MARYO DEVELOPMENT LTD v. TSANG YAU MAY AND OTHERS

HCA 2297/2012 & HCA 271/2013

[2019] HKCFI 1620

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2297 OF 2012

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 271 OF 2013

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(Consolidated by the Order of Master J. Wong on 30^th August 2013)

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J U D G M E N T

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BACKGROUND

1.  This is the trial of the consolidated proceedings commenced by the plaintiff (“Maryo”) against all the defendants (“D1”, “D2” and “D3”) for conspiracy to defraud Maryo, against D3 for knowing receipt of Maryo’s property, and against D1 and D2 for breach of fiduciary duties.

2.  The disputes between the parties have a long and chequered history. I would first set out the background facts which are not in dispute or indisputable.

3.  All these disputes stemmed from the death of Dr Tsang Kwong Lik (“Dr. Tsang”), who was a medical doctor. Dr Tsang passed away on 12 December 2001 as a result of a heart attack, intestate. Dr. Tsang’s natural father is Mr Tsang Kei Hung (“Tsang Senior”, who predeceased Dr Tsang), and Dr Tsang’s natural mother is Madam Leung Lai Fong (“Madam Leung”). Tsang Senior and Madam Leung divorced on 27 June 1958. Dr Tsang’s stepmother is Madam Ho Sin Ying (“Madam Ho”). After the divorce, Madam Leung married Mr Chan Man Yeung (“Chan Senior”). Madam Chan Yui Ling (“CYL”) is the daughter of Chan Senior and Madam Leung and is Dr Tsang’s half-sister. D1 and D2 are the daughter and the son of Tsang Senior and Madam Ho respectively, and they are Dr Tsang’s half-sister and half-brother.

4.  Dr Tsang has no issue and his wife predeceased him. By the operation of s.4 (7) of the Intestates’ Estates Ordinance (“IEO”), the surviving mother would be the sole beneficiary of his estate (“the Estate”). After the death of Dr Tsang, Madam Ho and Madam Leung had a contentious probate litigation (“the probate litigation”). The central issue in the probate litigation is who is the “mother” prescribed in the IEO. The dispute was finally resolved by the Court of Final Appeal on 24 July 2009[1] (“the CFA Judgment”). The CFA held that the meaning of the word “mother” in s.4 (7) of the IEO should be the natural mother of the intestate and the natural mother only.

5.  Before the CFA Judgment, Madam Leung passed away. Madam Leung had by will left everything in her estate to CYL. Since the Estate is an asset in Madam Leung’s estate, CYL is the sole beneficiary of the Estate. Letters of Administration of the Estate were granted to CYL on 21 July 2010.

6.  Maryo is a company limited incorporated in Hong Kong on 14 October 1998. Dr Tsang held 998 shares in the company, and D1 has 2 shares. 988 shares previously registered under Dr Tsang’s name are now being held by the Estate. During the lifetime of Dr Tsang, before 8 December 2001, Dr Tsang and D1 were the only directors of Maryo. On 8 December 2001, just a few days before Dr Tsang passed way, he appointed D2 as a director of Maryo, and D1 as the secretary of Maryo. Dr Tsang passed away on 12 December 2001.

7.  Maryo’s financial year is from 1 July of a calendar year to 30 June of the next calendar year.

8.  On 7 November 2002, D1, as director of Maryo, informed the Inland Revenue Department (“IRD”) in writing that HK$6,725,700 were owed by Maryo to Dr Tsang at the time of the death of Dr Tsang (“the Notice to IRD”).

9.  In the financial statement signed by D1 and D2 for the financial year ended on 30 June 2003, D1 and D2 reported that after the disposal of Maryo’s last real property in that financial year, Maryo had a cash deposit of HK$13,781,457.

10.  For the financial years from 2003—2004 up to 2010—2011, D1 and D2 reported in the financial statements that Maryo was dormant or having no business in these years.

11.  On 21 January 2010, Madam Ho commenced HCA 90/2010 against the Estate for reliefs under the Inheritance (Provision for Family and Dependants) Ordinance (“the IPFDO Action”). Madam Ho failed in the Court of First Instance but succeeded in the Court of Appeal. On 16 August 2013, the Court of Appeal made an award in favour of Madam Ho[2].

12.  In August 2010, CYL requested Maryo (then controlled by D1 and D2) to transfer the shares registered under Dr Tsang’s name to the Estate. Maryo did not accede to the request.

13.  On 14 September 2010, Bright Jade International Limited (“BJ”) was purchased by D3. D3 was the sole shareholder and director of BJ.

14.  On 5 October 2010, D1 and D2 on behalf of Maryo, and D3 on behalf odf BJ, signed a joint venture agreement (“the JV Agreement”)[3], the contents of which are as follows:

“合作協議書

日期：2010 年10 月5 日

甲方：登彩發展有限公司 ( 公司註冊編號 230233 )

乙方：翠耀國際有限公司 ( 公司註冊編號 512855 )

甲方和乙方現就共同合作發展玉石、藥材、棺木、飲食或其他具潛力投資發展的項目(“上述項目”) 的質易和推廣業務達成以下協議，其條款如下：

1.  甲方和乙方願意共同合作發展香港、中國大陸、東南亞以及世界各有關上述項目的貿易和推廣業務。

2.  乙方願意提供所有相關的器材、設備、市場資訊和其他專業技術共同合作發展上述項目的貿易和推廣業務。甲方同意依賴乙方所提供的設備和專業意見去共同經營上述項目的貿易和推廣業務。

3.  甲方願意借出港幣壹仟萬元給乙方作為共同合作發展上述項目的貿易和推廣業務所需的資金。如乙方在開業後需要額外營運資金，所有額外質金均由甲乙方雙方共同負責。

4.  除了下述5. 條款外，在上述項目的賬目每年經註冊會計師核實後有純利的情況下，乙方承諾會於簽定本合作協議書內十年內分120 期劃一以年息百份之5 分期償還於以上第3 段內所述的借款給甲方。

5.  以上述項目的賬目每年經註冊會計師核實後，甲方和乙方同意在共同合作發展香港、中國大陸、東南亞以及世界各地有關上述項目的貿易和推廣業務中所得的利潤分配如下：

(a)  甲方會分得每年扣除營運開支後的純利 ( 如有純利的話 ) 百份之70；

(b)  乙方會分得每年在扣除營運開支後的純利 ( 如有純利的話 )百份之30，而百份之30中的百份之50償還於以上第3段內所述的借款給甲方，另外的百份之50為乙方純利。

6.  甲方和乙方清楚了解到在上述項目的貿易和推廣業務中所有可能會出現的風險和所有可能引致損失的機會。甲方和乙方願意公共承擔在上述項目的貿易和推廣業務中所出現的損失，而甲方和乙方就各人在上述項目的貿易和推廣業務中所出現的捐失的承擔分現如下：

(a)  甲方會分得每年扣除營運開支後的純利 ( 如有純利的話 ) 百份之70；

(b)  乙方會承擔每年在扣除營運開支後的損失百份之50。

7.  如乙方未能於以上第4 段所述的安排分期還款給甲方，甲方有權終止本合作協議向乙方追索所引致的所有損失和乙方必須即立連利息歸還所有欠款給甲方。

8.  甲方和乙方同意此合作協議會依據香港特別行政區的法律執行。

9.  如因本合作協議引致任何糾紛或爭議，甲方和乙方必須先嘗試以透過協商解決。如甲方和乙方不能於協商會面後達成任何辦法解決糾紛或爭議，甲方和乙方同意共同委任一獨立調解員進行調解。最後要在調解程序完滿結束後甲方和乙方仍未能達成任何辦法解決糾紛或爭議的情況下，甲方和乙方才能把問題提交香港特別行政府的法院進行審理。”

15.  On the date of the JV Agreement, D1 and D2 on behalf of Maryo issued a cheque of HK$10,000,000 (“the HK$10m”) to BJ. The cheque was paid upon presentation on the same date.

16.  On 6 October 2010, Madam Ho commenced HCA 1501/2010 against the Estate (“the 1^st Trust Action”), claiming that all the assets in the Estate, including Dr Tsang’s shareholding in Maryo, belonged to Madam Ho beneficially on trust.

17.  On 6 May 2011, BJ repaid the HK$10m to Maryo by cheque.

18.  On 6 May 2011, D1 and D2 on behalf of Maryo issued a cheque of HK$1,000,000 (“the HK$1m”) to D1, which was paid upon presentation on 9 May 2011.

19.  On 22 July 2011, D1 and D2 on behalf of Maryo signed a sale and purchase agreement (“the SPA”) concerning the sale and purchase of 200 pieces of jade articles (“the 200 Jade Articles”) with D3 personally (“the transaction”). D1, D2 and D3 also signed a “Cash Memo” concerning the sale and purchase[4]. The contents of the SPA are as follows:

“買方登彩發展有限公司向賣方王逸敏購入玉器一批。

白底青、真青翠玉花件	( 53件 )
翠玉手鐲	( 23隻 )
翠玉、紫玉珠頸鏈	( 6條 )
特大翠玉珠頸鏈	( 1條 )
青、紫、紅、黃玉花件、特大花件、介子、玉扣、玉圈、葫蘆、觀音共	( 117條 )
	( 總數：200件 )

買賣雙方同意以港幣一仟二百萬元成交，買方登彩發展有限公司已付港幣一仟萬元與貨主王逸敏；買方登彩發展有限公司倘欠賣方王逸敏貨銀港幣二佰萬元。買賣雙方同意由2011 年7 月22 日起，買方登彩發展有限公司 ( 包括本金及利息 )分期每月供還港幣十七萬元，供12 個月，至2012 年7 月22 日，即供12 期 ( 本金連利息合共港幣二佰零四萬元 ) 。完成清還欠款及利息 ( 給與賣方王逸敏 ) 。若到期未能清還債項全部的欠款及利息。 ( 所餘欠款連利息仍繼續計算 ) 。由於欠款沒有任何抵押下，貨主賣方王逸敏保留可以提早隨時追討買方登彩發展有限公司清還全部欠款及利息的權利。”

20.  On the same date, D3 opened a new bank account with Wing Lung Bank (“the WLB Account”) and deposited HK$10,000,000 into this account, which was made up by a cheque of HK$9,000,000 issued by D1 and D2 on behalf of Maryo and another cheque of HK$1,000,000.

21.  On 6 October 2011, D3 applied for de-registration of BJ.

22.  On 3 January 2012, D1 made an affirmation in HCMP 2318/2011 on behalf of Maryo, as one of its then-directors, to resist CYL’s application for an order to compel Maryo to transfer the shares registered under Dr Tsang’s name to CYL in her capacity as the administratrix of the Estate. The ground of the opposition is that the transfer is not in the interest of Maryo and both D1 and D2 refused the transfer requested by CYL. On 6 January 2012, the court allowed CYL’s application and made an order compelling Maryo to transfer the requested shares to CYL.

23.  On 13 February 2012, D1 and D2 on behalf of Maryo issued a cheque of HK$130,000 (“the HK$130k”) to D3, which was paid upon presentation on the same date into D3’s WLB Account.

24.  On 24 February 2012, BJ was deregistered.

25.  On 5 March 2012, 988 shares in Maryo registered under Dr Tsang’s name were transferred to CYL.

26.  On 30 March 2012, CYL as the administratrix of the Estate and the holder of the 988 shares, wrote to D1 and D2 (who were the then-directors of Maryo), requisitioning for convening of an EGM to pass a resolution to appoint 3 persons as directors of Maryo, namely, CYL herself, Mr Yeung Kwok Wai (“YKW”) and Madam Yeung Hoi Fu Heather (“YHFH”). CYL also demanded for copies of all minutes of general meetings from 2000 and a copy of the latest balance sheet of Maryo and a copy of the directors’ report and auditors’ report.

27.  On 26 April 2012, D1 and D2 reported in the financial statements of Maryo that as at 30 June 2011, there was an unsecured interest-free loan, repayable on demand, due from D1 to Maryo in the amount of HK$1,000,000.

28.  On 26 April 2012, the amount left in Maryo’s bank account was only HK$15,358.05.

29.  On 15 May 2012, CYL wrote to D1 and D2 and asked them to explain the purposes of 24 identified cheques, including the payments of HK$10,000,000, HK$1,000,000, HK$9,000,000 and HK$130,000 forming the subject matters of HCA 2297/2012.

30.  On 31 July 2012, D1, D2 and D3 were arrested by police. Under caution, D3 claimed that he had not done any business with Maryo. Police found the 200 Jade Articles in D1’s home. Those jade articles were placed in a blue nylon bag in the living room on the floor, next to a pile of waste paper and newspapers. Police also found a photo album (“the Album”) used in the probate litigation between Madam Ho and Madam Leung in D3’s home.

31.  On 28 August 2012, CYL, YKW, and YHFH became directors of Maryo.

32.  In November 2012, Maryo demanded D1 and D2 to explain the payment of HK$9,000,000 and HK$130,000, and demanded D3 to explain his receipt of the said sum. Maryo also demanded D1 to repay the loan of HK$1,000,000 due from D1 to Maryo.

33.  On 18 January 2013, D1 and D2 were removed from directorship of Maryo.

34.  On 11 July 2013, default judgment was entered against D3 in HCA 2297/2012 (“the default judgment”). On 13 April 2015, D3’s application for setting aside the default judgment was dismissed by the Court of First Instance. Pursuant to the default judgment, D3 has paid HK$7,820,010.70 (“the HK$7.82m”) to Maryo. On 11 January 2016, D3’s appeal was allowed by the Court of Appeal and the default judgment was set aside (“the CA Judgment”). I note that all the pleadings and the evidence in this trial are prepared after the CA Judgment. With respect, the comments in the CA Judgment on the pleadings and on the factual matters must be regarded as being overtaken by subsequent events, and I have to make my findings based upon the pleadings and the evidence now before me.

35.  D1, D2 and D3 were tried in DCCC 73/2015[5] (“the Criminal Trial”). On 15 January 2016, the District Court pronounced the verdict (“the DC Judgment”) and found that D1 and D3 were guilty of the following (“the convictions”):

(1)  D1 and D3 had, between 22 July 2011 and 13 February 2011, conspired together to defraud Maryo and its shareholder by dishonestly entering Maryo into a contract to purchase 200 pieces of jade for HK$12 million and causing and permitting the payment of HK$10.13 million to be made by Maryo to D3 pursuant to that contract. The 2 dates refer to 2 payments made to D3 by Maryo, totaling $10.13 million.

(2)  D3 knowing or having reasonable grounds to believe that the HK$10.13 million he received for the contract referred to in the aforesaid charge in whole represented the proceeds of an indictable offence, dealt with the property.

D2 was acquitted after trial. Both D1 and D3 were sentenced to imprisonment for 2 years and 8 months. By the time of this trial, they have served their sentence.

36.  D3 lodged an appeal against the convictions. The appeal was dismissed by the Court of Appeal on 17 January 2018[6]. D3 sought leave to appeal to the Court of Final Appeal. On 19 December 2018, the Registrar of the Court of Final Appeal required D3 to show cause by written submissions by 16 January 2019 why the application should not be dismissed by the Appeal Committee. D3 filed written submissions on 16 January 2019. The outcome of his leave application is not yet known.

37.  Madam Ho obtained an award in the IPFDO Action, and the Estate has paid the awarded sum to Madam Ho. She also commenced the 1^st Trust Action against the Estate, but discontinued that action in January 2012 with an undertaking that she would not commence another action based on the same cause of action. On 27 August 2012, Madam Ho commenced another action, HCA 1531/2012 (“the 2^nd Trust Action”), claiming that Maryo held assets on trust for her. The 2^nd Trust Action was struck out by both the Court of First Instance and the Court of Appeal on the ground that the commencement of this new action is an abuse of the process of the court[7]. That being the case, there is no basis in saying that any asset owned by Maryo is being held on trust for Madam Ho.

38.  Over the years, D1 and D2 have caused Maryo to pay them directors’ remuneration, details of which are as follows:

Particulars

	Year	1st Defendant		2nd Defendant
	(July-June)	Monthly	Annually	Monthly	Annually	Total
(1)	2002-2003	$17,750	$213,000	$8,000	$96,000	$309,000
(2)	2003-2004	$17,750	$213,000	$8,000 (x9) $4,000 (x3)	$84,000	$297,000
(3)	2004-2005	$8,870	$106,440	$4,000	$48,000	$154,440
(4)	2005-2006	$8,870	$106,440	$4,000	$48,000	$154,440
(5)	2006-2007	$8,870	$106,440	$4,000	$48,000	$154,440
(6)	2007-2008	$8,870	$106,440	$4,000	$48,000	$154,440
(7)	2008-2009	$14,000	$168,000	$6,000	$72,000	$240,000
(8)	2009-2010	$14,000	$168,000	$6,000	$72,000	$240,000
(9)	2010-2011	$14,000 (x6) $21,000 (x6)	$210,000	$6,000 (x6) $9,000 (x6)	$90,000	$300,000
(10)	2011-2012	$21,000	$189,000	$9,000	$81,000	$270,000

THE PARTRIES’ RESPECTIVE CASES

39.  Most of the time in these proceedings is spent on the matters relating to the claim of conspiracy to defraud made by Maryo. Maryo claims that the transaction is a bogus transaction and is a scheme devised by D1, D2 and D3 to deceive Maryo. Maryo says that there is a conspiracy among D1, D2 and D3 to defraud Maryo, causing Maryo to pay HK$10,130,000 to D3. It is Maryo’s case that the market value of the 200 Jade Articles was far below HK$12,000,000 at the time of the transaction. Maryo claims that the position prior to the transaction should be restored. D1 and D3 claims that the transaction is a genuine transaction. D3 counterclaims that there should be an order requiring Maryo to repay the HK$7.82m paid by him to Maryo under the default judgment. D2 claims that he has no participation in the transaction.

