Civil Action2007

LIANG JUN XIAN v. TSUI HIN CHI

Related cases with same parties

CACV88/2008LIANG JUN XIAN v. TSUI HIN CHI
HCMA1068/2004香港特別行政區訴梁俊賢

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74966-EN-2011-01-26

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HCA2288/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2288 OF 2007

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BETWEEN

	LIANG JUN XIAN (梁俊賢)	Plaintiff
and
	TSUI HIN CHI (徐憲馳)	1^st Defendant
	MOK WAH PUI (莫華沛)	Intended ^2nd Defendant

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Before : Hon Suffiad J in Chambers

Date of Hearing : 29 November 2010

Date of Judgment : 26 January 2011

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JUDGMENT

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1. This is an appeal by the plaintiff against the order of Master de Souza made on 31 May 2010 whereby the Master dismissed the plaintiff’s application by summons dated 25 May 2010 seeking to (i) join Mok Wah Pui as a 2^nd defendant and (ii) to re-amend the Amended Statement of Claim.

2. For the sake of clarity, the present defendant, Tsui Hin Chi, will be referred to in this Judgement as the 1^st defendant and the intended 2^nd defendant, Mok Wah Pui, will be referred to as “Mok”.

Introduction

3. This case concerns a dispute over the ownership of shares in China Investment Group Int’l Finance Limited (“CIGIF”).

4. In 2005, the plaintiff became interested in a redevelopment project at 19-49 De Zheng Road South, Guangzhou City, Guangdong Province of China for a commercial building to be built thereon called “the Finance Tower”. The rights and entitlement to that redevelopment project was held by 廣州遠興房產有限公司 (“the Land Company”).

5. CIGIF was incorporated by the plaintiff in Hong Kong on 3 November 2005, and at that time was controlled by the plaintiff being the sole shareholder of the 10,000 issued share capital of CIGIF.

6. The plaintiff had intended for CIGIF to form a joint venture with a Chinese company known as 廣東中大中鑫投資策劃有限公司 (“the China Partner”) to acquire all the rights benefits and interest in the Land Company for the development of the Finance Tower. The plaintiff intended for CIGIF to hold 60% of the Land Company with the remaining 40% to be held by the China Partner. At that time the plaintiff was also the controlling partner of the China Partner.

Plaintiff’s case against the 1^st defendant

7. The plaintiff came to know the 1^st defendant through the introduction of a friend in mid 2006 at which time the plaintiff was looking for funding for her joint venture.

8. In or about October 2006, the 1^st defendant orally agreed to provide a loan of RMB50 million to finance that joint venture.

9. In or about 20 November the 1^st defendant had remitted an initial sum of HK$10 million to the plaintiff’s account as part of the loan promised by the 1^st defendant.

10. On 6 December 2006, the plaintiff entered into a Co-operation Agreement with the 1^st defendant whereby they agreed, inter alia, to obtain 100% shareholding of the Land Company to develop the Finance Tower and that the 1^st defendant would invest RMB50 million in the joint venture project in Guangzhou owning 40% in the Land Company with the remaining capital to be raised by the plaintiff who would own 60% of the Land Company. In return, the 1^st defendant was promised an additional 2% (on top of the 40% owned by the 1^st defendant in the Land Company) of the profits from the joint venture project.

11. On or about 9 January 2007, CIGIF and the China Partner had succeeded in acquiring all the shareholding, rights and interests of the Land Company as well as the development rights of the Finance Tower project.

12. By February 2007, the 1^st defendant had transferred to the plaintiff totally HK$50 million including the HK$10 million paid in November 2006.

13. It is the plaintiff’s case that the RMB50 million agreed to be invested by the 1^st defendant under the Co-operation Agreement between them was a loan and not an investment.

14. The 1^st defendant had on a number of occasions requested the plaintiff to provide him with security for the loan advanced by him. The 1^st defendant also requested the plaintiff to pledge 40% of the plaintiff’s shares in CIGIF and to appoint the 1^st defendant as a director of CIGIF as security for his being promised 42% of the profits from the Finance Tower project as agreed by them under the Co-operation Agreement.

15. In February and August 2007, the 1^st defendant had requested the plaintiff to sign documents in English on two different occasions. The 1^st defendant explained to the plaintiff that these were necessary documents to appoint him as a director of CIGIF and to pledge 40% (on the first occasion) and another 30% (on the second occasion) of the shares of CIGIF as security.

16. The 1^st defendant further represented to the plaintiff that the signed documents would only be used by him as security and would not in any way interfere with the plaintiff’s running and ownership of CIGIF. The documents were not dated when they were signed by the plaintiff.

17. The plaintiff subsequently discovered that the 1^st defendant’s representations were false and that the documents signed by her were Bought and Sold Notes and Instruments of Transfer with which the 1^st defendant had transferred all the 10,000 issued shares in CIGIF (i.e. 4,000; 3,000; and 3,000) to himself on 26 March and 23 August 2007, being the dates now appearing on the documents signed by the plaintiff which were undated when they were signed.

18. The plaintiff therefore says that the 1^st defendant had fraudulently tricked her into signing the Bought and Sold Notes and the Instruments of Transfer relating the effect of which were to transfer all 10,000 of the issued shares in CIGIF to the 1^st defendant. Subsequently, the 1^st defendant caused 3,000 of the issued shares of CIGIF to be transferred to Mok on 24 August 2007 and then also transferred the remaining 7,000 shares of CIGIF also to Mok on 31 March 2009.

