oral evidence.

ASSESSMENT OF THE EVIDENCE

156.  I have no hesitation in accepting as true the evidence given by Mr Maitland and Mr Shan called by the plaintiff.

157.  A large part of their evidence had not been disputed or challenged nor were they dented in the least during the very brief cross-examination of both of them.

158.  As for Mr Choi, I have no hesitation in rejecting totally all his evidence on material issues in this case.  Mr Choi has shown himself when in the witness box to be a most dishonest and evasive witness and who had no hesitation to lie to serve his own purpose or that of Lucky Dragon as can be seen not only from what has already been stated above as to the new matters which emerged for the first time during the cross-examination of Mr Choi but also from the following assessment of the evidence given by him and of the case generally of Lucky Dragon.

A.   The non-appearance of Ms Yeung and her distancing herself from Lucky Dragon

159.  Since the time Lucky Dragon succeeded in setting aside the default judgment against it herein up to February 2009, Ms Yeung had always been represented as the only person being involved in matters concerning Lucky Dragon.  It was only in February 2009 that Mr Choi came onto the scene, initially as a “manager” of Lucky Dragon and later representing himself as a “director” of Lucky Dragon.

160.  After Mr Choi had appeared in this litigation, Ms Yeung faded from further participation and all the interrogatories from the plaintiff, even when addressed to Ms Yeung, were answered by Mr Choi.

161.  The fading away of Ms Yeung from this litigation ultimately resulted in her failure to attend the trial although a witness statement from her had been filed.  She had also failed to attend an appointment made with the solicitors of Lucky Dragon to make and sign a Statement of Truth to her witness statement some time before the trial started.  Ms Yeung simply could not be contacted either by her solicitors or by Mr Choi since December 2010.  However, she had been told the trial dates both by the solicitors acting for Lucky Dragon and by Mr Choi.

162.  No explanation has been given for her non-attendance save that she could not be contacted at her usual phone number and despite the fact that according to Mr Choi, Ms Yeung still has a 50% interest in Lucky Dragon as agreed between them even though all the shares in Lucky Dragon have now been transferred to Mr Choi.

B.   Deliberate concealment of the actual shareholding and directorship of Lucky Dragon and the transfer of all the shares of Lucky Dragon to Mr Choi in November 2009

163.  This matter and the evidence given by Mr Choi has already been dealt with in some detail above.

164.  The evidence given by Mr Choi in cross-examination has also to be looked at in the light of the 3^rd Affirmation of Mr Choi dated 21 September 2009 in answer to interrogatories in which Mr Choi stated that he and Ms Yeung were the only directors of Lucky Dragon and that Ms Yeung was “about to resign as a director of Lucky Dragon” due to health reasons.  The register of directors of Lucky Dragon now shows that Ms Yeung had resigned as a director of Lucky Dragon on 15 June 2009, some 3 months before the 3^rd Affirmation of Mr Choi.

165.  Mr Choi could not explain what he had stated in his 3^rd Affirmation except to say that he had made a mistake.

166.  I have no hesitation in coming to the view that there has been a deliberate attempt by Mr Choi in concealing both the shareholdings and the directorship of Lucky Dragon in this matter.  The concealment of the actual shareholdings of Lucky Dragon was not only from the plaintiff and the court but also from the solicitors acting for Lucky Dragon.

C.   Purported sale by Dalian Jinshitan of its 40% in DIFEC and DIEC to Qingdao Yuzhe in June 2005

167.  In cross-examination, Mr Choi maintained that Lucky Dragon never purchased any shares in Dalian Jinshitan by the Lucky Dragon Agreement, but only 80% “interest” in Dalian Jinshitan.  However, Mr Choi was unable to explain how such “interest” in Dalian Jinshitan was purchased without purchasing its shares.

168.  When cross-examined as to the transfer of 40% of DIEC and DIFEC by Dalian Jinshitan to Qingdao Yuzhe in June 2005, Mr Choi said he was aware of the sale but had never seen any of the documents including the agreement dated 10 June 2005.

169.  Mr Choi also confirmed that Lucky Dragon had never received any part of the consideration of the sale despite Lucky Dragon being the owner of 80% interest in Dalian Jinshitan.

170.  According to the sale and purchase agreement (obtained by the plaintiff through the liquidators of the 1^st defendant), the consideration for the sale of 40% of DIEC was at RMB20 million and the consideration for the sale of 40% of DIFEC was at RMB26 million.

171.  Mr Choi also could not explain why the sale and purchase agreements were signed by Kwok Siu Wah on behalf of Dalian Jinshitan when, according to Mr Choi, Kwok Siu Wah was the person who had told him and Ms Yeung before the Lucky Dragon Agreement was signed that there was no need to purchase the interest of Dalian Jinshitan.

172.  The register of directors of CICL and CEL obtained from the offshore agent showed Ms Yeung and Choi Ming Sun to be the directors of CICL and CEL as at June 2005.  However, neither of them signed the documents for amendment of the joint venture agreements and bye-laws of DIEC and DIFEC consequent upon the sale.  Instead those documents were signed by Wong Jing Li on behalf of CICL and CEL.  No explanation has been given as to why that was so.

173.  The fact that 40% of the Dalian Project (which was acquired by Lucky Dragon under the Lucky Dragon Agreement) was transferred to Qingdao Yuzhe in June 2005 but that Lucky Dragon had not received any of the consideration at all plus the fact that there is no evidence that such consideration had in fact been paid by Qingdao Yuzhe further highlight the fact that Lucky Dragon was used as a vehicle to transfer the Dalian Project out of the reach of the plaintiff in the overall scheme to defraud the plaintiff.

174.  It is also quite incredible that Mr Choi had never even seen the documents in relation to the sale, which, from the documents appear to have been arranged by Wong Jing Li who even signed those relevant documents on behalf of CICL and CEL.

175.  There are therefore genuine doubts as to whether these sale agreements were in fact genuine commercial transactions.  Moreover, although Mr Choi said he knew of this sale, that was never stated by him in his witness statement.  The fact that Lucky Dragon had concealed this sale from the plaintiff further suggests its lack of good faith.

D.   Alleged sale by Lucky Dragon of shares in CICL and CEL to the Jinan Company in April 2009

176.  The evidence relating to this aspect of the case has already been stated above, as being one of matters which had not been revealed or disclosed by Lucky Dragon and/or Mr Choi either to the plaintiff, to the court or even to the solicitors of Lucky Dragon before the cross-examination of Mr Choi.

177.  In assessing the evidence relating to this aspect of the case, once again the evidence would suggest that the 2009 Jinan Agreement is not a genuine agreement and the circumstances in which the transaction took place goes against commercial sense, but is part and parcel of the scheme by the defendants to defraud the plaintiff or as an attempt to put those assets further beyond the reaches of the plaintiff.

178.  The fact that Lucky Dragon had concealed this sale from the plaintiff, and even from its own solicitors amply underlines its lack of good faith and as being a deliberate attempt to dissipate such assets to frustrate any judgment that the plaintiff may obtain in this matter.

E.   The alleged initial payment of HK$2 million in the Lucky Dragon Agreement

179.  The evidence of Mr Choi as to the manner in which the HK$2 million initial payment was made by Lucky Dragon is highly suspicious and incredible for the following reasons.

180.  Clause 3.3 of the Lucky Dragon Agreement stipulates that the purchase price must be paid by bank cheque or telegraphic transfer unless otherwise agreed to in writing by the parties.  In his evidence, Mr Choi confirmed there was no written agreement between Lucky Dragon and the 4^th defendant that the initial payment could be paid in cash and yet his evidence was that the initial payment was paid in cash.

181.  As to the purported receipts disclosed by Lucky Dragon, the first two tranches were paid on 9 April 2003 and 26 May 2003, both dates before the execution of the Lucky Dragon Agreement.  The first tranch was paid only one day after the incorporation of Lucky Dragon.  It is also inexplicable that the first receipt dated 9 April 2003 was issued to Lucky Dragon which had only been incorporated the day before and seemingly before it had been acquired by Ms Yeung since she had only paid the agent for Lucky Dragon on 9 May 2003.  Moreover, this does not sit well with Mr Choi’s evidence that Lucky Dragon was, when it was first acquired by Ms Yeung, intended for some coal mine business which did not materialize and so was later used for the Dalian Project.

182.  Both the first and second receipts also made reference to the “Share Sale and Purchase Agreement” (i.e. the Lucky Dragon Agreement) but which was only executed on 30 May 2003 according to Mr Choi.

183.  Mr Choi’s evidence as to how the three tranches of the initial payments came to be made is also peculiar and suspicious.

184.  Mr Choi said in evidence that Ms Yeung had taken some jewellery items from a pawn shop owned by a friend of Mr Choi and had sold those jewellery items to two of Ms Yeung’s acquaintances (Mr Lam Chung and Mr Yim Kwong Ying).  On each of the three days on which the three tranche payments were made, Ms Yeung had asked Mr Choi to collect the monies in cash due from these two trade debtors re the sale of the jewellery to them.  Ms Yeung had provided Mr Choi with a prepared receipt on each of the three occasions and instructed him to use the cash so collected by him to pay Chan Ka Wai on each of the three occasions directly in Shenzhen that amount stated in each receipt and to get Chan Ka Wai to sign on each respective receipt to acknowledge the payment.

185.  Even more surprising was that the monies collected in cash by Mr Choi from the two trade debtors were not monies which belonged to Ms Yeung, but should have been repaid to the friend of Mr Choi from whose pawn shop the items of jewellery were taken by Ms Yeung for sale.  Ultimately Mr Choi said in evidence that he had to pay back his friend from his own pocket the amounts representing the sale proceeds for those jewellery taken by Ms Yeung.

186.  In answer to interrogatories, Mr Choi had indicated that there were promissory notes in respect of the sale of the jewellery to these two trade debtors.  However, when asked in cross-examination as to the whereabouts of these promissory notes, Mr Choi said there were no documents in respect of the sale of the jewellery since the re-selling of jewellery in the Mainland was illegal.

187.  It is also strange to say the least that according to Mr Choi, he was given the receipts which had been prepared by Ms Yeung beforehand.  Those receipts bear the printed letterhead of the 4^th defendant. Mr Choi cannot explain how or why Ms Yeung would have the printed letterhead of the 4^th defendant or why Chan Ka Wai did not prepare the receipts himself.

188.  Moreover, the receipts indicate the amounts in HK dollars whereas RMB cash was paid over to Chan Ka Wai by Mr Choi.  Bearing in mind that the first two tranches were paid even before the Lucky Dragon Agreement was entered into, there is no good reason why the receipts for the first two tranches stated amounts in HK dollars rather than in RMB when RMB cash was in fact paid over.

189.  It is also peculiar that the evidence of Mr Choi was that when the RMB cash was collected by him each time from the two trade debtors he did not have to count the cash since according to Mr Choi the cash was bundled up in notes of RMB100 by the bank, each bundle containing exactly one hundred notes, nor did Chan Ka Wai need to count the cash for the same reason.  Yet when one looks at the receipted amounts in each of the three receipts, the amounts are stated in odd sums and not round figures.