40.  Maryo also claims that D1 should repay the loan of HK$1m due to Maryo. D1 says that the loan has been used to pay part of purchase price in the transaction to D3.

41.  Maryo further claims that the directors’ remuneration paid to D1 and D2 are unauthorized payments and D1 and D2 should return the same to Maryo.

42.  D1 mounts a counterclaim against Maryo, ie D1 claims that Maryo owes her a shareholder loan of HK$4,722,391 and should repay the same to her.

43.  I would first analyse the evidence and make findings on the aforesaid claims.

THE RELEVANT LEGAL PRINCIPLES

44.  The issues in dispute in these proceedings are fact-sensitive.  To a great extent, the answers to these issues depend upon my assessment of the evidence given by the factual witnesses. In respect of evaluating factual evidence, a set of frequently-quoted guidelines is the one given by DHCJ Eugene Fung SC in Hui Cheung Fai v Daiwa Development Ltd[8], in which the learned judge said:

“77.  Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce) .

78.  In deciding whether to accept a witness’s account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5th May 2011) §39 (Chu J).

79.  In determining a witness’s credibility, I have also attached importance to the consistency of the witness’s evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80.  I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses: Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36, 37 (Bokhary PJ).

81.  The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

“Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities.  It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth.”

82.  Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court’s determination …...”

45.  As to the effect of lies told by a factual witness, the reminder given by Sir John Dyson in MA (Somalia) v Secretary of State for the Home Department[9] is instructive:

“31.  ....... where a claimant tells lies on a central issue, his or her case will not be saved by general evidence unless that evidence is extremely strong. It is only evidence of that kind which will be sufficient to counteract the negative pull of the lie. But much depends on the bearing that the lie has on the case……

32.  Where the appellant has given a totally incredible account of the relevant facts, the tribunal must decide what weight to give to the lie, as well as to all the other evidence in the case, including the general evidence……

33.  ...... where the appellant tells lies on a central issue in the case, the [tribunal] may conclude that they are of great significance……It will be a matter for the [tribunal] to decide whether the general evidence is sufficiently strong to counteract what we have called the negative pull of the appellant’s lies.”

46.  In respect of expert evidence, the evidence would only be admissible if the witness giving the evidence really possesses the requisite expertise[10]. Further, experts are merely providing assistance to the court and their evidence is not binding upon the court. The court can and should make its own judgment by considering all the materials available. See Grand Wayfair Investment Company Limited v Chan Yung Kan^[11].

47.  Insofar as D1 and D3 are concerned, Maryo is relying upon, inter alia, the convictions in support of its claims against these 2 defendants. Maryo has pleaded s.62 of the Evidence Ordinance (“EO”) in its consolidated statement of claim, which is as follows:

“(1)  In any civil proceedings the fact that a person has been convicted of an offence by or before any court in Hong Kong shall …… be admissible in evidence for the purpose of proving, where to do so is relevant to any issue in those proceedings, that he committed that offence, whether he was so convicted upon a plea of guilty or otherwise and whether or not he is a party to the civil proceedings; but no conviction other than a subsisting one shall be admissible in evidence by virtue of this section.

(2)  In any civil proceedings in which by virtue of this section a person is proved to have been convicted of an offence by or before any court in Hong Kong —

(a)  he shall be taken to have committed that offence, unless the contrary is proved; and

(b)  without prejudice to the reception of any other admissible evidence for the purpose of identifying the facts on which the conviction was based, the contents of any document which is admissible as evidence of the conviction, and the contents of the information, complaint, indictment or charge on which the person in question was convicted, shall be admissible in evidence for that purpose.” (Emphasis added)

48.  A relevant conviction arrived in a criminal court after a full hearing is not only admissible evidence in the related civil proceedings, but is also probative evidence of some weight. It has been said that most serious consideration and heaviest weight should be given to the fact of a conviction. Discharging the burden of proof casted by s.62 of the EO on the defendant is an uphill task[12].

THE FACTUAL EVIDENCE

49.  I would first set out my overview of the evidence given by each of the factual witnesses in this case. Thereafter, I would analyse the evidence concerning the claim of conspiracy to defraud made by Maryo, which is the most important issue in these proceedings.

CYL

50.  CYL was appointed as a director of Maryo on 28 August 2012. Prior to this, she had no involvement in Maryo’s affairs. As the material events in these proceedings occurred prior to her appointment as a director of Maryo, she does not have personal knowledge of those events. Her evidence is merely summarizing the facts and information shown in various documents. While I do not doubt the truthfulness of her evidence, her evidence does not shed much light on the disputes between the parties.

D1

51.  In my view, D1 is an untruthful and unreliable witness. She lied on various important issues in these proceedings. I have no hesitation in rejecting her evidence.

52.  D1 is 65 years old. She received education up to primary 4. She cannot understand English. From 1985 onwards, she did not have any full-time occupation besides helping her father selling jades. From 1996, her mother, Madam Ho, retired from the jade business in order to look after the father, who later passed away. According to D1, Madam Ho had a habit of staying over at different children’s homes at different times, spending time with them for days at a time.

53.  D1 was actively involved in the litigations between Madam Ho and CYL’s camp from 2004 to 2012. She helped her mother in the preparation of those litigations, taking her mother to see lawyers and participating in those meetings. D1 had signed witness statements in support of both her mother’s position in the probate litigation, the IFPDO Action, and the 1^st Trust Action. D1 also helped writing an “open letter” (“the Open Letter”) to the press during Madam Ho’s trial in the IFPDO Action in June 2012, explaining Madam Ho’s motive for taking out the action and her desire to get back from CYL the Estate.

54.  D1 admitted that she and D2 were unwilling to transfer Dr Tsang’s shareholding in Maryo to CYL’s camp because, to her mind, Dr Tsang’s shareholding should belong to her and Madam Ho jointly instead. She also admitted that Madam Ho was unwilling to see those shares vested in CYL’s side. D1 also claimed that, to her mind, Maryo did not actually owe Dr Tsang any money, and in fact Maryo owed money to Madam Ho and her. D1 even claimed that the entire Estate belonged to her.  She admitted that she had anger and was of the view that the matter was unfair after the CFA Judgment in 2009, for nothing in the Estate would go to her side of the family after that judgment. Soon after the handing down of the CFA Judgment, D1 had already been helping her mother to prepare for the next round of litigation against CYL with a view to getting the Estate back. Shortly before the commencement of the 1^st Trust Action, i.e. shortly before 6 October 2010, D1 already knew that the writ was about to be issued to CYL. That was when the $10m was paid to BJ, D3’s wholly-owned company. All these have to be borne in mind in assessing D1’s credibility.

55.  In respect of the JV Agreement and the payment of the HK$10m from Maryo to BJ, D1 has told a pack of lies. D1 said that prior to the signing of the JV Agreement, she had never signed any contract.  The JV Agreement was prepared by lawyers upon her verbal instructions, and the draft had been reviewed by a counsel. However, she claimed that the JV Agreement in fact did not reflect her instructions and did not record what had been agreed between her and D3. According to D1, the agreed deal did not involve any loan from Maryo to BJ. The true agreement between her was that D3 agreed to inject his collection of the 200 Jade Articles into BJ, BJ would then place the 200 Jade Articles in Maryo’s hands for sale, and Maryo agreed to provide HK$10m to BJ as security money for taking the 200 Jade Articles in possession. If Maryo made any profits in selling the said jade articles, Maryo would get 60% of the profits and BJ would have the remaining 40%. If Maryo could not find any buyer to purchase the jade articles, Maryo had the right to return the 200 Jade Articles to BJ and get back the HK$10m.

56.  D1’s evidence cannot be the truth.

57.  Firstly, the agreed deal as claimed by D1 is completely different from the joint venture set out in the JA Agreement. It is inherently improbable that a written contract drafted by professional lawyers upon client’s instructions and reviewed by counsel would not reflect the true agreed deal but show another entirely different deal. It is equally inherently improbable that a person would sign a written agreement prepared by her lawyers when she can see that the contents of the agreement are completely different from the instructions given by her to her lawyers.

58.  Secondly, according to D1, Maryo provided security money to BJ and was prepared to share profits with BJ because D3 had “injected” the 200 Jade Articles to BJ. However, D1 has never said how the injection occurred. If there is any truth in the deal as claimed by D1 in her oral evidence, D1 certainly would have had taken some steps to ensure that the ownership of the 200 Jade Articles had been transferred from D3 to BJ. The identity of the true owner of the 200 Jade Articles is an important question. If D3 remains to be the owner of the 200 Jade Articles, there would be no reason for Maryo to give any security money to BJ or to share any profits from the sale of the jade articles with BJ.

59.  Thirdly, before procuring Maryo to enter into the JV Agreement and to pay HK$10m to BJ, D1 had already known that CYL was the sole beneficiary of the Estate as a result of the CFA Judgment.  Nevertheless, D1 did not consult CYL in respect of the JV Agreement and the HK$10m payment. When asked why she did not do so, D1 said that she just wanted to help Maryo to invest and there was no need to ask other persons.  It was put to D1 that (a) she and D2 had in mind that they did not want CYL to get hold of the money in Maryo; and (b) they wanted to move the money out of CYL’s reach when writing the $10m cheque. D1 denied all these. D1 claimed that she wanted Maryo to make profits, no matter the money would belong to whom. D1 said that Maryo had waited for 10 years and had lost many investment opportunities.

60.  D1’s explanation is contrived and cannot be believed. As set out in the above, after losing the probate litigation in the CFA, D1 had been actively assisting her mother in other litigations to try to get back the money in the Estate. There can be no doubt that D1 has hatreds against CYL. In these circumstances, to say that D1 has the genuine intention to cause Maryo to make profits to benefit CYL is unbelievable.

61.  Further, D1 did not say what investment opportunities Maryo had lost in the 10 years before 2010. While there are continuous litigations concerning the Estate after the death of Dr Tsang in December 2001, there has never been anything preventing Maryo from doing business in all the years. D1 did not cause Maryo to do any business and left Maryo to stay dormant for many years after the death of Dr Tsang, and only caused Maryo to enter into the JV Agreement and pay the HK$10m to BJ after Madam Ho losing the probate litigation in the CFA in 2009. The payment of the HK$10m was made while Madam Ho was claiming against the Estate in the IFPDO Action and one day before Madam Ho started the 1^st Trust Action. In respect of all these, the only plausible explanation is that D1’s evidence on the JV Agreement and the HK$10m payment is not true, and the JV Agreement is a scam with the purpose of dissipating the assets of Maryo.

62.  I note that BJ repaid the HK$10m to Maryo on 6 May 2011. According to D1, D3 was not in good health at that time and was unable to do what he had agreed to do under his agreement with D1. Hence, D1 and D3 agreed to cancel the joint venture, and BJ returned the HK$10m to Maryo. In my view, this explanation is unconvincing. In D1’s own words, the actual joint venture agreement is that Maryo would sell the 200 Jade Articles deposited by BJ, and Maryo and BJ would divide the profits generated from the sale. That being the case, even if D3 was not in good health, that would not affect the joint venture, for the sale of the jade articles would be done by D1.

63.  I am in respectful agreement with the observation made by the Court of Appeal in CACC 16/2016[13], in which Yeung VP (giving the judgment of the Court) said:

“49. ……It may not be necessary to speculate the reason for giving up the co-operation agreement and in its place, devising the sale of the 200 pieces of jade to dissipate practically the entire assets of Maryo. It is likely that from the perspective of the fraudsters, the sale of the jades, as a means to defraud Maryo was a safer one than the co-operation agreement as, unlike other commodities, it was difficult to put a definite value to jade as all the experts seem to agree.”

64.  In her oral evidence given at the trial, D1 claimed that Dr Tsang, during his lifetime, had told her that after his death, D1 could withdraw as much as she liked from Maryo’s account. This allegation is relied upon as a defence to claim of unauthorised director’s remuneration made by Maryo. However, this allegation has not been pleaded in D1’s defence and has not been mentioned in D1’s witness statement. In my judgment, this allegation is a story made up by D1 in the witness box. This allegation is absurd and not supported by any document at all.

65.  Fourthly, as explained below, D1’s evidence concerning her defence to the claim of conspiracy to defraud is also not the truth.

66.  All in all, in my judgment, D1 is an untruthful and unreliable witness. Her evidence must be rejected.

D2

67.  D2 is also not a truthful witness. He tried to distance himself from the essential events in this case. However, there is in fact clear evidence showing that he has knowingly participated in these matters.

68.  D2 is the son of Tsang Senior and Madam Ho. He is the younger brother of D1. He is 52 years old. He completed university education in Taiwan and obtained a bachelor degree in biomedical engineering. He had some work experience in Taiwan before returning to Hong Kong in 1997. After coming back to Hong Kong, he has worked in many different capacities and industries, including insurance & wealth management, asset management and real estate. He also has the experience of using a company limited as a vehicle to do business. In 2010 and 2011, D2 was (a) a consultant of AMG Wealth Management Ltd; and (b) the regional manager and project director of Sino Promise, Asia’s then largest agent for Kodak. He said that he was made a director of Maryo by Dr Tsang shortly before the demise of Dr Tsang. Dr Tsang asked him to keep an eye on his sister, ie D1.

69.  D2 claimed that he was oblivious of Maryo’s financial conditions (ie contemporaneous bank balance) throughout his directorship, and was solely tasked to issue and countersign cheques for payments of remuneration, utilities, government rates and the like (without any knowledge of how much Maryo had in its bank account), to make a record of cheque payments and to go to the accountants to simply sign off accounts without careful reading of the documents. However, while he was giving evidence, in response to the question asked by the court, D2 said that if he was requested to countersign a cheque of a big sum, he would ask D1 to tell him the purpose of the payment. If D1 was unable to provide him a satisfactory explanation, he would refuse to sign.

70.  In my view, D2’s evidence is untrue on various material aspects.

71.  Firstly, D2 claimed that he had no knowledge of Maryo’s sale of its final real property in 2002 and had no participation in the sale. He was only informed by D1 after the completion of the sale that the property. That property was sold for HK$13.98m, and the assignment was actually executed by D1 and D2 on behalf of Maryo in December 2002. After being shown a copy of the said assignment, D2 retracted his earlier evidence. D2 had to do so, for he had no other alternative when the assignment bearing his signature was placed before him.

72.  Secondly, although D2 has confirmed the truthfulness and correctness of the contents of his witness statement, he tried to retract his testimony in the middle of the cross-examination and said that parts of his witness statement were not his evidence, including paragraphs 15 and 16 of that witness statement, which are as follows:

“15.  There was no basis at all for [Maryo] to allege that the investment was not to the best interest of [Maryo]. At all material tims, I truly believed that the purchase of [the 200 Jade Articles] was a sound and profitable investment and I truly believe that the current value of [the 200 Jade Articles] has exceeded the previous purchase price and [Maryo] has gained huge profits from such purchase.

16.  On 13 February 2012, a crossed cheque in the sum of HK$130,000.00 was drawn for and on behalf of [Maryo] to pay [D3] as the part payment of the balance of the purchase price of [the 200 Jade Articles] stones under [the SPA].”

73.  D2 was asked why evidence not from him was in his witness statements. D2 explained that the witness statement was prepared by the solicitors acting for him at that time, who were also D1’s solicitors. D2 said that his witness statement and D1’s witness statements had similar contents, and probably this was due to the fact that the 2 witness statements were prepared by the same firm of solicitors. In my view, this is not a satisfactory explanation for the appearance of paragraphs 15 and 16 in his witness statement:

(1)  In his witness statement, after the statement of truth signed by D2 himself, there is a certificate signed by a person in the law firm. The person signing the certificate declared that she had translated the contents of the witness statement and the statement of truth to D2, and D2 (a) appeared to understand the witness statement and approved its contents as accurate and (b) appeared to understand the statement of truth and the consequences of making a false statement. When being asked whether the matters stated in the certificate were true or not true, D2 merely said that he could not remember clearly.

(2)  D2 was unable to explain why he confirmed the truthfulness and the correctness of the entire witness statement during his evidence in chief.  The witness statement was in his possession for a long time and he had many opportunities to examine its contents before the trial. If there is any material mistake in that witness statement, it is inconceivable that he would confirm the witness statement unreservedly in his evidence in chief.