19. The plaintiff also discovered that she had been ousted as a director of CIGIF by the 1^st defendant and two other persons, namely, Mok and one Mok Wah Cho were appointed as directors in her place.

20. The plaintiff therefore seek declarations, inter alia, to the effect that she is the legal and beneficial owner of all the 10,000 issued shares in CIGIF.

Plaintiff’s case against Mok

21. The plaintiff’s case against Mok, in so far as it has not been touched upon in the claim she brought against the 1^st defendant, is contained in paragraphs 33A to 33I (inclusive) of the proposed draft Re-Amended Statement of Claim and can be summarized as follows.

22. The 1^st defendant and Mok are cousins. In early 2008, Mok was introduced to the plaintiff by the 1^st defendant who suggested that Mok be brought in as an investor in the joint venture project, but the plaintiff did not agree to such suggestion.

23. Upon searches and enquiries made with the Companies Registry the plaintiff came to know of the following :

(a)   by Bought and Sold Notes dated 24 August 2007 signed by the 1^st defendant, the 1^st defendant had transferred 3,000 shares in CIGIF to Mok;
(b)   Mok was appointed a director of CIGIF effective from 23 August 2007;
(c)   the plaintiff resigned as a director of CIGIF with effect from 22 September 2007;
(d)   by a Special Resolution purportedly passed on 24 September 2007 signed by the 1^st defendant, it was recorded inter alia that (i) the plaintiff had transferred 7,000 shares of CIGIF to the 1^st defendant on 26 March 2007; (ii) the plaintiff had transferred 3,000 shares of CIGIF to the 1^st defendant on 23 August 2007 and (iii) the 1^st defendant had transferred 3,000 shares to Mok on 24August 2007; and
(e)   by Form AR1 dated 3 November 2009, the 1^st defendant had transferred all his shareholding interests in CIGIF (namely the remaining 7,000 shares) to Mok.

24. It is the plaintiff’s case that the above acts were done or committed by the 1^st defendant and Mok as co-conspirators in furtherance of the conspiracy and/or fraud practiced on the plaintiff.

25. The plaintiff’s resignation as director of CIGIF contained in Form D2A was submitted to the Companies Registry by the 1^st defendant.

26. The plaintiff further says that the purported transfer of the CIGIF shares to Mok by the 1^st defendant was a sham transaction and that Mok had knowledge or ought to have known of the 1^st defendant’s fraudulent scheme and assisted or participated throughout.

The practice in pleading conspiracy and fraud

27. The practice of pleading conspiracy is succinctly stated in marginal note 18/12/8 under Order 18 rule 12 of the Hong Kong White Book as follows :

“When pleading the tort of conspiracy, the pleader must allege at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt acts pleaded must be such as to show : (1) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (2) that the agreement, and not merely the intention of one person alone, was implemented; and (3) that such implementation caused the damage complained of (per Bokhary J.A. in Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co, Ltd. [1994] 2 H.K.C. 264 at 272B-C).”

28. How an allegation of fraud should be pleaded can be found in the words of Bokhary JA (as he then was) in the case of Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd [1994] 2 HKC 264 at 269E-270E/F where he said :

“What pleadings must do – generally…
Those complaints go to pleadings. So does the bulk of the other complaints ventilated before us. That being so, it is important to remember this. Our procedure aims to ensure that litigation, particularly the trial itself, is conducted fairly, openly, free from surprise, and without unnecessary delay or expense. In the attainment of that objective, pleadings have a fundamental role to play. Accordingly, there are a number of things which pleadings should do. Ideally, they would do them from the outset. In any event, they must by the time they have been properly particularized – whether particularized on the pleader’s own initiative, upon the other side’s request, or pursuant to the court’s order.
What those things are is to be gathered from the decided cases. That exercise has been performed by the learned editors of the 1993 Supreme Court Practice. And, as one sees from note 18/12/2 at pp 307-308 of Vol. 1 thereof, the things which properly particularized pleadings must do are to :
(1) inform the other side of the nature of the case they have to meet as distinguished from the mode in which that case is to be proved;
(2) prevent the other side from being taken by surprise at the trial;
(3) enable the other side to know what evidence they ought to be prepared with and to prepare for trial;
(4) limit the generality of the pleadings, the claim and the evidence;
(5) limit and define the issues to be tried, and as to which discovery is required; and the hands of the party so that he cannot without leave go into any matters not included (although if the opponent omits to ask for particulars, evidence may be given which supports any material allegation in the pleadings).
… and especially where fraud is alleged
To the generality of the foregoing must be added the special rule that allegations of fraud must be pleaded distinctly and with the utmost particularity. The word ‘distinctly’ is the one used by Thesiger LJ in his well-known statement in Davy v Garrett (1878) 7 Ch.D 473 at p.489 as to how fraud is to be pleaded. And the expression ‘utmost particularity’, as one sees from note 18/8/8 at p.297 of Vol.1 of the 1993 Supreme Court Practice, is the one chosen by its learned editors and has the authority of their combined experience. That special rule arises in this case.
Never before as much as now
None of the basic rules of pleadings have anything to do with technicality. All of them have everything to do with practical justice. They have always been of importance. Never before as much as now. For these days, there are more and more cases so vast and so complex that they push practicality to its limit our system’s capacity effectively to cope with them. Any laxity in their proper management, whether in regard to pleadings or anything else, can all too easily result in susch cases spinning into confusion if not chaos – even before trial but especially at trial. The present case, for the trial of which half a year has been reserved, is such a case.”