190.  For the above reasons, the evidence given on this aspect of the case is not only suspicious and incredible but there must be grave doubts as to whether such purported payments to the 4^th defendant was in fact made or was otherwise genuine.

F.   The Performance Payment stipulated under the Lucky Dragon Agreement

191.  The evidence from Mr Choi was that the Performance Payment under the Lucky Dragon Agreement had never been paid by Lucky Dragon to the 4^th defendant and that the 4^th defendant had never chased Lucky Dragon for it.

192.  In answer to interrogatories, Mr Choi stated that the only reason why the Performance Payment has not been paid was that the plaintiff is challenging the validity and legality of the Lucky Dragon Agreement.

193.  This however is not a good reason why the 4^th defendant had not chased Lucky Dragon for payment of the Performance Payment.

194.  In cross-examination Mr Choi stated for the first time that under the oral agreement made between Qingdao Yuzhe and Lucky Dragon (by which Wong Jing Li agreed to co-operate with Lucky Dragon, take over the Dalian Project upon the terms of the Qingdao Agreements, share the proceeds with Lucky Dragon on a 60:40 basis and to take over the Dalian Liabilities in the Lucky Dragon Agreement) Qingdao Yuzhe had also agreed to pay the Performance Payment of RMB50 million to the 4^th defendant.

195.  This was never mentioned in Mr Choi’s witness statement which was made in June 2009 and when asked why, Mr Choi could only give the answer that he was not asked to do so.  That answer is a further instance of the vague and evasive answers given all too often by Mr Choi when cross-examined in this matter and was undoubtedly a deliberate attempt at not answering the question asked.

196.  When further asked whether Qingdao Yuzhe had in fact paid the Performance Payment to the 4^th defendant, Mr Choi said he did not know.  Not only does this answer contradicts the answer given by him in the interrogatories, but I find it wholly surprising that Mr Choi would not know one way or the other given that the Performance Payment was an obligation of Lucky Dragon under the Lucky Dragon Agreement.  Moreover, there are no documents coming from Lucky Dragon or from any other entities to show that Qingdao Yuzhe had paid the Performance Payment to the 4^th defendant.

197.  These answers and the lack of documentation showing payment of the Performance Payment further underline the lack of genuineness of not only the Performance Payment, but the entire Lucky Dragon Agreement.

G.   Lack of due diligence and failure to obtain independent legal advice

198.  Clause 8.3 of the Lucky Dragon Agreement expressly states that no due diligence was undertaken by Lucky Dragon in relation to CICL, CEL, Dalian Jinshitan, DIEC and DIFEC.

199.  Mr Choi was not even aware of this provision in the Lucky Dragon Agreement but agreed that Lucky Dragon did not conduct any inquiry or investigation into these companies the shares of which Lucky Dragon was purchasing from the 4^th defendant.

200.  Moreover, Mr Choi also accepted that no inquiry or investigation was conducted on the 4^th defendant either by Lucky Dragon, and Mr Choi did not even know the position of Chan Ka Wai in the 4^th defendant although all negotiations were conducted with Chan Ka Wai.

201.  No inquiry was made by Lucky Dragon as to the 4^th defendant’s interests in CICL, CEL and Dalian Jinshitan and nothing done to confirm or ascertain whether the Shares were indeed “free from encumbrances” as stated in Clause 2 of the Lucky Dragon Agreement.

202.  Nor was any investigation carried out to ascertain from whom or how the 4^th defendant had acquired the Dalian Land and the Shares.  Although Mr Choi in his witness statement stated that Chan Ka Wai had made mention of the 4^th defendant’s predecessor in title, however, no name was mentioned as to who that predecessor in title was and no checking made by Lucky Dragon to ascertain that predecessor in title.

203.  No background check was made by Lucky Dragon of CICL, CEL and Dalian Jinshitan to see if they actually held the 60% and 40% respectively of the shares in DIEC and DIFEC, and no background check was made of DIEC and DIFEC to ensure that they in fact did hold the title to the Dalian Land and/or had the Dalian Land Use Rights since neither Ms Yeung nor Mr Choi had seen the original land use right certificates before the Lucky Dragon Agreement was signed and that such certificates were, on the evidence of Mr Choi, only handed over to them by Chiu after the Lucky Dragon Agreement was signed.

204.  Litigation searches were not conducted on the 4^th defendant and its holding companies.  If done, Lucky Dragon may well have discovered the Victorian Proceedings.

205.  Nor was any financial due diligence conducted on the companies being purchased by Lucky Dragon despite Clause 8.1 of the Lucky Dragon Agreement stipulating that the 4^th defendant could not warrant that such companies were in good financial position.

206.  Nothing was done by Lucky Dragon to verify the alleged encumbrances on the Dalian Land and the outstanding taxes and risk of forfeiture despite the notices attached to the Lucky Dragon Agreement and/or to ascertain the genuineness of those notices.  Nor was any investigations carried out to ensure whether there may be other encumbrances or liabilities which had not been disclosed in respect of the Dalian Project.  Neither did Mr Choi ask to see the originals of those notices attached to the Lucky Dragon Agreement.

207.  No legal advice was sought or obtained by Lucky Dragon on any of the above matters before signing the Lucky Dragon Agreement.

208.  Mr Choi could only say that since it was Ms Yeung (but not him) who attended the solicitor’s office to sign the Lucky Dragon Agreement, he would expect that she would have been shown all the relevant documents before signing.

209.  However, there is no evidence from Ms Yeung in this respect.

210.  When the Lucky Dragon Agreement was signed in the office of Messrs Raymond Chan, Kenneth Yuen and Co., solicitors, a Letter of Indemnity and Release dated 30 May 2003 was given to the solicitors and signed respectively by Ms Yeung and Chan Ka Wai on behalf of respectively Lucky Dragon and the 4^th defendant. In that Letter of Indemnity and Release, the parties expressly acknowledged that although they had been advised to seek independent legal advice in relation to the Lucky Dragon Agreement, they have decided not to do so and engaged Messrs Raymond Chan, Kenneth Yuen and Co. to witness the execution of the Lucky Dragon Agreement only.

211.  The Lucky Dragon Agreement was not even drafted by Messrs Raymond Chan, Kenneth Yuen and Co.  All that was done by this firm of solicitors was to witness the execution of the Lucky Dragon Agreement.

212.  It was the evidence of Mr Choi that he had agreed with Ms Yeung that legal advice was “unnecessary”.

213.  Therefore the complete lack of any inquiry, investigation or due diligence carried out by Lucky Dragon, and the failure to obtain independent legal advice, given all the circumstances stated above, further point in the direction as to the lack of genuineness of the transaction, particularly where it involves a consideration of some RMB52 million and RMB38 million of liabilities undertaken by Lucky Dragon.

H.   Lucky Dragon investing in the Dalian Project before obtaining financial backing

214.  It is not in dispute that the Dalian Project was beyond the financial capabilities of Ms Yeung, Mr Choi and Lucky Dragon, whether individually or even jointly, and none of them had the financial means with which to undertake the Dalian Project on their own.

215.  In his witness statement, although Mr Choi did say that he and Ms Yeung were looking for a partner with strong financial background to inject funds to complete the project, in cross-examination he said they were looking for an investor to buy the whole project.  Given that there may be an inconsistency there, it is not a great inconsistency and is probably a matter of semantics.

216.  However, whether they were looking for a partner or a buyer, what is strange and incredible is the way they went about it. Nothing was done by either of them to secure a partner or a buyer before the Lucky Dragon Agreement was entered into bearing in mind that by the Lucky Dragon Agreement, Lucky Dragon was committed to a consideration of some RMB52 million and in addition to the Dalian Liabilities of some RMB38 million. Yet it was only after entering the Lucky Dragon Agreement that the two of them started to approach Wong Jing Li and Qingdao Yuzhe.

217.  At that time there was no guarantee that they would be able to find an interested investor to provide the source of funding, albeit that the evidence from Mr Choi was that if Wong Jing Li was not interested in the Dalian Project, then he had several other investors (including his uncle and Li Ka Shing) who he would approach.  This has to be viewed in the light of the difficulties facing the Dalian Land at the time, namely, the large amount of outstanding debts as well as the risk of repossession by the PRC authorities.

218.  It is therefore quite inconceivable that if the transaction was indeed a genuine one, Lucky Dragon would not have secured financial backing from a potential investor before entering into the Lucky Dragon Agreement.

I.   Purported transfer of CICL and CEL to Wong Jing Li in June 2003

219.  Reference had already been made above as to Mr Choi changing his evidence during cross-examination when he knew of the impending disclosure of the register of shareholders of CICL and CEL to the parties’ solicitors during the trial while he was under cross-examination and had to admit that previously the shares in CICL and CEL had been transferred to Wong Jing Li in 2003, something which had never been disclosed or mentioned by him either in his witness statement or at any other time before the trial of this matter.

220.  The register of shareholders of CICL and CEL showed that :

(1)   on 28 May 2003 the 4^th defendant transferred 1 share in each of CICL and CEL to Lucky Dragon;

(2)   on 29 May 2003, a further 999,999 shares in each of CICL and CEL were allotted and issued to Lucky Dragon;

(3)   on 6 June 2003, 133,333 shares (being 13.33%) in CICL and 866,666 shares (being 86.66%) in CEL were transferred from Lucky Dragon to Wong Jing Li and 133,333 shares (being 13.33%) in CEL were transferred to Excel Harvest Investment Ltd (“Excel Harvest”);

(4)   on 6 August 2003, 866,666 shares (being 86.66%) in CICL were transferred from Lucky Dragon to Excel Harvest;

(5)   on 8 August 2007, 999,999 shares of Wong Jing Li and Excel Harvest in CICL and CEL were forfeited (for failure to effect payment) and transferred back to Lucky Dragon; and

(6)   Lucky Dragon is therefore still currently recorded as the sole shareholder of CICL and CEL.

221.  The register of directors of CICL and CEL shows :

(1)   on 28 May 2003, Ms Yeung and Choi Ming Sun were appointed directors;

(2)   on 15 June 2009, Zhang Gaimin and Mr Choi were appointed directors;

(3)   on 29 March 2010 Ms Yeung and Choi Ming Sun ceased to be directors;

(4)   on 15 April 2010 Zhang Gaimin ceased to be a director; and

(5)   Mr Choi thus remains currently recorded as the sole director of CICL and CEL.

222.  Mr Choi said in evidence that the transfer of the shares in CICL and CEL to Wong Jing Li by Lucky Dragon was made and arranged by Ms Yeung because Wong Jing Li had agreed to provide all the funding for the Dalian Project.

223.  That however cannot be the case since the register shows that the transfer to Wong Jing Li was made 6 days after the Lucky Dragon Agreement but on Mr Choi’s evidence it was only after the signing of the Lucky Dragon Agreement that he contacted Wong Jing Li, met him in a hotel in Shenzhen, invited him to Hong Kong to entertain him including bringing Wong Jing Li to the gambling tables in Macau, spending some HK$5 to 6 million in entertaining Wong Jing Li before Wong Jing Li, after about a month or two, agreed to co-operate with Lucky Dragon on the Dalian Project by adhering to and complying with the terms of the Qingdao Agreements.

