LEUNG PIK WA v. POH PO LIAN AND ANOTHER

HCA 681/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 681 OF 2011

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J U D G M E N T
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1. This case concerns the beneficial ownership of a large number of shares in C Y Foundation Group Limited (“CYF”)[1], a Hong Kong listed company.  Such shares constitute a controlling stake in CYF (46.2%).  I shall refer to these shares as “CYF Shares” to follow the terminology used in the Agreed List of Issues (“L/I”) filed pursuant to the directions of this court. 

2. The plaintiff, Madam Leung Pik Wa (“Madam Leung”), is the mother of the late Kenny Kok Teng Nam (“Deceased”) who died intestate on 22 May 2008 at the age of 45.  Madam Leung brings this action as the Administratrix of the Deceased’s estate (“Estate”). The Deceased was at all material times the sole director and shareholder of Sino Gain Holdings Corporation (“Sino Gain”), a company incorporated in the BVI. 

3. The 1^st defendant, Dato Poh Po Lian (“Dato Poh”) was a friend and close business associate of the Deceased during the latter’s lifetime.  He is the sole shareholder and director of the 2^nd defendant, Luck Continent Limited (“Luck Continent”), a company also incorporated in the BVI. 

4. Luck Continent presently holds 321,625,412 shares[2] in CYF, ie, the CYF Shares.  Madam Leung maintains that all of those shares belong to the Estate.  Amongst the CYF Shares, some were acquired by Luck Continent after the death of the Deceased.  It is not altogether clear to this court why all the CYF Shares belong to the Estate.

5. It has been said on behalf of Madam Leung by Mr Wong SC, appearing with Ms Lee and Mr Lok, that her case is straightforward.  Her case is that the Deceased and Dato Poh had entered into an oral agreement (“Agreement”) in late 2006 according to which the CYF Shares were held on trust by Dato Poh for and on behalf of the Deceased during his lifetime, and thereafter on behalf of the Estate by operation of law. 

6. On the other hand, it is the defendants’ case that there was never any such agreement between the Deceased and Dato Poh.  The CYF Shares all along belong to Dato Poh beneficially. 

7. The relevant issues have been set out in the L/I.  It is plain that the present dispute is primarily one of fact.  There is no witness from Madam Leung’s side who was present when the Agreement was allegedly made.  She relies heavily on the evidence that the Deceased, via Sino Gain, had made or procured certain payments to be made in relation to the acquisition of the CYF Shares (“Acquisition”). 

8. Common sense dictates that the most important evidence for the resolution of factual disputes is the contemporaneous documents.  This is particularly so in the present case by reason of the absence of any witness from Madam Leung’s side who can speak to the Agreement.  I shall begin the appraisal of the evidence with an examination of the Acquisition, the payments made for it, the subsequent share placements and finally the oral evidence of Madam Leung and her son, Mr Lam Joo Kok (“Lam”).  The evidence of the defendants will be considered in the course of such appraisal. 

9. The guiding principles on evaluation of contested evidence are trite.  I have been reminded of those principles very recently : see SFC v Yin Yingneng Richard & Ors, HCMP 2502/12, 16 January 2015, §§58-60.  I do not propose to set them out again in this judgment.

The Acquisition

10. Much of the evidence concerning the Acquisition is uncontroversial.  The Deceased was an investment and corporate adviser from Malaysia who lived in Hong Kong.  According to the unchallenged evidence of Dato Poh, he got to know the Deceased in 2004 or 2005, and through the Deceased he was introduced to Mr Theodore Chee Tock Cheng (“Cheng”) and his wife Leonora Yung (“Yung”). 

11. In late 2006, the Deceased made a proposal to Dato Poh for the acquisition of CYF.  CYF would be used after acquisition to develop an online gaming business in the Mainland. It was thought that such business would be very profitable.  Cheng would be responsible for managing CYF[3]. It was believed that the Mainland connection of Cheng and Yung would be very useful for establishing the new online business. 

12. There is no dispute in respect of the overall structure of the Acquisition, which can be found in the Statement of Agreed Facts filed pursuant to the directions of this court.  The Acquisition consisted principally of the following transactions :

(a) On 31 January 2007, Luck Continent’s initial subscription of 3 billion shares of CYF at HK$0.01 each (total consideration of HK$30 million), and Luck Continent making a general offer (“GO”) on 5 February 2007 to all shareholders of CYF to acquire their shares at HK$0.51 per share; 

(b) After the initial subscription, Luck Continent would own about 97% of the shares in CYF.  The cost of the initial subscription and the GO were to be financed by 2 loans from Emperor Securities Ltd (“ES”) in the respective sums of HK$40 million and HK$45 million, pursuant to loan and security agreements entered into between Luck Continent, Dato Poh and ES (collectively, “Emperor Agreements”); 

(c) The GO was made on 5 February 2007, and only 14,127 shares were accepted under the same at the cost of HK$7,204.80.  Hence, the drawdown under the 2^nd ES loan, which was designed to cover the cost of the GO, was minimal;

(d) On 13 March 2007, the placement of 53,750,000 shares owned by Luck Continent to a cornerstone investor at HK$1.09 per share, which generated around HK$58.5 million for Luck Continent; 

(e) On 13 March 2007, a “top-up” placement of 900,000,000 shares owned by Luck Continent through UOB Kay Hian (“UOB”) at the price of HK$1.28 per share, which generated HK$1.15 billion for Luck Continent;

(f) These placements where necessary in order to maintain a sufficient volume of shares in the hands of the public; and

(g) On 25 May 2007, Luck Continent’s subscription of an additional 600 million new shares at HK$1.28 each at the cost HK$768 million.  This subscription was in exercise of the rights under a Share Warrant (“Warrant”) which was granted to Luck Continent as part of the Acquisition.

13. After these transactions, Luck Continent held 2.6 billion shares of CYF.  Luck Continent’s holding was subsequently increased to around 3.2 billion shares by further exercising the rights under the Warrant – 100 million shares were acquired on 8 December 2009 and 500 million shares were acquired on 8 January 2010.  Luck Continent subsequently sold 30 million of its CYF shares on 24 August 2010, and thereby reaching the present level of shareholding.

14. The 2^nd tranche of 600 million shares (100 + 500) was acquired after the Deceased had passed away.  There is no clear evidence that they were paid for directly or indirectly with money belonging to the Deceased.  I therefore reject Madam Leung’s claim to these shares in any event. 

Acquiring the “shell”

15. The above transactions were all documented.  It is Madam Leung’s case that in addition to the above transactions, there was a payment for acquiring the “shell” from the controlling shareholder of CYF at the price of HK$50 million.  This part of the Acquisition is controversial.

16. Mr Sussex SC, who appeared with Mr Lam for the defendants, objected to this part of the evidence on the ground that the issue of shell acquisition was not pleaded.  However, the objection was not accepted because (a) there is no claim in relation to the HK$50 million and it is therefore debatable whether this part of the Acquisition had to be pleaded; and (b) in light of the importance of the funding for the Acquisition, there would not be a proper adjudication of the same without a complete picture of the Acquisition. 

17. The relevant evidence here is sketchy at best. On the other hand, the Acquisition was plainly a form of back-door listing and it would be very surprising if the principal shareholder(s) would agree to give away his/their control of a listing company for free.  A listed corporate shell is a valuable asset. 

18. Indeed, Dato Poh’s own evidence is that one of the main tasks carried out by the Deceased in the Acquisition process was to negotiate with the principal shareholder of CYF, Mr Alex Wong (“Wong”), and he acknowledged that Wong’s agreement was important to the success of the Acquisition. 

19. In the Circular of the Acquisition dated 12 January 2007 (“Circular”), it can be seen that Wong was an executive director of CYF and was holding 23.57% of the shares in that company via his corporate vehicles. 

20. With the above in mind, I examine the relevant documents concerning the purchase of the “shell”.  Firstly, there are some documents which may be the Deceased’s working papers and they had been retrieved from some old files belonging to him.  There are references in those papers to the purchase of “shell” at the cost of HK$50 million[4].  It should be made clear at the outset that I do not accept that these working papers speak for themselves.  Indeed, some of the contents of these papers are difficult to decipher.  There is no evidence as to when they came into existence or who created them.  Without corroboration by other evidence, I am not prepared to rely on these papers.

21. However, there is reliable evidence of 2 payments made by Sino Gain in the sums of HK$40 million and HK$10 million on respectively 11 and 12 December 2006.  Two cashier orders were obtained by Sino Gain for these payments.  They were made payable to Quickgold Investments Ltd (“Quickgold”).  There is a suggestion by Mr Wong that Quickgold was acting for ES at the material time, but it is unsupported by any evidence.  Interestingly, the record stated that both cashier orders were “Received and held by Gary Sik until further instructions”. 

22. Gary Sik was at that time the managing director of Mitsubishi UFJ (“UFJ”), the financial adviser for the Acquisition.  There can be no doubt that the Sino Gain had paid for the cashier orders.  However, there is a photocopy of those cashier orders with the following annotation: “Returned to Issuer, & received by : Kenny Nam”.  The document was apparently signed by the Deceased and dated 22 December 2006. 

23. If the cashier orders were in fact returned to the issuer, Bank of China (Hong Kong) Ltd, one would expect Sino Gain’s account to be credited with HK$50 million.  According to the unchallenged evidence of Mr Daniel Law (“Law”), who was the bookkeeper of Sino Gain at the material times[5], the money was never returned to Sino Gain.  Mr Sussex suggested that it is possible that the bank had failed to return the money.  With respect, I find the proposition a fanciful one.

24. If the payments to Quickgold were meant for the purchase of the “shell”, then Quickgold was ultimately not paid.  It would not be right for the court to speculate why it was so.  However, as indicated in the Circular, Wong’s shareholding in CYF would be reduced from 23.57% to 0.67% upon completion of the subscription of 3 billion shares.  It is quite difficulty to believe that no payment or benefit was required by Wong in the exercise. 