29. There is also the important and oft-quoted passage of Millett LJ (as he then was) in the case of Armitage v Nurse [1998] Ch 241 as to how a plea of fraud should be pleaded when he said (at pp.256F/G – 257D) :

“… The general principle is well known. Fraud must be distinctly alleged and as distinctly proved: Davy v Garrett (1878) 7 Ch. D. 473, 489, per Thesiger LJ. It is not necessary to use the word ‘fraud’ or ‘dishonesty’ if the facts which make the conduct complained of fraudulent are pleaded; but, if the facts pleaded are consistent with innocence, then it is not open to the court to find fraud. As Buckley LJ said in Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch. 250, 268 :
‘An allegation of dishonesty must be pleaded clearly and with particularity. That is laid down by the rules and it is a well-recognised rule of practice. This does not import that the word “fraud” or the word “dishonesty” must be necessarily used… The facts alleged may sufficiently demonstrate that dishonesty is allegedly involved, but where the facts are complicated this may not be so clear, and in such a case it is incumbent upon the pleader to make it clear when dishonesty is alleged. If he uses language which is equivocal, rendering it doubtful whether he is in fact relying on the alleged dishonesty of the transaction, this will be fatal; the allegation of its dishonest nature will not have been pleaded with sufficient clarity.’
… That case is authority for the proposition that an allegation that the defendant ‘knew or ought to have known’ is not a clear and unequivocal allegation of actual knowledge and will not support a finding of fraud. It is not treated as making two alternative allegations, i.e. an allegation (i) that the defendant actually knew with an alternative allegation (ii) that he ought to have known; but rather a single allegation that he ought to have known (and may even have known – though it is not necessary to allege this).
… Before turning to the pleadings I would add one thing more. In order to allege fraud it is not sufficient to sprinkle a pleading with words like ‘willfully’ and ‘recklessly’ (but not ‘fraudulently’ or ‘dishonestly’). This may still leave it in doubt whether the words are being used in a technical sense or merely to give colour by way of pejorative emphasis to the complaint.”

Decision as to joining Mok as a 2^nd defendant

30. The plaintiff’s pleaded case against Mok falls far short of what is required by the practice stated above.

31. The plaintiff has failed to allege any one particular overt act of Mok from which it can be shown or inferred that Mok had entered into a conspiratorial agreement with the 1^st defendant in carrying out the deception alleged by the plaintiff to have been practiced on her by the 1^st defendant or which is in furtherance of the alleged conspiracy to defraud the plaintiff.

32. Those acts now pleaded and relied on by the plaintiff in her case against Mok (namely, the subject shares being transferred by the 1^st defendant to Mok and Mok’s appointment as a director of CIGIF) are firstly, all acts which took place after the deception practiced on the plaintiff by the 1^st defendant. Secondly, and more important, these acts are just as consistent with innocence on the part of Mok, such that from these acts it will not be open to the court to find or infer fraud on the part of Mok.

33. Thirdly, no particulars of knowledge have been given in relation to the plea that the transfer of the CIGIF shares by the 1^st defendant to Mok was a sham transaction and that Mok knew or ought to have known of the fraudulent scheme of the 1^st defendant and had assisted or participated throughout.

34. There is therefore no basis upon which the plaintiff can make out a case of fraud and conspiracy to be brought against Mok as pleaded by the plaintiff in the proposed amendments to the Amended Statement of Claim.

35. Accordingly, the Master was quite right to have refused the plaintiff’s application to join Mok as a 2^nd defendant in this case.

36. In so far as this limb of the appeal from the Master is concerned, the appeal by the plaintiff must be dismissed.

Decision on application to amend

37. The bulk of the amendments to the Amended Statement of Claim relate to the claim against Mok as contained in paragraphs 33A to 33I of the draft Re-Amended Statement of Claim.

38. Having refused leave to the plaintiff to join Mok as a 2^nd defendant above, it must follow that the proposed pleadings in paragraphs 33A to 33I can have no further relevance to the plaintiff’s claim against the 1^st defendant and must be disallowed. Any other references in the proposed amendments to Mok as a 2^nd defendant will also be disallowed.

39. There remains only one relevant amendment which the plaintiff wish to make and which can have a bearing on the case as a whole whether or not Mok is added as a 2^nd defendant. That relates to the level of English of the plaintiff. The relevance of this relates to the plaintiff being asked by the 1^st defendant to sign the Bought and Sold Notes as well as the Instruments of Transfer which are all in English and which documents the plaintiff says she did not understand relying only on what was represented to her by the 1^st defendant.

40. Initially it was pleaded by the plaintiff (in paragraph 1 of the Amended Statement of Claim) that the plaintiff does not read or write any English.