224.  A further curious feature is that on Mr Choi’s evidence, there was no written agreement for the transfer of the shares in CEL and CICL to Wong Jing Li and who had never paid any consideration for same to Lucky Dragon, except that Qingdao Yuzhe had agreed to take upon itself the funding for the Dalian Project

225.  Mr Choi also said he had never heard of Excel Harvest, but agreed that Lucky Dragon had transferred “all” its shares in CICL and CEL to Wong Jing Li after the Lucky Dragon Agreement was signed.  From that evidence of Mr Choi, it may well be inferred that Excel Harvest was a company either of Wong Jing Li or in his control.

226.  From that evidence of the share register, it is clear that within 6 days after signing the Lucky Dragon Agreement, 13.33% of CICL shares and all the shares of CEL were transferred by Lucky Dragon to Wong Jing Li and/or Excel Harvest and the rest of Lucky Dragon’s shareholding in CICL were transferred to Excel Harvest within 2 months of Lucky Dragon acquiring them.

227.  Mr Choi’s explanation was that they trusted Wong Jing Li, a person who they came to know for less than 2 months.  Even that cannot explain the transfer of the CICL shares to Wong Jing Li 6 days after the signing of the Lucky Dragon Agreement.

228.  The register of shareholders and directors of CICL and CEL shows Lucky Dragon to be the current sole shareholder of CICL and CEL and Mr Choi to be the sole director of both companies.  This does not sit well with the evidence of Mr Choi as to the alleged sale of the shares in CICL and CEL to the Jinan Company in April 2009 under the 2009 Jinan Agreement.  It would also mean, if the evidence of Mr Choi is to be believed, that the Jinan Company has already paid RMB18 million (which monies are now sitting in various accounts of some unknown PRC companies) but none of the CICL or CEL shares have as yet been transferred to the Jinan Company as can be seen from the register of shareholders.

229.  It is also curious that Ms Yeung and Choi Ming Sun has remained as directors of CICL and CEL up to 29 March 2010 when the evidence from Mr Choi was that all the shares of CICL and CEL had been sold to the Jinan Company since April 2009.

230.  Furthermore, Mr Choi himself was appointed director of CICL and CEL on 15 June 2009, some two months after the alleged sale of the CICL and CEL shares to the Jinan Company. That does not make any sense if such a sale to the Jinan Company was genuine.

231.  Mr Choi’s evidence that as far as he knew, Ms Yeung was the sole director of CICL and CEL prior to the sale to the Jinan Company and he did not know whether there had been any changes in the directorships of CICL and CEL after the sale to the Jinan Company is plainly untruthful given that Mr Choi was made a director of both companies in June 2009 and which must have involved him signing the relevant consent to act as director.

J.   Alleged co-operation between Lucky Dragon and Qingdao Yuzhe/Wong Jing Li

232.  Mr Choi’s evidence was that it was Chan Ka Wai who had first told him and Ms Yeung of Wong Jing Li and had showed them copies of the purported agreements entered into between DIEC and DIFEC and Qingdao Yuzhe in December 2002 (i.e. the Qingdao Agreements) alleged to have been signed by Chiu on behalf of DIEC and DIFEC and by Wong Jing Li on behalf of Qingdao Yuzhe.  Mr Choi had never seen the originals of the Qingdao Agreements nor had he asked to see them.

233.  According to Mr Choi, it was Wong Jing Li who told him that the Qingdao Agreements had been signed by Chiu on behalf of DIEC and DIFEC which Mr Choi simply believed.

234.  In cross-examination, Mr Choi accepted that he had no reason to think that Chiu had signed the Qingdao Agreements “on the instructions of the plaintiff” at the time when he was told these matters since he had not even heard of the plaintiff in 2003.  This is a retraction by Mr Choi of what is stated in his witness statement (paragraph 36 refers).

235.  As for the Qingdao Agreements, its terms do not seem to have been performed or adhered to by the parties.

236.  The authenticity and genuineness of the Qingdao Agreements are therefore highly questionable.

237.  Mr Choi came to meet Wong Jing Li some time in June 2003 on his own evidence.  He then invited Wong Jing Li to Hong Kong and entertained Wong Jing Li to great extent taking him to nightclubs, restaurants and the casino tables in Macau.

238.  Within two months or so, by August 2003, both Mr Choi and Ms Yeung had trusted Wong Jing Li to such an extent as to confer the entire control of DIEC and DIFEC and the Dalian Project to Wong Jing Li and his nominees.

239.  This was done without Lucky Dragon conducting any independent due diligence or inquiry on Wong Jing Li and Qingdao Yuzhe such as its directors, legal representatives or even its financial status.  All that was relied on by Lucky Dragon was a letter alleged to have been issued by the China Construction Bank in December 2002 and which purports to affirm that the parent company of Qingdao Yuzhe had good credit with the bank.  This letter was shown to Ms Yeung by Chan Ka Wai but Mr Choi in his evidence says he had never even seen the original.  The copy letter was not signed and Mr Choi cannot explain why that was so.  The letter was addressed to DIFEC and there is no reason why DIFEC should not have the original of that letter (and which Lucky Dragon will be able to get hold of after the Lucky Dragon Agreement was signed), but no original has been produced by Lucky Dragon.

240.  Once again the authenticity and genuineness of this letter from the China Construction Bank addressed to DIFEC is also highly questionable.

241.  As for the precise scope of the oral agreement/co-operation between Lucky Dragon and Qingdao Yuzhe, Mr Choi stated in his witness statement that the oral agreement come to with Wong Jing Li of Qingdao Yuzhe was to proceed with the Dalian Project and for Qingdao Yuzhe to perform its obligations under the Qingdao Agreements.

242.  In cross-examination, Mr Choi said that Lucky Dragon sold the whole project to Wong Jing Li in return for the promise by Wong Jing Li that Lucky Dragon will be entitled to its 40% of the proceeds of the sale of the properties to be constructed in the development and that the effect of the oral agreement was to the effect that DIEC/DIFEC and Qingdao Yuzhe would continue with their obligations under the Qingdao Agreements.

243.  Later on in his cross-examination, Mr Choi added that under the same oral agreement, Qingdao Yuzhe had also agreed to settle the RMB38 million Dalian Liabilities and to pay off the Performance Payment of RMB50 million to which Lucky Dragon was liable under the Lucky Dragon Agreement.  That part of his evidence relating the Qingdao Yuzhe paying off the Performance Payment of Lucky Dragon was never stated in his witness statement and was a completely new piece of evidence.

244.  When asked why the co-operation between Lucky Dragon and Qingdao Yuzhe was not put in written form, Mr Choi’s answer was that he trusted Wong Jing Li.  At the same time Mr Choi accepted that if Wong Jing Li/Qingdao reneged on the oral agreement, Lucky Dragon would have no remedy.

245.  Mr Choi has no evidence to show that the RMB38 million of Dalian Liabilities had been paid off by Qingdao Yuzhe, nor the RMB50 million Performance Payment.

246.  Even Mr Choi’s evidence that Qingdao Yuzhe had paid in RMB250 million into the Dalian Project was only what was told to him from time to time by Wong Jing Li.  Mr Choi has no documentary evidence which could substantiate that claim.  There are simply no records from Qingdao Yuzhe, DIEC and DIFEC of any capital injections/contributions made to the Dalian Project for the years 2003, 2004 and 2005.

247.  From what is available, it would appear that Qingdao Yuzhe is not a company of any substance.  It was incorporated in 1996 with a registered capital of RMB6 million and its accounts for 2003 showed a net asset of some RMB6 million.  However, it was deregistered by the Qingdao Industry and Commerce Department on 16 October 2005 for failure to submit the 2004 annual assessment required by PRC laws.

248.  Mr Choi had never seen nor asked to see the books of accounts of DIEC and DIFEC throughout the years but simply left everything to be managed and operated by Qingdao Yuzhe to the exclusion of Lucky Dragon.  In this respect, Mr Choi’s evidence was that he never felt the need to look at the books and accounts and added that in any case, there was no way he could have access to such books and accounts.

249.  There is no evidence that DIEC/DIFEC had performed or fulfilled any of their obligations imposed on them by the Qingdao Agreements and indeed, the evidence of Mr Choi was that these obligations were not performed by DIEC/DIFEC as far as he knew since DIEC/DIFEC had no other obligation save as to hand over the chops and seals and land use rights certificates to Qingdao Yuzhe and to allow Qingdao Yuzhe to deal with the Dalian Project.

250.  There is also no evidence that the obligations imposed by the Qingdao Agreements on Qingdao Yuzhe had been performed by it either.

251.  Mr Choi could not name any other person other than Wong Jing Li in Qingdao Yuzhe despite Mr Choi’s evidence that Qingdao Yuzhe was in charge of the Dalian Project from 2003 to 2006.

252.  Mr Choi was also unable to give the address of any office Qingdao Yuzhe had in Dalian saying that even DIEC and DIFEC had no office but that when he was in Dalian to deal with the Dalian Project, he would only go to the “work site” on the Dalian Land.

253.  Given the above, it is not only suspicious, but also highly questionable whether the Qingdao Agreements and subsequent oral agreement and alleged co-opearation between Lucky Dragon and Qingdao Yuzhe was genuine.

K.   Alleged co-operation between Lucky Drgon and the Jinan Company/Li Ping Mei

254.  The evidence of Mr Choi was that he had met Li Ping Mei at the funeral of Wong Jing Li when Wong Jing Li’s father introduced Mr Choi as his “working partner” to Li Ping Mei.  Later he was contacted by phone by Li Yu Keung, the right hand man of Li Ping Mei.  In his witness statement, Mr Choi stated that Li Yu Keung first contacted him in April or May 2007, but in cross-examination said it was in March 2007.  He had no idea how Li Yu Keung got his phone number.

255.  On the phone, Li Yu Keung told him that Li Ping Mei had previously invested RMB100 million into the Dalian Project and since Wong Jing Li had died and his father had ran away, he enquired from Mr Choi how to resolve the matter.

256.  No inquiries were conducted by Mr Choi as to whether Li Ping Mei or the Jinan Company had in fact invested the RMB100 million as claimed by Li Yu Keung.  Mr Choi said that he simply trusted what Li Yu Keung told him was true.

257.  Li Yu Keung then started negotiations with Mr Choi conducted during meetings between the two of them only.  Neither Li Ping Mei nor Ms Yeung attended those meetings, but Ms Yeung did discuss with Mr Choi by phone the matters being negotiated.

258.  Mr Choi did not check (apart from being so told by Li Yu Keung) to see that Li Yu Keung did in fact have the authority to represent Li Ping Mei or the Jinan Company in the negotiations and simply trusted what was said by Li Yu Keung.  Neither did Mr Choi verify Li Ping Mei’s position in the Jinan Company but simply believed from what he was told that Li Ping Mei was the owner of the Jinan Company.

259.  No credible explanation was given by Mr Choi as to why the agreement between Lucky Dragon and the Jinan Company effectively allowing the latter to take over the development of the Dalian Project was not made in writing, save to say he trusted Li Ping Mei and Li Yu Keung, when Mr Choi had only just come to be acquainted with both of them, to the extent that Lucky Dragon simply agreed to hand over control of DIEC and DIFEC and effectively the Dalian Project without any form of security whatsoever.