25. The evidence does not allow this mystery to be resolved.  With respect, this is symptomatic of Madam Leung’s case.  She is undoubtedly handicapped by the lack of personal knowledge over the Deceased’s affairs and the documentary evidence she managed to put together does not provide a full picture on the Acquisition. Perhaps she should have sought the assistance of a forensic accountant to properly put together the fragments of financial information. 

26. This brings me to another feature of the Acquisition which is not apparent from the Acquisition documents.

Share investment scheme

27. Law gave evidence that from November 2006 to 8 March 2007, a total of about HK$82.79 million had been received by Sino Gain from various investors.  He referred to a Sino Gain Shares Statement dated 30 March 2007 (“Shares Statement”) which was prepared by him.  This document shows a number of lenders and the funds received from them for the purpose of a share investment scheme totalling about HK$77.69 million[6].  According to Law, some of the investors had entered into a loan agreement with Sino Gain in respect of their investment.  The investors were repaid from 30 March 2007 onwards in the form of cash and/or shares in CYF.  The above evidence of Law’s was not challenged.

28. Further, Law’s evidence is corroborated by that of Dato Lim Sze Guan (“Dato Lim”), who gave evidence for Dato Poh.  Dato Lim’s name appears on the Shares Statement.  According to Dato Lim, he learned about a good investment opportunity which the Deceased had via a mutual friend, Mr Cheah Yoke Foo (“Cheah”), in around November 2006.  Later, he and Cheah met the Deceased to discuss that investment.  Not a lot of details were disclosed to them by Deceased.  However, in essence the investments of the investors would be pooled into an investment vehicle, namely, Sino Gain which would take up shares in CYF.  The major shareholder of CYF would be Dato Poh, who Dato Lim believed to be a well-known businessman of substance from Singapore.  Further, the Deceased said that the acquisition price for the shares would be around HK$0.50 or HK$0.51 per share, and there would be a return of at least 20% from the investment. 

29. In due course, Dato Lim signed a loan agreement with Sino Gain to provide it with an interest free loan of HK$4.5 million for 6 months.  Apparently, the Deceased took the view that the investments should take the form of interest free loans.  On 1 December 2006, Dato Lim paid HK$4.5 million to Sino Gain by way of a cashier order as his investment. 

30. In about mid-March 2007, Dato Lim was informed by the Deceased through Cheah that he was entitled to be allotted shares in CYF in return for his investment at a notional acquisition price of HK$0.51 per share.  Dato Lim gave instructions to sell part of his shares at the price of HK$1.28 per share yielding HK$5.4 million, thereby getting back his investment with exactly 20% profit. 

31. In mid-June 2007, Dato Lim made an enquiry with the Deceased through Cheah on the necessity for a fresh loan agreement given the expiration of the existing one.  The reply email from the Deceased stated as follows :

“The mentioned loans have fully converted into shares and has been partially realized into cash through first placement exercise, cash receipt has been refunded earlier to each holder, the remaining shares holding will be transfer to each holder after six months maturity from first placement thereby no additional agreement required.”

32. The balance of Dato Lim’s shares was not transferred to him despite repeated inquiries and demands.  Eventually, after the Deceased had passed away, Dato Lim took up the matter with Cheng. Eventually, those shares were transferred into his share account held with HSBC in mid-2009.  Dato Lim did not know who transferred those shares to him but he assumed that it was Cheng. 

33. I find Dato Lim to be a reliable witness.  His evidence is consistent with the documents and he was straightforward as a witness. 

34. The evidence is not clear as to precisely how the funds raised from the investors (“Funds”) were deployed.  Although the circumstances suggest that they were somehow used in the Acquisition, it is puzzling as to what they were used for.  As indicated above, the subscription of the 3 billion shares was financed by the 1^st ES loan.  The GO had yield only a handful of shares, and the subsequent placements had in fact produced a huge surplus due to the very substantial increase in the share price. 

35. It is possible that the Funds were used to finance the payment of HK$50 million for the acquisition of the shell, but then the payment was ultimately not required (see above).  It is also possible that the Funds were used to pay off the ES loans (see below).  Indeed, despite the absence of a clear paper trail, Mr Sussex has fairly accepted the inference that part of the Funds (about HK$25.26 million) was used to repay the ES loans (“Repayment”).  However, the Repayment only constituted a small part of the Funds.

36. Another inference which Mr Sussex has accepted is that part of the Funds was used in acquiring some of the placement shares (see below). 

37. I should also mention that according to the terms of the loan agreement signed by Dato Lim, the funding was for “various financial instrument investments”.  Hence, it is not at all certain that the Funds were deployed solely in the Acquisition. 

38. The fund raising was clearly driven by the Deceased.  It tends to suggest that, contrary to the evidence of Dato Poh, he was playing a significant role in the Acquisition (more than that of someone simply stringing the deal together).  Further, if the Funds were indeed used to pay off Luck Continent’s debt incurred in the Acquisition (the ES loans), it lends some credence to the suggestion that there is considerably more to what appears on the surface. 

39. In his final submissions, Mr Sussex suggested that the Deceased could have been a partner in this very lucrative acquisition of CYF. 

Payments for the Acquisition

40. As indicated above, this is the lynchpin of Madam Leung’s case.  It is common ground that the Share Subscription cost of HK$30 million came from the 1^st ES loan of HK$40 million. 

41. There were a number of other expenses in connection with the Acquisition.  These expenses were discharged by Sino Gain either directly or indirectly.  In respect of the direct payments by Sino Gain, they have been helpfully set out in the plaintiff’s opening submissions (“O/S”) at paras 37 and 38.  They included, inter alia, payments to UFJ, legal expenses and 2 temporary loans to Luck Continent each of HK$300,000 (“SG Loans”).  The total amount was nearly HK$1.5 million.  With the exception of a HK$14,000 cash payment by the Deceased (made on 23 May 2007), all these payments were made on or before 24 January 2007.

42. The indirect payments are set out in paras 39 to 43 of the O/S.  The assertion is that the SG loans were used to discharge various expenses associated with the Acquisition totalling about HK$736,000. 

43. On balance, I am prepared to accept that these payments were indeed payments of Acquisition expenses made by Sino Gain.  It is important that (a) there is no real denial of this part of Madam Leung’s case and (b) there is no suggestion that Luck Continent was engaged in other business at the material time which might have accounted for some of the payments.  In the defendants’ final submissions, these payments of expenses were accepted.  It was suggested by Mr Sussex that part of the Funds was used for these payments.  However, Mr Sussex submitted that it was done as a matter of convenience, and possibly to minimise interest payment, because there was sufficient money from the 1^st ES loan to pay the expenses. 

44. The most important payment made by Sino Gain in respect of the Acquisition was the Repayment.  It was made on 8 March 2007 by Sino Gain to ES by way of a cashier order.  As regards the balance of the repayment for the loans, Mr Wong relied upon a Notes to Transactions found in the Deceased’s papers[7] (“Notes to Transactions”) which suggests that most of the balance (about HK$11.37 million) was funded by the proceeds of sale of some shares, likely to be CYF shares, at HK$1.2 per share.  Mr Sussex did not disagree with this part of Madam Leung’s case.  However, it is another mystery as to where those shares come from. 

45. The timing of the Repayment is important.  It appears that the ES loans were repaid to allow a Charge over the Subscription Shares (a security under the Emperor Agreements) to be lifted so as to complete the placement exercise. 

46. There is no denial by Dato Poh on the Repayment.  His evidence is that he knew little about the details of the Acquisition.  He relied upon the Deceased and his own staff to take care of those matters.  Further, Dato Poh’s case is that the Deceased was responsible for arranging the finance for the Acquisition. 

47. I regret to say that I do not find Dato Poh to be a credible witness.  I have no doubt that he is hiding the truth from the court.  As a successful businessman, there can be no doubt that he must have a clear mind on matters of finance.  It may be acceptable for him not to know about the payment of expenses of HK$1.5 million.  It is quite a different matter when it comes to discharging the ES loans.  Further, I cannot see why the Deceased should be responsible for the Repayment when there was, according to the defendants’ case, no prior agreement on what reward he would reap from the Acquisition.  Businessmen would not normally do such a thing without return.

Proceeds of the placements

48. The evidence here is also rather murky, and this is where the defendants’ case is exposed. 

49. The Acquisition turned out to be a very profitable business venture.  According to the recollection of Dato Poh, after the GO the shares acquired by Luck Continent were worth in excess of HK$2 billion. 

50. According to the accounts of Luck Continent, the proceeds of the 1^st placement, HK$58.5 million (see para 12(d) above), were recorded as having been received on 19 April 2007.  There is no clear evidence as to where the money had gone to.  However, the accounts show that the money did not leave Luck Continent as a specific sum.  Instead, there were various outgoings which consumed the funds. 

51. The 2^nd placement was actually a disposal of 300 million shares as opposed to 900 million bearing in mind that there was a subscription by Luck Continent of an additional 600 million shares (see para 12(e) and (g) above). 

52. According to Dato Poh, the 2^nd placement produced net proceeds in excess of HK$300 million.  He was extremely vague on where this huge sum of money had gone to.  This is simply unbelievable and there is little doubt that Dato Poh was deliberately holding back the truth from the court.  After much probing under cross-examination, Dato Poh eventually said that out of these proceeds HK$100 odd million was held by Luck Continent and HK$200 odd million was held by the Deceased on his behalf.  When he was asked whether he had done anything to recover the money held for him, he said that he was still checking the accounts.  Such evidence cannot be taken seriously.