41. The proposed amendment to that pleading now pleads that the plaintiff can only read and understand simple English.

42. This is opposed by the 1^st defendant on the grounds that the proposed amendment is inconsistent with the case that had been run by the plaintiff all along and therefore, if allowed, will become incapable of being verified by statement of truth.

43. The 1^st defendant seek reliance on what is stated in Civil Justice Reform – Final Report at paragraphs 263-264 (pp 127-128). However, those paragraphs in the Final Report of the Civil Justice Reform deal with inconsistent alternatives, which is not the case here.

44. I can find nothing to even remotely suggest that the “statement of truth” introduced by the Civil Justice Reform was intended to stranglehold amendments to pleadings such that a party would not be allowed to amend if the proposed amendment was inconsistent with the previous pleading.

45. The general rule is that an amendment, when made, would date back to the date of the original pleading. That is still the position after the Civil Justice Reform. On that basis therefore, there can be no difficulty for the plaintiff to verify the amended pleading with a statement of truth.

46. While it is true that the plaintiff can be cross examined at trial in respect of the inconsistent pleading being made at different times and verified by a statement of truth. But, depending on her answers, those matter would go to weight and/or credibility of the person verifying the inconsistent pleading.

47. The guiding principle whether amendments should be allowed is to ensure justice and fairness between the parties in that the cases of the parties are properly pleaded and the issues clearly defined when it comes to trial. As long as there can be no prejudice to the other side which cannot be cured by the payment of costs, the general rule is that amendments ought to be allowed.

48. For these reasons, I am minded to allow the proposed amendment to paragraph 1 of the Amended Statement of Claim.

49. The remaining proposed amendments to the Amended Statement of Claim are merely cosmetic in nature and no objection to them has been put forward by the defendant. Since no objection has been made, those remaining amendments as contained in the draft Re-Amended Statement of Claim will be allowed.

Costs

50. For the first part of this appeal, namely the joining of Mok as a second defendant, there is no reason to depart from the general rule that costs should follow the event and in this case the plaintiff will have to bear the costs of her unsuccessful appeal from the Master.

51. As for the appeal on the amendment, the general rule is that the party seeking amendment will normally have to pay the costs of and occasioned by such amendments.

52. However, the plaintiff had to bring this appeal in order to succeed on obtaining leave to amend.

53. In the circumstances, there will be a costs order nisi as follows :

(1)   the costs order of the Master to stand;
(2)   the costs of and occasioned by the amendments to the Amended Statement of Claim to be borne by the plaintiff in any event; and
(3)   the plaintiff to pay to the 1^st defendant ¾ of the 1^st defendant’s costs of this appeal to be taxed if not agreed; and
(4)   the plaintiff to pay to Mok his costs of this appeal to be taxed if not agreed.

(A.R. Suffiad)
Judge of the Court of First Instance
High Court

Mr Paul Wu, instructed by Messrs Lam and Lai, for the Plaintiff

Mr Patrick Wan, instructed by Messrs Yip, Tse & Tang, for the 1^st Defendant

Mr Ross Yuen (in the forenoon), Miss Winifred Mui (in the afternoon), instructed by Messrs Ng, Au Yeung & Partners, for Intended 2^nd Defendant

69427-CH-2009-10-19

梁俊賢訴徐憲馳及另四人

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HCA 2288/2007

香港特別行政區

高等法院原訟法庭

民事司法管轄權

案件編號2007年第2288號

____________

原告人	LIANG JUN XIAN（梁俊賢）
	對
第一被告人	TSUI HIN CHI（徐憲馳）
準第二被告人	MOK WAH PUI（莫華沛）
準第三被告人	MOK WAH CHO（莫華操）
準第四被告人	SIU FAT NAM（蕭發南）
準第五被告人	BOARD OF DIRECTORS OF CHINA INVESTMENT GROUP INT’LFINANCE LIMITED （中國投資集團國際理財有限公司）

____________

主審法官：高等法院原訟法庭法官鍾安德內庭聆訊

審訊日期：2009年9月25日

最後提交書面陳詞日期：2009年10月6日

訟費數額評估判決書日期：2009年10月19日

訟費數額評估判決書

1. 本席在2009年9月25日經聽取與訟各方的陳述後，就下述傳票作出判決:-

(a) 原告人在2009年9月16日取得的傳票；
(b) 原告人在2009年9月23日取得的傳票。

2. 本席並判定，前第1(a) 段所述的傳票所涉的訟費，應由原告人付予第一被告人，而前第1(b) 段所述的傳票所涉的訟費，應由原告人付予準第二至四被告人。

3. 本席亦表示，本席擬依《高等法院規則》第62號命令第9A條規則，就上述訟費，作出簡易評估。

4. 就前第1(a) 段所述的傳票:-

(1) 第一被告人在2009年9月30日呈交了簡明訟費清單；
(2) 原告人在2009年10月6日呈交了書面反對理由。

5. 本席經考慮上述文件，評估所涉訟費數額為$65,000。

6. 就前第1(b) 段所述的傳票，準第二至四被告人在2009年9 月30日呈交了簡明訟費清單（該文件的副本顯示，已在2009年10 月2日送達原告人），但原告人並無呈交任何書面反對理由。