260.  It is also strange to say the least that having already been deceived once by Wong Jing Li and his father previously, Mr Choi should be so trusting of someone who is in effect a stranger to him, having met only once at a funeral.

261.  As against that evidence from Mr Choi that effective control of DIEC, DIFEC and the Dalian Project had been handed over to the Jinan Company and/or Li Ping Mei, there is nothing shown in the companies registers of DIEC and DIFEC to suggest that Li Ping Mei and/or the Jinan Company now effectively hold and control those two companies.  Nor has there been any change in the directors of DIEC and DIFEC since December 2005 shown on the companies registers.

262.  That above evidence readily point in the direction that the alleged co-operation between Lucky Dragon and the Jinan Company could not have been a genuine transaction.

L.   No benefit to Lucky Dragon from the Dalian Project since2003

263.  Mr Choi confirmed in his cross-examination that since the Lucky Dragon Agreement was entered into and up to the sale of CICL and CEL to the Jinan Company in April 2009, Lucky Dragon had obtained no benefit at all from the Dalian Project.

264.  Lucky Dragon has not seen any of the 40% proceeds of sale promised to it despite the completion of some 220-230 residential units since October 2004.

265.  The reason given by Mr Choi for not requesting or pushing Qingdao Yuzhe to pay to Lucky Dragon any part of the 40% proceeds of sale was that funds were needed for the further development of the Dalian Project and therefore Lucky Dragon had decided not to claim its entitlement until a later unspecified time.

266.  However, Mr Choi has no idea how much, if any, proceeds were received by Qingdao Yuzhe for the sale of the 220-230 units and cannot even remember if he had asked Wong Jing Li about it, but had never asked to see any receipts or records, only trusting that Wong Jing Li would keep the monies in DIEC and DIFEC for future distribution.

267.  In the same way, Mr Choi had never asked Li Ping Mei or the Jinan Company to account for the proceeds of such sale after they took over the Dalian Project.

268.  The above further highlight the lack of genuineness of Lucky Dragon’s alleged interest in the Dalian Project and its purported co-operation with Qingdao Yuzhe and also with the Jinan Company.

M.   Lucky Dragon’s motive in defending this action

269.  On Lucky Dragon’s case that since the shares in CICL and CEL had been sold to the Jinan Company in April 2009 and the shares in Dalian Jinshitan had been sold to Qingdao Yuzhe in June 2003, Lucky Dragon would not stand to benefit even if it succeeded in defending this action.  Such benefit could only be to the Jinan Company.

270.  Mr Choi was evasive when asked who paid the legal costs of Lucky Dragon.  He said that initially it was Ms Yeung, but after Ms Yeung faded away from this litigation, Mr Choi said he had no idea who paid, but expected it still to be Ms Yeung.  However, he says Ms Yeung has never asked him to share any part of the legal costs, although he is supposed to have a 50% interest in Lucky Dragon.

271.  Mr Choi also said in evidence he did not know the source of funds used to pay Lucky Dragon’s legal fees, and had no idea if such came from the Jinan Company, Chan Ka Wai or any other parties.

272.  Mr Choi could not say who had given instructions to the solicitors to engage the expert Dr Wong to prepare his Supplemental Report dated 8 February 2011 (at which time Ms Yeung could no longer be contacted or located by Mr Choi, or by the solicitors of Lucky Dragon).  Mr Choi could only say that he was not the one giving those instructions and added that he had not even heard of Dr Wong before or that Lucky Dragon had engaged an expert witness.

273.  Mr Choi further said in evidence that his role in these proceedings was only to give evidence, as told to him by Ms Yeung in early 2009, and not to give instructions to the solicitors of Lucky Dragon or to handle the litigation.  But when further cross-examined on this matter as to the time when Ms Yeung could not be located, Mr Choi then reluctantly said that then it would be he who would give instructions.

274.  This answer merely begs the question as to why Mr Choi said he did not know of the expert witness in valuation and why he has not even heard of Dr Wong or know of the supplemental report of Dr Wong commissioned just several days before the trial started.

275.  Even more startling is Mr Choi’s evidence that he did not know whether the solicitors for Lucky Dragon could contact Ms Yeung (when he had lost contact with her since December 2010) as the solicitors had never said to him that they were unable to contact her.

276.  The above further suggest that Lucky Dragon is defending this action for the benefit of some other party with whom they are intrinsically connected.

N.   Evidence connecting Ms Yeung and Lucky Dragon to other defendants and/or other parties involved

277.  From the register of directors of CICL and CEL it can be seen that at one time Man Kin Tam and Yuet Sim Noel Har were two of the directors of CICL and CEL.

278.  The residential address of both Man Kin Tam and Yuet Sim Noel Har were stated in the register of directors of CICL and CEL as “17/F, Flat F, III Island Place, North Point, Hong Kong” which is exactly the same address as that of Ms Yeung given by her in the annual returns of various companies in which she held directorships and shares in the past but which have now been wound up or dissolved.  These companies include Jetluxe Investment Ltd, Kaltrade Development Ltd, New Stone Ltd, Senibo Investment Ltd and Top Collection International Ltd.

279.  There is also evidence to show that Man Kin Tam and Yuet Sim Noel Har were directors of both the 1^st defendant and of CBA at the time when the Victorian Proceedings were ongoing.  This evidence can be found in the affidavit of Wayne William Kelcey dated 28 March 2003, the solicitor representing the 1^st and 2^nd defendants in the Victorian Proceedings, used in the Victorian Proceedings.

280.  Therefore the fact that Man Kin Tam and Yuet Sim Noel Har gave as their residential address the same address as that of Ms Yeung quite clearly shows that even during the time of the Victorian Proceedings Ms Yeung not only had connection with both of them, but very likely also had connection through them with the 1^st defendant and also CBA.

281.  Moreover, from the register of directors of CICL and CEL, the address given by Ms Yeung was “Suite 2302, 23^rd Floor, Great Eagle Centre, 23 Harbour Rd, Wanchai, Hong Kong” which is the same address given by Choi Ming Sun in the same register.

282.  That address at Suite 2302 of Great Eagle Centre was also the address given by Lucky Dragon as its address in the Lucky Dragon Agreement.

283.  Mr Choi’s evidence was that Choi Ming Sun was the nominee of Wong Jing Li.  How then is it even conceivable on the case and the evidence adduced by Lucky Dragon for Wong Jing Li’s nominee to be appointed as a director of CICL and CEL on 28 May 2003 (at the same time as Ms Yeung), two days before the Lucky Dragon Agreement was entered into which would be, on the case of Lucky Dragon, even before Ms Yeung and Mr Choi came to meet and to be acquainted with Wong Jing Li.  Even more surprising is the fact that Ms Yeung, Choi Ming Sun and Lucky Dragon all had the same address.

284.  When cross-examined on this, Mr Choi said he was not aware that Lucky Dragon had this address and in fact it did not have any office at all.

285.  This evidence would suggest that Ms Yeung was well acquainted with Wong Jing Li and/or his nominee Choi Ming Sun even before the Lucky Dragon Agreement was entered into.  If so, it would be further indication that the evidence of Mr Choi cannot be believed.

286.  It is also the evidence of Mr Choi that one Li Sum, whom he said he did not know personally, was one of Wong Jing Li’s nominee director on the board of DIEC and DIFEC.

287.  That name Li Sum appears as a shareholder and/or director in many companies in which Ms Yeung was also a shareholder or director.  These companies include Senibo Investment Ltd, Fu Wah Hotel Management Ltd, Jetluxe Investment Ltd, New Stone Ltd, and Weicheng International Incorporation Ltd.

288.  From this a strong inference can be drawn that Ms Yeung at least had business connections with persons who were associates/nominees of Wong Jing Li even prior to the execution of the Lucky Dragon Agreement.

289.  Given the above evidence as to the connection Ms Yeung had with those persons stated, it may not be so surprising that she deliberately evaded coming to court to give evidence on behalf of Lucky Dragon as she would likely be unable to explain away her connections with these people but may well strengthen the inference which can already be drawn on the available evidence.

290.  A further reason for Ms Yeung to have deliberately evaded coming to court was to enable Mr Choi to conveniently say that those documents which should have been with Lucky Dragon but has not been disclosed or discovered by it notwithstanding the numerous orders made against Lucky Dragon herein for discovery is being kept in the physical possession of Ms Yeung and which he could not get hold of because she cannot be contacted by him since December 2010.

VALUATION BY THE EXPERTS

291.  The plaintiff’s case was that the shares in CICL, CEL and Dalian Jinshitan (together representing 92% of the Dalian Project) were sold to Lucky Dragon by the 4^th defendant pursuant to the Lucky Dragon Agreement at a gross undervalue.  This was disputed by Lucky Dragon.

292.  In the circumstances, experts were instructed by the parties to give opinion evidence as to the value of the Dalian Land.

293.  The plaintiff’s expert, Mr Tse Wai Leung (“Mr Tse”), valued the Dalian Land at RMB251 million as at the valuation date of 28 May 2003.  On the other hand, the expert instructed by Lucky Dragon, Dr Wong Seung Fai (“Dr Wong”) valued the Dalian Land at HK$75 million.

294.  Mr Tse had used the Discounted Cash Flow Method, counter checked with the comparison method, whereas Dr Wong had used the comparison method counter checked with the Residual Method.

295.  The difference in the methods used by the two experts was not the main reason for their divergence in their valuation.  In fact, the unit price come to by the two experts are not far off from each other and are more or less the same.  Mr Tse arrived at the valuation of the unit price of RMB1,218/sq. metre whereas Dr Wong’s unit price valuation was RMB1,322/sq. metre.

296.  I therefore do not propose to go into any great detail on the difference in methodology used by the two experts seeing that their unit price valuation is not far off from each other and it must also be accepted that valuation of land is not and can never be an exact science.

297.  The main difference between the two experts which resulted in the great divergence in their ultimate valuation arose from the adoption of different plot ratios and gross floor areas (“GFA”) by each of them in coming to their ultimate valuation figure and it is this aspect of the case which separates the two experts in their respective opinion.

298.  Mr Tse had adopted a plot ratio of 0.47 and GFA of 206,000 sq. metres as stated in the developer’s sales brochure.

299.  Dr Wong on the other hand used a plot ratio of 0.15 being the plot ratio which was as stated in the land grant contract issued in 1996 (“the 1996 Land Contract”) and GFA of 59,908.6 sq. metres also stated in the 1996 Land Contract.

300.  Before proceeding further, it should at once be noted that both Mr Tse and Dr Wong, when they were both employees of Francis Lau & Co. (Surveyors) Ltd, had previously been engaged by CCH to conduct a valuation of the Dalian Land as at 12 June 1997 and had produced a joint report dated 18 June 1997 in which they jointly valued the Dalian Land at RMB480 million as at 12 June 1997.  That report was prepared for the sale under the SBS/CCR Agreement pursuant to which the plaintiff had sold the WIW shares in the 4^th defendant to the 1^st defendant. For the purpose of that joint report, both Mr Tse and Dr Wong did not adopt the figures of plot ratio 0.15 and GFA of about 60,000 sq. metres as stated in the 1996 Land Contract, but had assumed the GFA to be approximately 88,000 sq. metres.