53. Relying upon the accounts of Luck Continent, Mr Wong said that no less than HK$143.25 million had been paid out of Luck Continent’s accounts to or in the name of Sino Gain or the Deceased.  Dato Poh tried his best to wriggle out of these documents by saying that they had not been audited and that they were prepared by a staff, Mr Philip Yu[8], who was later convicted of certain criminal offence.  In light of the fact that these proceedings have been on-going for a number of years, such evidence is again difficult to accept.  It is incredible that an honest businessman would not have a clear idea about an asset of such value.  On the other hand, it would not be right to treat the contents of the unaudited accounts as facts. 

54. Putting aside the inconsistencies in his evidence, Dato Poh’s case is that he had paid HK$80 million to the Deceased to cover the expenses paid by him on his behalf with the balance to be kept by the Deceased as his reward for a very successful acquisition. 

55. On any account, this was a very handsome reward indeed.  Whilst it should be viewed in the context of a highly lucrative transaction, the manner in which the reward was agreed is highly unusual. According to Dato Poh, there was no prior agreement on any reward.  The sum was simply what the Deceased asked for.  There is no suggestion of any discussion on how it was assessed or what relationship it bore with the Deceased’s contributions in the Acquisition.  Neither is there any evidence that Dato Poh had evaluated the reasonableness of the suggested reward.  Indeed, his evidence is that it was within his contemplation that the entire proceeds of HK$300 odd million could be given to the Deceased as his reward.  Again, this is not what one expects from a reasonable businessman and I do not believe this evidence. 

56. I believe that the way in which the Deceased was in a position to draw upon a very substantial part of the proceeds of the 2^nd placement, coupled with the other unusual features identified above, strongly suggest that there is a good deal more to what appears on the papers.

The 2^nd placement 

57. Of the 900 million shares owned by Luck Continent that were placed through UOB under the “top-up” placement, 99,340,000 shares were placed to Sino Gain on 19 March 2007 at HK$1.28 per share, making a total consideration of about HK$128.57 million.

58. Sino Gain financed part of the purchase price for the shares with margin facilities of HK$35 million from UOBpursuant to a Facility Letter dated 19 March 2007.  Mr Sussex submitted, without demur from Mr Wong, that the inference from the evidence is that the balance of about HK$93.57 million was made up of funds received by Sino Gain under the Share Investment Scheme.

59. The names of the placees and the number of shares placed to each of them (including Sino Gain) in the top-up placement are shown in a spreadsheet[9]. The largest placee was Tai Fook Securities (“TFS”), which was placed with 200 million shares at HK$1.28 per share for a total consideration of HK$256 million.

60. For reasons which are wholly unclear, it appears that TFS defaulted on the payment for the bulk of these shares or the payment was otherwise not accounted for to Luck Continent :

(a) According to Luck Continent’s journal[10], on 26 March 2007, entries were made for the credit of HK$256 million for the sale of 200 million shares to TFS;

(b) On the same day, however, HK$233 million of that sum was transferred to accounts receivables (A/R);

(c) On 31 March 2007, the sum of HK$233 million was written off entirely with the notation “Write-off A/R from [TFS] due to bad investments made”.

61. It was pointed out by Mr Sussex that in the Notes to Transactions there was an entry dated 26 March 2007 for “Reverse 200m shares” under “LuckC’s TF account”, with the consequential “Off Record” debit of HK$255 million.  For what it is worth, such evidence fortifies the belief that there was much going on behind the scene, but it is an impossible task for the court to deduce from the bits and pieces of information what actually took place.

62. For completeness, I should mention that at the time when the Deceased passed away he had about 26.68 million shares in CYF under his own name. 

Blank transfer forms

63. The final piece of documentary evidence is made up of 3 documents signed by Dato Poh in relation to Luck Continent (“Blank Documents”):

(a) blank Share Transfer Form;

(b) blank Resignation of Director; 

(c) blank Resolution of Luck Continent approving the share transfer and acceptance of resignation.

64. Madam Leung’s case is that the Blank Documents were recovered from the Deceased’s files and their existence goes to confirm her case of a trust arrangement whereby the CYF Shares were merely held by Dato Poh on trust for the Deceased.

65. Countering the argument, Mr Sussex said that the Blank Documents could only transfer the shareholding of Luck Continent and do not support Madam Leung’s pleaded case that the subject matter of the trust was the CYF Shares and not the shares of Luck Continent. Whilst Mr Sussex is technically correct, the evidence is that Luck Continent had no other business and therefore transferring the shareholding of it would be equivalent to transferring the CYF Shares.

66. However, I am unable to agree that the Blank Documents, whether considered on their own or in conjunction with the other evidence, support a trust arrangement as suggested.  There is a compelling inference that those documents were created to answer the obligations under clause 2.2 of the Share Charge executed as a security for the ES loans. 

67. The evidence on how the Blank Documents came into the possession of the Deceased is not very clear.  There is a document from Luck Continent dated 9 March 2007 authorising Mr Lu Qing Hua to acknowledge the receipt of all documents returned by ES upon discharge of the loans.  According to Dato Poh, Mr Lu was Cheng’s assistant and he had performed various menial tasks in connection with the Acquisition.  However, given that the loans were repaid by the Deceased it is not surprising that the Blank Documents were in his hands. 

68. I believe that the 2 critical points here are, firstly, whether Mr Wong is right that the Blank Documents were not provided under the Share Charge but were created for a trust arrangement.  This contention is against the weight of the evidence[11] and cannot be accepted.  Secondly, why would 2 sophisticated people agree to use a set of documents for the transfer of the shareholding of Luck Continent for the purpose of a trust instead of a simple declaration of trust by Luck Continent?  Hence, I am not persuaded that the Blank Documents assist Madam Leung’s case. 

Conclusion on the documentary evidence

69. It is plain from the above analysis of the documentary evidence that there is insufficient evidence to demonstrate what the arrangement was between the Deceased (probably also representing various investors), Dato Poh and Cheng in respect of the Acquisition.  I agree with Mr Sussex that the precise mechanism or details of the arrangements made by the Deceased, who engineered this very successful transaction, may never be known after his death. 

70. This is not to say that Dato Poh does not know whether the CYF Shares belong to him beneficially.  I have serious doubt whether they all belong to him.  However, the lack of credibility in Dato Poh’s evidence does not assist Madam Leung in proving her case.  There is no sufficient evidence to infer that the CYF Shares belong to the Deceased beneficially or that there was a trust arrangement as alleged.  In all likelihood, the money used in the Repayment (the strongest point of Madam Leung) did not belong to the Deceased. 

71. For completeness, I should mention 2 point on which Mr Wong has put considerable emphasis. Firstly, the account treatment in Luck Continent’s books concerning 2 sums owed to it by Sino Gain and the Deceased.  They amounted to about HK$106 million and were written-off as bad debts on 31 December 2007.  Taken at the highest, I do not believe that this adds very much to the picture that certain arrangements concerning the Acquisition had been kept secret.  Without more being found out about the arrangements, the alleged trust has no proper foundation.  Further, the accounting treatment is at most a piece of circumstantial evidence to be considered with the rest of the evidence. 

72. Secondly, according to the books of Luck Continent, Dato Poh had only made 1 drawing in the sum of about HK$22.22 million.  Mr Wong suggested that the smaller drawing, compared to the payments made to or on behalf of Sino Gain and the Deceased, reflects the fact that Dato Poh was merely acting as a nominee.  I am not attracted by the submission because one cannot ignore the fact that the CYF Shares, which was trading at HK$25 per share during the better part of March 2007, were in the hands of Dato Poh. 

Evidence of Madam Leung and her son

73. I do not believe that Madam Leung’s case is assisted by her own evidence or that of Lam.  They were poor witnesses, more so in the case of Lam[12].  Their evidence is contradicted by incontrovertible evidence and they had no proper explanation for the contradictions.

74. Madam Leung’s evidence may be summarised as follows :

(1) She was told or given to understand on numerous occasions by the Deceased when he was still alive that:

(a) he was the true owner of the CYF Shares and Dato Poh was just a nominee and

(b) he controlled Sino Gain and used it as the vehicle to acquire or hold the CYF Shares;

(2) She was present at a meeting in September 2007 which took place at the Deceased’s residence where the Deceased told Cheng and Dato Poh how the CYF Shares should be dealt with if he died, and Cheng and Dato Poh said that they would respect his wishes thereby acknowledging the Deceased’s ownership of the CYF Shares;

(3) In the period after the Deceased passed away on 22 May 2008 up to an audio recorded meeting on 27 December 2010 (“Recorded Meeting”), she and Lam had numerous meetings and discussions with Dato Poh demanding for the CYF Shares or their proceeds, but to no avail.

75. Madam Leung’s evidence was echoed by that of Lam.

76. I do not find it credible that the Deceased had said anything to his mother or his brother that the CYF Shares were his property.  Such a proposition is wholly inconsistent with the fact that the Schedule of Assets and Liabilities of the Deceased filed by Madam Leung’s solicitor, Mr Benson Chan (“Chan”), on 15 June 2009 under her instructions in a probate application made no mention of the CYF Shares.  On the other hand, the 26.68 million shares of the Deceased were referred to in that Schedule.  Chan confirmed in his evidence that he was not told about the CYF Shares at the time when the Schedule was prepared. 

77. Although Chan did say that he was told by Madam Leung a few months before he ceased to act for her, ie, a few months before March 2011 about a “huge” volume of shares owned by the Deceased in CYF, his recollection of that matter was admittedly vague.  Further, this part of Chan’s evidence was not based on any written record, and an email from Lam (who was acting as the interface between his mother and her solicitors) dated 12 May 2010 (“Email”) which Chan relied upon to refresh his memory[13] in fact made no mention of any CYF share.  I am therefore reluctant to place much weight on this piece of evidence.  In any case, giving its timing this evidence, taken at the highest, does not absorb the doubt over the allegation that the Deceased had said anything to the effect that he owned the CYF Shares.