7. 本席經考慮上述文件，評估所涉訟費數額為$64,000。

	(鍾安德)
	高等法院原訟法庭法官

原告人：由關秉基律師行代表

第一被告人：由柯陳律師事務所代表

準第二至第四被告人：由張雅棣律師行代表

準第五被告人：無律師代表，缺席聆訊

60385-EN-2008-03-07

LIANG JUN XIAN v. TSUI HIN CHI

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HCA 2288/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2288 OF 2007

____________

BETWEEN	LIANG JUN XIAN (梁俊賢)	Plaintiff

	and

	TSUI HIN CHI (徐憲馳)	Defendant

____________

Before: Hon Fung J in Chambers

Date of Hearing: 19 February 2008

Date of Judgment: 7 March 2008

______________

J U D G M E N T

______________

1. The defendant is applying by:

(1) the 1^st summons dated 8 January 2008 for security for costs;

(2) the 2^nd summons dated 31 January 2008 for:

(a)	summary judgment on the Counterclaim for:
	(i)	a declaration that the defendant has validly transferred the legal and beneficial interest in 3,000 shares in China Investment Group International Finance Limited (“CIGIF”) to Mr. Mok Wah Pui on 24 August 2007;
	(ii)	a declaration that the defendant is the legal and beneficial owner of the remaining 7,000 shares in CIGIF;
	(iii)	an injunction that the plaintiff be restrained from making representations that she is or remains the legal and/or beneficial owner of 10,000 shares in CIGIF;

(b)	alternatively, (as amended at the hearing) an interlocutory injunction that the plaintiff be restrained from:
	(i)	making representations that she is or remains the 100% legal owner of CIGIF; and
	(ii)	making allegation of fraud against the defendant.

2. The defendant is also counterclaiming HK$5 million and damages to be assessed. Mr. Ng, for the defendant, indicated that those claims would be abandoned in the event that summary judgment be entered in terms of para. 2(a)(ii) above.

Background

3. This case is concerned with the land development project of the Finance Tower at 19-49 De Zheng Road South, Guangzhou.

4. The rights in the development project is held by 廣州遠興房產有限公司 (“Land Company”). The shares of Land Company are held by CIGIF (60%), and 廣東中大中鑫投資策劃有限公司 (“China Partner”) (40%).

5. CIGIF is a Hong Kong company with issued capital of 10,000 shares. Prior to the shares transfers, CIGIF was wholly owned by the plaintiff. China Partner was also controlled by the plaintiff.

6. On 6 December 2006, the plaintiff and the defendant signed an agreement in Chinese entitled Co-operation Agreement. The effect of the terms are:

“Party A: [The plaintiff] Party B: [The defendant]

Both party reached the agreement concerning the co-operation in investment in the land project at 19-49 De Zheng Road South, Guangzhou as follows:

	1.	To obtain 100% shareholding of the [Land Company] (herein called the “Project Company”) in order to achieve 100% rights in the said project.
	2.	The details of the subject project are set out in the project materials, about RMB¥0.13 billion has been put into the project at this stage, the expected total development costs are about RMB¥0.23 billion.
	3.	[The plaintiff] is to lead in the investment development, organize and carry out the Finance Tower project.
	4.	[The defendant] invests RMB50¥million in Guangzhou, owning a 40% share in the Project Company, the remaining development capital required is raised by [the plaintiff], owning 60% of the Project Company.
	5.	Both parties agree that upon obtaining the bank loan, part of the invested sums shall be repaid, with preferred treatment for [the defendant], until the realization of the invested sums placed in the co-operation capital in the Project Company by the respective party being 50:50, i.e. each owning half.
	6.	[The plaintiff] promised to additionally pay 2% of the earnings to [the defendant].
	7.	It is expected that sales of the uncompleted units will begin in January 2008, and the investment may be recouped, and both parties agree that the investment will be repaid by 60%:40% between [the plaintiff] and [defendant].
	8.	The whole project is expected to be fully completed before December 2008.
	9.	Both parties agree that in the circumstances of availability of capital flow, to transfer the capital to the Zeng Cheng He Xian Gu Scenic Travel Project, and to take up shareholding in the He Xian Gu Project according to the ratio of capital between the parties, as being the initial shareholders, the preliminary estimated first stage capital is RMB¥0.2 billion, if in excess then to undergo placement at premium, the initial shareholders should enjoy all the earnings of the entire project.
	10.	In the spirit of co-operation, for matters not yet set out in details, both parties will negotiate for the resolution, and any supplemental agreement shall have equal effect.”

7. On 13 February 2007, the plaintiff issued a receipt in Chinese to the defendant for HK$50 million in the following terms:

“Receipt

Up to 13 February 2007, received from [the defendant] investment money of HK$50 million, the said sum being for taking over the assets of [Land Company], i.e. the land project at 19-49 De Zheng Road South, Guangzhou. Hereby acknowledged.”

8. On 26 March 2007, the plaintiff executed the bought and sold notes and instrument of transfer for 4,000 shares (40%) in CIGIF in favour of the defendant. The defendant was also appointed director of CIGIF.

9. On 22 August 2007, the plaintiff executed 2 sets of bought and sold notes and instruments of transfer for 3,000 shares (30%) each in favour of the defendant. One set of the instruments was back dated 26 March 2007, and the other set dated 23 August 2007.

10. On 24 August 2007, the defendant transferred 3,000 shares (30%) to Mok, an independent investor. The defendant alleged that the plaintiff was unable to inject her share of the capital.