(3)  Paragraph 15 of his witness statement in fact echoes the pleas in paragraphs 20(1) and 22 of D2’s consolidated defence, ie D2 acted in the best interest of Maryo at all material times and exercised reasonable care and skill at all material times. Paragraph 16 of his witness statement is trying to prove the plea in paragraph 21 of D2’s defence. The 2 paragraphs in his witness statements which was disowned by D2 during cross-examination in fact closely connecting with the matters pleaded in D2’s defence, which has been verified by a statement of truth signed by D2.

74.  In my judgment, the allegation that paragraphs 15 and 16 of D2’s witness statement is not from him is untrue. This is a matter invented by D2 while he was being cross-examined, and he made up this to try to distance himself from the transaction.

75.  Thirdly, D2 claims that he has no knowledge of the cheque of HK$130k at all. When he signed the cheque, that cheque was a blank cheque. D1 has never told him eventually what was written on that cheque and the cheque was used for what purpose. As revealed in paragraph 21 of D2’s defence and paragraph 16 of D2’s witness statement, D2’s evidence is untrue. Whether everything had been written on the cheque when D2 put his signature on the same is not the crucial point. The crucial point is that D2 knows the purpose of that cheque, and has agreed to the cheque being used for that purpose.

76.  Fourthly, while D2 was under cross-examination, D2 on his own motion for the first time mentioned that the JV Agreement, the SPA and the Cash Memo were signed by him only “after the event” ( 補簽 ). D2 claimed that the JV Agreement was signed by him several weeks after the signing of the $10m cheque, whereas for the other 2 documents, he was simply unable to describe how much time “after the event” that he eventually signed them. His evidence cannot be true.

(1)  This scenario has never been raised by D2 in his defence and in his witness statement. Reading the DC Judgment, this “after the event” scenario has also not been raised by D2 while he was giving evidence in the Criminal Trial. This “after the event” scenario is also at odds with D1’s oral evidence. According to D1, the JV Agreement, the SPA and the Cash Memo were signed by all the 3 signatories in the presence of each other at the same time.

(2)  D2 claimed that he played no part in the decision making process leading to the JV Agreement and the SPA.  In other words, D2 signed the HK$10m cheque dated 5 October 2010 and the HK$9m cheque dated 22 July 2011 merely because D1 asked him to do so.  If he was so submissive to D1, D1 would have no need to ask D2 to sign the cheques first and gave the corresponding documents to him to sign some time thereafter.

(3)  D2 was asked to explain the lateness of this revelation. He claimed that he did not understand legal documents and he had not been asked about that this when his lawyers were preparing the legal documents for him. However, neither Maryo’s counsel nor the court brought up the issue of timing of D2’s signing of the JV Agreement, the SPA and the Cash Memo at all during cross-examination. It was D2 himself raised the “after the event” scenario out of the blue while he was in the witness box. In my view, his explanation of not raising this in his defence and in his witness statement is unconvincing.

(4)  In my judgment, this “after the event” scenario is a story made up by D2 in the witness box. He tried to use this to distance himself from the JV Agreement and the transaction.

77.  Fifthly, for the reasons set out below, D2’s evidence concerning his defence to the claim of conspiracy to defraud is untrue.

78.  I am of the view that D2 is not a truthful and unreliable witness.  I refuse to accept his evidence.

D3

79.  D3 is now 65 years old. He fully retired since 2012 or 2013 from a career as a labourer in goods-handling. Amongst other places, he used to move goods in the Aberdeen Wholesale Fish Market. During 2010 and 2011, he was semi-retired at that time, earning between $10,000-20,000 per month by that stage. He professed to have some experience in the cargo business too.

80.  D3 claimed that he was a jade lover and collector. He was introduced to jade collection by his late grandmother, who was a serious jade collector. Some of his collections were purchased in Mainland China and some were purchased in Hong Kong. D3 said that before his grandmother passed away in or about 1982, his grandmother left her entire jade collection to him.

81.  D3 said that he came to know Dr Tsang in or about the mid-90s. He was a patient of Dr Tsang at that time, and later they became friends. D3 would visit Dr Tsang at his clinic in Hung Hom from time to time. Dr Tsang told D3 that D1 was his sister. After Dr Tsang passed away in December 2001, D3 ceased to visit the clinic.

82.  D3 was BJ’s sole shareholder and director during its short existence. He had acquired BJ on 14 September 2010, and it was his 1^st time starting a company for himself. The acquisition was at a time:

(1)  about 1 month after CYL on behalf of the Estate had requested D1 and D2 to transfer Dr Tsang’s shares in Maryo to the Estate;

(2)  about 3 weeks before the HK$10m cheque was drawn by D1 and D2 on behalf of Maryo in favour of BJ; and

(3)  during the time when Madam Ho (with assistance from D1) was prepared to commence another set of proceedings for getting the assets in the Estate, namely, the 1^st Trust Action.

These have to be borne in mind in assessing the overall credibility of D3.

83.  Under cross-examination, D3 admitted that he had a permanent residential address in Shek Tong Tsui since 1983 or 1984. However, he put in someone else’s home address as his residential address in the company’s documents filed by BJ at the Companies Registry. According to D3, he chose to use that person’s address because he was considering to hire her as an assistant in the business in future. D3 said that he had planned to hire that person to help with accounting and secretarial work. However, that person in fact had never been hired by D3 or BJ. D3 said that person’s home had space for a desk whilst his home was too small and occupied by the stuffs left behind by his deceased father and grandmother. In my view, D3 has not provided any convincing explanation as to why he did not put his own residential address in the company’s documents filed at the Companies Registry. After all, his own address is his real residential address. Further, it is inherently improbable that the other person would allow D3 to put that other person’s address as D3’s residential address in the company’s documents without reasonable cause. I am of the view that the excuses offered by D3 cannot be reasonable cause. That D3 has deliberately put another person’s address in the company’s documents as his own residential address without any plausible explanation should be taken into account in assessing the credibility of D3’s case.

84.  D3’s evidence is unconvincing and incredible on various aspects. His evidence cannot be true.

85.  Firstly, while D3 was giving evidence-in-chief, he made a correction to his witness statement and said that paragraph 27 of his statement should be moved to immediately after paragraph 23 of that statement.

(1)  Paragraph 27 of his witness statement reads as follows:

“27. ……Subsequently [D1] took [the Album] to my home. She said [the Album] was used in the civil litigation between the step moth and biological mother of the late Dr Tsang. She explained to me that it was [CYL], a half-sister of the late Dr Tsang born from the same biological mother who had falsely reported to the police that the purchase of my jade collection was not a genuine transaction. She identified to me [CYL] by using [the Album]. This was the first time that I came to know of the protracted probate action fought between the biological mother and step mother of the late Dr Tsang and the family background of the late Dr Tsang. [D1] left [the Album] behind when she left. It remained causally at my home. [The Album] was taken by the police when they searched my home. I had never been asked by the police any question regarding [the Album] either at home or at the police station”

(2)  In paragraph 23 of his witness statement, D3 mentioned that he had chased D1 for the balance of the purchase price stated in the SPA, and on each occasion D1 said that there were some internal disagreements amongst the shareholders and hence Maryo would only be able to make payment after solving those internal problems. Since D3 was not in urgent need of money, he did not push hard in chasing for the balance.

(3)  In paragraphs 25 and 26 of his witness statement, D3 mentioned that he was arrested by the police in July 2012. After that, he confronted D1 why a report was made to the police alleging fraud against him.

(4)  According to the correction made by D3 in his evidence-in-chief, the events described in paragraph 27 of his witness statement in fact occurred before his arrest. However, under cross-examination, D3 admitted that he only realized that a report against him had been made to the police when he was arrested by the police on 31 July 2012, and he was shocked by this. The Album was found to be in his home and was seized by the police on the same date. In these circumstances, the alleged discussion between D1 and him regarding the report made to the police as set out in paragraph 27 cannot be an event occurred before D3’s arrest by the police.

(5)  In my view, since it is indisputable that the Album was seized by the police at D3’s home when D3 was arrested on 31 July 2012, D3 wanted to change his evidence and to say that D1 took the Album to his home before his arrest. However, this sudden change of his evidence makes the other events mentioned in paragraph 27 of his witness statement inherently improbable.

86.  Secondly, as to the purpose of D1 showing him the Album, both D1 and D3 said that it was for enabling D3 to know the face of CYL, the new shareholder of Maryo, so that D3 would be able to chase CYL for payment. This cannot be true. There is no recent photo of CYL in the Album. Further and more importantly, just showing the face of CYL to D3 and without telling D3 how CYL could be contacted, it would not be possible for D3 to find CYL and to chase CYL for payment.

87.  Thirdly, the timing of D3’s purported inspection and valuation of the 200 Jade Articles in his oral evidence is very different from that described in by him in his 3^rd Affirmation made on 20 January 2015. In that affirmation, he claimed that the inspection and valuation took place no later than 5 May 2010 (ie the receipt of the HK$10m by BJ). In his oral evidence given in the trial, the inspection and valuation were done only a few weeks before 22 July 2011 (ie the receipt of the HK$10m by D3 himself). He was unable to give any plausible explanation for this discrepancy when being challenged on this during cross-examination.

88.  In paragraph 16 of his 3^rd Affirmation, D3 claimed that after he learned that Maryo had alleged the 200 Jade Articles were of a total value much lower than HK$12m, he confronted D1 for her reason for the offer of HK$12m. Upon his strong request, D1 revealed to him that the offering price was actually based on Madam Ho’s valuation. Madam Ho opined that the value of the 200 Jade Articles would be about HK$16m. However, in his oral evidence given in this trial, the valuation by Madam Ho was said to have taken place a few weeks before 22 July 2011, and he knew this because he overheard the discussion between D1 and Madam Ho when they were talking about the value of the 200 Jade Articles after seeing the same. Since Maryo’s allegation of gross undervalue had not been made until the commencement of these proceedings in late 2012, the timing of D1’s revelation to him about Madam Ho’s valuation would be, according to D3’s 3^rd Affirmation, in late 2012 or so. In other words, D3’s oral evidence on the timing of this valuation is totally out of sync by more than 1½ years approximately. It was put to him that he was not telling the truth concerning the valuation of the 200 Jade Articles, D3 denied. In my view, D3 has not told the truth.

89.  Fourthly, under cross-examination, D3 was asked to explain the following, and no meaningful explanation had been offered.

(1)  why D1 had not asked him to tender any proof showing that he was the true owner of the 200 Jade Articles and there was no other person claiming any interest in these jade articles;

(2)  if D3 injected the 200 Jade Articles into BJ at the time of the JV Agreement, BJ would have become the owner of the jade articles; thereafter, when and how BJ transferred back the ownership of the 200 Jade Articles to D3;

(3)  why D3 would rely upon the valuation provided by D1 and not to do an independent valuation himself in discussing the sale and purchase of the 200 Jade Articles with D1, bearing in mind that the seller’s interest and the buyer’s interest inherently conflict with each other in a sale and purchase.

All these are important questions pertinent to the credibility of D3’s case. The absence of any meaningful explanation to all these shows that D3’s case cannot be true.

90.  Fifthly, for the reasons set out below, D3’s evidence concerning his defence to the claim of conspiracy to defraud is untrue.

91.  In my judgment, D3 is also an untruthful and unreliable witness. I reject his evidence.

CONSPIRACY TO DEFRAUD

92.  I now turn to the evidence given by the defendants in respect of the claim of conspiracy to defraud made by Maryo.

93.  The whole saga began on 5 October 2010, when D1 and D2 caused Maryo to pay the HK$10m to BJ, purportedly under the JV Agreement. The payment was made after Madam Ho losing the probate litigation in the CFA and Madam Ho’s commencement of the IPFDO claim, and one day before Madam Ho’s commencement of the 1^st Trust Action. During that time in late September and early October 2010, D1 was closely involved in Madam Ho’s litigations against CYL’s camp. By then, D1 already knew that CYL had been requesting, since August 2010, for the transfer of Dr Tsang’s shares in Maryo to the Estate. D1 was unwilling to see CYL to get hold of those shares.

94.  D1 claimed that it did not occur to her that she should consult CYL, Estate’s “manager”, about the payment of the HK$10m. D1 alleged that she just wanted to invest on behalf of Maryo, and she had no need to consult anyone else. It was put to D1 during cross-examination that when she and D2 were issuing the HK$10m cheque, they were contemplating that they did not want CYL to get hold of that money and that they intended to remove the money from Maryo. D1 denied and claimed that she wanted Maryo to make profits, and it was not important that the money would enter into whose pocket. D1 claimed that Maryo had lost many investment opportunities after waiting for 10 years. For the reasons set out in paragraphs 60 and 61 above, D1 was clearly lying on all these.

95.  D1 and D3 rely heavily upon the return of the HK$10m to Maryo by BJ on 6 May 2011 to claim that they are innocent. However, a closer analysis of the evidence reveals that their claim is unconvincing.

(1)  The HK$10m was returned by a BJ’s cheque dated 3 May 2011 and signed by D3. The number of that cheque is “197823”. Maryo’s bank statement shows that the cheque was presented to the bank on 3 May 2011 but was dishonoured. The cheque was re-presented for payment on 6 May 2011 and accordingly paid.

(2)  D3 claimed that after depositing the HK$10m into BJ’s bank account, the money remained there throughout. He only issued 1 cheque out of BJ’s account and that was the HK$10m cheque to Maryo.

(3)  D3 was asked why that cheque did not bear a cheque number ending with the digit “1”, which ordinarily would be a feature of the 1^st cheque of each cheque book, D3 said that probably he had had to rewrite the cheque because of erroneous drawing.

(4)  In the ordinary course of events, there are 2 reasons for a cheque to be dishonoured. One is there is insufficient fund in the cheque account for the payment of the cheque issued. The other is that some words on the cheque or the signature on the cheque is incorrect. There is nothing on the HK$10m cheque showing that D3 had to amend anything on this cheque. That being the case, the only reason for the non-payment of the cheque on 3 May 2011 is insufficient fund in BJ’s account at that time.

(5)  The above is reinforced by the non-production of BJ’s bank statements. Those bank statements would lend support to D3’s claim that the money has never left BJ’s account, if there is any truth in that claim.

96.  The significance of the above analysis is that D3 could not have been telling the truth when he testified that the HK$10m have never left BJ’s account.  He was not forthcoming as to what had happened to the money between 5 October 2010 and 3 May 2011.

97.  In respect of the JV Agreement, D1 alleged that the document was drafted by lawyers upon her instructions and reviewed by counsel. D3 claimed that the document was signed after some minor amendments. However, the JV Agreement does not contemplate any sale by Maryo of the goods provided by BJ. The company registration number of BJ as shown in the JV Agreement is entirely wrong. Further, D1 has never requested D3 to tender any proof showing that BJ is the true owner of the 200 Jade Articles.  There is also no evidence showing that after entering into the JV Agreement, D1 had caused Maryo to make any attempt to try to sell any of the 200 Jade Articles. All these show that that the alleged joint venture is not a genuine scheme.

98.  For the reasons set out in paragraphs 62 and 63 above, the mere return of the HK$10m from BJ to Maryo on 6 May 2011 is not sufficient evidence showing that there is no trick in the so-called joint venture.

99.  The so-called joint venture, including the HK$10m payment to BJ, could not be implemented without the connivance and participation of D2. D2 signed both the JV Agreement and the HK$10m cheque. I do not accept that he was merely doing what D1 telling him to do and had no participation in all these.

100.  Just a few days after the return of the HK$10m to Maryo, D1 and D2 drew the HK$1m cheque to D1.

101.  The evidence from D2 as to the purpose of this payment was very different from the evidence from D1. D1 claimed that at that time, she planned on buying jade for Maryo, as the price of jade was hiking up. However, she could not find any suitable jade. She kept the HK$1m with a view to buy the 200 Jade Articles from D3 at a later time. D2 claimed that D1 was in a big hurry to obtain that payment of HK$1m so that she could place a deposit for jade. He did query her why the cheque should not be drawn payable directly to the seller, but she did not give any answer. She just rushed him into writing the cheque, saying she was in a hurry. Since I am of the view that neither D1 nor D2 is a truthful witness, I do not accept these explanations. The only matter which is clear from the documents is that, with D2’s connivance and assistance (ie signing the HK$1m cheque), D1 has taken HK$1m from Maryo.

102.  In respect of the transaction, I am of the view that this is not a genuine transaction but is a scam with the purpose of depriving Maryo’s assets.

(1)  For the reasons set out below, I accept the opinion given by Maryo’s expert and hold that the market value of the 200 jade Articles in mid-2011 was far below HK$12m.

(2)  D1 did not require D3 to tender any proof showing that he was the true owner of the 200 Jade Articles. This defies common and commercial sense, particularly D1 has the knowledge that the 200 Jade Articles were BJ’s property in October 2010. Any reasonable buyer buying these jade articles would require D3 to prove his ownership of these items. Otherwise, the buyer would not be able to resell the jade articles in the market, for he cannot show to the sub-buyer that he has a good title to these goods.