78. In the Email, Lam wrote :

“… I have just got a piece of new information that my late brother was a shareholder and a director of a Hong Kong based BVI company which has records showing various transactions … The Company name is [Sino Gain].”

79. I agree with Mr Sussex that the Email clearly shows that Lam and his mother did not even know about the existence of Sino Gain until around May 2010. Further, this document supports Dato Poh’s evidence that Madam Leung had little idea of the nature and whereabouts of the Deceased’s assets. 

80. Both Madam Leung and Lam had given evidence of a meeting with Dato Poh on 15 June 2010 at a coffee shop in Malaysia, at which Dato Lim was also present.  I am inclined to accept Dato Lim’s evidence that there was no mention of or demand for return of any CYF shares at that meeting.  As stated above, I find Dato Lim to be a credible witness.

81. The Recorded Meeting shows that neither Madam Leung nor Lam thought that the CYF Shares belonged to the Deceased.  They were trying to persuade Dato Poh to sell those shares to Cheng at the meeting.  I have no doubt that Madam Leung’s explanations that she might get the purchase price from Cheng or that Cheng might resell the shares at a higher price and give her the difference were concoctions made under the pressure of cross-examination.

Objective indicia 

82. I agree with Mr Sussex that there are powerful pointers against the existence of a trust arrangement.  Firstly, there is no document recording the arrangement.  The Deceased was ill for a prolonged period of time.  He would have been concerned about a huge asset held in the name of another person.  He clearly had the time and resources to put his affairs in proper order.  Indeed, the Deceased could have gained control over the CYF Shares by filling in the Blank Documents.  The absence of any document militates strongly against the existence of a trust arrangement. 

83. Secondly, there is no sensible reason advanced as to why the Deceased had to conceal his ownership of the CYF Shares. 

84. Thirdly, if the CYF Shares belonged to the Deceased, he was acquiring his own shares by participating in the top-up placement.

Resulting trust

85. Finally, I do not believe that Mr Wong has a valid argument on resulting trust based on the Repayment.  It has been point out in para 23 of the defendants’ opening submissions that the argument is misconceived.  At most, the Repayment was a discharge by Sino Gain of the indebtedness of Luck Continent owed to ES, which may result in an assignment of ES’s chose in action against Luck Continent to Sino Gain.  Mr Wong has not provided any valid answer to this analysis.  With respect, the argument should have been withdrawn by Mr Wong.

Conclusions

86. For reasons stated above, Madam Leung has clearly failed to prove her case.  This action is accordingly dismissed.  I make an order nisi that the costs of this action be to the defendants with a certificate for 2 counsel.

HCA 681/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 681 OF 2011

________________________

________________________

____________

R U L I N G

____________

1.  This is my ruling on the objection taken by the defendants in respect of the last sentence of para 41 to para 75 of the witness statement of Mr Law Kiu Cheong on the ground that such evidence (“Subject Paras”) is inadmissible opinion evidence. 

2.  The arguments raise 2 main issues.  Before dealing with them, I shall address an objection based on the relevance of 2 payments amounting to HK$50m said to be the price for the “Shell Acquisition”.  It is conceded by Mr Wong that the plaintiff makes no claim in relation to those payments. However, I would not exclude the relevant parts of the Subject Paras for this reason alone because it appears that the Shell Acquisition was part and parcel of the acquisition of CYF and therefore the exclusion of the same may hinder a proper understanding of the evidence. 

3.  The 1^st issue concerns Mr Wong’s contention that a large part of the Subject Paras is “largely descriptive and factual”.  To begin with, the Subject Paras seek to advance a forensic analysis of the available accounting and other documents in order to construct a set of facts by inference.  This is typically an exercise carried out by a forensic accountant and is undoubtedly opinion evidence.  It is not disputed that Mr Law is not suitably qualified to provide expert accounting evidence. 

4.  It seems to be suggested that part of the Subject Paras is no more than what Mr Law, an experienced bookkeeper, understands to be the effect or meaning of certain accounting documents, and such evidence is admissible.  This is to be distinguished with those accounting documents which Mr Law created under the instructions of the Deceased.  There is no objection to the latter. 

5.  It should be pointed out that the admissibility of the accounting documents is not in issue.  Indeed, Mr Sussex does not dispute the existence of the payments identified in the Agreed List of Issues.  The dispute goes to whether the payments were made to repay the “Emperor Loan(s)”.  Given that the documentary evidence very much speaks for itself, it is doubtful why the disputed parts of Mr Law’s evidence are of assistance to the court.

6.  Pursuant to the directions of this court, a Scott Schedule has been filed by the plaintiff to identify which part(s) of the Subject Paras fall within the category identified in para 4 above.  The burden must be on the plaintiff to justify the admissibility of her evidence.  It is not for the court to tease out for the plaintiff which particular sentence or part thereof in the Subject Paras which may not be objectionable. 

7.  It appears to me that the plaintiff’s assertion that much of the Subject Paras are merely factual evidence is, with respect, made indiscriminately.  It is clear that the substance of the Subject Paras is to advance a case based on the opinion of Mr Law.  I find considerable force in the defendants’ reasons for objection stated in the Scott Schedule. 

8.  This brings me to the 2^nd issue which turns upon s 58(2) of the Evidence Ordinance, Cap 8.  With respect, the reliance by the plaintiff on this provision is misconceived.  It codified a common law rule which allows a lay witness to give opinion where such evidence is “adherent or closely associated” with his evidence of fact (see Sherrard v Jacob [1965] NI 151 at pp 4-5 (electronic version)).  A typical example for the operation of such rule would be evidence of identification.  Hence, such rule had been described as a “convenient and compendious mode of eliciting facts” (see HKCP 2015, Vol 2, rubic J1/58/12).  I am also guided by an instructive analysis of the rule in Expert Evidence: Law and Practice by Hodgkinson & James, paras 1-036 to 1-040.

9.  There is clearly a world of difference between the opinion evidence which may be allowed under s 58(2) and the Subject Paras.

10.  Having gone through the Scott Schedule, and bearing in mind the guidance derived from Chan Woon Fui v Chan Wing Suen & Ors, HCCW 350/04, 11 July 2005, §4 and Warham & Ors v Cathay Pacific Airways & Anr, HCMP 4400/01, 10 December 2008, §5, I would only allow such parts of the Subject Paras which can properly be said to be factual evidence within the knowledge of Mr Law, namely, paras 42(2), 42(4) (first 2 sections), 42(6), 42(9), 43 (first section), 47, 49, 50, 51, 58 and 60 (first section) as set out in the Scott Schedule to be admitted in evidence. 

11.  In respect of paras 74 and 75, I would allow the admission of such evidence which goes to show that the Deceased might be a man of some means. 

12.  Finally, I should mention for completeness that there are parts of the Subject Paras which contain legitimate factual evidence.  However, such parts are intertwined with illegitimate opinion evidence.  In any event, the factual parts of such evidence are repetitive and therefore disallowed.

HCA 681/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 681 OF 2011

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REASONS FOR DECISION

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1.  This was an appeal by the defendants from an order of Master S Kwang dated 27 September 2013. At the conclusion of the hearing, the appeal was dismissed with written reasons to be handed down which I now do.

The master’s order

2.  The master dealt with two summonses.  The first was the defendants’ summons dated 30 May 2013 (“the dismissal summons”) seeking (1) dismissal of the plaintiff’s action with costs and, in the alternative, (2) an order that the plaintiff file and serve a further affirmation.

3.  Dismissal was the sanction specified for non-compliance in an unless order made by Master de Sousa (by consent) dated 5 March 2013 (“the unless order”) requiring the plaintiff to file an affirmation to disclose the documents specified in the schedule to the consent summons by   4:30 pm on 18 March 2013.  It is the defendants’ case that the plaintiff had failed to comply with the unless order.

4.  The plaintiff does not accept that there was non-compliance with the unless order.  The second summons dated 19 September 2013 (“the relief summons”) was taken out by the plaintiff for relief from sanction if, contrary to the plaintiff’s case, there had been non-compliance.

5.  The master was not satisfied that there had been a clear and obvious breach of the unless order and ordered, inter alia, that

1) Paragraph 1 of the dismissal summons be dismissed with costs;

2) The plaintiff do file and serve an affirmation within 21 days to clarify and confirm whether she has any documents in her possession, custody or power relating to “those documents for the Bank of China as provided in paragraph 2 of the Schedule to the Consent Summons dated 3 January 2013” (“the schedule”);

3) There be no order as to costs of the relief summons.

6.  Paragraph 2 of the schedule reads:

“All bank statements, advices, ledgers, vouchers, accounts, cheque books and stubs of Sino Gain Holdings Corporation (“Sino Gain”) since [the date of Sino Gain’s incorporation up to November 2012].”

7.  The relief sought in the notice of appeal is an order in terms of paragraph 2 of the dismissal summons or alternatively an order in terms of the relief summons.  The appeal is therefore largely academic and the real issue in this appeal is costs.

CHRONOLOGY

A.   Pre 18 March 2013

8.  Kok Teng Nam (“the deceased”), the plaintiff’s son, died on 22 May 2008.  Letters of administration ad colligenda bona were granted to the plaintiff on 12 April 2011.

9.  The plaintiff is 70 years old and lives in Malaysia.  It is the plaintiff’s case that the deceased who, during his lifetime, was the sole shareholder and director of Sino Gain, was its sole owner.

10.  In mid-March 2011, when the plaintiff was in Hong Kong making enquiries and searching for documents and information relating to the shares in CY Foundation Ltd (“CYF”), the ownership of which is the subject matter of this action, she had been provided with box files of documents that had been kept in storage at the office premises of CYF which had not been noticed until March 2011.  She was advised that they belonged to the deceased.  On 31 March 2011, the plaintiff retained Messrs Deacons (her former solicitors) to review the documents.