301.  Coming back to their respective expert valuations given in this matter, Mr Tse stated in his supplemental report that he had noted that the maximum plot ratio stated in the 1996 Land Contract was 0.15, however he had adopted a higher plot ratio of 0.47 for his valuation.

302.  The reason given by Mr Tse for adopting the higher plot ratio of 0.47 was that in valuing a piece of land, the development potential of the land has to be taken into account.  In this respect, he had been shown drawings of the intended development by the plaintiff which drawings were based on a master development plan.  From those drawings based on the master development plan, Mr Tse was able to ascertain that a higher plot ratio and density than the limits stipulated in the 1996 Land Contract had been used.  The Annual Report 1998 of the plantiff also stated that a master plan for the development of the Dalian Project had been granted and approved by the Government in 1998 and which would comprise multi-use entertainment/hospitality buildings, medium to high rise service apartments, villas and fisherman’s wharf and commercial buildings.  From a combination of all of the above matters, Mr Tse took the view that the PRC Government had approved a master plan for the development of the Dalian Project which had overtaken and far exceeded the limitations originally imposed by the 1996 Land Contract.

303.  In this view, Mr Tse was reinforced when he visited the Dalian Land in April 2005 and obtained a sales brochure during that visit distributed by the developer in the sales office when it was rolling out the apartments of Phase 1 of the property development.  It was described in the sales brochure that the whole development of the Dalian Project has a total gross floor area of 206,000 sq. metres with a plot ratio of 0.47 and a density of 15.9%, all of which are higher than what was stated in the 1996 Land Contract.  From enquiries made on site, he was told by the sales representative that the construction work for Phase 1 commenced in 2004 and was completed in 2005.  Mr Tse took the view that the land conditions must have been altered in good time prior to the commencement of construction.

304.  On this basis therefore, Mr Tse adopted the plot ratio of 0.47 and the GFA of 206,000 sq. metres as stated in the sales brochure to prepare his valuation.

305.  As for Dr Wong, he had adhered to the figures given in the 1996 Land Contract, namely, plot ratio of 0.15 and GFA of about 60,000 sq. metres on the basis that there was no official approval document from the Land Bureau/Authority in Dalian City or Liaoning Province to show otherwise.  In this respect, Mr Tse accepts that he had not seen any official documents which would indicate the land conditions to have been changed from what was stated in the 1996 Land Contract, but added that in China such documents are not public documents (unlike the position in Hong Kong) and cannot be obtained from the Land Bureau by any extraneous party at will and that was why neither he nor Dr Wong could obtain such documents.

306.  Furthermore, Dr Wong criticized Mr Tse for relying and adopting the information on the sales brochure and the annual report of the developer as being assumptions which are unreasonable and unrealistic.

307.  However, in cross-examination, Dr Wong had to concede that many of the limitations imposed by the 1996 Land Contract, such as the height restriction of 8 metres for buildings, building density of less than 10% and the fact that villas were the main type of buildings that could be built under the 1996 Land Contract no longer held good in the light of the development that was actually carried out on the Dalian Land and for which he was able to see for himself during his visits to the site in February 2008 and January 2011.

308.  In coming to a decision on the great difference in the expert evidence the first thing that has to be determined is effectively whether Mr Tse was correct to have used the plot ratio of 0.47 or whether Dr Wong was correct to have used the plot ratio of 0.15 as the basis for their respective valuation.

309.  Dr Wong had rigidly stuck to the figures given in the 1996 Land Contract despite the fact that the actual development, at least of Phase 1, of the Dalian Land construction of which had been completed in 2005 had clearly indicated that those restrictions contained in the 1996 Land Contract had not been adhered to and from which he ought to have realized as Mr Tse did, that the restrictions contained in the 1996 Land Contract must have been either lifted or superceded or else were no longer applied in actual fact.

310.  The master development plan referred to in the Annual Report of 1998 of the developer which was said to have been approved by the government would have been a good indication and a sound basis as to how the conditions in the 1996 Land Contract had been superceded.

311.  Further and better evidence of that would have been found in the sales brochure obtained by Mr Tse in which it was stated that the plot ratio of the development was 0.47.  This too was brushed off by Dr Wong as being an unreasonable and unrealistic assumption.  However, when one takes account of the fact that the sales brochure was obtained by Mr Tse in April 2005, at a time when the construction in Phase 1 had already been completed and that the brochure at that time gives the plot ratio to be 0.47, then the evidence of Mr Tse to the effect that a developer would not dare to give a false figure for the plot ratio if that had not been already approved by the authorities else the developer would get into serious trouble with the authorities rings true and must be given proper weight.

312.  If further evidence is needed on this issue, a further piece of independent evidence which would support the basis used by Mr Tse in his valuation is that in clause 2 of the Qingdao Agreement dated 16 December 2002 mention is made that the total building area (of the Dalian Land) had been provisionally approved by the Planning Bureau to be 260,000 sq. metres.  The Qingdao Agreement also stated that the Dalian Land was valued at RMB200 million, a figure very close to the valuation given by Mr Tse.  This must have been known to Mr Choi as both these matters were stated by him in his witness statement.

313.  This further piece of evidence puts the matter quite beyond doubt that the plot ratio and the GFA used by Mr Tse was indeed the correct basis for the valuation.  It also supported the valuation given by Mr Tse.

314.  In failing to use the same basis as was used by Mr Tse, the valuation of Dr Wong suffers therefore from the defect of not having taken into proper account the development potential of the Dalian Land.

315.  For the above reasons therefore, I prefer the valuation of Mr Tse and reject that of Dr Wong.

LUCKY DRAGON’S PERSISTENT FAILURE AND REFUSAL TO PROVIDE RELEVANT DOCUMENTS

316.  Lucky Dragon had throughout the proceedings in this matter been evasive in disclosing relevant documents and this has led to the court having at different times throughout the proceedings to compel Lucky Dragon to answer interrogatories and to make discovery.

317.  At one point in time, Saunders J had to make an unless order dated 4 November 2009 that unless Lucky Dragon produced certain documents referred to in Lucky Dragon’s pleadings as well as the statements and affirmations of Mr Choi, Lucky Dragon would not be allowed to rely on those paragraphs of its pleadings and witness statements at trial.  Even this peremptory order had not been complied with by Lucky Dragon.

318.  Not only had Lucky Dragon failed to disclose relevant information and make discovery of documents to the plaintiff and to the court, but that, as already alluded above in this Judgment, Lucky Dragon had also kept its own solicitor in the dark as to very important and relevant matters, which matters only came to light when Mr Choi was in the witness box under cross-examination.

319.  Even during the trial in this matter, the plaintiff’s solicitors were able to obtain from the overseas agents of CICL, CEL and Lucky Dragon companies registry documents which ought to have been disclosed by Lucky Dragon well before trial.

320.  The only inference that can be drawn from the above matters as regards Lucky Dragon’s persistent failure to provide and disclose material and relevant information and documents is that such failure is deliberate on the part of Lucky Dragon.  Such deliberate concealment by Lucky Dragon is not only reminiscent of the conduct of the 1^st and 2^nd defendants in the Victorian Proceedings, but also suggest that Lucky Dragon is very much in collusion with the other defendants in this case in their attempt to defraud the plaintiff.

FINDING OF FACT

321.  On the available evidence before me, I have no hesitation in making the following findings in this matter :

(a)   Ms Yeung was, well before the Lucky Dragon Agreement was entered into, associated and acquainted with persons who were either interested or had the management and control of at least the 1^st defendant and CBA.  These persons would include Man Kin Tam and Yuet Sim Noel Har.  Ms Yeung was also associated and likely acquainted with Wong Jing Li, Choi Ming Sun and Li Sum even before the Lucky Dragon Agreement was signed;

(b)   during the currency of the Victorian Proceedings, and possibly even before the incorporation of Lucky Dragon, there was a scheme afoot, likely perpetrated between those persons controlling and managing the 1^st, 2^nd, 3^rd and 4^th defendants, to put the assets relating to the Dalian Project including the Dalian Land and the Dalian Land Use Rights out of the reaches of the plaintiff so as to undermine and/or defeat any judgment which the plaintiff may obtain in the Victorian Proceedings;

(c)   the incorporation of Lucky Dragon and the Lucky Dragon Agreement was in furtherance to and was part and parcel of that scheme and which must have been known to both Ms Yeung and Mr Choi since it would be quite inconceivable for the intitial conspirators to bring in an innocent third party into their unlawful scheme, but rather the conspirators would seek out a party who would play along with them in their unlawful activities and who would abide by their orders and instructions;

(e)   I do not accept the evidence from Lucky Dragon that HK$2 million initial payment was paid by it to Chan Ka Wai or the 4^th defendant upon the convoluted evidence given by Mr Choi on that aspect of the case;

(f)   on the evidence before me, I find that the Lucky Dragon Agreement was not an arm’s length bona fide commercial transaction entered into in good faith, but rather Lucky Dragon was used as a vehicle via the Lucky Dragon Agreement to channel off the entire interests and assets of the Dalian Project in an attempt to put those out of reach of the plaintiff;

(g)   in like manner, I also find that the alleged oral agreement between Lucky Dragon and Qingdao Yuzhe/Wong Jing Li entered into some time between June and August of 2003 not to be a genuine commercial transaction but again designed to put the assets of the Dalian Project even further out of the plaintiff’s reach in as short a time as possible after the Lucky Dragon Agreement; and

(i)   I also do not accept the evidence of Mr Choi that the 2009 Jinan Agreement was a genuine commercial transaction and wholly disbelieve the incredible evidence of Mr Choi that there is some RMB18 million sitting in various accounts of some unknown PRC companies held on behalf of Lucky Dragon as being the first two tranches of the payment under the 2009 Jinan Agreement.  I find that the 2009 Jinan Agreement to be a further part of the overall scheme in an attempt to further ensure that the assets of the Dalian Project are put beyond the reaches of the plaintiff.  However, nothing in the companies register of CICL, CEL, DIEC and DIFEC has indicated that the shares of those companies have as yet been transferred to the Jinan Company, despite the evidence from Mr Choi that the 2009 Jinan Agreement was concluded in April 2009.

CONCLUSION

322.  On the findings made above, it is not even necessary for me to make a specific finding that what was sold to Lucky Dragon pursuant to the Lucky Dragon Agreement was sold at a great undervalue, even though I had accepted the valuation given by Mr Tse and rejected that given by Dr Wong.

323.  On the findings made, I have no hesitation coming to the conclusion that the Lucky Dragon Agreement constitutes a disposition of the Shares by all the defendants herein including Lucky Dragon with intent to defraud the plaintiff being the creditor of the 1^st and 3^rd defendants for the purpose of section 60(1) of the Ordinance and that Lucky Dragon had conspired with the 1^st, 2^nd, 3^rd and 4^th defendants to injure the plaintiff.

324.  I reject the defence of Lucky Dragon that the Shares were disposed of for valuable consideration and in good faith or upon good consideration and in good faith and that Lucky Dragon, at the time of the disposition, had no notice of the intent to defraud the plaintiff.