11. On 12 September 2007, both the plaintiff and the defendant signed the Declaration in Chinese to the following effect:

“Declaration

Whereas [the defendant] and [the plaintiff] co-operated to take over the development of the [Finance Tower], in which [the defendant] invested the capital of HK$50 million, owning 42% share in the [Finance Tower] project (the other 58% share solely owned by [the plaintiff]), according to the Co-operation Agreement between the parties, the said project was to be run under the sole authority of [the plaintiff], since [CIGIF] originally only had [the plaintiff] as the single shareholder and director, hence [CIGIF] had other investment projects, whereas [CIGIF] owns 60% of [Land Company], therefore [the defendant] in owning 70% shareholding in the Hong Kong company has 42% face value share in the [Land Company], the said Hong Kong company, i.e. [CIGIF’s] effective controlling shareholder is still [the plaintiff], apart from the [Finance Tower], the other projects have nothing to do with [the defendant].”

12. On 28 September 2007, the plaintiff and the defendant attended the 2nd co-ordination meeting held by the Guangzhou Properties Exchange (“Exchange”). The memorandum of meeting signed, inter alia, by the plaintiff and the defendant, recorded that the defendant asserted that he was the controlling shareholder of CIGIF, and at the same time CIGIF was the controlling shareholder of Land Company, hence he relieved all the duties and authority of the plaintiff in Land Company. The memorandum also recorded that the plaintiff disagreed that by the 70% controlling shareholding in CIGIF, the defednant could control Land Company and to remove her as the Managing Director.

13. On 31 October 2007, the plaintiff’s lawyer in Guangzhou issued a letter to the defendant stating that the defendant made a loan of RMB¥50 million and obtained 70% nominal shareholding in CIGIF as security for 42% of the earnings in Land Company, and both parties agreed that the plaintiff had full power and responsibilities in all matters of the land development in Land Company. But in breach of the agreement and without informing the plaintiff, the defendant engraved the company seal and changed the directors of CIGIF, and defrauded the plaintiff of 100% shareholding of CIGIF by deception. As the defendant had committed criminal law in Hong Kong, the matter was reported to the police and upon conviction, the defendant would be imprisoned for 8 to 10 years.

14. The defendant alleged that the plaintiff had made similar untrue representations to the authorities in Guangzhou. As a result the project ground to a halt, exposing Land Company to the idle land penalty.

15. The defendant submitted the relevant returns to the Companies Registry reporting the share transfers. The returns also stated the removal of the plaintiff as director of CIGIF. The plaintiff has raised an objection, but the Registrar of Companies has indicated that he is prepared to register the changes.

Plaintiff’s case

16. The Statement of Claim prayed for:

	(1)	a declaration that the plaintiff is the beneficial owner of all the shares in CIGIF;
	(2)	a declaration that the defendant was in breach of the Co-operation Agreement in submitting the relevant returns to the Companies Registry;
	(3)	an order to vacate the returns from the Companies Registry;
	(4)	damages.

17. The plaintiff’s original case in the Statement of Claim and Reply before filing of her 2^nd Affirmation was as follows:

	(1)	The joint venture was between CIGIF (60%) and China Partner (40%) to acquire the project from Land Company;
	(2)	The RMB¥50 million paid by the defendant is a loan and not investment;
	(3)	The loan shall be repaid first upon CIGIF obtaining banking facilities;
	(4)	Under the Co-operation Agreement, the plaintiff agreed to provide 42% of the net profits from the joint venture received by CIGIF to the defendant and the plaintiff only agreed to appoint the defendant as the other director of CIGIF.
	(5)	The plaintiff has signed various documents believing them only to be appointing the defendant as the director of CIGIF and pledging or charging her 40% shareholding of CIGIF;
	(6)	Later, the plaintiff agreed to provide an additional 30% shareholding in CIGIF as security for the defendant’s entitlement;
	(7)	The plaintiff was misled to sign on two sets of identical documents on 22 August 2007;
	(8)	The plaintiff requested the defendant to sign an undertaking that the shareholder’s rights in CIGIF shall permanently belonged to the plaintiff and the defendant should not interfere or engage in the business of CIGIF but the defendant had not signed it;
	(9)	The Declaration signed by the defendant warranted that the plaintiff is still the person in actual possession of all the shareholder’s rights in CIGIF and the defendant shall not have any connection with matters other than the land development project of the [Finance Tower];
	(10)	After the Declaration on 12 September 2007, the defendant requested the plaintiff to sell all her shareholding in CIGIF to Mok but it was refused.

18. The plaintiff’s 2^nd affirmation is as follows:

	(1)	The plaintiff signed the bought and sold notes and instrument of transfer for the 40% shares in CIGIF but the plaintiff only agreed to transfer 40% of the shares in CIGIF to the defendant as security for his 42% entitlement to the profits at the completion of the project;
	(2)	The plaintiff only agreed to transfer one lot of 30% shares in CIGIF to the plaintiff as an increase in the pledging of the shares as security;
	(3)	The defendant prepared two sets of identical instruments of transfer for 30% shares each in CIGIF and asked the plaintiff to sign both with one copy for stamping and one copy for the plaintiff to keep but the defendant took both sets away;
	(4)	The plaintiff never told the defendant she was unable to inject her share of the agreed investment capital;
	(5)	The Declaration stated that the defendant has 42% interest in the project and the plaintiff has 58% interest and that had never been disputed, but the Declaration also stated that the plaintiff remains the beneficial owner of all shares in CIGIF.