(3)  D3 claimed that before entering into the SPA, he overheard the discussion between D1 and Madam Ho after they had examined the 200 Jade Articles. D3 heard Madam Ho said that the market value of the 200 Jade Articles should be about HK$16m. If there is any truth in this claim, D3 would have no reason to agree to sell the jade articles to Maryo at HK$12m, given the difference between HK$16m and HK$12m is substantial. D3 would certainly ask for a price which is close to HK$16m, and if D1 refuses, D3 may sell the jade articles in the market. D3’s claim is inherently improbable.

(4)  It is also inherently improbable that D3 would rely upon the valuation provided by the potential buyer and not to seek an independent valuation himself when negotiating a deal which involves a very substantial sum.

(5)  D1 said she wanted to do investment on behalf of Maryo.  However, after buying the 200 Jade Articles, D1 did not do anything to try to find any buyer to buy the 200 Jade Articles or any part thereof.

103.  The presence of the Album (having a lot of family photos inside) in D3’s home shows that D1 and D3 were not merely business partners, but D1 would in fact discuss her family matters with D3. There is no other plausible explanation for the presence of the Album in D3’s home.

104.  Another piece of evidence casting doubt of the genuineness of the transaction in July 2011 is the opening of D3’s WLB Account in To Kwa Wan on 22 July 2011, the date on which the SPA was signed and HK$10m (HK$9m from a cheque issued by D1 and D2 on behalf of Maryo and HK$1m from another cheque) were paid to D3. At that time, according to D3, for the purpose of looking after his ex-wife who was not in good health, he rented a unit in Sham Shui po and was living therein. D3 in fact had an existing Wing Lung Bank account. There were Wing Hang Bank branches in Sham Shui po and nearby. He had poor eyesight and walking difficulties, and had a history of stumbling. D3 admitted that it was D1 who took him to the To Kwa Wan branch. As admitted by D1, that had been the branch of account of Maryo since at least 2001, of which she had control jointly with D2. D3 said D1’s reason to have his new account there was probably she did not want the money to leave. He confirmed that she was with him at the branch when D3 was opening an account there. After that, they both left the bank at the same time and parted company there.

105.  When D1 was giving her evidence, she flatly denied any recollection of D3’s opening of a new account in the To Kwa Wan branch on 22 July 2011. D1 was trying to distance herself from having anything to do with D3’s new account.

106.  If the transaction is just a normal sale and purchase, there is no reason why D3 could not use his existing bank account to receive the sale proceeds but had to travel to To Kwa Wan to open a new bank account and deposit the money into that account. Further, it is unbelievable that D3 would do this out of his own motion without any suggestion or instruction from D1. However, D1 lied and said that she had nothing to do with the opening of this new account. All these show that there must be something improper in the transaction.

107.  There is no documentary evidence showing that D3 has ever chased Maryo to pay the balance of the purchase price and the interest stipulated in the SPA, the total of which being HK$2.04m, which is not a small sum. It is clear that even up to the time of the trial, D3 has no counterclaim for this sum[14]. D3 claimed in his witness statement that as he was not in urgent need for the outstanding balance, he did not push hard for the outstanding instalment payments. However, under cross-examination, D3 emphasized that he frequently chased D1 for the outstanding balance and how frustrating it was when D1’s mobile phone did not let him leave any messages. D1 also claimed that she received such demands from D3. All these are incapable of being believed. Has D3 ever been serious in getting the outstanding balance from Maryo, he would certainly have had made a claim for this against Maryo, bearing in mind that he has been legally represented at all times in these proceedings. D3’s lack of any action in claiming the balance in all these years, despite having proper legal representation, shows that the transaction in fact is not a genuine transaction.

108.  After obtaining the HK$10m, D3 continuously withdrew substantial cash from his bank account until he being arrested on 31 July 2012:

Date	Amount
25 July 2011	HK$60,000
28 July 2011	HK$92,000
5 August 2011	HK$100,000
19 August 2011	HK$100,000
8 August 2011	HK$100,000
20 September 2011	HK$300,000
24 November 2011	HK$100,000
17 January 2012	HK$100,000
2 March 2012	HK$100,000
12 April 2012	HK$200,000
10 May 2012	HK$300,000
18 May 2012	HK$300,000
5 June 2012	HK$250,000
8 June 2012	HK$150,000
28 June 2012	HK$120,000

109.  In cross-examination, D3 for the 1^st time said that he had a debt-ridden, gambling son and he had had to settle the son’s debts in cash during the months of April to June 2012 in which he withdrew a total of more than HK$1.3m cash. He claimed there had been an incident of his son’s public housing flat having been splashed with red paint for which the police had records. His excuse for having to withdraw such sums of cash in so many stages over that period was that his son had been less than candid with him about all the liabilities. He claimed he had kept quiet on this issue until now for fear that his son might be affected.

110.  In my view, this explanation offered by D3 is unconvincing:

(1)  D3 has not adduced any evidence showing the alleged demands made by his son’s creditors or debt collectors.

(2)  There is also no evidence showing that the alleged red-paint splashing incident has been reported to the police. D3 said that no witness statement had been provided to the police for the incident. However, that does not prevent D3 from searching and providing documentary evidence (for example, a confirmation letter from the police) showing that such a report has actually been made to the police.

(3)  D3 has given no details on the purported debts.

(4)  Further, it is inconceivable how any earlier mention of his paying-off of his son’s debts could have affected his son in any way whatsoever. There is no suggestion that his son was any kind of celebrity or that the son’s reputation needed special safeguarding.

111.  D3 also mentioned that he had also spent money on buying health products for himself (without any level of details) and giving money (without specifics as to amounts or timing) to his elderly father. D3 also claimed that he had spent HK$60,000-HK$70,000 on buying jade. All these are not in his witness statement but was raised by D3 during cross-examination, without any particular and without any document in support. I do not regard these allegations as truthful.

112.  Clearly, D3 was dissipating the HK$10m received by him in the transaction. If the money is a sum properly obtained by him, he would not dissipate the same quickly within a short time frame.

113.  On 31 July 2012, when D1 was arrested in her home, police found the 200 Jade Articles contained in 2 plastic boxes in a blue nylon bag in the living room on the floor, next to a pile of waste paper and newspapers. Keeping the jade articles in this manner is an indicator showing that these articles cannot be very valuable assets.

114.  D1 claimed that the jade articles had to be further processed before putting them in the safe deposit box opened by Maryo. I do not accept this explanation.

(1)  According to the documents produced by D1 on the first day of the trial, Mayro only had one safe deposit box in Wing Lung Bank (“the safe deposit box”), and the safe deposit box was opened on 18 February 2012.

(2)  There is no evidence showing:

(a)  the size of the safe deposit box;

(b)  whether it is possible to place all the 200 Jade Articles into the safe deposit box; and

(c)  whether the 200 Jade Articles or any part thereof has ever been placed inside the safe deposit box.

(3)  If the 200 Jade Articles are really precious assets, why there has been no safe deposit box for the purpose of keeping the same before 18 February 2012.

(4)  Further, if the 200 Jade Articles are really precious assets, bearing in mind the purpose of buying these jade articles is for reselling the same to make profits, there is no explanation as to why D1 has not even tried to sell one single item for more than a year, ie after purchasing the goods on 22 July 2011 and before she being arrested by police on 31 July 2012.

115.  In my view, taking all the evidence into account, the 200 Jade Articles cannot be assets with a value of about HK$12m. This conclusion is not affected by the mere existence of the safe deposit box.

116.  I now turn to the evidence given by D2. It is indisputable that while D1 and D2 were directors of Maryo, all the cheques issued by Maryo must be signed by D1 and D2. D2 in fact had the authority and power in controlling the finance of Maryo. In D2’s own evidence, Dr Tsang had urged him to become a director of Maryo so that D2 could help keep an eye on D1 and help to manage Maryo. D2 said that at first he had hesitation in becoming a director but eventually he agreed to become a director a few days before Dr Tsang’s demise. Under cross-examination, D2 agreed that Dr Tsang wanted D2 to be a director of Maryo because Dr Tsang wanted to have a check-and-balance regime in Maryo, and neither D1 nor D2 could unilaterally make decisions on behalf of Maryo.

117.  In this case, the HK$10m cheque to BJ, the HK$1m cheque to D1, the HK$9m cheque to D3, and the HK$130k cheque to D3 were all signed by D1 and D2. D2 also signed the JV Agreement, the SPA and the Cash Memo. D2 claimed that he was a director in name only, and he signed these cheques and documents only because D1 asked him to do so. In my view, D2’s explanation is unconvincing.

118.  D2 has a bachelor degree in biochemical engineering. He was a businessman as well as an investment consultant. At the time in 2010-2011, he was a consultant in AMG Wealth Management Ltd. He was also the Project Director of Sino Promise, Asia’s largest agency for Kodak products.  According to him, Dr Tsang wanted him to be a director of Maryo because Dr Tsang wanted to have check and balance in Maryo. In his defence, D2 averred that he had acted in the best interest of Maryo at all material times, and he had exercised reasonable care and skill in managing Maryo at all material times. Under cross-examination, he claimed that he would refuse to sign a cheque if D1 was unable to provide a satisfactory explanation in respect of that cheque. All these have to be borne in mind in assessing D2’s evidence.

119.  I am of the view that D2’s explanation is unconvincing for the following reasons:

(1)  D2 signed the HK$10m cheque on or about 5 October 2010. The payee was a company with limited liability with an unknown background. According to D2, he was not shown any written agreement when D1 asked him to sign the HK$10m cheque[15]. If his evidence is true, given D2’s background and his mission in Maryo as prescribed by Dr Tsang, it is inherently improbable that when D1 asked him to sign the HK$10m cheque in these circumstances, he would accede to D1’s request.

(2)  According to D2, a few weeks later, D1 showed him the JV Agreement and asked D2 to sign the same. Being a director who always acted in the best interest of Maryo, it is inherently improbable that D2 would just sign the JV Agreement as requested by D1 and would not ask D1 the details of the joint venture, including whether Maryo would be able to perform all the obligations in the JA Agreement, and whether Maryo would get profits and benefits in the joint venture.

(3)  Seven months later, on 6 May 2011, the HK$10m came back but only after 1 bounced cheque incident. Immediately, D2 endorsed a cheque paying HK$1m to D1. D2 claimed that the HK$1m was a standby fund kept by D1 for the purchase of inventories after the year end date[16]. Given both D1 and D2 were in Hong Kong and they could meet at any time, a company’s cheque could be issued at any time if necessary. There is no reason why such a huge sum of money must be placed in D1’s pocket and not be kept in Maryo.

(4)  On 18 July 2011, D2 signed the HK$9m cheque. At that time, the SPA and the Cash Memo had not yet been signed[17]. The payee was D3. It is inherently improbable that a director always acting in the best interest of the company would sign such a cheque with no knowledge of the details of the negotiation between D1 and D3.

(5)  According to D2, he was asked to sign the SPA and the Cash Memo sometime after 22 July 2011. At that time, he did not ask for seeing the 200 Jade Articles, and he did not ask for the whereabouts of the jade articles. That would not be the reaction of a reasonable director always acting in the best interest of the company.

(6)  D2 signed the HK$130k cheque to D3. This is a purported payment made to D3 under the SPA. Under cross-examination, D2 claimed that it was a blank cheque when the cheque was signed by him, and he did not know eventually the cheque was used for what purpose. I have already said that this is untrue as this is contradicted by paragraph 16 of his witness statement. D2 just wanted to distance himself from the matter.

(7)  D2 has never mentioned any discussion between him and D1 concerning the repayment schedule in the SPA. Having signed the SPA, D2 must have knowledge of the repayment schedule therein. D2 must have also known that Maryo did not repay D3 in accordance with the repayment schedule. There is no explanation as to why he had never discussed with D1 how to cause Maryo to perform the repayment obligation in accordance with the timetable set out in the SPA.

120.  In my judgment, D2 signed the aforesaid cheques and documents not because of merely acceding to D1’s requests, but because of knowingly participating in the scheme designed by D1 and D3 in defrauding Maryo. Given his knowledge, his background and his directorship in Maryo, it would not be possible that he did not realize the fraud being pursued by D1 and D3 against Maryo. D2 must also be a participant in the fraud, signing documents and cheques to enable D1 and D3 to implement their fraudulent scheme.

THE EXPERT EVIDENCE

121.  Save and except D2, all parties have adduced expert evidence. The names of the experts having given evidence in the trial are as follows:

(1)  Maryo’s expert, Ms. Chan Pik Kwan (陳碧君) (“Chan”).

(2)  D1’s expert’s, Mr. Sham Ting Kun Simon (岑定根) (“Sham”).

(3)  D3’s expert, Mr. Chung Yam Ming Daly (鍾欽銘) (“Chung”).

122.  The question requiring experts’ assistance is the market value of the 200 Jade Articles at the time of the SPA, ie in July 2011.

123.  With respect, I am of the view that Sham does not have the necessary expertise on the question above. Sham is not a gemmologist. He has no passion or interest in jade. He is a loss adjuster and an associate of RICS, an institute of surveyors. His company used to hold an estate agency licence for upwards of 10 years. He obtained a degree in finance recently through distance learning. He claims that he has expertise in valuation in some areas, but he also makes it clear he does not have expertise in valuation of jade articles. In the absence of the necessary expertise on the question to be determined by the court, Sham’s opinion cannot be regarded as admissible expert opinion.

124.  Chung is a qualified gemologist. I accept that he is qualified to give an opinion on the question to be determined by the court. Chung opines that the value of the 200 Jade Articles should be from HK$1,168,400 to HK$1,394,000 on or about 3 December 2014. The estimated value is the estimated retail price of the 200 Jade Articles. If the 200 Jade Articles are sold in one go in the market, Chung is of the opinion that the wholesale value would be about 20% lower than the retail value. Chung also said that “price of jade is very subjective to individual, it may fluctuate 10 to 20 times higher than its assessed price subject to the purchaser and it is depending on the market trend and supply and demand at the time.”[18]

125.  I accept Chung’s opinion that the wholesale value of the 200 Jade Articles would be substantially lower than the retail value, as it is in accordance with common and commercial sense. Chung is unable to produce the work sheets showing the examination conducted by him on the 200 Jade Articles, as he has lost those work sheets. That being the case, I cannot attach much weight to his valuation, for the detailed reasons in support of the valuation are unknown. In respect of Chung’s assertion that the price of jade may fluctuate 10 to 20 times subject to the purchaser, it is always true that a person having some special reasons may well be willing to pay a price which is much higher than the market price to buy certain goods or a certain real property. However, the question to be determined in this case is the market price of the 200 Jade Articles in July 2011, not the price to be paid by a purchaser having some special interest in the jade articles. Chung also claims that the price of jade is depending on the market trend and supply and demand at the time. This is always true in respect of any goods. These factors should have already been taken into account in doing the valuation.

126.  Chan is a well-qualified and experienced gemologist. I accept that she is qualified to give an expert opinion on the question to be determined by the court. She has provided detailed worksheets in support of her valuation. She is of the view that the market value of the 200 Jade Articles on a retail basis in May 2014 would be from HK$345,550 to HK$450,000. Wholesale price would be 20% to 30% lower than the retail price. The price in June 2011 would be 10% to 20% less, and this is because of the increased cost in craftsmanship since mid-2011.

127.  D1’s counsel and D3’s counsel argue that Chan’s opinion should not carry much weight for the following reasons:

(1)  Chan is an academic and is not experienced in the jade business. As revealed in her worksheets, market supply and demand is not an item on those worksheets. She admitted that her worksheets were for reference only.

(2)  Chan examined the 200 Jade Articles in the Commercial Crime Bureau (“CCB”)[19]. She only conducted her examination within a limited time. Without taking time to carefully examine the jade articles, she decided that those jade articles were not of high quality and refused to go to shops such as Chow Tai Fook and Chow Sang Sang to find high quality jade items as comparables. She was biased in doing the valuation. Her way of conducting her research is also highly unsatisfactory.

(3)  Chan’s judgment on the value of the jade was influenced by her husband (not an expert in jade valuation), who also attended the inspection and wrote down his valuation. Chan said that she would consider the valuation by her husband and reached a compromise. Chan also allowed her assistant to do assessment and record the assessment on the worksheets. Chan’s valuation is thus unsatisfactory as she has not exercised her independent judgment in doing the valuation.

(4)  The worksheets were unsatisfactory. Chan said that when there was a comparable sample, she would put down a remark in the reference column of the form[20]. However, most of the worksheets do not show such a remark in the reference column. Chan’s explanation was that there was not enough time during the examination. This is unsatisfactory as the court now has no written records to check whether a correct comparable sample has been used in doing a comparison. Further, despite the worksheets require examination in regard to the “saturation” and “tone”[21] of the colour of jade, Chan did not fill in the worksheets in this regard for all 200 Jade Articles. When being asked why she did not mark “no crack”[22]when she opined that there was no crack, her explanation was that sometimes she did not mark as such as there was little time during the examination. All these show that Chan lacked the precision expected as an expert.