11.  On 14 April 2011, Deacons, wrote to the Bank of China (“the bank”) to the effect that documents available from the deceased’s files show that Sino Gain maintained various accounts with the bank as specified in that letter (collectively “Sino Gain’s accounts”) and that the deceased was the sole signatory.  The bank was asked to provide certified copies from the date of the opening of Sino Gain’s accounts to         31 December 2008 of no fewer than 6 detailed categories of banking documents (including monthly bank statements, transactions, banking history etc.) relating to Sino Gain’s accounts (“the banking documents”).

12.  In response to the request, the bank replied on 27 April 2011, enclosing “the histories of Time Deposit Account and Account Nos 012-611-0-001863-2, 012-611-1-008600-9 and 012-611-9-202996-5” (“the 2011 account histories”) only and acknowledged receipt of $2350 for handling charges incurred.  For convenience, the exchange of correspondence on 14 and 27 April 2011 between the plaintiff and the bank is hereinafter referred to as “the April correspondence”.

13.  As appears from the covering letter dated 18 July 2011 from the bank to Deacons, the bank also provided certified copies of 5 cashier orders and banking transaction records of Sino Gain drawn in favour of “Quickgold Investments Ltd”.  No further correspondence passed between Deacons and the bank after 18 July 2011.

14.  The plaintiff became the sole shareholder of Sino Gain on  28 July 2011 and its sole director on 16 August 2011.  Nevertheless, she was never involved in the management of Sino Gain and had no direct knowledge of its affairs.

15.  The plaintiff commenced this action on 18 April 2012.  

16.  The plaintiff’s list of documents, filed by Deacons, is dated  14 September 2012 (“the list”).  The documents disclosed in Part 1 of Schedule 1 of the list were itemised under, inter alia, the following headings:

“I. …

III. Copy documents from the 3 lever arch files and the Deceased’s files of papers (copies of all of which HW & Co have obtained on 20.12.2011 and 9.1.2012 after inspection at Deacons’ office)

[Items 46-327]

IV. Miscellaneous

A. Cheques, bank documents and documents

[Items 328-353]

B. Docs. Relating to Grant obtained in the BVI

[Items 354-356]

C. Documents in relation to Malaysia’s Proceedings…

[Items 357-363]

D. Company Searches

[Items 364-370]

E. Land Searches

[Items 371-374]

…”

HW & Co are Messrs Henry Wai & Co the defendants’ solicitors (“HWC”).

17.  The documents referred to in §§11, 12 and 13 above are respectively items 332, 350 and 333 of the list.  The enclosures referred to in item 350 are the 2011 account histories (which form part of that item) and the banking transaction records referred to in item 333 are       items 334-341.

18.  On 25 September 2012, HWC requested Deacons to provide documents from the list identified by reference to item numbers.  The documents requested included “items 331 to 364”.

19.  On 3 October 2012, Deacons provided “copies of documents as requested in your letter with the document numbers marked thereon, totalling 539 pages”.

20.  When Deacons provided those documents on 3 October 2012, they were about to cease acting for the plaintiff.  For shortly thereafter, on 15 October 2012, the plaintiff’s present solicitors, Messrs Ho & Tam (“H&T”) replaced Deacons.

21.  The initial request for specific discovery was made in a letter dated 8 December 2012 from HWC to H&T.

22.  Within 10 days of the initial request, not having received a response, HWC took out a summons for specific discovery of, inter alia, the banking documents.  The upshot was a consent summons resulting in the order of 3 January 2013 to the effect that the plaintiff would provide specific discovery of, inter alia, the banking documents within 14 days.

23.  When the plaintiff failed to comply with the January order, the defendants issued a summons on 27 February 2013 for an unless order.

B.   Post 18 March 2013

24.  The plaintiff did not resist the application.  Rather, as earlier noted, she agreed to the unless order which was an order by consent.

25.  After the filing of the plaintiff’s 7th affirmation on        18 March 2013 as required by the unless order, HWC did not complain until their letter of 15 May 2013 that the plaintiff was in breach.  Apart from a few items identified in HWC’s letter (“the disclosed items”), it was said that “bank statements, and advices and copies of cheques” (“the outstanding banking documents”) were within her power and that she had failed to make discovery of the same.

26.  H&T replied on 20 May 2013 to the effect that the plaintiff would endeavour to write to the banks to enquire for the outstanding banking documents.  In fact the plaintiff did approach the bank on or about 22 May 2013 and not having heard by 6 June 2013 caused H&T to formally write to the bank which they did on 6 June.  Regrettably, the bank was uncooperative and unresponsive and did not provide a substantive reply until 12 September 2013 despite numerous chasers from H&T.

27.  Upon receipt of the substantive reply on 12 September 2013 that was by way of a telephone call, H&T immediately informed HWC of their understanding of the bank’s latest position.  They proposed that an affirmation be filed pursuant to paragraph 2 of the dismissal summons with costs to the defendants payable forthwith.  As there was no response to that offer, the plaintiff filed the relief summons on 19 September given the then impending hearing scheduled for 27 September.

28.  Upon receipt of the account histories provided under cover of a letter dated 16 September 2013 (“the 2013 account histories”) but not received until 23 September 2013, H&T immediately provided copies to HWC.  On the same day (four days before the hearing), H&T again proposed that the plaintiff would file an affirmation pursuant to  paragraph 2 of the dismissal summons, undertaking to disclose any further relevant bank if so provided within 21 days after receipt and that the summons has been withdrawn with no order as to costs.

29.  The defendants did not respond to the proposal.

30.  As it was not entirely clear from the telephone conversation of 12 September with the bank’s officer and the covering letter of 16 September whether the bank had any further bank documents relating to Sino Gain’s accounts, H&T wrote on 15 October 2013 seeking clarification and confirmation but as at the date of the hearing, there had been no reply.

The unless order

31.  This order required the plaintiff to file and serve by 4:30pm on Monday, 18 March 2013 an affirmation stating

“whether she has or has at any time had in her possession, custody or power the documents or classes of documents specified in the Schedule to the Consent Summons filed herein on 3rd January 2013 (“the Said Documents”), and if the said Documents or any of them have been but are not now in her possession, custody or power, stating when she has parted with the same and what has become of the same, in compliance with Paragraph 1 of the Consent Order dated 3rd January 2013 made by Master Ho”

failing which the action would be dismissed with costs to the 1st and    2nd defendants, such costs to be taxed if not agreed.

32.  On 18 March 2013, the plaintiff filed her 7th affirmation.  It is a short document.  Paragraphs 2 and 3 concern corporate documents that were produced and about which there is no issue.  Paragraphs 4 and 5 read:

“I crave leave to refer to paragraph 15 (sic) of my 5th Affirmation dated 23 November 2011 wherein I deposed that I was provided with box files of documents that belonged to Kenny. These documents were subsequently described as items 46 to 327 under the caption: III. Copy of documents from the 3 lever arch files and the Deceased’s files in the List of Documents of the Plaintiff dated 14 September 2012.

Save as the documents deposed to paragraphs 2 and 4 above, I have not had nor had at any time in possession, custody or power the documents specified in paragraphs 2, 3 and 4 of the Schedule referred to in the said Summons.”

33.  Whether the unless order had been complied with has to be assessed against the backdrop of relevant events.

The issues

34.  The appeal was brought on the basis that the master erred in principle in holding that there had been no clear and obvious breach of the unless order.  It was said that the plaintiff had made no genuine effort to comply with the unless order when she filed her 7th affirmation.  She had omitted to make any enquiries with the bank.  The defendants maintain that they had never seen the 2011 account histories until those were produced as an exhibit to the affirmation of Billy Tam, the plaintiff’s solicitor, filed on 19 September 2013.

35.  Mr Lam who appeared for the plaintiff submitted that given the deficiencies of the 7th affirmation, it was proper for the defendants to issue the dismissal summons.  Further, and in any event, it was submitted that in cases where there has been some sort of compliance, a further application should issue to determine if that compliance was illusory.  If it was not illusory but incomplete, the court could make a further order for proper compliance.  In that regard, the court was referred to the procedure applicable under the English rules (CPR Rule 3.5).  It was submitted that, in the circumstances, the defendants were entitled to issue the dismissal summons and, accordingly, they should have been awarded costs.

Was there a breach of the unless order?

36.  The 7th affirmation was filed on time.  The complaint is that it was defective and the deficiencies were such that they rendered compliance illusory.

37.  The documents listed under heading III of the list were the documents mentioned in §10 above.  While paragraph 4 of the       7th affirmation not unnaturally focused on those documents, the list itself had been served on the defendants in September 2012.

38.  Heading III documents comprising 282 items were listed over 20 pages.  Heading IV bore the description “Miscellaneous”.  Part A under heading IV bore the subheading “Cheques, bank documents and documents” and comprised items 328-356.  Clearly those documents were also responsive to the specific discovery sought.  Paragraph 4 omitted any mention of those items. The omission in overlooking the possible relevance of items under the ‘Miscellaneous’ heading appearing at the end of 20 pages under heading III is perhaps not entirely surprising although it suggests that the level of care taken was wanting.

39.  But the critical question is whether the omission was made in good faith.  The defendants have had the list since mid-September 2012.  When the relevance of the omitted items is apparent from a perusal of the list, there would have been no reason for the plaintiff not to make a reference to those items: the omission could not have been deliberate.  Hence it is very probable that this was a case of inadvertent oversight rather than wilful default.  On the facts of this case, there could be little scope for any intentional concealment or suppression.

40.  Another criticism made is that the plaintiff failed to make enquiries of the bank.  The plaintiff frankly acknowledged that she had not done so because she believed that her former solicitors who had corresponded with the bank between April and July 2011 had made all relevant enquiries.  As stated in §13 above, there had been no further correspondence passing between Deacons and the bank after 18 July 2011.