Defence case

19. The defendant’s case is as follows:

	(1)	By the Co-operation Agreement, the defendant was to acquire 42% interest in or derived from the project;
	(2)	The plaintiff’s initial proposal was to transfer 40% in CIGIF and 45% in China Partner;
	(3)	Instead, the defendant suggested the plaintiff to transfer 70% of CIGIF to him, and CIGIF in holding 60% of the Land Company would give the defendant 42% in the Land Company and the project;
	(4)	The Co-operation Agreement is clearly in terms of investment as opposed to loan;
	(5)	The receipt clearly stated the HK$50 million to be investment;
	(6)	The instrument for transfer for the 4,000 shares was prepared by and submitted for stamping by the plaintiff;
	(7)	The Declaration stated the HK$50 million to be investment capital, and the defendant had 42% interest in the project;
	(8)	The reservation at the end of the Declaration that the plaintiff is effectively still the controlling shareholder of CIGIF only refers to the other investments projects of CIGIF which has nothing to do with the defendant for the time being;
	(9)	The memorandum of the 2^nd meeting of the Exchange clearly stated that the defendant had 70% controlling shareholding in CIGIF;
	(10)	The transfer of 30% shareholding to Mok was because the plaintiff was unable to make the investment.

Legal principles

20. The principles in an Order 14 application are well settled: Banque de Paris v Costa de Narray [1984] 1 Lloyd’s Rep 21, 23 per Ackner LJ:

“It is appropriate to be reminded of the principles applicable to an Order 14 application. They are well-known and in fact not disputed by the parties. The Plaintiff (a Defendant to the 2^nd Defendant’s counterclaim) must show that there are triable issues. He has to satisfy the court that he has a ‘real or bona fide defence’”.

21. In Re Safe Rich Industries Ltd [1994] HKLY 183, Bokhary JA (as he then was) said:

“The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable, but it must be recognised – because failure to recognise it would create a debt-dodger’s charter – that whether the defendant’s assertions are believable is a questioned no by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.”

22. In Ng Sui-kei v Chong Mee-mee [1991] 1 HKC 693, 694G-H, Yeung J (as he then was) said:

“It has been well established that mere assertion in an affidavit of a given situation which is to be the base of a defence does not ipso facto provide leave to defend, and a court must look at the whole situation and ask itself whether the defendant has satisfied the court that there is a fair and reasonable probability of the defendant having a real or bona fide defence.”

23. In Manciple Ltd v Chan On Man [1995] 3 HKC 459, 466 Mortimer JA (as he then was) said:

“… there are some cases in which the defendant’s own case, although apparently it raises issue which, if found in his favour, would provide him with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham.”

24. Lastly, I will refer to the caution by Godfrey JA in Ng Shou-chun v Hung Chun San [1994] 1 HKC 155, 158F-G:

“I would sound a note of caution about Murjani, which has come to be cited in almost every case under Order 14 or Order 86 to justify the plaintiff in asking the court to embark upon a mini-trial of the action on affidavit. That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question: ‘Is what the defendant says credible?’ If so, he must have leave to defend. If not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant’s assertions are to be believable; it is whether those assertions are believable.”

Discussion

25. The plaintiff’s case is that the HK$ 50 million was a loan, and the transfer of the 70% shares in CIGIF to the defendant was no more than security for the defendant’s entitlement to 42% of the profits in the project, and she retained the effective control of all the shares in CIGIF.

26. Ms Lo, for the plaintiff submitted that it is inconceivable that the plaintiff would transfer all her shares in CIGIF beneficially to the defendant before reaping the profits at the completion of the project, or indeed, at any point in time, as stated in the Declaration that the plaintiff was still the effective controlling shareholder of CIGIF’s.

27. Mr. Ng submitted that the plaintiff’s case is unbelievable. He pointed out that the plaintiff’s original case that she was unaware of the nature of instruments of transfer and believed them to be instruments appointing the defendant as director and pledges/charges of shares was flatly contradicted by her 2^nd Affirmation, contemporaneous documents, and her experience as a business woman. The allegation that the HK$50 million was a loan was contradicted by:

	(1)	the Co-operation Agreement;
	(2)	the receipt;
	(3)	the Declaration;
	(4)	the admission in the 2^nd Affirmation of the plaintiff that there has never been in dispute that the defendant has 42% interest in the project and she personally has 58%;
	(5)	the memorandum of the 2^nd meeting stating the defendant had 70% controlling shareholding in CIGIF without mentioning any retention of controlling shareholding by the plaintiff.

28. As I see it, the share transfers should be looked at in two parcels, the 70% transferred to the defendant, and the 30% allegedly transferred to the defendant and then to Mok.