128.  With respect, I do not accept these submissions.

(1)  Chan is certainly not a mere academic in studying jade and precious stones. She is also a professional valuer. She acquired the qualification of Registered International Master Valuer in the Jewellery Appraisal Program in 2007. She is also in touch with the market. She is the in-store consultant and jadeite jade specialist during the jade shows of Lane Crawford in both Hong Kong and Beijing stores from 2009-2012. She conducted her valuation by finding jade articles with similar quality in the market and in auction sales. Obviously, the market condition has been taken into account in her valuation. She said that the information recorded on the worksheets was for reference. That is nothing wrong in that saying. After considering the information on the worksheets, she would use her expertise to make a judgment on the value of the jade articles in question.

(2)  Chan said that she went to CCB twice. In her first visit, she discovered that the 200 Jade Articles were not of high quality, and hence she went to the markets in which jade items of similar quality were sold to find comparables. After collecting the comparables, she went to CCB again to examine the 200 Jade Articles again. She said that she had no need to go to Chow Tai Fook or Chow Sang Sang to find high-quality jade items as comparables, for the 200 Jade Articles could not be described as anything close to high-quality goods at all.  Given her experience as shown in her CV, including her experience of working as an in-store consultant in Lane Crawford, I have no reason to doubt that Chan knows what are high-quality jade articles.

(3)  Chan was assisted by her husband and another assistant in doing the examination. Chan said that she would take their opinion into account, but ultimately the judgment made was her own judgment. There are examples showing that when Chan and her assistant have different opinions on a matter, Chan would insist on her own judgment and would not defer to her assistant[23]. In my view, there is nothing wrong that Chan was assisted by others in doing the valuation. Although Chan mentioned the word “compromise” when she was giving evidence, looking at her evidence as a whole and in context, she was merely saying that she would take her assistants’ opinion into account. She expressly said that it was herself who made the ultimate decision. There are convincing examples showing that she did make her independent judgment.

(4)  The criticism concerning the worksheets is not valid criticism.

(a)  Chan explained that the remark on the worksheet concerning jade article AP0001[24] shows that that article is similar to the items found in the market which were worth a few hundred dollars. She did not put down the same remark in all the worksheets concerning similar jade articles, for she had limited time when she was doing the examination in the CCB. In my view, given the time constraint, Chan cannot be criticized of not putting down similar remarks on the other worksheets.

(b)  Chan explained that since she had commented on the colour of the jade articles, it would not be necessary for her to further comment on “saturation” and “tone”. Further, when a jade article lacked transparency, it would also not be necessary to comment on “saturation” and “tone”[25]. It has not been put to Chan that there is any wrong in this approach. This shows neither Sham nor Chung holds the view that Chan’s approach is incorrect. I have no reason to doubt Chan’s methodology.

(c)  In respect of the worksheet concerning the jade article AP0005[26], Chan said that she did not tick the box denoting “no crack” on the worksheet because the jade article had no crack. Chan also said that if a jade article had any crack, she would definitely mark the same on the worksheet. In my view, no meaningful criticism can be made against Chan based upon this.

129.  In my view, Chan’s opinion is based upon detailed examination and is well reasoned. I accept her opinion and attach full weight to the same.

130.  D1’s counsel submits that it would not be possible to give a value to a jade article, for a person who wants to have that jade article would pay whatever price he is able to pay to get that jade. With respect, this submission is misconceived. As said before, the question to be determined by the court is the market value of the 200 Jade Articles in July 2011, not the price to be paid by a purchaser having some special interest in the jade articles.

131.  Based upon the expert evidence accepted by the court, the wholesale market value of the 200 Jade Articles in or about July 2011 was from about (HK$345,000 x 75% x 85%) to about (HK$450,000 x 75% x 85%), ie from about HK$219,938 to HK$286,875.

MY FINDINGS

Conspiracy to defraud

132.  By reason of the matters set out in the above, I find that D1, D2 and D3 did conspire today to defraud Maryo by dishonestly causing Maryo to enter into the transaction, and thereby causing Maryo to pay HK$10,130,000 to D3 to buy assets worth only about HK$219,938 to HK$286,875. As a result, the transaction must be set aside and the SPA must be declared null and void ab initio.

133.  I reach this conclusion without considering the convictions. In my view, even without the convictions, the evidence before me clearly shows the conspiracy as claimed by Maryo. For the sake of completeness, I would say that the convictions provided further support to my conclusion in relation to D1 and D3. There is simply no credible evidence displacing the deeming provision in s.62(2)(a) of the EO.

134.  Maryo is asking for return of the money previously paid to D3. Since D3 has repaid HK$7,820,010.70 to Maryo under the default judgment, the outstanding balance is (HK$10,130,000 – HK$7,820,010.70) = HK$2,309,989.30. Among this sum, HK$130,000 was paid by Maryo to D3 on 13 February 2012, hence pre-judgment interest on this sum should be from 13 February 2012 until the date of this judgment, at the rate of 1% above HSBC best lending rate. Apart from the HK$130,000, the money was paid by Maryo to D3 on 22 July 2012, hence pre-judgment interest on (HK$2,309,989.30 – HK$130,000) = HK$2,179,989.30 should be from 22 July 2012 until the date of this judgment, at the rate of 1% above HSBC best lending rate until the date of this judgment. There should be post-judgment interest at the judgment rate on these 2 sums until full payment of the same. D1, D2 and D3 are jointly and severally liable for these sums and interest. Upon full payment of these 2 sums and the interest, Maryo shall return the 200 Jade Articles to D3.

135.  For the sake of completeness, since I have ruled in favour of Maryo on the claim of conspiracy to defraud, D1 and D2 are also liable to Maryo for breach of fiduciary duties and D3 is liable to Maryo for knowing receipt in respect of the sums set out in the above.

Loan of HK$1m to D1

136.  Maryo’s own pleaded case is that the HK$1m to D1 has been included in the HK$10,130,000 mentioned above[27]. That being the case, since I have made an order concerning the repayment of the HK$10,130,000 claimed by Maryo, there would be no need for me to make any order on the claim concerning the loan of HK$1m.

D3’s Counterclaim

137.  D3 counterclaims for the return of the HK$7,820,010.70 paid by him to Maryo under the default judgment. Since I have concluded that D3 is one of the fraudster defrauding Maryo, D3’s counterclaim must be dismissed.

Directors’ Remuneration

138.  Both D1 and D2 rely upon the non-adoption of Article 78 of Table A in the old Companies Ordinance[28] in Maryo’s articles of association to claim that they are entitled to have the directors’ remuneration even in the absence of any resolution in the general meeting of Maryo approving the same. In my view, this argument is misconceived.

139.  A director owes fiduciary duties to the company. It is trite that a person in a fiduciary position is not allowed to put himself in a position where his interest and his duty conflict. Thus, a director is not entitled to remuneration for service rendered as a director, except as provided by the articles of association[29].

140.  The non-adoption of Table A, Article 78 is neither here nor there. The crucial point is whether the directors’ remuneration has even been approved by the shareholders of Maryo. D1’s counsel, relying upon Re Duomatic Ltd.[30], submitted that it would not be necessary to have a resolution in the general meeting authorizing the directors’ remuneration, and it would be sufficient if all the shareholders with the right to attend and vote at a general meeting had assented to the matter. I have no quarrel with this principle. The point is whether there is credible and reliable evidence showing this assent. In my view, the answer is clearly in the negative.

141.  The only evidence on the issue is from D1. D1 claimed that during Dr Tsang’s lifetime, Dr Tsang had told her that she might withdraw whatever amount she wished from Maryo. I have already held that D1 is an untruthful witness and rejected her evidence. That being the case, there is no evidence showing that the shareholders of Maryo has ever approved the directors’ remuneration paid to D1 and D2.

142.  Further, after the death of Dr Tsang, Maryo was dormant and had no business for many years. There is no reason why D1 and D2 should receive substantial directors’ remunerations in all these years.

143.  In my judgment, D1 and D2 shall return the directors’ remunerations received by them to Maryo with interest.

D1’s counterclaim

144.  D1 counterclaims that Maryo owes her a shareholder’s loan of HK$4,722,931, and shall return the same to her. This counterclaim cannot even get off the ground, for (a) there is no evidence in D1’s witness statement concerning this counterclaim and no documentary evidence in support of the same; and (b) D1 has been held by this court as an untruthful and unreliable witness.

145.  The only evidence from D1 concerning her counterclaim is her evidence under cross-examination. She claimed that she knew the company had owed her some money and everywhere she looked, she could only find that sum as owing by the company, so she decided to treat that sum as an amount owed to her. This is wholly arbitrary and unsound.

146.  At the time of Dr Tsang’s death, Maryo owed Dr Tsang HK$6,725,700. This is recorded in the Notice to IRD signed by D1 on behalf of Maryo dated 7 October 2002. There is no document showing that Maryo has ever owed any sum to D1.

147.  In Maryo’s audited financial statements, the following sums were recorded due by the company to director/shareholder:

Date	Amount
30 June 2001	$6,938,704
30 June 2002	$6,732,934
30 June 2003	$6,297,519
30 June 2004	$5,604,479
30 June 2005	$5,595,517
30 June 2006	$5,565,988
30 June 2007	$5,571,273
30 June 2008	$5,571,626
30 June 2009	$4,721,626
30 June 2010	$4,722,391
30 June 2011	$4,722,391

148.  As at 30 June 2001 (Dr Tsang was still alive at that time), Maryo owed HK$6,938,704 to a director. In the light of D1’s admission made in the Notice to IRD, that HK$6,938,704 and the sums in the subsequent financial years as set out in the paragraph above should be a loan owed by Maryo to Dr Tsang. In the auditors’ reports in the final few years, the auditors issued their qualified opinion for the reason that there was no direct confirmation for the amounts due to shareholder of $4,722,391. Obviously, D1 was unwilling to confirm that the sum was a loan due by Maryo to Dr Tsang. At the same time, the auditors had not been shown of any evidence proving that the amount was due to D1.

149.  Since D1 was in control of Maryo in the financial years mentioned above, D1 might have done something to reduce the amount owed by Maryo to Dr Tsang. No matter how, it is clear that there is no credible and reliable evidence in support of D1’s counterclaim.

150.  D1’s counterclaim must be dismissed.

DISPOSITION

151.  For the reasons above, I give judgment to Maryo and dismiss D1’s counterclaim and D3’s counterclaim. I make the following order:

(1)  the transaction be declared as null and void ab initio;

(2)  the SPA be set aside;

(3)  D1, D2 and D3 be jointly and severally liable to Maryo for the following:

(a)  forthwith returning HK$2,309,989.30 to Maryo;

(b)  among the aforesaid HK$2,309,989.30, there be interest at 1% above the best lending rate of HSBC on HK$130,000 from 13 February 2012 to the date of this judgment, and thereafter at the judgment rate until full payment of the HK$130,000;

(c)  in respect of the balance, there be interest at 1% above the best lending rate of HSBC from 22 July 2011 to the date of this judgment and at the judgment rate until full payment.

(4)  Upon full payment of the aforesaid sums, Maryo do return the 200 Jade Articles to D3;

(5)  D1 do forthwith return the director’s remunerations received by her from Maryo as set out in paragraph 38 above; in respect of the director’s remunerations received by her in a particular financial year, there be interest on the same at 1% above the best lending rate of HSBC from the first day of the next financial year until the date of this judgment and at the judgment rate until full payment of the said director’s remunerations;

(6)  D2 do forthwith return the director’s remunerations received by him from Maryo as set out in paragraph 38 above; in respect of the director’s remunerations received by him in a particular financial year, there be interest on the same at 1% above the best lending rate of HSBC from the first day of the next financial year until the date of this judgment and at the judgment rate until full payment of the said director’s remunerations;

(7)  there be liberty to apply for the purpose of seeking directions for the enforcement of this judgment;

(8)  D1’s counterclaim be dismissed; and

(9)  D3’s counterclaim be dismissed.

152.  Costs should follow the event. I am of the view that D1, D2 and D3 should be jointly and severally liable for costs in relation to the matters concerning the conspiracy to defraud (including D3’s counterclaim). These matters have taken up 85% of the time of these proceedings. Costs taken up by the HK$1m Loan to D1 is minimal and there would not be a costs order in respect of this claim. D1 is liable for costs in relation to the director’s remuneration received by her. This issue has taken up 5% of the time of these proceedings. Similarly, D2 is liable for costs in relation to the director’s remuneration received by him, and the time taken up by this issue is also 5%. D1 should be liable for costs in relation to the counterclaim raised by her. The time in these proceedings taken up by D1’s counterclaim is 5%. I make a costs order nisi that costs of these proceedings (including all costs reserved) be paid by D1, D2 and D3 to Maryo in accordance with the aforesaid.

153.  Lastly, it remains for me to thank counsel for the assistance rendered to the court.

Mr Paul HM Leung, instructed by S.K. Wong & Co., for the Plaintiff.

Mr Ernest CC Ng, instructed by Damien Shea & Co., for the 1^st Defendant

2^nd defendant appeared in person.

Mr Kenwick Yam, instructed by Collin Ng & Co., for the 3^rd Defendant.

HCA 2297/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2297 OF 2012

_________________________

_________________________

HCA 271/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 271 OF 2013

_________________________

BETWEEN

_________________________

__________________

D E C I S I O N

__________________

I. INTRODUCTION

1. Tsang Yau May (“D1”) and Tsang Kwong Kan (“D2”) are whole-blood siblings, and their natural mother is Ho Sin Yung (“Ho”).  Dr Tsang Kwong Lik (“Dr Tsang”) was their elder half-blood brother.  The natural mother of Dr Tsang and Chan Yui Ling (“Chan”) was Leung Lai Fong (“Leung”).  Hence, Ho is Dr Tsang’s stepmother.

2. The plaintiff company (“P”) was incorporated in 1988.  P claimed (but D1/D2 did not admit) its principal activity between 2001 and 2003 was property investment, and it became dormant during the financial year July 2003 / June 2004 and did not carry on business from July 2005 to June 2011.  P’s directors were Dr Tsang (until he passed away on 12 December 2001) and D1. D2 was appointed as P’s director in December 2001, and from about 12 December 2001 to 27 August 2012 D1/D2 were P’s only directors.  Dr Tsang and D1 were the registered shareholders of 998 and 2 shares respectively in P.  On 21 July 2010, letters of administration in respect of the estate of Dr Tsang (“Estate”) were granted to Chan (“Tsang LA”).  On 5 March 2012, Chan as administratrix became P’s registered shareholder.  On 28 August 2012, Chan and two others were appointed as P’s additional directors (“New Directors”).  On 18 January 2013, D1/D2 ceased to be P’s directors.

3. Wong Yat Man Sunny (“D3”) was the sole director/shareholder of Bright Jade International Limited (“Bright Jade”) until its dissolution by deregistration on/about 24 February 2012.

4. The present consolidated action concerned payments which appeared on the face of relevant documents to be as follows:

(a)  on/about 5 October 2010, D1/D2 drew a cheque in the sum of $10,000,000 on P’s bank account with Wing Lung Bank Limited (“Wing Lung”) (“P’s WL A/C”) for P in favour of Bright Jade, and such cheque was deposited in Bright Jade’s bank account with Hang Seng Bank Limited (“Hang Seng”) (“Bright Jade’s HS A/C”), which payment reduced P’s bank balance from $10,842,475.45 to $842,475.45 as at 5 October 2010 (“$10 Million Payment”);

(b)  nearly seven months later, ie on/about 3 May 2011, Bright Jade repaid $10,000,000 to P by a cheque of the same date drawn by D3 on Bright Jade’s HS A/C (“$10 Million Repayment”);

(c)  on/about 18 July 2011, D1/D2 drew a cheque in the sum of $9,000,000 on P’s WL A/C for P in favour of D3, and such cheque was deposited in D3’s account with Wing Lung (“D3’s WL A/C”) on/about 22 July 2011, which payment reduced P’s bank balance from $9,480,760.05 to $480,760.05 as at 22 July 2011 (“$9 Million Payment”);

(d)  on/about 13 February 2012, D1/D2 drew a cheque in the sum of $130,000 on P’s WL A/C for P in favour D3, and such cheque was deposited in D3’s WL A/C, which payment reduced P’s bank balance from $165,007.05 to $35,007.05 as at 13 February 2012 (“$130,000 Payment”).