41.  In those circumstances, I do not consider that the plaintiff’s belief was unfounded although the making of a further enquiry would forestall the kind of criticism now being made against her.  But once alerted to the defendants’ complaint, the plaintiff made good the ‘omission’.

42.  The plaintiff’s case is that she had reason to believe that all banking documents shown in the list had been produced.  Of particular importance in the present case are items 332-341 and 350.  The April correspondence (comprising items 332 and 350) was accordingly made known to the defendants.  So was the further communication from the bank on 18 July 2011 (item 333) specifically stating that the documents sent therewith were “separately enumerated” (i.e. items 334-348).

43.  Pausing here, it is to be noted that by way of contrast, items 350 reads:

“ BOC (HK)’s letter to Deacons with enclosures;”

So in contradistinction to item 333, the enclosures had not been separately enumerated and, hence formed an integral part of item 350.                                              

44.  By letter dated 25 September 2011, the defendants requested Deacons to produce items 331 to 363.  Reading Deacon’s reply dated   3 October 2011 (see §19 above), it is perfectly understandable that the plaintiff believed that the items requested had been produced.

45.  The defendants sought to demonstrate through the 10th affirmation of Wai Yip Hin, their handling solicitor, that the documents produced by Deacons, being no more than 539 pages could not have included the 2011 account histories because what was produced was some 30 odd pages short of what should have been produced.  But it is unclear how the plaintiff or her present solicitors could have known that.

46.  I do not agree that it was incumbent on the plaintiff (or her present solicitors) to have done anything further and I do not accept that it was unreasonable for the plaintiff to conclude from the letters of       25 September and 3 October 2011 that all items requested had been produced.  If in fact the defendants did not receive them from Deacons, it is not a matter that should result in the plaintiff being in breach of the unless order.  Given the April correspondence, the defendants could just as easily have (but did not) follow up on the 2011 account histories.

47.  Looking at the matter overall, only the most pedantic might consider that there had been a breach since any breach would have been technical.  Clearly there had been substantial compliance.  In any event, the circumstances were not such as would have warranted an order in terms of paragraph 1 of the dismissal summons.

Costs

48.  The plaintiff’s conduct subsequent to the defendants’ complaint letter of 15 May 2013 is set out in §§25-29 above.  In summary, her attitude and conduct are beyond reproach.  She was responsive and cooperative but the same cannot be said of the bank.  It procrastinated at every turn.  The fact that letters from the bank were not received by the plaintiff’s solicitors until a week or more after the date of the relevant letters was symptomatic of its attitude.  But that was something beyond the plaintiff’s control.

49.  In my view, on the facts, the dismissal summons should not have been issued and if issued should have been withdrawn when the plaintiff made her first offer in September.

50.  As I understand it, Mr Lam’s argument is to the effect that where there has been some sort of compliance with an unless order but it is not absolutely clear that there had been a breach, the party entitled to the benefit of the unless order is entitled not only to have the matter adjudicated by the court but also to any costs incurred as a result.

51.  The unless order made the present case is a conventional unless order.  On non-compliance, the sanction specified automatically takes effect: see Practice Direction 16.5, §2; O.2, r.4; Daimler AG v Leiduck [2012] 3 HKLRD 119 at §47; and Schenker International (HK) Ltd v Natural Dairy (NZ) Ltd, unreported, HCA 1755/2011, 22 November 2013 at §19.  In such a case, no further steps need to be taken by the party who has the benefit of the unless order.  It is a matter for the party in breach to apply for relief within 14 days.

52.  Where the party who has the benefit of the unless order is unsure and wishes to have the matter determined by the court, I do not consider that any special rules apply as to the costs of the further application.  On general principles, should the applying party succeed, he would normally be entitled to costs.  But if the court were to take the view that the automatic sanction does not take effect in the circumstances of the particular case, then costs must be a matter that falls within the court’s discretion.

53.  The master was absolutely correct in dismissing paragraph 1 of the dismissal summons with costs.  While the plaintiff was ordered to file a further affirmation to clarify certain matters which is similar to the relief sought in paragraph 2 of the dismissal summons, it does not follow that the defendants should be entitled to costs.  In my view, the court is entitled to look at all the circumstances of the case in exercising its discretion.

54.  The filing of a further affirmation was what the plaintiff had offered on 14 September with costs payable forthwith to the defendants.  Yet the defendants chose to ignore that offer which had they accepted would have rendered the hearing before the master unnecessary.  I cannot see that the master erred in principle in awarding costs to the plaintiff.

55.  Taking into account that events that have occurred since the hearing before the master, there is nothing that would cause me to make any different order.  It is regrettable that this appeal was brought.  It strikes me as unnecessary satellite litigation.

Conclusion

56.  Accordingly, this appeal is dismissed. I make an order nisi of costs in favour of the plaintiff, with certificate for counsel, to be taxed if not agreed.

Ms Connie Lee, instructed by Ho & Tam, for the plaintiff

Mr Douglas Lam, instructed by Henry Wai & Co, for the 1st and 2nd defendants

HCA681/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 681 OF 2011

____________________

BETWEEN

____________________

_______________

J U D G M E N T

_______________

1.  This is an application by Madam Leung Pik-wa seeking either the appointment of receivers over some 3.2 billion shares in CY Foundation Group Limited (CYF) or, alternatively, an injunction restraining the registered shareholder of those shares, Luck Continent Limited, from exercising votes in respect of those shares for the purposes of considering an ordinary resolution at a Special General Meeting of the company to be held tomorrow morning at 10 o'clock.

2.  The resolution in question relates to the proposed granting of a general mandate to the company’s board of directors to allot, issue and deal with additional shares of the company up to 20 per cent of the aggregate nominal amount of its issued share capital as at the date of the Special General Meeting.

3.  CYF has been the subject of hotly contested section 168A proceedings before me in March and April this year.  In those proceedings, Dato Poh Po Lian, who said then (and maintains now) that he was the beneficial owner of Luck Continent, the holder of some 46 per cent of the shares in CYF, caused Luck Continent to bring section 168A proceedings against Mr Theodore Cheng, the Chairman of CYF, Madam Leonora Yung, the holder of some 25.1 per cent of the shares in CYF and various other companies connected with them who, together with Madam Yung, held the shareholding in CYF on the Respondent’s side.

4.  In those proceedings, the primary relief sought was an order that the Articles of Association of the company should be amended so as to permit the removal of directors on a simple majority vote rather than by a special resolution, as is currently provided for by Article 86(4) of the company’s Articles of Association.  Judgment in that action has been reserved and will be handed down in due course.

5.  However, in the meantime, there were also proceedings in Bermuda which resulted in Dato Poh’s camp effectively obtaining control of the company despite a series of obstacles having been put in their way in their efforts to obtain an Annual General Meeting of the company to be convened and held at which they could exercise their voting rights to appoint new directors for the company, thereby replacing the majority of the board who were due to retire by rotation.

6.  In the event, following various proceedings in the courts of Bermuda, a general meeting was held and the Bermudan courts directed that the votes of Luck Continent should be counted for the purpose of that General Meeting, with the result that Dato Poh was able to cause persons whom he had nominated to be voted onto the board of CYF.

7.  During the trial of the section 168A proceedings, Madam Leung, the Plaintiff in these proceedings, caused her solicitors, Messrs Deacons, to write to the solicitors for the Respondents in those proceedings indicating that she claimed to be entitled, as the Administratrix of the estate of her late son, Mr Kenny Nam, whose name featured in the 168A proceedings, to be the beneficial owner of the shares in CYF held by Luck Continent.  It was on that basis that Luck Continent’s shares were originally discounted from the calculation of votes at the Annual General Meeting, a decision on the part of the Chairman that was overturned by the Bermuda courts.

8.  Since the section 168A proceedings came to an end, Madam Leung has taken out these proceedings in which she seeks declarations that the shares held by Luck Continent in CYF are, in fact, beneficially the assets of the estate of her late son, Mr Nam.  Those proceedings were commenced in May this year and will progress in the normal way. 

9.  However, on 9 June this year, CYF announced that, as a result of investigations that had taken place since the installation of the new board of directors, the new board had discovered that the financial position of the company was much more precarious than had previously been thought.  It appeared that, while at one stage about a year ago it appeared to have cash balances of about HK$100 million to its credit, those had been depleted to a very large extent and now stood at no more than about HK$10 million.  This gave rise to concerns on the part of the board as to the company’s financial position, particularly taken in conjunction with the fact that it had been advised that it might be necessary to make provisions against some of what had been thought to be its more significant and valuable assets.

10.  With this is mind, the board proposed that it should seek to take steps to obtain a lifting of the suspension of trading in the company’s shares which had been imposed at the end of August 2010 when the then chairman, Mr Theodore Cheng, was arrested by the ICAC in connection with a property transaction involving the company.

11.  The Listing Division of the Stock Exchange had indicated on a number of occasions that in order for the listing to be resumed, a number of steps would have to be taken, one of which appeared to be the need to have Article 86(4) of the company’s Articles of Association amended so as to bring it into line with the provisions of the Companies Ordinance in Hong Kong, which enables directors to be removed by a simple majority resolution rather than the special resolution that is now required under the articles as they stand.  With that in mind, the directors convened the Special General Meeting that is to be held tomorrow morning, to consider a number of items of business.  The first item of business, which is not one with which this application is concerned, is a proposal to pass a special resolution to amend article 86(4). 

12.  However, the second item of business proposed to be transacted at the meeting by way of an ordinary resolution is what has led to the application today:  that is a proposal that the board should be granted a general mandate to issue new shares in the company in an amount of up to 20 per cent of the existing issued share capital of the company.  The form of general mandate that is sought appears to be in the standard form that is used by many listed companies in Hong Kong.  It is, in that respect, in no way unusual.