325.  There will accordingly be judgment in favour of the plaintiff against Lucky Dragon.  The form of the order will be as follows :

(1)   a declaration that the Lucky Dragon Agreement constitutes a disposition of property by all defendants including Lucky Dragon with intent to defraud the plaintiff being the creditor of the 1^st and 3^rd defendants;

(2)   an Order that the Lucky Dragon Agreement and the purported sale and transfer of the Shares to Lucky Dragon be set aside;

(3)   Lucky Dragon do pay damages to the plaintiff in respect of its conspiracy with the 1^st to 4^th defendants to injure the plaintiff, such damages to be assessed by the Master, with interests at such rate and amount to be determined by the Master carrying out the assessment of damages; and

(4)   there will also be the following consequential orders :

(a)   Lucky Dragon do disclose to the plaintiff, by affirmation within 14 days from the date of this Judgment, whether it is still the legal and/or beneficial owner of the Shares or any part thereof;

(b)   If Lucky Dragon is still the legal and/or beneficial owner of the Shares or any part thereof, Lucky Dragon do take all necessary and reasonable steps to reinstate and/or restore the 4^th defendant as the legal and beneficial owner of the Shares within 28 days from the date of this Judgment;

(c)   if the Shares or any part thereof have been transferred by Lucky Dragon to another party, Lucky Dragon do disclose to the plaintiff, by affirmation within 14 days from the date of this Judgment, the details of such transfer(s), including the dates of such transfer(s), to whom such transfer(s) were made and the consideration for which such transfer(s) were made, and disclose to the plaintiff all relevant documents pertaining to and evidencing such transfer(s);

(d)   there be liberty to the plaintiff to apply to the Court for further and consequential directions to enable the plaintiff to be informed of the present ownership, whereabouts and status of the Shares and to enable steps to be taken to reinstate the 4^th defendant as the legal and beneficial owner of the Shares; and

(e)   the Injunction Order granted herein on 15 February 2011 shall continue until further order of the Court subject to sub-paragraph (c) above.

COSTS

326.  From all that has been said above of the conduct of Lucky Dragon in defending this action, that conduct of Lucky Dragon amounts to nothing less than an abuse of court’s process.

327.  There will accordingly be a costs order (nisi) that Lucky Dragon pays the plaintiff’s costs of this action, including all costs previously reserved, on an indemnity basis, to be taxed if not agreed.

Miss Sara Tong, instructed by Messrs Winston Chu & Co., for the Plaintiff

Mr Alvin Tsang, instructed by Messrs Dundons, for the 5^th Defendant

HCA 1294/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1294 OF 2005

----------------------

---------------------

----------------------

D E C I S I O N

----------------------

Background:

1.  At the Case Management Conference in this matter the Plaintiff, (China Construction), has taken out two interlocutory summonses:

(a) for an order pursuant to O 24 r 7 and r 10 RHC, for specific discovery/inspection of certain documents set out in a schedule attached; and

(b)    for an order pursuant to O 26 r 5(3) & 6(1) that the 5^th Defendant, (Lucky Dragon), answer certain interrogatories, failing which Lucky Dragon’s defence be struck out, and judgment be entered against Lucky Dragon.

2.  To a large extent there has been an agreement and the focus of the dispute is narrow.

3.  The background circumstances to the proceedings are set out in a decision of Poon J dated 22 January 2009.  I adopt paragraphs 3-13 of that decision as accurately setting out those circumstances.  I will deal only with those matters which are in dispute.

The inspection summons:

4.  China Construction seeks discovery of certain documents which have been referred to, either in the Further and Better Particulars of the Amended Defence of Lucky Dragon, or in a witness statement, or two affirmations made by Peter Choi Kin Kuen, (Mr Choi), for Lucky Dragon.

5.  In respect of those documents which Lucky Dragon does not agree to produce, Mr Tsang says that Lucky Dragon will “try to obtain them from third parties”.

6.  Ms Tong correctly points out that pursuant to O 24 rr 10 & 11 the Court has jurisdiction to order inspection of documents referred to in pleadings, affidavits and witness statements, notwithstanding that they may not be in possession, custody or power of the party in question.  The importance of the partial order inspection is dealt with in Zida Technologies Ltd v Tiga Technologies Ltd & Others [2001] 3 HKLRD 698.  There, Deputy Judge McCoy SC summarised the matter in these terms:

“However, the rationale for the jurisdiction is relevant to the formulation of a principled approach to the exercise of the underlying discretion.  The thrust of the rule was emphasised by Lindley LJ in Quilter v Heatley (1883) LR 23 Ch D 42 at p.50, namely that the intention was to provide the other party with the same advantage, just as if the document had been fully set out.  In short, one party could not use or rely upon the probative value of the document, yet simultaneously deny the other party the same forensic advantage.” (original emphasis)

7.  The obligation is on the party objecting to inspection is, by O 24 r 10(2), obliged, within four days after service of a notice under O 24 r 10(1), to serve on the party giving notice stating which of the documents he objects to produce and on what grounds.  No such notice has been given.  Instead, Mr Tsang referred me to an unrelated paragraph of an affidavit filed by Mr Choi in which it is asserted that some of the financial records of a certain company had been destroyed.  That assertion falls a long way short of the requirements of the notice required under r 10(2).

8.  The documents will be crucial in the trial.  If they are as alleged they may go to establish the genuineness of Lucky Dragon’s assertions in its defence.  It would be quite unfair to allow the matter to go to trial and to permit Lucky Dragon to rely upon documents as a crucial part of its defence, without having to produce those documents.

9.  Inspection is accordingly ordered.

The interrogatories summons:

10.  Lucky Dragon has agreed to answer all of the interrogatories save the ones dealt with below.

11.  I heard argument on each of the questions that were resisted.

12.  An overriding factor in my consideration of these interrogatories is the nature of these proceedings.  Central to China Construction’s allegations is an assertion that there has been at worst collusion, and at best association between the 1^st to 4^th Defendants, and Lucky Dragon.  In these circumstances as Poon J held, interrogatories which might otherwise be objectionable as being directed at obtaining the names of witnesses that Lucky Dragon might call become unobjectionable as going to the issue of ascertaining whether or not there is collusion or association.  They go also to ascertaining whether or not the agreement relied upon by Lucky Dragon by which it says it made its acquisition bona fide, for value and without notice is a genuine agreement.

13.  My ruling is as follows:

Question 1:  In the context of this case this question, otherwise objectionable for the reasons contained in § 26/4/20 Hong Kong Civil Procedure 2009, is, for the reasons given in paragraph 12 above, proper and must be answered.

Question 5(2):    The issue being whether or not the agreement is genuine, and having regard to the very late disclosure of the involvement of Mr Choi, China Construction is entitled to know the exact date of issue of the bonus shares.  The statement made in the affidavit relied upon in objection refers only to the general period at which there was an agreement that Mr Choi should receive bonus shares, not the exact date upon which they were allegedly issued.  The question is proper and must be answered.

Question 8(2):    In the course of argument, Mr Tsang said that Lucky Dragon relied upon the agreement is being enforceable.  That statement being made in Court, there is no reason why Lucky Dragon should not affirmed that position by affidavit.  If Lucky Dragon asserts that the agreement is not enforceable it must state the grounds upon which it relies for that assertion.  The question is proper and must be answered.

Questions 10, 11 & 20:    The objection raised was that if Lucky Dragon cannot be required to ask for information from third parties, China Construction should not be able to ask either whether it is possible to obtain the information from third parties, or whether the information has been obtained.  The questions go again to the veracity of the allegation that Lucky Dragon has been excluded from the operation of the joint-venture.  They go also to Lucky Dragon’s bona fides and involvement and role in the project.  Answering these questions will save time and cost at trial.  The questions are proper and must be answered.

Question 23 (1): For the reasons set out in paragraph 12 above this question is proper and must be answered.

Question 26:   The assertion that this question has been answered in Mr Choi’s witness statement is not a satisfactory response.  The answer is ambiguous, and Lucky Dragon must clearly state its position in relation to the financing.  Lucky Dragon has purportedly taken on a liability in excess of RMB38 million, and its arrangements and ability to finance the project are directly relevant to the genuineness of the agreement.  The questions are proper and must be answered.

Question 34:  The question is not hypothetical as argued.  Mr Choi does not contend that Lucky Dragon possessed sufficient finance to complete the project without a partner, but it approached the Qingdao Company after the execution of the agreement by which time it had undertaken the liabilities.  In those circumstances it ought to explain prior to trial, in order to save time and cost, who the other investors were they intended to approach.  The question is proper and must be answered.

Question 40(2):  While it is arguable that the expression “at all” might extend to constitute a statement that Lucky Dragon has received no other benefit, the matter ought to be clarified so that it is beyond doubt.  The answer in paragraph 32 of Mr Choi’s witness statement refers only to the “sale proceeds”, and not to any other benefit that Lucky Dragon might have received in place of actual sale proceeds.  The question is proper and must be answered.

Question 44(2):  This question is relevant both in relation to the genuineness of the agreement, and with that, whether Lucky Dragon’s purported participation in the project is genuine or a sham, and to ascertain the real reason for the purported involvement of Li Ping Mei in the project.  The use of the expression “chaos” in Mr Choi’s affidavit is ambivalent and ought to be clarified.  The question is proper and must be answered.

Question 45:  The use of the expression “on the instructions of the Plaintiff” is, in the circumstances ambivalent.  Mr Tsang clarified the matter orally in argument by saying that Lucky Dragon acted on the instructions of Mr Chiu.  In those circumstances Lucky Dragon must answer the question.

Costs:

14.  Ms Tong sought costs forthwith.  This is the second occasion on which China Construction had to come to court on the question of discovery/question/interrogatories.  They have succeeded entirely.  It was only after the close of business two clear days before the hearing that Lucky Dragon conceded the substantial part of the requests contained in the two summonses.  No reason was offered why they did not respond earlier.  Costs of preparation had already been incurred.

15.  This is a plain case for an order for costs forthwith.

16.  There will accordingly be ordered in directions in terms of paragraph 15(1)-(8) of Ms Tong’s supplemental skeleton, save that the order for costs will be an order nisi that Lucky Dragon pay forthwith China Construction’s costs of an occasion by the Discovery Summons and Interrogatories Summons, including the costs of the hearing on 27 August 2009, to be taxed on the party and party basis if not agreed.

HCA1294/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1294 OF 2005

--------------------------

-------------------------

----------------------

DECISION

----------------------

Applications

1. The plaintiff served a set of interrogatories on the 5^th defendant, who only answered some of them.  Dissatisfied, the plaintiff applied for an order that unless the 5^th defendant do answer the remainder, its defence be struck out and the plaintiff be at liberty to enter judgment.  Separately, the plaintiff applied for further and better particulars of the 5^th defendant’s amended defence.

2. The plaintiff’s claims against the 5^th defendant arose in this way.

Background

3. At all material times, the plaintiff owned 90% of the shares in the 4^th defendant, which through various companies in the Mainland (“the Mainland Companies”) held the land use rights in a substantial piece of land in Dalian (“the Rights” and “the Land” respectively.)  By an agreement dated 26 June 1997 (“the Agreement”), the plaintiff agreed to sell to the 1^st defendant its shares in the 4^th defendant (“the WIW Shares”) for AUS$46,500,760, payable in four tranches between July 1997 and December 2000.