II.  P’s CLAIM

5. P claimed (a) D1/D2 misappropriated/misapplied P’s funds from about 2002 to 2012 by causing P to pay them grossly excessive directors’ remuneration/fees that were not authorised or determined/ approved by P in general meeting, and (b) D1/D2 made the $10 Million, $9 Million and $130,000 Payments in breach of their fiduciary duties owed to P.  P further claimed D3 knew or ought to have known there had been some breach of trust and/or fiduciary duty on the part of D1/D2 in causing P to pay the $9 Million and $130,000 Payments to him because:

(a)  D3 as director of Bright Jade or otherwise must have known P had no or no commercial reason to pay the $10 Million Payment to Bright Jade, and Bright Jade subsequently made the $10 Million Repayment back to P;

(b)  P had no or no commercial reason to pay D3 the $9 Million and $130,000 Payments (collectively, “$9,130,000 Payments”);

(c)  D3 knew or ought to have known such payments were procured by D1/D2 as authorised signatories of P’s WL A/C, and they stood as fiduciaries and/or directors of P;

(d)  D3 wilfully/recklessly failed to make any or any reasonable inquiries with D1/D2 as to why P made such payments to him at the time of payment.

6. P claimed it was unconscionable for D3 to receive/apply for his own use the $9,130,000 Payments, and denied the existence or validity of the 22/7/11 Agreement[1] and/or any payment pursuant thereto, but if such agreement did exist, D1/D2 entered into it in breach of fiduciary duties owed to P in that they knew or ought to have known the purported sale of the Goods by D3 to P[2] was grossly overpriced and they had no basis to believe the alleged purchase was in P’s best interest.   P claimed it suffered loss and damages being unauthorised or excessive remuneration/fees paid to D1/D2, and the total sum of $9,130,000 paid to D3. 

III.  D1/D2’s DEFENCE

7. D1/D2 denied P’s claims against them.  In respect of the $10 Million, $9 Million and $130,000 Payments, D1/D2 claimed that:

(a)  D1/D2’s parents had traded precious stones for a long time, and D1 learnt “skills in trading precious stones” from them.[3] After Dr Tsang passed away, P was idle for several years and D1 tried to look for investment opportunities for P.

(b)  By a written agreement dated 5 October 2010 (“5/10/10 Agreement”), P and Bright Jade made the following joint investment and P made the $10 Million Payment to Bright Jade:

“[P]和[D]現就共同合作發展玉石、藥村、棺木、飲食或其他具潛力投資發展的項目(“上述項目”)的貿易和推廣業務達成以下協議，其條款如下:-

1.  [P]和[D]願意共同合作發展香港、中國大陸、東南亞以及世界各地有關上述項目的貿易和推廣業務。

2.  [D]願意提供所有相關的器材、設備、市場資訊和其他專業技術共同合作發展上述項目的貿易和推績業務。[P]同意依賴[D]所提供的設備和專業意見去共同經營上述項目的貿易和推廣業務。

3.  [P]願意借出港幣壹仟萬元給[D]作為共同合作發展上述項目的貿易和推廣業務所需的資金。如[D]在開業後需要額外營運資金，所有額外資金均由[P/D]雙方共同負責。

4.  除了下述5.條款外，在上述項目的賬目每年經註冊會計師核實後有純利的情況下，[D]承諾會於簽定本合作協議書內十年分120 期劃一以年息百份之5分期償還於以上第3段內所述的借款給[P]。……” (my emphasis)

(c)  Such joint investment did not go ahead because D3 was injured in an accident, and Bright Jade made the $10 Million Repayment back to P.

(d)  In 2011, D1 found “a very good investment opportunity to purchase a group of 200 pieces of precious stones owned by [D3] at a very attractive price”.[4]

(e)  By a written agreement of sale and a cash memo dated 22 July 2011 between D3 and P (collectively, “22/7/11 Agreement”), P agreed to purchase from D3 200 pieces of jadeite articles/items (“Goods”) for $12,000,000 (“Price”) for investment purpose:

“買賣雙方同意以港幣一仟二佰萬元成交，買方[P]已付港幣一仟萬元與貨主[D3];買方[P]倘欠賣方[D3]貨銀港幣二佰萬元正。買賣雙方同意由2011年7月22日起，買方[P](包括本金及利息)分期每月供還港幣十七萬元，供12個月，至2012年7月22日，即供12 期(本金連利息合共港幣二佰零四萬元)。完成清還欠款及利息(給與賣方[D3])。若到期未能還清還債項全部的欠款及利息。(所餘欠款連利息仍繼續計算)。由於欠款沒有任何抵押下，貨主賣方[D3]保留可以提早隨時追討買方[P]清還全部欠款及利息的權利。”

(f)  D3 delivered the Goods to P, and P paid $10,000,000 in part payment of the Price made up by D1’s payment of $1,000,000 for P (“$1 Million Payment”) and the $9 Million Payment with the remaining balance of the Price ($2,000,000) to be paid by instalments.

(g)  The Goods was a sound/profitable investment “at a very attractive price” with current value exceeding the Price, so P stood to earn huge profits by such investment.  D1/D2 acted in P’s best interest and in accordance with P’s constitution and clause 38 of P’s Memorandum of Association.[5]

(h)  The $130,000 Payment was part payment of the remaining balance of the Price.

IV.  BACKGROUND AND PROCEEDINGS

8. This Decision concerned an application by D3 to set aside the default judgment entered against him for (a) $9,130,000 together with interest at judgment rate from 12 December 2012 to the date of full payment, and (b) costs of the action against D3 including costs of such application and all costs reserved (if any) vis-à-vis D3 (“D3 Judgment”).  There was no dispute this was a regular judgment. 

9. After Dr Tsang died, Leung and Ho were engaged in protracted probate litigation which ended up at the Court of Final Appeal in 2009.  Leung was held to be entitled to the Estate, but by then she had passed away, so Chan was granted the Tsang LA in July 2010 and was later registered as P’s shareholder.  Apart from the 988 shares in P, the Estate also included a debt of $6,725,700 due from P (“Tsang Debt”)[6] and two commercial properties.  In August 2010, Chan requested P’s board of directors to provide information about P’s financial condition and demanded P to repay the Tsang Debt, but to no avail.

10. Meanwhile, Ho sued Chan as administratrix of the Estate in HCA90/2010 (claiming beneficial interests in properties held by Dr Tsang and P) and in HCA1501/2010 (claiming a share of the Estate as dependent maintained by Dr Tsang at the time of his death[7]). In HCA1501/2010, Ho sought declarations inter alia that P’s shares registered in Dr Tsang’s name were held on trust for her, or alternatively Ho and the Estate were beneficial owners thereof in equal shares or in such shares as the court shall determine.  Ho discontinued HCA1501/2010 shortly before trial in June 2012. 

11. At the trial of HCA90/2010 on 5 June 2012, Ho’s counsel in opening submissions said (a) D1 would give evidence, and (b) about $10,000,000 had been withdrawn from P’s WL A/C to buy the Goods (and the value of of the Goods had increased by about 20%).  But in the end Ho did not call D1 as witness even though D1 had made three witness statements, the last of which was filed less than a week before trial in response to Chan’s 2^nd supplemental witness statement filed on 21 May 2012.

12. Chan’s 2^nd supplemental witness statement asserted D1/D2 appeared to have depleted P’s assets “to practically nothing for reasons best known to them, and unknown to [her]”.  D1’s last witness statement denied such accusation and alleged P “has always been in operation for business” and “[monies] were withdrawn from time to time for business transactions and for defraying costs and expenses connected with the operation of the company”.  D1 claimed “some of the cheque payments in July 2011 were for purchase of jade products for business”, but it was not relevant/appropriate to explain P’s business operation in that action.  After trial, DHCJ Saunders ruled against Ho, who has appealed against such judgment.

13. By specific discovery a few weeks before trial in HCA90/2010, Chan obtained P’s audited financial statements and recent bank statements, and discovered D1/D2 had caused P to dispose of its remaining property holdings during the financial year ended 30 June 2003, so P (a) had $13,781,457 in cash/deposits as at 30 June 2003, (b) P became dormant in 2004 and remained so in 2005[8] and for the following five years up to 30 June 2011, and (c) P’s bank balance was reduced to $15,358.05 as at 26 April 2012 due to various transactions including the $10 Million Payment,  $10 Million Repayment, $9 Million Payment and $130,000 Payment. 

14. By letters dated 10 and 11 May 2012 (ie shortly before the trial in HCA90/2010), Chan’s solicitors demanded D1/D2 for explanation in respect of inter alia the $10 Million and $9 Million Payments and the $1 Million Loan,[9] but there was no substantive reply.  Chan also wrote to ask P and D1/D2 for inter alia the identitites of the payees/recipients of such payments/loan.

15. In June 2012 Chan made a report to the Commercial Crimes Bureau (“CCB”), and in/around July 2012 D3 was arrested by the police.  In August 2012, the CCB told Chan they had “frozen” about $7,000,000 of funds that represented P’s various payments to D3.  D3 knew about this in August 2012 since his bankers (eg Wing Hang Bank Limited (“Wing Hang”) and Wing Lung) told him his bank accounts were temporarily “frozen” pending the outcome of police investigation of suspected fraud. 

16. On 28 August 2012, Chan was appointed as P’s director.  On 8 November 2012, P’s solicitors wrote to demand D1 to repay the $1 Million Loan,[10] and wrote to D1/D2 to ask for written explanation of the $9,130,000 Payments to D3.  No explanation was received until five months later in April 2013 when D1/D2 filed their respective defence pleadings.  On 5 December 2012, P’s solicitors wrote to demand D3 to repay the $9,130,000 Payments, saying that at the time of the payments (a) he knew there had been some breach of trust or fiduciary duty by D1/D2, and (b) he knew or ought to have known P had no legitimate/commercial reason to so pay him.  Again, no reply was received until D3 took out the Summons referred to in paragraph 24 below.

17. On 12 December 2012, P commenced HCA2297/2012 against D1/D2 for damages for breach of duty of care, fiduciary duties and P’s articles of association, and against D3 for (a) repayment of the sum of $9,130,000,[11] (b) a declaration that D3 received/held such sum as constructive trustee for P, and (c) an account be taken of profits made by D3 and an order that D3 do pay P such profits found due upon taking of such account together with interest thereon.  On 28 December 2012, D3 filed acknowledgment of service to give notice of intention to defend.  The Director of Legal Aid (“DLA”) filed two Memoranda of Notification of Application for Legal Aid dated 23 and 29 January 2013 giving notice that D2 and D3 had applied for legal aid.

18. On 28 January and 4 February 2013, the CCB informed Chan they had seized some gemstones during their investigations (“Gemstones”)[12] and had “frozen” about $7,000,000 in D3’s bank accounts, and suggested she should apply for an injunction as soon as possible. 

19. On 8 February 2013, P commenced HCA271/2013 against D1.  P claimed that (a) during the financial year ended 30 June 2011 P advanced an unsecured loan of $1,000,000 to D1 (“$1 Million Loan”)[13] that was repayable on demand,[14] and (b) on/about 8 November 2012 P’s solicitors made written demand to D1 for repayment of such loan but D1 failed/fails to repay.  P did not admit such loan was used to settle any alleged payment due or payable to D3, and claimed for repayment of such loan or damages with interest and costs.  But D1 denied such loan, and claimed that the sum of $1,000,000 represented a standby fund she kept for purchase of inventories after the year end date,[15] or it was a fund P used as part payment of the Price for entering into the 22/7/11 Agreement.  D1 repeated the matters in paragraph 7 above, and also made a counterclaim that was not relevant for the present purpose.

20. On 5 March 2013, the DLA refused D3 legal aid.  On 12 March 2013, the CCB wrote to Chan to say they were investigating a case of fraud in which P’s ex-directors were suspected of having siphoned off assets of P, and to enquire whether Chan would commence civil proceedings to take recovery action.  On 13 March 2013, the CCB told Chan that D1, D2 and D3 had been arrested as part of the police investigation.

21. On 13 March 2013, upon P’s application in HCA2297/2012, Anthony Chan J granted an ex parte Mareva injunction order restraining D3 from removing his assets in D3’s WL A/C or disposing of or dealing with or diminishing the value of any of his assets up to the value of $9,130,000 (“Ex Parte Order”), and an order requiring D3 to make disclosure in relation to his assets (“Disclosure Order”).  On 5 February, 14 March and 15 March 2013, P filed Chan’s 1^st affirmation and the 1^st and 2^nd affirmations of its solicitor Ng Wai Chun for the application for the Ex Parte and Disclosure Orders.  On 22 March 2013, Chung J inter alia continued the Ex Parte Order until judgment or further order with slight variation to the Disclosure Order (“Continuation Order”).

22. D3 failed to file any Defence in HCA2297/2012 within the prescribed time. On 11 July 2013, DHCJ B Chu granted the D3 Judgment, and ordered (a) the Ex Parte Order as continued to be varied to the effect that “[P] be paid from [D3’s WL A/C] the amount of HK$9,130,000 or so much thereof as may be sufficient to satisfy the said judgment sum”, (b) the injunction order be continued until further order, and (c) the injunction order “be discharged upon full payment of the judgment sum of HK$9,130,000; or the amount of HK$9,130,000 stated in the Mareva Injunction be reduced by any amount paid” (“1^stPayment Order”).

23. Pursuant to the 1^st Payment Order, Wing Lung paid the sum of $2,765,293.86 to P.  Since the CCB had advised about $7,000,000 had been “frozen”, on 18 September 2013 P filed Chan’s 2^nd affirmation to apply for the release of monies in D3’s other bank accounts to satisfy the outstanding balance of the D3 Judgment in the sum of $6,899,130.79.[16] On 2 October 2013, DHCJ B Chu ordered the 1^st Payment Order set out in the above paragraph to be varied/replaced by the provision: “[P] be paid from [D3’s bank account(s)] with [Wing Lung] or other banks in Hong Kong the amount of HK$9,130,000 or so much thereof as may be sufficient to satisfy the said judgment sum” (“2^ndPayment Order”).

24. On 30 August 2013, Master J Wong ordered inter alia that HCA2297/2012 and HCA271/2013 be consolidated “and thereafter be carried on as one action …… and that the leading action be HCA2297/2012”.  On 21 December 2013, D3’s solicitors filed their Notice to Act.  By a summons filed on 20 January 2014 (“Summons”), D3 applied for the following reliefs:

(a)  an order that the D3 Judgment be set aside and that D3 be at liberty to defend P’s claim;

(b)  leave to D3 to file/serve his Defence as per the draft exhibited to D3’s affirmation filed on 20 January 2014 within 14 days;

(c)  an order that the 2^nd Payment Order be set aside and P do return the amount(s) paid thereunder to D3 within 14 days;

(d)  execution/enforcement of the D3 Judgment and the 2^nd Payment Order be stayed pending the outcome of the Summons;

(e)  discharge of Ex Parte Order as continued by the Continuation Order;

(f)  costs of and occasioned by (i) the entering of the D3 Judgment and (ii) the Summons be paid by D3 to P.

25. On 27 January and 12 March 2014, P’s solicitors asked and the CCB agreed to let P’s expert gemologist Chan Pik Kwan (“PKChan”) to examine the Gemstones.  Purusant to the directions granted by L Chan J on 30 January 2014, P filed Chan’s 3^rd affirmation in opposition on 13 March 2014.  On 17 June 2014, pursuant to a summons filed on 4 June 2014 (“1^st Aff Summons”), DHCJ Leung (a) granted leave for P to file/serve Chan’s 4^th affirmation and for D3 to file an affirmation in reply on the question of valuation of the Gemstones, (b) further adjourned the Summons for argument, and (c) reserved the costs of the 1^st Aff Summons and adjournment (“Leung Order”).  P filed Chan’s 4^th affirmation on 18 June 2014.

26. On 18 November 2014, Chan found out from the CCB that charges had been laid against D2 for conspiracy to defraud, and against D1 and D3 for conspiracy to defraud and dealing with property known or believed to represent proceeds of indictable offence.  The mention hearing for ESCC3272/2014 against D2 and for ESCC3303/2014 against D1/D3 was scheduled to be heard on 2 February 2015.

27. Pursuant to the Leung Order, D3 filed his 2^nd affirmation on 17 December 2014.  On 8^th January 2015, pursuant to P’s summons filed on 30 December 2014 (“2^nd Aff Summons”), Master H Au-Yeung granted leave for P to file/serve Chan’s 6^th affirmation, and for D3 to file/serve affirmation in reply by 4:00pm on 20 January 2015 with costs reserved (“Au-Yeung Order”).  Since the original copy of Chan’s 6^th affirmation was annexed to the filed 2^nd Aff Summons, on 9 January 2015 Master Au-Yeung granted leave for P to file/serve Chan’s 7^th affirmation with contents identical to his 6^th affirmation.  P filed Chan’s 7^th affirmation on 12 January 2015, and D3 filed his 3^rd affirmation in reply on 20 January 2015.