13.  The board has explained its thinking behind the proposal to obtain this general mandate from the shareholders.  This can be summarised as follows:  in order for CYF to be re-listed, quite apart from having its constitution changed in a way that is hoped to be effected by the special resolution, resolution (1), it is also anticipated that it will be necessary for CYF to demonstrate to the Stock Exchange that it has sufficient financial strength to be able to carry on normal operations for at least six months to one year.  This requires it to have adequate working capital in order to do this, and this is required before it can be expected that the Stock Exchange will agree to a resumption of trading in the company’s shares.

14.  It is the company’s position, as evidenced in an affirmation which has been put before me for the purposes of today’s hearing by one of the independent directors of the company, Mr Balakrishnan Narayanan, that the purpose of this general mandate is to enable the directors to raise funds when the opportunity arises to enable the company to be best placed to seek a resumption of trading in its shares; a matter which, in the directors’ opinion and which would appear to be the case, would be in the best interests of all shareholders of the company.

15.  Madam Leung, however, appears to be concerned that the proposal that has been put forward by the directors has been put forward by them at the instigation of Mr Poh and that the effect of the grant of the general mandate may be to lead to a situation in which her interests in CYF, qua administratrix of her son’s estate, and assuming that her claim to the 46 per cent shareholding held by Luck Continent is a good one, may be prejudiced.  She puts that prejudice in two ways:  first; she says there will inevitably be a dilution in the voting power of her shares, in that her shareholding will be diluted from 46 per cent to some lower percentage.  If the general mandate is exercised to the maximum extent possible, the dilution would bring her shareholding down to about 38 per cent, a drop of somewhat in excess of 8 per cent of the total issued share capital in the company.

16.  The second aspect in which it is said that there may be damage to her interests, is that it may be the case, since no indication has as yet been given as to the terms on which any such allotment may take place, that the allotment will have the effect of resulting in a diminution in each shareholder’s economic interest in the company by reducing the net asset value per share below that at which it currently stands.

17.  In the circumstances, Madam Leung caused the solicitors acting for her to write to the solicitors for Dato Poh and Luck Continent to inquire as to whether they would be prepared to refrain from voting at the meeting in question.  No such assurance being given, this application was brought by way of an inter partes summons issued, I think, last Tuesday.  Owing to the urgency of the matter, in particular, the fact that the meeting is to be held at 10 o'clock tomorrow morning, I gave directions for a very truncated procedural and evidential timetable to enable a hearing to take place before me this morning.

18.  In support of the application, Madam Leung filed two affirmations in which she set out her case.  In response, Dato Poh has filed a fairly substantial affirmation of slightly just over 50 pages which, given the time pressure under which it was prepared, could only be completed sometime last night.  It was lodged with the court early this morning and served on the other side at about the same time.

19.  There has been no opportunity in the time available for Madam Leung to respond to the matters raised by Mr Poh in his affirmation.  I should add, perhaps, that the affirmation of Mr Poh is in fact a draft affirmation as there has not been time for him to swear it or make it since he is currently not in Hong Kong and is, I believe, in either Singapore or Malaysia.  However, an undertaking has been given that the affirmation will be affirmed as soon as possible and the affirmed version will be filed at court in the near future.

20.  For the purposes of this application, Mr Tong SC, who appeared for Madam Leung, submitted that the application was a fairly straightforward one, in that, on his case there was clearly a serious question to be tried as to whether or not Madam Leung was entitled to be regarded as the beneficial owner of the shares currently registered in the name of Luck Continent.  In those circumstances, given that detriment might well ensue to the value of her shareholding as a result of any exercise of the general mandate if one were granted to the board of directors at tomorrow’s meeting, it would be appropriate to hold the position, either by appointing receivers over the shares, who could exercise their own independent judgment as to how to vote at tomorrow’s meeting or, alternatively, by restraining the defendants from voting the Luck Continent shareholding in favour of the resolution proposed as resolution No. 2 at tomorrow’s meeting.

21.  Madam Leung says that her case as to the estate’s beneficial ownership of the shares is quite straightforward.  She suggests that when Luck Continent acquired its shareholding in CYF it did so with funds provided by Kenny Nam through a company that was beneficially owned by him, called Sino Gain Limited.  She relies on three cheques that were drawn by Sino Gain Limited in the total amount of some HK$75 million as representing the funds with which Luck Continent was enabled to acquire its shareholding in CYF.

22.  She goes on to say that at a meeting in Hong Kong towards the end of 2007, at a time when Mr Nam was seriously ill, he informed Madam Leung in the presence of Dato Poh, Mr Theodore Cheng and one or two other persons, that he was the beneficial owner of the shares in CYF held by Luck Continent and that he wished those shares on his death, which he obviously anticipated would occur in the not too distant future, should be used as to 50 per cent for charitable purposes and 50 per cent for the benefit of his family, in particular Madam Leung and his siblings.  Madam Leung says that Dato Poh acknowledged this and undertook that this would be done.  She says that following Mr Nam’s death she, on a number of occasions, approached Dato Poh to ask him about the position in relation to the Luck Continent shareholding and also on a few occasions asked him to take steps to have it transferred to her or to someone for the benefit of Mr Nam’s estate.

23.  She says that more recently, it would seem in about March this year, she discovered three documents that she says provide substantial support for her case.  These were a blank form of resignation of the director of Luck Continent, signed by Dato Poh, a blank share transfer form in respect of the issued shares in Luck Continent, also signed by Dato Poh, and a blank resolution of Luck Continent’s board of directors, also signed by Dato Poh, which was left blank in all material respects so as to enable whoever had it to fill in the details of the transferee of the shares and the resignation and appointment of the new director so as to acquire control of Luck Continent and thereby its shareholding in CYF.

24.  Madam Leung says that these documents, which are documents that are not uncommonly provided by a nominee to the person for whom he is nominee in respect of the shareholdings in the companies, are clear evidence of Mr Nam’s beneficial ownership of Luck Continent and, through it, the shares in CYF.

25.  This version of events is hotly contested by Dato Poh in the affirmation which he has filed.  In it, Dato Poh puts forward evidence that suggests, quite strongly, that the case put forward by Madam Leung is one that is open to serious question; in particular, Dato Poh says, and exhibits documents to show, that the purchase of the shareholding and acquisition of Luck Continent’s shareholding in CYF was funded not by any of the Sino Gain cheques that are relied upon by Madam Leung, but by loan financing that was obtained in different amounts to the total value of the cheques (in fact, a much smaller amount) obtained from a company called Emperor Securities, such financing having been obtained by Luck Continent itself, albeit perhaps with the assistance of Mr Kenny Nam.

26.  Dato Poh explains that although the documents that bear his signature, the three blank documents that I have referred to, are genuine documents and were signed by him, he says that these were signed in circumstances in which they were required as part of the terms of the share charge which were executed by Luck Continent in favour of Emperor Securities at the time that it entered into the financing arrangements for its acquisition of the shareholding in CYF.

27.  Dato Poh says that on that indebtedness being repaid, Emperor Securities returned the blank documents to Luck Continent and, at that time as he was on good terms with Mr Nam whom he trusted and who was acting as his financial adviser in various respects, he left the documents with Mr Nam to take care of them, never imagining that they would be put to the use that they have been for the purposes of these proceedings.

28.  Dato Poh also has exhibited certain recordings of a telephone conversation between himself and Madam Leung that took place on 27 December 2010, in which Madam Leung professes to be acting as a go between or middleman for Mr Cheng in an attempt to persuade Dato Poh to resolve his differences with Mr Cheng by agreeing to a proposal that Mr Cheng had made to buy out Dato Poh’s Luck Continent shareholding in CYF for the sum of somewhere between HK$150 million to HK$180 million, depending on the particular offer and time in question.  At the time of the telephone conversation, I think the offer was at about HK$150 million.

29.  Dato Poh says, and Mr Sussex submits, with some force, that that conversation is wholly inconsistent with any genuine belief in a beneficial interest in the shares on the part of Madam Leung qua administratrix.  He says that if Madam Leung had genuinely believed that she was, as her son’s administratrix, entitled to beneficial ownership of the CYF shares, there could be no conceivable reason why she would have proposed to Dato Poh that he should settle his differences with Mr Cheng on terms that would involve him giving up the shareholding, which, on her present case, was not his, in exchange for a very large sum of money which he would, on the face of it, be entitled to keep for himself.

30.  Mr Sussex also submits, with force, that the same may be said of the position of Mr Theodore Cheng.  It will be remembered that Mr Cheng is said to have been present at the meeting at which Mr Nam declared that he was the beneficial owner of the shares and his declaration was assented to by Dato Poh.  If that were the position and if Mr Cheng were indeed present at that meeting and the statements made by Mr Nam were indeed made at that meeting, there would be little conceivable reason for Mr Cheng to be offering to buy out Dato Poh and paying him the sum of $150 million for the Luck Continent’s shareholding in CYF.

31.  On that basis, among other matters which Mr Sussex also relies on, but principally on the basis of those two matters, Mr Sussex suggests that the case that is now put forward by Madam Leung must be regarded as a fabrication, perhaps at the instigation of Mr Cheng and Madam Yung, but he does not perhaps need to go quite that far.  It would suffice for him to say that the evidence that has been put before the court is such as to cast such serious doubt on the viability or bona fides of the case as being advanced as to beneficial ownership by Madam Leung, that the court should not hesitate to say that there is no serious question to be tried in these proceedings; that being the first step in considering whether or not a receiver should be appointed or injunctive relief granted.

32.  Although I would accept that the evidence that Mr Sussex has referred to would appear to be very powerful evidence in support of Dato Poh’s position, I think I must also bear in mind that because of the shortness of time before this application has come on for hearing, it has not been possible for Madam Leung to respond to the matters that have been raised. 