4. Pursuant to the 1^st defendant’s instruction, the plaintiff transferred the WIW Shares to the 2^nd defendant as its nominee.  In around November 1997, the 2^nd defendant acquired 90% of the shares in the 3^rd defendant whereupon the 2^nd defendant transferred the WIW Shares to the 3^rd defendant.  In around January 1998, the 3^rd defendant acquired the remaining 10% of the shares in the 4^th defendant and became its sole owner.

5. The 1^st defendant paid the plaintiff AUS$500,760, being first tranch of the AUS$46,500,760 under the Agreement but failed to make any further payment.  The 1^st and 2^nd defendants also refused to return the WIW Shares to the plaintiff.  In November 2001, the plaintiff commenced proceedings in the Victoria Supreme Court, Australia, claiming for damages for breach of the Agreement or return of the WIW Shares.

6. It is the plaintiff’s case that during the aforesaid proceedings, the 1^st and 2^nd defendants expressly or impliedly represented to the plaintiff that they still indirectly owned and controlled the Rights and the Land and that they intended to continue to do so.  However, without the plaintiff’s knowledge, the holding company of the 1^st defendant sold its entire shareholding in the 1^st defendant to one Central Business Asia Limited for AUS$500,000 in about February 2003.  The 1^st to 3^rd defendants procured the 4^th defendant to enter into an agreement in about April or May 2003 (“the Lucky Dragon Agreement”) whereby the 4^th defendant sold all its interests in the Mainland Companies (“the Shares”) to the 5^th defendant.  The 5^th defendant thereby obtained the ownership and control of the Rights and the Land.  Under the Lucky Dragon Agreement, the 5^th defendant agreed to pay the 4^th defendant an initial sum of HK$2 million, which it subsequently did, and a performance payment as set out in Schedule 2 to the Lucky Dragon Agreement (“Performance Payment”).  The plaintiff only became aware of the Lucky Dragon Agreement and the purported sale of the Shares in about September 2003.

7. In March 2004, the plaintiff obtained judgment against the 1^st defendant in the Victoria Supreme Court for AUS$46 million.  The 1^st defendant failed to pay and was then wound up.  The judgment remains an empty one to-date.

8. In July 2005, the plaintiff commenced the present proceedings against the defendants.  It obtained default judgment against the 1^st to 4^th defendants, who did not file any acknowledgement of service.  The plaintiff also obtained default judgment against the 5^th defendant but it was later set aside.

The plaintiff’s claims against the 5^th defendant

9. The plaintiff sought to impugn the Lucky Dragon Agreement under section 60 of the Conveyancing and Property Ordinance, Cap.219 (“the Ordinance”) on the basis that the Lucky Dragon Agreement was entered into with intent to defraud the plaintiff as a creditor of the 1^st defendant.  The plaintiff pleaded thus :

“Lucky Dragon Agreement to be impugned

44.  The Plaintiff is and was, at all material times, a creditor of the 1^st Defendant by virtue of the outstanding sums due from it to the Plaintiff pursuant to the CCR/SBS Share Sale Agreement and, since 26 March 2004, by virtue of the Judgment which remains unsatisfied.  

45.  In addition, the Plaintiff is and was, at all material times, a creditor of the 3^rd Defendant by reason of a construction loan in the sum of US$7,300,000.00 that the Plaintiff provided to the 3rd Defendant between June 1997 and September 1998 at the direction and nomination of the 1^st Defendant pursuant to Clause 2.3 of the CCR/SBS Share Sale Agreement.  

46.  The 4^th Defendant is and was a result of the matters pleaded in paragraphs 9 to 15 above a subsidiary of the 1^st, 2^nd and 3^rd Defendant and under their control and direction.  Further, at the time of the Lucky Dragon Agreement, the 1^st, 2^nd and 4^th Defendants had at least one common director, namely, Chan Ka Wai who signed the Lucky Dragon Agreement for and on behalf of the 4^th Defendant. 

47.  The Lucky Dragon Agreement and the transfer of the Shares by the 4^th Defendant to the 5^th Defendant purportedly pursuant thereto were procured by the 1^st to 3^rd Defendants and entered into and effected by the 4^th Defendant with intent to defraud the Plaintiff as a creditor of the 1^st Defendant. 

PARTICULARS

….

48.  By reason of the matters aforesaid, the Lucky Dragon Agreement was procured by the 1^st to 3^rd Defendants and entered into by the 4th Defendant with the intention of putting the 1^st and 3^rd Defendants’ assets or the value of their assets out of the reach of the Plaintiff. 

49.  As a result of the matters pleaded above, the Plaintiff has been unable to obtain payment or satisfaction of the Judgment Sum or any part thereof from the 1^st Defendant. 

50.  Further, the 5^th Defendant had at all material times actual or constructive notice that the Lucky Dragon Agreement was procured by the 1^st to 3^rd Defendants and entered into by the 4^th Defendant with the intention of defrauding or evading the 1^st and 3^rd Defendants’ liabilities to the Plaintiff. 

PARTICULARS

(1)   The Plaintiff contends that such notice is to be inferred from the fact that the purported sale of the Shares pursuant to the Lucky Dragon Agreement to the 5^th Defendant was at an undervalue and that there was no commercial justification for the terms of the Lucky Dragon Agreement.  The market value of the Dalian Land (in a cleared site state) as of May 2003 was RMB 251 million whereas the consideration under the Lucky Dragon Agreement was, at most, HK$52 million.  

(2)   The 5^th Defendant had actual notice of the Victorian Proceedings which were referred to in the Lucky Dragon Agreement. 

(3)   Despite being advised to obtain independent legal advice, both the 4^th and 5^th Defendants insisted on executing the Lucky Dragon Agreement without obtaining any prior independent legal advice. 

50A. Further to paragraph 50, the Plaintiff will ask the Court to find and/or infer that :-

(i)           The 5^th Defendant is and at all material times was not a company of any substance;

(ii)   the ostensible owner/controller of the 5^th Defendant is and was at all material times not a person of any substance either;

(iii)  the purported Mainland joint venture partner of the 5^th Defendant in developing the Dalian Land was not an entity of any substance either and had not injected any capital into the development;

(iv)  the ostensible owner/controller of the 5^th Defendant agreed with the 1^st to 4^th Defendants to procure the incorporation of the 5^th Defendant and procure the 5^th Defendant to enter into the Lucky Dragon Agreement with a view to frustrating the Plaintiff’s efforts to recover its claim in the Victorian Proceedings and with a view that after transfer of the Shares to the 5^th Defendant, the 5^th Defendant would abide by the orders, wishes or instructions of the 1^st to 4^th Defendants in relation to the Shares; and

(v)   the signing and purported making the Lucky Dragon Agreement was not preceded by any negotiations between the 4^th and the 5^th Defendants.

Prior to the discovery and/or interrogatories, the best particulars that the Plaintiff can give are as follows :-

PARTICULARS

(1)    The 5^th Defendant is and was at all material times not a company of any substance.

         (a)     The 5^th Defendant was only acquired from an offshore agent known as TrustNet Group in around April 2003 as a shelf company incorporated in Western Samoa.  It had no pre-existing business or track record.

         (b)     The 5^th Defendant was subsequently dissolved and struck off the Register of International and Foreign Companies (the ‘Register’) during the period between 18 February 2005 and 28 July 2005 by reason of non-payment of Government fees.

         (c)     It was only upon the application by the Plaintiff pursuant to section 197(6) of the International Companies Act 1987 that the dissolution of the 5^th Defendant was declared void and the 5^th Defendant was restored on the Register by Order of the Supreme Court of Samoa dated 29 July 2005.

(2)    Ms. Shirley Yeung (‘Yeung’), being a shareholder and director of the 5^th Defendant and the ostensible owner/controller of the 5^th Defendant, is and was not a person of any substance either and not in a position to finance a multi-million venture such as the development of the Dalian Land.  The best particulars that the Plaintiff can presently give prior to discovery and/or interrogatories are as follows :-

         (a)     Yeung had previously been a director and/or shareholder of the following 8 companies incorporated in Hong Kong, all of which have either been dissolved or would up by the Court of (the ‘Companies’).

                  (i)      Weichang International Incorporation Limited (wound up by order of the Court dated 22 September 2004 on the ground of insolvency).

                  (ii)     Fuwah Hotel Management (H.K.) Company Limited (dissolved).

                  (iii)     Galaxy Trade Limited (dissolved).

                  (iv)    Jetlux Investment Limited (dissolved).

                  (v)     Katrade Development Limited (dissolved).

                  (vi)    New Stone Limited (dissolved).

                  (vii)    Senibo Investment Limited (dissolved).

(viii)      Top Collection International Limited (dissolved).

(b)     She has not been a shareholder or director of any Hong Kong company since 2001.  She has not been a partner or sole proprietor of any firm or business in Hong Kong since 1987.

(c)     Her last known residence in Hong Kong was Flat F, 17^th Floor, Island Place III, Tanner Road, Hong Kong, a rented property of around 600 to 700 sq ft. and with a current rateable value of HK$120,360.

(d)     She has not owned any landed property in Hong Kong since 1990.

(3)    The purported joint venture partner of the 5^th Defendant in the development of the Dalian Project (as disclosed by the 5^th Defendant in these proceedings), namely, Qingdao Yuzhe Property Development Company Limited (‘Qingdao Company’) does not have and never had the financial capability to make capital injections/contributions to the Dalian Project, and in fact never made any such injections/contributions.  The best particulars that the Plaintiff can presently give prior to discovery and/or interrogatories are as follows :-

(a)     Qingdao Company was incorporated in the People’s Republic of China in October 1996 with a registered capital of RMB 6 million.

(b)     According to the accounts of Qingdao Company for 2003, the company had net assets of approximately RMB 6 million, but with no record of any long term investments.

(c)     There are no records in the accounts of Qingdao Company for the years 2003, 2004 and 2005 of any capital injections/contributions to the Dalian Project.

(d)          Qingdao Company was deregistered by the Qingdao Industry and Commerce Department on 16 October 2005 for failure to submit the 2004 annual assessment required by the relevant company laws of the People’s Republic of China.

(4)    The Plaintiff repeats all the matters pleaded in paragraphs 1 to 49 above against the 5^th Defendant.  The Plaintiff will contend that, having resorted to such conduct of deception and deliberate concealment as pleaded therein :-

(a)     it is inherently improbable that the 1^st to 4^th Defendants would procure that the Shares be transferred merely to an innocent third party; and

(b)     it is inherently more probable that they would procure the transfer of the Shares to a party who had agreed to abide by their orders, wishes or instructions in relation to the Shares so that, although the 4^th Defendant had ostensibly been divested of the Shares (and the Judgment would become an empty one) the 1^st to 4^th Defendants would continue to enjoy the benefit of the Shares.

51.    In the premises, the Lucky Dragon Agreement is voidable by virtue of section 60 of [the Ordinance] and ought to be set aside on the basis that the purported sale and transfer of the Shares pursuant thereto constituted a disposition of property by the 1^st to 4^th Defendants with intent to defraud creditors.”