V.  LEGAL PRINCIPLES

28. If a default judgment is regular, the defendant must show a meritorious defence with a real prospect of success or which carries some degree of conviction.[17]  Unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success.[18]  This requires the court to form some provisional view of the probable outcome of the action.  Where the outcome depends on whose evidence is likely to be accepted, the appropriate test for determining whether the defendant has a real prospect of success is to ask whether the defence “could well be established” at trial or whether the defence witnesses could well be believed at trial.[19]

29. It is not correct to adopt the approach that if the defendant can show he has an arguable defence, a default judgment against him ought to be set aside unless there is incontrovertable evidence before the court to negate it.[20] The court is also entitled on assessment of the affirmation evidence to come to a view that the defence put forward by reason of its inherent inconsistencies (eg between the defendant’s own evidence and documents) is inherently unbelievable and the defendant therefore has failed to discharge the burden of putting forward a defence with a real prospect of success.[21]

30. There are other considerations which a court must consider in deciding whether or not to set aside a default judgment, such as the reason why default judgment was allowed to occur in the first place, and any delay in setting aside and any consequent prejudice caused to the plaintiff.  The court’s approach is to conduct a balancing exercise of all relevant factors.[22] But the critical factor and starting point are the merits of the defence.  If the defence has no real prospects of success, there is no point in setting aside the same.[23]

VI.  DISCHARGE OF THE INJUNCTION AND PAYMENT ORDERS

31. By the 1^st and 2^nd Payment Orders, Wing Lung and Wing Hang paid the following sums to P in partial satisfaction of the D3 Judgment:

Date	Amount (HK$)	Bank
9/8/13	2,765,293.86	Wing Lung
24/10/13	5,047,746.31	Wing Lung
31/12/13	6,970.53	Wing Hang
Total:	7,820,010.70

32. On 19 August and 28 October 2013, P repaid $2,700,000 and $4,025,700 to settle the Tsang Debt of $6,725,700.  Out of such sums, the Estate paid out a total sum $5,727,693.21,[24] and settled P’s legal fees for HCA2297/2012, HCA271/2013, CACV221/2013 and other just and proper expenses of P[25] totalling $715,227 between 9 August 2013 and 31 October 2014.  P claimed its total bank balance was reduced to less than $380,000, and it did not have any other assets besides its claims against D1, D2 and D3.

33. In the circumstances, Mr Leung, counsel for P, accepted it was no longer appropriate for the Ex Parte Order as continued by the Continuation Order and varied by the 1^st and Payment Orders (“Injunction Order”) to “freeze” D3’s assets up to $9,130,000, and Mr Wu (and Mr Fong with him), counsel for D3, accepted that even if the D3 Judgment were set aside question would arise as to whether the Injunction Order and/or the execution of the D3 Judgment ought to be discharged or set aside for the sum of $7,820,010.70 to be returned to D3 when P had already disbursed the bulk of such sum recovered pursuant to the regular D3 Judgment and the 1^st and 2^nd Payment Orders and when third party interests might be affected.  None of the third parties who might be affected, eg the DLA, Ho, the Estate and/or Leung’s estate, were notified of the Summons.

34. In the end, both Mr Leung and Mr Wu agreed to confine their arguments before me to the issue of whether the D3 Judgment should be set aside, and to adjourn for further argument the questions of (a) whether the Injunction Order should be discharged and (b) whether the execution of (and recovery of the sum of $7,820,010.70) under the D3 Judgment and 1^st and 2^nd Payment Orders should be set aside. However, this is a separate matter from the discretion to be exercised by this court under D3’s application to set aside the D3 Judgment by balancing the change of circumstances after the D3 Judgment amongst other factors/considerations.

35. On such basis, at the hearing on 27 January 2015, I ordered that the Injunction Order be varied to the extent that paragraph 1 of the Ex Parte Order be continued save and except that the value of D3’s assets subject to restriction on disposal shall be reduced from $9,130,000 to $1,309,989.30, and adjourned paragraphs 3-5 of the Summons sine die with liberty to restore.

VII.  DISCUSSION

(a) P’s case

36. P claimed that to the best of Chan’s knowledge and based on P’s audited financial statements, P had been a property holding company, and after sale of its properties in 2002 it became dormant and only held cash/deposits.  Since becoming P’s director Chan searched through P’s company documents/records at its registered office and could not find any documents/records[26] in relation to the 5/10/10 and 22/7/11 Agreements[27] and/or the $10 Million, $9 Million and $130,000 Payments, which Chan considered strange since the value of the transactions (ie $10,000,000 or $12,000,000) comprised nearly the entirety of P’s assets.  Also, Chan had never seen the Goods nor come across any photograph or inventory record of the Goods in P’s possession even though she was aware that the CCB had seized the Gemstones during their investigations.  As explained below, there was huge disparity between the Price of $12,000,000 and the valuation of the Gemstones (which Ho[28] and D3[29] claimed to be the Goods) by PK Chan.  Takng into account the above matters, P claimed (a) the 22/7/11 Agreement was a sham transaction, (b) D3 was aware of D1/D2’s wrongdoing in making the $9,130,000 Payments to him, and (c) the police’s decision to file charges against D1, D2 and D3 following Chan’s report to the CCB was made on good grounds and evidence.

(b)  D3’s case

37. On the other hand, D3 claimed (a) he developed an interest in gemstones/jade since childhood and learned the skill of appraising jade from his grandmother, (c) D1 knew he collected jadeite articles/items and raw stones for over 35 years and he would make purchases for his own collection or trade (if the price was attractive), (d) he set up Bright Jade to carry on business of trading in jade and precious stones, and (e) the Goods were part of his personal collection for more than 10 years and/or valuable items inherited from his grandmother. 

38. D3 claimed D1/Ho had traded in jadeite articles/items for many years, and after discussions with D1 during which D1/Ho viewed the Goods for inspection/valuation and for taking photographs, he agreed to go into business with them.  On/about 5 October 2010 D3 for Bright Jade and D1 for P signed the 5/10/10 Agreement, and pursuant thereto P made the $10 Million Payment to Bright Jade. 

39. In November 2010, D3 suffered a stroke and had to undergo surgery.  Since then he had difficulty in mobility/self-care and problem with his vision, so (a) he was unable to carry on the intended business, (b) D1 for P and D3 for Bright Jade agreed to terminate the 5/10/10 Agreement, and (c) Bright Jade made the $10 Million Repayment to P in May 2011.

40. D3 claimed that in/about mid-2011 D1 told him she was still interested in his jadeite collection and she would purchase it if he would sell.  D3 was then in financial need for medical treatment and helper assistance, and his impaired eyesight hindered his enjoyment/ability in appraising jadeite articles/items, so he agreed to sell the Goods (which he had previously shown to D1/Ho and they had carefully viewed) if D1 would offer an attractive price.  After arms-length negotiations, D1/Ho eventually offered the Price.  D3 asked D1 about the Price out of curiosity, and D1 explained the Goods “could be sold at a retail market with a substantial profit upon polishing and packaging”. 

41. D3 was satisfied with the Price, and on 22 July 2011 (a) P and D3 signed the 22/7/11 Agreement, (b) P made the $9 Million Payment and D1 made the $1 Million Payment to D3 in part payment of the Price, and (c) D3 delivered the Goods to P.  The remaining balance of the Price (ie $2,000,000) was to be paid by instalments, and the $130,000 Payment was part payment of the same.  D3 claimed the 22/7/11 Agreement and the $9,130,000 Payments were bona fide and legitimate business dealings between P and D3 by relying on the apparent authority of D1 as P’s director and without knowledge of (or reason to believe) any breach of fiduciary duty by D1/D2.

42. D3 denied he committed any criminal offence(s).  He all along believed his bank accounts were frozen by the police, and it was only by the time of the Summons that he realised there was the Injunction Order against him.  When he learned P alleged the value of the Goods was much lower than the Price, he confronted D1 who revealed to him she offered the Price to get the best price from him on the basis of a valuation of the Goods at $16,068,000 by Ho (an experienced trader in jadeite articles/items) (“Ho’s Valuation”).

(c)  Real prospect of success?

43. Mr Wu submitted D3’s defence had real prospect of success that carried some degree of conviction.  He argued P’s case was built on thin circumstantial evidence drawn from a background of probate disputes between feuding family camps that had nothing to do with D3 except for his receipt of the $9,130,000 Payments as part payment of the Price for his sale of the Goods to P, and such circumstantial evidence could not be strengthened by the pending criminal trial faced by D1, D2 and D3 in the absence of a final verdict.  Mr Wu submitted it was all too easy for P to try to pick holes in D3’s case and to urge the court to draw inference of knowing receipt by D3, but in fact there were no internal inconsistencies within D3’s own case and between the case of D1/D2 and that of D3.

44. On the other hand, Mr Leung submitted D3’s case defied commercial/common sense and his evidence was internally inconsistent in a material way, which demonstrated that the 22/7/11 Agreement was a sham transaction to disguise D1/D2’s efforts to siphon off P’s assets by purported purchase of the overpriced Goods (that in truth were worth much less than the Price) by P (dormant company with no trading activity) from D3. 

45. In my view, one starts by looking at the contextual background of the alleged 5/10/10 Agreement and the $10 Million Payment.  Mr Wu submitted there was nothing sinister about such transaction and payment.  He said P was unable to refute the $10 Million Payment was repaid in May 2011 following termination of the 5/10/10 Agreement as a result of D3’s ill-health, which fact, he argued, supported D3’s case (and also D1/D2’s case) because D3 would hardly have returned the money if D1/D2 intended to siphon away P’s assets to D3.

46. However, although D3 claimed the 5/10/10 Agreement was an agreement between P and Bright Jade to “jointly invest in precious stones in the sum of HK$10,000,000”[30] and/or to “jointly invest in trading precious stones among others whereby [P] and Bright Jade provided the capital and expertise respectively”,[31] the terms of the 5/10/10 Agreement itself showed that the so-called joint investment was in fact a business to be run by Bright Jade[32] and the $10 Million Payment was in fact a loan by P to Bright Jade to be repaid with interest.[33] If the intended business was profitable, the repayment of such loan with interest at 5%pa was to commence immediately upon signing of the 5/10/10 Agreement by monthly instalments over ten years.[34] On an amortised basis the monthly repayment sum would be over $100,000, but clause 5 of the 5/10/10 Agreement provided that only 50% of D3’s 30% share of the profits would be used for such repayment.  On such basis, the monthly profits of the intended business would have to be above $650,000 in order to meet the loan repayment requirement. 

47. D3 did not adduce any affirmation evidence to explain how he would be able to establish the envisaged business under the 5/10/10 Agreement by using his “器材、設備、市場資訊和其他專業技術” and start to earn profits for the business at a level of at least $650,000 a month in order to make monthly repayment of over $100,000 to P, or alternatively how he could afford to make such monthly repayment and bear half of any loss of such business.[35] In face of P’s accusation that the 5/10/10 Agreement was a sham transaction with a view to effectively wipe out or significantly reduce P’s bank balance, one would have expected D3 to have condescended upon particulars of concrete plans for the business with projected income and/or his own financial capability to meet the repayment requirements.  There was also no explanation from D3 as to (a) why he only made the $10 Million Repayment seven months later in May 2011, (b) whether P had chased him for monthly repayment of the loan or on progress as to establishment of the intended business in the meantime, and/or (c) whether P asked for refund of the $10 Million Payment.  Indeed, there was no mention of these matters even in D1/D2’s witness statements, which merely stated that the “investment plan was not executed as planned”.  The silence is loud since the absence of these matters did not make much commercial sense in an arms-length commercial deal.

48. As Mr Leung pointed out, the $10 Million Payment was made on the eve of Ho’s commencement of HCA1501/2010 against the Estate following her failed attempt to obtain grant of letters of administration (and any beneficial interest) in respect of the Estate.  Even though the $10 Million Payment was repaid, it is interesting to note D3 again received the same amount of $10,000,000 as part payment of the Price for the Goods under the 22/7/11 Agreement two months later.

49. This nicely brings me to the 22/7/11 Agreement and the $9,130,000 Payments.  Mr Leung submitted the 22/7/11 Agreement was not a genuine transaction, and the practical effect of such payments was to effectively wipe out P’s bank balance by reducing it to $35,007.05 in February 2012.  On the other hand, Mr Wu submitted that D3’s line of defence based on the underlying sale and purchase transaction under the 22/7/11 Agreement in support of the $9,130,000 Payments was not a recent fabrication because this was alluded to in May 2012 by D1 in her 2^nd supplemental witness statement in HCA90/2010.  However, I note D1 eventually was not called to give evidence, and her assertions were untested at trial.

50. In my view, D3’s case based on the underlying sale and purchase transaction in respect of the Goods raised more questions than answers.  Even on the basis of the 22/7/11 Agreement, there was no explanation or commercial/other justification put forward by D3 as to why he would extend credit of $2,000,000 to P for a year upon outright sale and immediate delivery of the Goods to P without any collateral or even personal guarantee by D1/Ho.  This was especially curious when the Goods were part of his prized collection, and he was reluctant to part with them but for his urgent financial need as a result of his ill-health.  There was no explanation why the upfront cash payment was set at $10,000,000, which in the absence of other explanation lent weight to the suggestion that it conveniently matched the $10 Million Repayment in order to remove such sum out of P’s coffers yet again.

51. More importantly, even though the 22/7/11 Agreement provided for monthly instalment payment of $170,000 by P over 12 months, P did not comply with such requirement and did not pay the remaining balance of the Price ($2,000,000) at all save for the $130,000 Payment more than half a year later in February 2012.  Yet D3 accepted the $130,000 Payment without complaint, and there was no evidence he ever demanded for payment of any monthly instalment or the remaining balance of the Price.  There was no explanation why $130,000 (and not the instalment amount of $170,000 or any other amount) was paid by P after half a year, or why D3 accepted it without question.  Further, there was no evidence D3 took any action to demand/recover the outstanding balance of the Price and/or interest despite expiry of the last due date for such instalment payments in July 2012 despite his entitlement to demand for immediate payment,[36] and there was also no explanation for such non-commerical inaction.  This was particularly significant given his professed financial needs in relation to his ill-health, which must have been aggravated by the “freezing” of his bank accounts by the police since August 2012 and later by the Injunction Order.  Despite all this, there was still no counterclaim in D3’s draft Defence or any protest/demand in D3’s affirmation evidence for the outstanding balance of the Price.

52. In my view, D3’s conduct defied commercial/common sense if the 22/7/11 Agreement were genuine and enforceable, and D3 failed to come up with solid/convincing explanations that carried a degree of conviction despite these obviously non-commerical and questionable features.  There was little to refute Mr Leung’s argument that the tenor of the affirmation evidence suggested the partial payment of the Price by the $9 Million and $1 Million Payments was to match the $10 Million Payment previously paid and returned with the result of effectively wiping out or substantially depleting P’s bank balance. 

53. Mr Wu submitted the absence of a counterclaim by D3 was a red herring because this court should focus on the affirmation evidence as it was not necessary to put forward a draft Defence.  However, unlike Ko Lai Kuen, D3 in the present case did put forward a draft Defence as part of his admissible affirmation evidence, and there was no cogent reason why I should not take this into account when D3 asked for such Defence to be filed if the D3 Judgment were set aside.  But even if one focused on D3’s affirmation evidence (as Mr Wu would have me do), there was no intimation of any intention to demand/recover the remaining balance of the Price.

54. Mr Leung submitted that careful scrutiny of D3’s 2^nd affirmation and his draft Defence raised an even more fundamental concern.  The tenor of D3’s case was that (a) he knew D1 and Ho were jade traders for many years, (b) in June 2011 D1 asked D3 to sell the Goods to her, (c) D1 and Ho had viewed the Goods carefully, (d) D1/Ho came up with the offered Price for the Goods, (e) D3 was satisfied with the offered Price and thus agreed to sell the Goods for the Price, (f) in July 2011 D1 made payment to D3 in a total sum of $10,000,000, ie $9,000,000 by “[D1] through her company” and $1,000,000 by D1’s own personal cheque, and (g) in February 2012 “[D1] through the company” paid D3 a further sum of $130,000.  It appeared from such affirmation evidence and/or draft Defence that the alleged sale and purchase transaction in respect of the Goods was between D1/Ho and D3 which, Mr Leung argued, had nothing to do with P.  After all, even according to D3, it was D1 who made payment to him albeit “though her company”, and this fed P’s argument that the 22/7/11 Agreement and the $9,130,000 Payments were for siphoning P’s assets to D3 by D1/D2. 

55. The $1 Million Loan was the subject matter of HCA271/2013, but D1 in her Defence thereto claimed she was not liable to repay P since it was a standby fund she kept for the purchase of inventories  or alternatively it was a fund P used as part payment of the Price for entering into the 22/7/11 Agreement.  But D3 never explained why he accepted the $1 Million Payment (which was by D1’s personal cheque and not from P as purchaser named under the 22/7/11 Agreement) without question.  This added weight to D3’s own affirmation evidence that he struck the deal with D1/Ho, and that part payment of the consideration was actually by D1 either personally or “through her company”, which also did not sit well with Mr Wu’s reliance on D1/D2’s apparent authority as directors of P.  No attempt was made by D3 to clarify these matters in his 3^rd affirmation or to seek leave to file further affirmation to explain such discrepancy.  Given that P in its pleadings had raised the issue of knowing receipt on the part of D3, it behoved D3 to provide cogent explanation which he failed to do. 