29. The transfer of the 30% to Mok preceded the Declaration dated 12 September 2007. It then begs the question as to why the Declaration would state that the plaintiff owned 58% and the defendant owned 42% of the project. Mr. Ng submitted that since the 30% was owned by Mok, the Declaration was right in stating that the defendant only owned 42%. Be that as it may, the Declaration stated that the plaintiff owned 58% in the development project, which by necessary implication meant that Mok did not own 30% in CIGIF, as the plaintiff’s 58% in the land project comprised the holding of 40% in Land Company via China Partner, and her holding of 30% in CIGIF as equivalent to 18% in Land Company. It calls for some explanation from the defendant as to why he has signed the Declaration as such, and perhaps the Court would like to see what investments the plaintiff had made in the project.

30. Mr. Ng did not strenuously argue for validity of the 30% shares registered in the name of Mok. I find there is a triable issue.

31. As to the 70% shares, the plaintiff’s claim of legal ownership is contradictory to her own case that the shares were transferred as security, given that the defendant’s share 42% profits was not yet realized.

32. The premise of the RMB¥50 million being a loan is contradictory to the terms of all the documents. That a loan secured by a transfer of 70% of shares in CIGIF as equivalent to 42% in Land Company against the 42% interest in the profits from the project as somehow subject to a trust of the shares in favour of the transferor/debtor is inherently difficult to comprehend. And the premise of a loan fails to account for repayment in the event that the profits from the project is below RMB¥50 million, a commercial risk which cannot be overlooked, however remote.

33. The alleged clause in the Declaration reserving the controlling shareholding in CIGIF to the plaintiff is by itself ambiguous and also inconsistent with the recital in the Declaration of the respective interests of the parties in the project. Further, I fail to see why the plaintiff did not raise the point that the defendant was holding the 70% shares in trust for her at the meeting at the Exchange. In any event, so long as the plaintiff retains 58% in Land Company, she will have effective control of the development project. Hence, the reservation of controlling interest could only have been referable to the other projects of CIGIF which have nothing to do with the defendant for the time being.

34. Ms Lo submitted that since the issue of the 30% share is going to trial anyway, and the credibility of the defendant may be contagious on his 70% shareholding. Hence, there is other reason for leave to defend.

35. Notwithstanding any possible outcome on the issue of the 30% shares in Mok’s name, the only reasonable interpretation of the Declaration is that the defendant shall have no interest in the other projects of CIGIF apart from the Finance Tower. The defendant may have to account to the plaintiff for those other projects, but the plaintiff’s assertion of beneficial ownership of the 70% shares is unbelievable, and plainly could not be the intention to be attributed to the Declaration.

Conclusion

36. In the premises, I enter judgment in part on the beneficial ownership of the 70% shares in favour of the defendant, and I dismiss the plaintiff’s claim for legal and beneficial ownership of 100% shares in CIGIF, with leave to defend on the 30% shares (and leave to amend the Statement of Claim, if necessary), and dismiss the counterclaim relating to HK$5 million and damages to be assessed.

37. As to the injunction restraining the plaintiff from making representations of 100% legal and beneficial ownership in CIGIF and fraud on the part of the defendant, I think the impasse arising from the plaintiff’s assertions should be resolved by the judgment on the 70% shareholding. I do not think the injunction is necessary at this stage. I adjourn the permanent injunction to the trial, with liberty to apply for an interlocutory injunction should any future development warrants it.

Security for costs

38. There is no dispute that the plaintiff is ordinarily resident outside the jurisdiction, and there is no suggestion of any stifling effect of the plaintiff’s claim upon the ordering of security.

39. Ms Lo made 2 points:

(1) There are common issues between the claim and the counterclaim;

(2) The plaintiff has a high degree of probability of success.

40. In the exercise of the discretion on security of costs, the Court may take into account the presence of a counterclaim in whether the same issues are going to trial and the plaintiff getting the same relief under the counterclaim even in the event that the claim is stayed upon non payment of the security ordered, and the Court may also consider who is the true attacker in the litigation (see my judgment in Wison (Shanghai) Chemical Engineering Co Ltd v Simmons & Simmons HCMP 629 & 664/2007 dated 18 January 2008 citing BJ Crabtree (Insulations) Ltd v GPT Communication Systems Ltd (1990) 59 BLR 43 and Brand Farrar Buxbaum Llp v Samuel-Rozenbaum Diamond Ltd & Anor [2003] 1 HKLRD 600).

41. Mr. Ng has indicated that if security is ordered and the claim is stayed upon failure to make payment, the defendant shall not proceed with the rest of the counterclaim. Hence, the defendant is not as much as an attacker as the plaintiff. I agree.

42. Notwithstanding leave to defend on the 30% shareholding, the plaintiff cannot be said to have a high degree of probability of success. Hence, I shall order the plaintiff to pay security for costs.

43. As to quantum, the defendant has asked for HK$1.2 million until the end. I take into account the costs to be included for the present applications, and order the giving of security for HK$600,000 up to and before trial. The security should be paid into court within 14 days.

Costs

44. I make an order nisi that the plaintiff do pay the costs of the summons for summary judgment to the defendant forthwith, to be taxed if not agreed.

45. I make an order nisi that the plaintiff do pay the costs of the summons for security for costs to the defendant in any event, to be taxed if not agreed.

	(B Fung)
	Judge of the Court of First Instance
	High Court

Ms Vivian Lo, instructed by Messrs Jal N. Karbhari & Co., for the Plaintiff

Mr. Lawrence Ng, instructed by Messrs Or, Ng & Chan for the Defendant