10. The plaintiff also pleaded that the 5^th defendant had not paid the Performance Payment.

11. The plaintiff further relied on conspiracy which, for present purpose, has no particular relevance.

The 5^th defendant’s amended defence

12. In the amended defence, the 5^th defendant did not admit that it had not paid the Performance Payment : paragraph 9.  It then pleaded that it did not have any notice of the proceedings in Victoria : paragraph 12(i).  It went on to plead in paragraph 12(ii) that the Lucky Dragon Agreement was not “conducted” at an undervalue and there was a justification from the 5^th defendant’s point of view for entering into it.  The following particulars were supplied :

(1)     The Lucky Dragon Agreement was “conducted” in or around April or May 2003 during the SARS crises : sub-paragraph (a).

(2)     The project in question was dormant at the time the 5^th defendant had entered into the Lucky Dragon Agreement and construction works had been suspended for several years prior to 2003 : sub-paragraph (b).

(3)     The 5^th defendant had to invest around RMB50 million as consultants and architects fees to complete a comprehensive overall plan of the project : sub-paragraph (c).

(4)     Recital D of the Lucky Dragon Agreement provided that “Both parties fully understand the risk of the assets, being [the Land], owned by subsidiaries of the Vendor prior to this Agreement could be forfeited by the Chinese Government due to the delay in development and due to breaching the Regulations and Law in China” : sub-paragraph (e).

(5)     Clause 5.1 of the Lucky Dragon Agreement stipulated that the 5^th defendant was to undertake to make payments on behalf of the Vendor of all liabilities which included, inter alia, Judgment entered by the City of Dalian Intermediate People’s Court as against a subsidiary of the 4^th defendant for RMB21,360,478.55 : sub-paragraph (f).

13. In paragraph 13 of the amended defence, the 5^th defendant did not admit the matters pleaded in paragraph 50A of the amended statement of claim.  It further pleaded that the 8 companies particularized in paragraph 50A(2)(a) of the amended statement of claim were either single purpose corporate vehicles that had served their purposes (and were consequently dissolved) and/or were wound upon sound commercial decisions.

Section 60(3) of the Ordinance

14. Before proceeding further, it is important to bear in mind that it is the 5^th defendant’s case, though not expressly pleaded, that section 60(3) of the Ordinance applied. 

15. Section 60(3) provides :

“(3)      This section does not extend to any estate or interest in property disposed of for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the disposition, notice of the intent to defraud creditors.”

By relying on section 60(3), the 5^th defendant needs to establish :

(1)     the Lucky Dragon Agreement was for valuable consideration; and

(2)     the 5^th defendant was acting in good faith without notice of the alleged intent to defraud the plaintiff when it entered into the Lucky Dragon Agreement.

16. With this in mind, I first deal with the application for further and better particulars.

Further and better particulars

17. The plaintiff sought further and better particulars of the paragraphs of the amended defence as identified above.  A total of 8 requests were raised.

18. Request 1 relates to the non-admission in paragraph 9 that the 5^th defendant had not paid the Performance Payment.  Plainly, the non-admission is pregnant with an affirmative averment that it had paid the Performance Payment.  It must provide the particulars sought.

19. Request 2 deals with the plea in paragraph 12(ii) that the Agreement was not “conducted” at an undervalue.  The plaintiff wants to know what the 5^th defendant will contend to be the market value of the Land at the time of the Lucky Dragon Agreement.  As the 5^th defendant has to establish that the Lucky Dragon Agreement was for valuable consideration, this request is proper and must be answered.

20. Request 3 seeks a clarification of the word “conducted” used in paragraph 12(ii)(a) of the amended defence and particulars rested on the basis that the word is a mistake for “concluded”.  This again is a proper request and must be answered.

21. Request 4 concerns the plea in paragraph 12(ii)(b).  The plaintiff first seeks the precise time when the 5^th defendant had entered into the Lucky Dragon Agreement.  As paragraph 12(ii)(a) and (b) now stand, it is not clear if the time when the Lucky Dragon Agreement was “conducted” is also the time when the 5^th defendant entered into the same.  This must be clarified.  The plaintiff then asks the 5^th defendant to state the number of years prior to 2003 that the construction works had been suspended.  I think the duration of suspension may have an impact on the value of the project in question, which bears on the question if the Lucky Dragon Agreement was at an undervalue or for valuable consideration.  This must be answered.

22. Request 5 asks if the 5^th defendant had in fact invested around RMB50 million as pleaded in paragraph 12(ii)(c).  Mr Coleman, SC, for the 5^th defendant, agreed (and rightly so in my view) that the particulars sought would be provided.  (According to Mr Coleman, the 5^th defendant had in fact invested the sum into the project.)

23. Request 6 deals with the reference to Recital D of the Lucky Dragon Agreement in paragraph 12(ii)(e).  The plaintiff wants to know if it is the 5^th defendant’s case that (a) there was in fact delay in the development of the project and if so, the consequential particulars; and (b) there had in fact been breach of the “Regulations and Law in China” and if so, the particulars of the same.  In my view, whether there was in fact delay and breach of the statutory provisions are relevant to the value of the project, which in turn impacts on the value of the Lucky Dragon Agreement.  The particulars sought must be provided.

24. Request 7 first asks the 5^th defendant to state its case on the words “inter alia” used in paragraph 12(ii)(f).  Mr Coleman agreed to provide the particulars sought.  It then seeks particulars of the “Judgment” referred to in the same paragraph.  Mr Coleman said that a copy of the judgment concerned had already been attached to the Lucky Dragon Agreement.  The request is therefore unnecessary.  With respect, I disagree.  I think the plaintiff is quite entitled to know on the 5^th defendant’s pleaded case what exactly the “Judgment” is.  The particulars must be provided.

25. Finally, request 8 first deals with the non-admission in paragraph 13 of the amended defence.  The non-admission is again pregnant with affirmatives.  The 5^th defendant must provide the particulars sought.  Request 8 then seeks particulars of the 8 companies as to (a) which was single purpose vehicle that had served their purpose, the purpose in question and how that single purpose had been served; and (b) which was wound up for sound commercial decisions and particulars of the decisions.  All these requests relate to the question if Shirley Yeung, the ostensible owner/controller of the 5^th defendant, was a person of means who was capable of financing the project, which is relevant to the question if the Lucky Dragon Agreement was entered into with good faith.  The requests are proper and must be answered.

26. For the above reasons, I will allow the application for further and better particulars on all the 8 requests save and except request 8(15)(ii), which the plaintiff no longer pursued.  The 5^th defendant should provide the particulars within 35 days from the date of handing down of this decision.

27. I now turn to the application relating to the interrogatories.

Interrogatories

28. Under Order 26, rule 1 of the Rules of the High Court, Cap.4, a party may serve on the other party interrogatories relating to any matter in question in the cause or matter which are necessary either (a) for disposing fairly of the cause or matter; or (b) for saving costs.

29. Counsel had cited a number of English and Hong Kong authorities on the application of Order 26.  I will not discuss the cases in detail here because the principles are well settled and need no repetition.  I will go straight to the outstanding interrogatories, which can be grouped together for present purpose as follows.

30. Interrogatories 11(1) and (2) ask if the 5^th defendant had or still has any bank accounts anywhere in the world from 2003 to date, and if so the particulars of those accounts.  Interrogatories 11(3) to (5) ask in substance if it was the 5^th defendant who actually paid for consideration including the initial payment of HK$2 million under the Lucky Dragon Agreement and the source of funds.   

31. These interrogatories are relevant to the issue if the 5^th defendant had in fact paid for the Shares or otherwise funded the project on the Land, and if it had the financial resources or capability to do so.  This in turn is relevant to the question if the Lucky Dragon Agreement is genuine.  They should be answered so that the plaintiff can be provided with the information to properly prepare for the trial.

32. Interrogatories 12, 13(1) to (3) and 14(1) to (4) ask the 5^th defendant to state if it had paid the Performance Payment and depending on the answer, to give the consequential information.  These interrogatories are relevant to the question if the Lucky Dragon Agreement is genuine.  They are proper and must be answered.

33. Interrogatories 15(1) to (7) seek further information of Qingdao Company referred to in paragraph 19 of Shirley Yeung’s witness statement as a joint venture partner of the 5^th defendant in the development of the project on the Land.  In particular, they ask for information concerning that company’s funding obligations and contributions towards the project.  These are all relevant to the genuineness of the Lucky Dragon Agreement.  They are proper and must be answered.

34. Interrogatories 16(1) to (8) ask for further information on paragraph 20 of Shirley Yeung’s witness statement.  It is not necessary to go into detail.  The interrogatories are relevant to the issue if the Lucky Dragon Agreement is genuine.  They must be answered.

35. Interrogatories 17(4) to (6) deal with Shirley Yeung’s evidence in paragraph 12 of her witness statement on the alleged investment of RMB50 million by the 5^th defendant.  Again, it is not necessary to go into detail.  The interrogatories are relevant to the genuineness of the Lucky Dragon Agreement and must be answered.

36. Interrogatory 20 asks for further information of paragraph 17 of Shirley Yeung’s witness statement where she alleged that in about May/June 2003 the Vendor told her certain matters.  The plaintiff wants to know the exact date when she was so told.  But I do not think the exact date matters.  The plaintiff also wants to know who from the Vendor told her so.  But the identity has already been revealed in the Yeung’s witness statement.  Interrogatory 20 is not permissible.

37. Interrogatory 21 asks for names of the individuals from the 5^th defendant and the Qingdao company who are currently responsible for the management of the project and the Land.  Mr Coleman submitted that it is an attempt to get potential witnesses’ names.  But I agree with Ms Tong’s submission that the information is necessary to ascertain if there is a collusion or association with the 1^st to 4^th defendants on the one hand and the 5^th defendant on the other, which may shed light on the genuineness of the Lucky Dragon Agreement.

38. Interrogatories 22, 23, 24(1) to (2), 25 and 26 concern in substance whether the 5^th defendant had transferred, sold, disposed or other otherwise dealt with the Shares, the Rights or the Land since the Lucky Dragon Agreement and if so the details.  Mr Coleman submitted that the interrogatories are tantamount to a tracing exercise, which is not permissible.   But again I agree with Ms Tong that the interrogatories are relevant to the genuineness of the Lucky Dragon Agreement and if provided, will enable the plaintiff to properly prepare for the trial and save costs. 

39. For the above reasons, I rule that all the remainder of the interrogatories, save and except interrogatory 20, are proper and must be answered.  The failure on the part of the 5^th defendant to answer them is not justified.  It is in the circumstances proper to impose an order that unless the 5^th defendant do within 35 days answer the remainder of the interrogatories (except interrogatory 20), its defence be struck out and the plaintiff be at liberty to enter judgment against the 5^th defendant for the relief as set out in the amended statement of claim.

Costs

40. Costs should follow the event.  I will make an order nisi that the plaintiff do have the costs against the 5^th defendant for both applications, including all related costs reserved, to be taxed if not agreed.

HCA 1294/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1294 OF 2005

____________

____________

HCA 1294/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1294 OF 2005

____________

____________