33.  Although Mr Tong ventured in his reply submissions a very brief answer to that point by reference to the fact that Madam Leung has deposed in the context of another application that she was not aware of the documents that she now relies on, that is to say the three blank documents signed by Dato Poh, until as late as March this year, it seems to me that that does not go far enough to answer the points made by Mr Sussex, in that, on Madam Leung’s own case it was not in March 2011 that she discovered the documentation and was thereby brought to an awareness of the fact that her son’s estate might have a claim on the CYF shares held by Luck Continent.  On the contrary, her case is, as pleaded and as verified by her in her statement of truth, that she was brought to awareness of this at the meeting in Hong Kong some three years earlier when her son informed everyone present that he was the beneficial owner of the shares in CYF held by Luck Continent.

34.  In those circumstances, it seems to me that the court must have real doubts as to the genuineness of the case that is being put forward by Madam Leung.  However, I do bear in mind that at this stage Madam Leung has not had an opportunity to explain her position and has not had the opportunity to put forward any explanation for why, in the light of her case as to having known of the position since 2007, why she put herself in a position where she appeared to be acting as a go between with a view to settling the differences between Dato Poh and Mr Cheng on terms that appeared to acknowledge Dato Poh’s ownership of the CYF shares and on terms that involved the payment to Dato Poh of substantial sums of money.

35.  I do not say that no such explanation could be provided but it has not as yet been provided.  But as I have said, because it has not been possible for Madam Leung to respond to the allegations made by Dato Poh in his evidence filed this morning, it seems to me that, on balance, I should take the view that there remains a serious question to be tried bearing in mind the relatively low threshold that that test imports for the purposes of proceedings of this nature.

36.  On that basis, it seems to me that I must go on to consider where the balance of convenience lies in this case.  The principles are basically the same, whether one is considering the appointment of receivers or the granting of an interlocutory injunction.  They are the well known American Cyanamid principles which have been applied in many cases.  Basically, what the court asks itself is:  first, whether, if no injunction is granted, damages would be an adequate remedy for the Plaintiff; secondly, if the answer to that question is yes, that will be an end of the matter.

37.  In the context of answering that question, however, the court will consider both questions of the inherent possibility of quantifying the damages in at least a rough and ready sort of way, and the question of whether or not the defendant would be in a position to meet an order for damages if one were to be made at the end of the day.

38.  If, considering those two aspects of the matter the court is satisfied that damages would not be a sufficient remedy for the Plaintiff, the court goes on to consider, thirdly, whether or not damages would be a sufficient remedy for the respondent.  If, considering the matter from the point of view of both the aspects that I have mentioned just now the court is of the view that damages would not be an adequate remedy for the Defendant either, then the court will generally refuse the injunction on the grounds that the status quo should be maintained.  Alternatively, the court could go on to consider the question of balance of convenience generally, although in this situation where the balance is fairly even, the court will generally lean towards preserving the status quo and leaving matters as they stand prior to the application being brought.

39.  Turning, therefore, to those questions, it seems to me that Mr Sussex is, I think, right in saying that so far as the position of the Plaintiffs is concerned, it would be, in principle, possible to quantify the damages to which he would be entitled in the event that there is a dilution of her shareholding in the company.  This is because it is possible to work out the maximum dilution that arises in the event that the proposed general mandate is exercised to the fullest extent possible.  As I have indicated earlier, the result would be that the shareholding of Luck Continent would be reduced by slightly over 8 per cent, expressed as a percentage of the total issued share capital in CYF.

40.  On the basis of the last transacted price prior to the suspension of trading in the shares, CYF had a market capitalisation of some HK$380 million, although it may be open to question as to whether that remains its current value, given the fact that it appears that its cash reserves had been depleted and some of its assets may be subject to provisions being made to write them down in value.  But taking that, for present purposes, as a rough approximation of the value of the company, the value of an 8 per cent-odd stake would be somewhere in the range of HK$30 million to HK$35 million.

41.  Mr Poh says that he is well able to meet an obligation to pay that amount of money or to acquire shares to supply to Madam Leung in the event that it is held that she in fact is the beneficial owner of the Luck Continent stake in CYF, as he has substantial assets and wealth and substantial interests that could be turned into account in assets in Hong Kong, the Mainland, Malaysia and Singapore.

42.  Madam Leung suggests that Dato Poh may not be as well off as he professes himself to be, but there does not appear at this stage to be any credible evidence to suggest that that is the case.  Even if that were the case, it seems to me that it is significant that, in principle, Madam Leung could be compensated by an award of damages in the event that an injunction is not granted.

43.  However, again due to the tightness of the timetable which led up to this hearing, Dato Poh has not put forward, perhaps because he has not had time to do so, evidence to show that he has assets available to the tune of HK$30‑odd million, and I shall therefore go on to consider the position on the other side.

44.  It seems to me that from the point of view of Dato Poh, if he turns out to be the beneficial owner of the shares in CYF held by Luck Continent, it would be significantly more difficult, if not impossible, to quantify the value of what he would lose in the event that the general mandate is not passed and the company is left in a position where it is unable to raise funds in order to obtain a re-listing of the shares or in order to smooth the passage of a re-listing of the shares.

45.  In those circumstances, the value of the shares would be, to a very large extent, sterilised or locked up because it would be extremely difficult for them to be realised if that was desired.  This is not something that is readily capable of being quantified in monetary terms.  Quite apart from this, there is the risk which Dato Poh has pointed out and which has also been averted to by Mr Narayanan, that if the company is unable to raise funds when it needs them, it may find itself in a position in which it is driven to insolvency.  If that were to happen, the downside would be that the entire value of the company would be lost.  That, however, may result in a loss that perhaps may be capable of quantification on the same rough basis as I have indicated in relation to the losses that would ensue to Madam Leung if the injunction is not granted.

46.  When it comes to the question of whether or not Madam Leung is in a position to make good any damages that would be suffered by Dato Poh if he is ultimately successful, the position appears to be reasonably clear.  Although Madam Leung has offered, as she had to, a cross undertaking to compensate Dato Poh and Luck Continent in damages for any damage that they may suffer in the event that the injunction she seeks turns out to have been wrongly granted or that the receivers she seeks to have appointed turn out to have been wrongly appointed, it is quite clear from other evidence filed in these proceedings that Madam Leung does not have the wherewithal to make good any such undertaking for damages if she should be called upon to do so.

47.  On a number of occasions, in other affirmations filed by those acting for her in these proceedings, it has been stated that Madam Leung is of limited financial means.  That being the case, I do not think that it could possibly be said that Madam Leung would be in a position to meet any liability she might have under her cross undertaking in damages to the Defendants in this matter.

48.  It seems to me, on the basis of the authority, and in particular the observations of Ribeiro J, as he then was, in the I think Excel Noble case, that that in itself is probably a sufficient basis to refuse the injunction and receivership relief that is now sought.  But just in case it is not, I would also say that I would have come to the same view on the basis of the balance of convenience.

49.  It seems to me that when one considers the balance of convenience, one is entitled to take into account the fact that the damage to the value of the shareholding held by Luck Continent in the event that the company is unable to raise funds if it needs to do so, is something that would be to the detriment of both Madam Leung and Dato Poh whoever ultimately is found to be entitled to the shareholding in question.

50.  It also seems to me that it is far from clear that there will necessarily be a dilution of the economic value of the shares in the event that the general mandate is exercised, whether in whole or in part.  Whether or not that is the case depends on the terms on which the new shares are issued, bearing in mind the terms of the general mandate, which require the new shares to be issued at not less than 20 per cent discount to the last traded price of the company’s shares on the Stock Exchange.  Bearing in mind also the fact that the company’s financial position appears to have taken a distinct turn for the worse in the course of the last six to 12 months, I am far from convinced that the outcome of any issue of new shares would necessarily be to cause a reduction in the value of the shareholding of any individual shareholder.  It also seems to me that, in principle, in a situation where the company may require such further financing in order to survive and in order to go forward and to have its listing resumed, if that proves possible, it would be in the interests of all shareholders that this should be permitted to go forward.

51.  The one matter that had given me some pause for thought is Mr Sussex’s very frank acceptance that he could not say that there was any particular pressing need for the vote to be taken tomorrow, at least in respect of the general mandate.  That, I think, was a fair concession and although at one point it crossed my mind that it might be possible to allow the parties to put in some further evidence so as to perhaps reinforce the views that I have expressed as to whether or not there is in fact a serious question to be tried or whether or not Dato Poh is in fact good for some HK$30-odd million, I have come to the view at the end of the day that even if no such evidence were to be filed, one would be left in the position that one is in today.  And if such evidence were to be filed, it would simply, assuming such evidence to be filed on behalf of Madam Leung, establish that there was a possible answer to the criticisms made by Mr Sussex. 

52.  There would still remain a serious question to be tried and so far as the possible evidence to be filed by Dato Poh were concerned, if that showed that he were good for the money, while that might provide a simpler basis, or a more readily ascertainable basis for declining relief, it seems to be that, nonetheless, if one goes on to consider the position of Madam Leung’s ability to meet any undertaking as to damages that she gives and the questions of balance of convenience which I have discussed a few moments ago, it seems to me that the outcome would have been the same .

53.  I would, in any event, have been disinclined to appoint receivers over the shares in question if the only issue were really whether or not a vote should be taken tomorrow.  It seems to me that it would probably have sufficed for an injunction to have been granted to prevent the shares being voted, leaving it to the company to decide whether or not, in those circumstances, it wished to press on with a resolution to tomorrow or to postpone it to a later date.  But for the reasons I have given, I do not think that it would be appropriate to grant even that limited form of injunction in the present case and I therefore dismiss this application.