56. Mr Wu reminded that the CCB seized 200 Gemstones in 2012 during their investigations and D1/D2 did produce faxed copies of the 5/10/10 and 22/7/12 Agreements, so whether or not Chan (who only became P’s director in August 2012) had seen the Goods, found photographs or inventory records of the Goods and/or discovered relevant records/ documents in P’s possession had no bearing on the question whether there was a genuine underlying sale and purchase transaction. Mr Wu argued that such matters concerned P’s internal administration, and should be answered by D1/D2 at trial and not by D3.  He added that the fact P was allegedly dormant after 2002 was irrelevant vis-à-vis D3 since D1/D2 as P’s directors had power to carry on the business of P as a going concern.[37] In any event, in my view, these matters added weight to the contextual background as well as D3’s own affirmation evidence discussed above that the sale and purchase of the Goods was struck between D3 and D1/Ho (as traders in jadeite articles/items) rather than P, except that part payment of the Price was made through P.

57. The Ho Valuation also raised questions.  Mr Wu would not rely on the valuation of the Goods in the Ho Valuation for the present purpose, but submitted that at the material time D1/Ho must have offered the Price for the Goods (and D3 merely accepted it) on the basis of the Ho Valuation with photograph taken and valuation made for each item of the Goods.  According to D3, the Ho Valuation came to light when D3 made enquiries with D1 for the purpose of the Summons after he learnt of P’s allegation that the Gemstones were worth much less than the Price.  On D3’s case, he must have learnt of such allegation latest by the time of the Leung Order in June 2014 and confronted D1 then, and yet the Ho Valuation never featured in the respective Defence and witness statement of D1/D2, and it was not discovered/disclosed by them in their List of Documents and Supplemental List of Documents respectively filed on 10 October 2014 and 15 January 2015 even though their line of defence was that the purchase of the Goods was a good investment at an attractive price, the current value of the Goods exceeded the Price, and P stood to earn huge profits by such investment. 

58. I also note D3’s 3^rd affirmation claimed that during negoatiations for the 22/7/11 Agreement, D3 already knew D1/Ho had inspected the Goods, and when he enquired out of curiosity as to the Price, D1 told him Ho had made a valuation of the Goods.  This did not sit well with his further assertion in the same affirmation that it was only several years later in 2014 when he confronted D1 with P’s allegation as to the low valuation of the Gemstones and “[upon] his strong request” that D1 revealed to him the offered Price “was actually based upon the valuation made by [Ho]”.  There was also no evidence he ever asked Ho to make an affirmation to verify the Ho Valuation to support his case or ever queried D1 why she never referred to the Ho Valuation in the present action. 

59. There was no dispute that the Gemstones were jadeite articles/ items.  Mr Leung submitted the expert evidence showed the Goods were significantly overpriced, which went a long way to show D3’s defence was not credible.  He argued the huge disparity between the Price and the assessed value by PK Chan (and by D3’s expert gemologist Chung Yam Ming (Daly) (“Chung”)) undermined D3’s claim that the 22/7/11 Agreement was an arms-length and genuine transaction.

60. Both PK Chan and Chung adopted the 13 HOKLAS testing criteria with Chung testing 13 and PK Chan testing 12 (except specific gravity) of such criteria.  Their appraisal was based on colour, cut, polish/cracks, clarity, transparency, volume and market supply/demand.

61. In his valuation report dated 3 December 2014, Chung gave an estimated market value on retail basis (based on Hong Kong’s and global prevailing market price) with reference to street jade shops at Jordan and Sham Shui Po at about $1,168,400 to $1,394,900, but claimed that the price of jadeite articles/items, which depended on the purchaser, market trend, supply/demand[38] and cost of cutting/carving (which had increased), could fluctuate substantially and might fetch 10-20 times more than the assessed price.  Chung said well-established jewellery shops would have higher mark-ups, and the price could also be substantially marked up by fine polishing/carving.  As each piece was unique and its price subjective to the individual, a willing buyer might offer a much higher price.

62. Chung’s supplemental report dated 20 January 2015 went on to say it was hard to compare valuations by different gemologists (who had their own appraisal references and different market information) because each item was unique and its value quite subjective, and the price could vary greatly with different country, shop and buyer/seller.  For the Gemstones, their value could be set at different price range by different tiers of jewellery shops, such as Chow Tai Fook, Chinese Arts and Crafts, Chow Sang Sang at the high end, and street shops at Jordan and Sham Shui Po at the low end.  The difference in mark prices could be 10-20 times between the cheapest and the most expensive.  Although Ho’s Valuation was much higher than Chung’s, it was said that “it is still within two ends of the price range ……” as aforesaid.

63. According to PK Chan’s expert report dated 23 May 2014, she gave her estimated market value on retail basis based on Hong Kong’s prevailing market price (and wholesale price would be at 20%-30% discount).  She opined the price of the Gemstones (being mediocre jadeite) in June 2011 was 10%-20% less than the current market value mainly due to increased costs in craftsmanship since mid-2011, and the estimated current (May 2014) value on retail basis was $345,550 to $450,000 so the estimated value in June 2011 on retail basis was $276,440 to $405,045 and on wholesale basis was $193,508 - $324,036.  Since there was no standard grading criteria for jadedite craftsmanship/cutting, upon referring to criteria similar to diamond cut grading nomenclature, PK Chan’s overall impression of the Gemstones was mediocre grade of Fei Cui (jadeite jade), and about 80% of the Gemstones had fair to poor cutting, and 20% had good to fair cutting.

64. Mr Wu submitted that since (a) there were no universal or standard grading criteria for jadeite craftsmanship/cutting and (according to Chung) the price of jadeite articles/items was subjective and could fluctuate 10-20 times above the assessed value, (b) Chung’s valuation at less than 20% of the Price was made with reference to low-end and not high-end shops (the latter of which would have higher mark-ups), (c) each jadeite article/item was unique and its value subjective to the individual, and (d) the market price could be substantially marked up 10 times by good polishing and fine carving, whether or not the Goods were overpriced would not be determinative as to whether the underlying transaction was genuine or not.

65. In my view, the significant disparity in price valuation and the Price could not be brushed aside as irrelevant.  Whilst Chung discussed various factors that might affect the retail price for a particular jadeite article/item (ie its individual uniqueness/cutting/carving/polishing, its subjective value to the purchaser in question, and the tier of retail shops where it was sold), Chung did not consider the value of the Goods on wholesale basis (which was the nature of the transaction under the 22/7/11 Agreement), the quality of the whole lot (eg whether it is of high or mediocre quality) and/or the quality of the cutting of whole lot.  The issue at hand was not whether the ultimate retail price that the Goods/Gemstones after polishing/packaging[39] could be substantially marked up to $12,000,000, but whether the existing Goods/Gemstones before further polishing/packaging were significantly overpriced in/about mid-2011 at the wholesale stage, which issue was directly addressed by PK Chan but which Chung shied away despite his supplemental report.

66. Further, there was no evidence at all that D1/Ho or P had marketed the Goods or any part thereof to either low-end or high-end shops after the purchase in mid-2011.  The fact that the police were able to seize all 200 Gemstones a year later suggested they had not been sold at all to “earn huge profits”.  Interestingly, D3 never enquired with D1/Ho about the progress of retail sale of the Goods or perhaps asked for return of some of the Goods since he had not been paid the outstanding balance of the Price of $2,000,000.  After all, retail sale of the Goods would have generated revenue to pay the remaining balance of the Price to him.

67. Further, the tenor of D3’s affirmation evidence was to distance himself from the Price by suggesting the offer came from D1 and he only accepted it.  However, D3 himself claimed to be an experienced collector with expertise in examining and valuing jade items, and indeed clause 2 of the 5/10/10 Agreement provided that Bright Jade (of which he was the sole director/shareholder) would offer such expertise for the purpose of the joint investment.  In my view, it was not a simple matter of whether P made a bad bargain or D3 made a good deal if the Goods were overpriced. Given D2’s professed expert knowledge, this goes very much to the issue of knowing receipt and called for an explanation from him as to whether at the time he thought the Price was reasonable/appropriate or whether it was so overpriced that would have put him as a collector with experience and knowledge in these matters on notice that the transaction was questionable.  However, his affirmation evidence did not address this at all.

68. Mr Wu submitted that P failed to prove directly that (a) the sale and purchase of the Goods was fictitious, (b) D3 was not conducting genuine business with P and/or (c) D3 received the $9,130,000 Payments for the benefit of D1/D2 to the prejudice of the Estate.  But this was not the correct approach. It was not for P to adduce incontrovertible evidence to negate any defence (even an arguable one although P disagreed that D3’s defence reached such threshold) put up by D3.  Rather, the burden was on D3 to convince the court that his evidence was credible and his defence had a real prospect of success and could well be established at trial.  Further, it was not an ingredient of “knowing receipt” to benefit the fiduciaries. 

69. Mr Wu submitted that since the trial between P and D1/D2 was still pending (as there was no application for summary judgment against D1 and/or D2), it would not be appropriate for this court to conduct a mini-trial on affirmation evidence.  He also raised the spectre of inconsistent decision if the D3 Judgment were not set aside and the court eventually found in favour of D1/D2 at trial that the 22/7/11 Agreement was a genuine transaction and/or the $9,130,000 Payments were proper payments without any breach of duty on the part of D1/D2.  But in my view, the fact that his co-defendants raised a similar defence did not alter the obligation on the part of D3 to put forward a defence with real prospect of success that carried some degree of convinction.

70. I am unable to draw adverse inference (as Mr Wu suggested I should) against P’s contentions based on P’s failure to date to seek summary judgment against D1/D2.  I bear in mind P was aware even before the commencement of the present action that the bulk of the $9,130,000 Payments in D3’s bank accounts had been “frozen” by the police.  Upon commencement of HCA2297/2012, such monies were “frozen” by the Injunction Order.  In light of the D3 Judgment and the 1^st and 2^nd Payment Orders, P had received a significant portion of its claim against D1, D2 and D3 in respect of the $9,130,000 Payments.  In such circumstances, it is doubtful whether it would be incumbent on P to apply for summary judgment against D1/D2 to recover the remaining balance of $1,309,989.30 when it had to proceed to trial against D1/D2 in any event in respect of its claim against them for unauthorised or excessive remuneration/fees and the $1 Million Loan. 

71. Mr Leung fairly accepted it would take a criminal trial to establish guilt.  Mr Wu strongly reminded that D3 was innocent until proven guilty.  But Mr Leung complained D3 was coy about whether he had given any witness statement to the police and if so what he told the police, and suggested there was nothing to prevent D3 from disclosing these matters.  For the present purpose, I do not take this against D3 given that his criminal trial is pending.

72. But taking all of the above matters into account, I am not persuaded P merely cast suspicion on D3’s case by relying on circumstantial inferences.  Rather, there were material aspects of D3’s own case that did not make commercial/common sense and cried out for explanation, but D3 either did not put forward any or any cogent/convincing explanation.  In my view, D3 failed to satisfy the threshold requirement for setting aside the D3 Judgment.

(d)  Other considerations

73. D3 applied to set aside the D3 Judgment after a delay of six months, which was not a short one as there had been change of circumstances since the D3 Judgment as explained in paragraphs 31-33 above.  D3’s explanation was that he had no knowledge of the D3 Judgment until mid-December 2013 when D1 told him about it.  In my view, such assertion also beggars belief. 

74. D3 claimed (a) Flat D, 5/F, True Light Building, 100-106 Third Street, Sai Ying Pun, Hong Kong (“Address”) was Bright Jade’s registered office, but since Bright Jade was deregistered in February 2012 such address was no longer in use, and (b) at the material time he lived at an address in Sham Shui Po.[40]

75. In December 2012, Chan’s solicitors wrote to D3 at the Address to demand an explanation for the $9,130,000 Payments, and although D3 claimed he had not received such letter it was not returned as unclaimed.  More importantly, in/about December 2012, when D1 told D3 about HCA2297/2012 commenced against him, D3 instructed Messrs George Chan & Co to contest the claim.  D3 did not explain how in December 2012 (ie about 10 months after Bright Jade was deregistered) he was able to have retrieve the writ of summons sent to the Address to enable his then solicitors to arrange for him to sign the acknowledgment of service form to give notice “in person” of his intention to defend,[41] and why he was not alerted when he signed right above the Address (which he claimed was wrongly written by his former solicitors’ paralegal and no longer in use) on such form.  Significantly, D3 never explained in what circumstances the Address was no longer in use.  The fact that Bright Jade was deregistered did not necessarily mean any tenancy, licence or other occupation arrangement expired or terminated at the same time.  No explanation was forthcoming as to why the Address was no longer in use when he apparently had access to the acknowledgment of service form sent to the Address.

76. D3 claimed that between March and December 2013 he did not receive any court document or was not informed of any development of the present action, and it was only when D1 told him about the D3 Judgment in mid-December 2013 that he immediately instructed his present solicitors to make an application to set aside the same.  He claimed to have acted promptly in all the circumstances given his poor health.

77. But notwithstanding his assertion of ill-health, D3 had no difficulty in seeking out solicitors to file the acknowledgment of service.  Given the DLA’s refusal of his application for legal aid in March 2013, D3’s failure to make enquiries about the progress of HCA2297/2012 or to check with his former/new solicitors for advice, especially when his bank accounts were frozen by the police and later by the Injunction Order, and when Wing Lung and Wing Hang withdrew a total sum of $7,820,010.70 out of his accounts in August and October 2013, was rather suprising.  D3’s inaction for about a year when (a) he knew he was a defendant in HCA2297/2012, (b) he claimed he intended to defend P’s claim, and (c) P was obviously taking action with respect to the litigation, could not be brushed aside by putting forward the banner of ill-health.  There is no medical evidence to suggest he could not even instruct solicitors to look into the matter on his behalf.  Mr Leung reminded that service letters were all sent to the Address and none of them had been returned undelivered.

78. More importantly, P had changed its position since entering the D3 Judgment by obtaining $7,820,010.70 under the 1^st and 2^nd Payment Orders in partial satisfaction of such judgment, and by paying P’s debt to the Estate, and the Estate in turn settled sums due to inter alia the DLA and others under court orders.  P’s current bank balance was less than $380,000, and it had no other assets or financial resources besides its claims against D1, D2 and D3.  As Mr Leung submitted, to set aside the D3 Judgment would cause harm and prejudice to P since it would not be easy to unwind the payments to the DLA and others, and in such circumstances P could face potential insolvency and liquidation, and hence inability to pursue its remaining claims against D1/D2.

79. As explained above, the court could take into account other considerations, eg the length of and explanation for the delay in seeking to set aside the default judgment,[42] the defendant’s conduct after the proceedings were served on him,[43] the public policy of finality in litigation even in the case of a default judgment,[44] and whether the party relying on the default judgment has altered his/her position.  [45]

80. Mr Wu reminded that in Young Bing Ching (deceased), the learned judge set aside the default judgment when real prospect of success was shown even though there was delay of nearly five years in making the application to set aside the default judgment, the explanation for allowing the judgment or the delay was not satisfactory, and third party interests might be prejudiced if the judgment was set aside (as there would be proceeding to set aside the receiving order).  But each case turns on its own facts, and the starting point is always the merits of the defence.  In respect of the defence contentions put forward by D3, I have concluded that they did not meet the threshold of real prospect of success.  The other considerations added weight to the exercise of the discretion not to set aside the D3 Judgment.

VIII.  CONCLUSION

81. In the premises, I dismiss paragraphs 1-2 of the Summons.  There is no reason why costs should not follow event.  I therefore grant a costs order nisi that (a) D3 do pay P’s costs of and occasioned by paragraphs 1-2 of the Summons (including all costs reserved, if any) to be taxed if not agreed, and (b) costs of paragraphs 3-5 of the Summons be reserved.

82. As regards the costs of the 1^st Aff Summons and the adjournment reserved under the Leung Order, I grant a costs order nisi that there be no order as to costs in respect of such costs.  It is true that P sought the indulgence of the court to file/serve Chan’s 4^th affirmation which necessitated the adjournment, but the timing of the preparation of PK Chan’s expert valuation report was dictated by response/permission from the police for the expert to carry out inspection, which matter was outside P’s control.  Neither party can be faulted.

83. As regards the costs of 2^nd Aff Summons which was reserved under the Au-Yeung Order, Chan’s 6^th affirmation essentially provided an account of updated developments.  In such circumstances, I grant a costs order nisi that the costs of 2^nd Aff Summons be costs in the cause of paragraphs 1-2 of the Summons.

IX.  POSTSCRIPT

84. I refer to the order of Master J Wong dated 30 August 2013 for consolidation of HCA2297/2012 and HCA271/2013 to be carried on as one action.  However, no directions were granted for consolidated pleadings.  Attention is drawn to the guidance in Wong Yuen Shun & anor v Siu Siu Kam,[46] and P should take the initiative to regularise the position.