TSEN YUN LEI v. LO KIN FUNG

HCA 1884/2018, HCA 2380/2018 and HCCW 121/2013

[2025] HKCFI 5526

HCA 1884/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1884 OF 2018

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BETWEEN

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HCA 2380/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2380 OF 2018

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BETWEEN

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HCCW 121/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 121 OF 2013

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BETWEEN

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DECISION ON COSTS

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Costs between the Plaintiff/ Sunni and Michael Kao in HCA1884/2018

1.  On 1 August 2025, this court handed down a Judgment of the trial of the 3 actions heard together pursuant to the Order of Linda Chan J dated 21 May 2020 (“Judgment”).

2.  At para 491 of the Judgment, this court gave a direction that with regard to Michael Kao, the 2^nd Defendant in HCA1884/2018, the parties were to exchange their written submissions on costs of the action which would be disposed of on paper. The parties have since exchanged their submissions on costs.

3.  Essentially, Sunni asks for costs of HCA 1884 to be paid by Michael Kao to be taxed on a party and party basis if not agreed, with certificate for 3 counsel, and paid forthwith.

4.  The relevant findings of facts can be found in the Judgment and are too lengthy to be recited here – the Judgment itself, excluding Annexes, is 177 pages long. Thus, this Decision should be read together with the Judgment in so far as may be necessary.

5.  As for the relevant findings of liability against Michael Kao, this court found Michael Kao:

(1) owed fiduciary duties to Sunni as an authorised signatory to Sunni’s HSBC Accounts and various securities accounts but was not its de facto director after his formal resignation as a director and did not owe any duties as de facto director;

(2) was in fraudulent breach of his fiduciary duty as the only authorised signatory of the Fairwin Account for disposing of 99 million of Sunni’s Imagi Shares but did not act in concert with his son, Francis Kao, in such disposal and had no role to play in the disposal of the balance of the 585m Imagi Shares;

(3) liable for signing 3 HSBC cheques of over HK$26m to acquire Cheung Kong Shares which were eventually dissipated to Big Plan, in respect of which Sunni had received no consideration;[1]

(4) not liable for Sunni’s claim for unlawful means conspiracy.

6.  However, as far as relief against Michael Kao is concerned, Sunni did not obtain any relief for the disposal of the 99 million of Sunni’s Imagi Shares. The reason was that at the trial, Sunni submitted in its Closing that although in principle it was entitled to HK$36,980,837.84 being the proceeds of the sale of 99 million Imagi shares through Fairwin, for practical reasons, Sunni no longer sought an account from Michael Kao for that sum. Hence, in the end, Michael Kao was found liable to pay equitable compensation in the sum of HK$26,580,881.95 and compound interest to Sunni.[2]

7.  Sunni accepts that costs are in the discretion of the Court and that ultimately, the Court has to exercise its discretion to achieve a just result having regard to the circumstances of the case: Re Moulin Global Eyecare Holdings Ltd, unrep., HCCW 470/2005, 17 October 2008, Kwan J (as she then was) at §10.

8.  Sunni submits that since Michael Kao had been ordered to pay equitable compensation and compound interest, it is the overall winner as against Michael Kao. As such, Sunni invites this court to adopt the general rule that costs follow event unless it appears to this court that in the circumstances of the case some other order should be made as to the whole or any part of the costs: RHC O 62 r 3(2); Re Elgindata (No 2) [1992] 1 WLR 1207, 1214A-D. (“Point 1”)

9.  Sunni further submits that costs are not awarded on an issue basis - the general rule does not cease to apply simply because Sunni did not succeed in all its claims. If Michael Kao seeks any departure from the general rule, the burden is on him to justify the same: Re Moulin Global Eyecare Holdings Ltd at §10. The circumstances of this case do not justify any departure from the general rule. (“Point 2”)

10.  Importantly, all the claims and the evidence in support thereof were reasonably, properly and necessarily made and adduced. There were no distinct and separate issues and allegations leading to significant increase in the length or costs of the proceedings.

(1) Sunni’s case against Michael Kao boils down to his responsibility in the disposal of the 585m Imagi Shares and subsequent misappropriation of the proceeds therefrom.

(2) This in turn was contingent on the resolution of the fundamental factual dispute about his role and involvement in Francis Kao’s fraudulent misappropriation scheme. To show the Court the full picture and to assist the Court in resolving this fundamental factual dispute, it was reasonable for Sunni to place before the Court all the relevant evidence pertaining to the necessary factual background of the activities of Sunni at all material times since its formation and in particular since Sunni was under the control of Michael and Francis Kao and shedding light on Michael Kao’s role and involvement.

(3) It was also reasonable for Sunni to present to the Court legal arguments on different basis upon which Michael Kao could potentially be found liable in order to assist the Court in properly determining his responsibility and liability, especially when the Liquidator had unravelled a massive fraudulent misappropriation scheme. In fact, Michael Kao brought suspicion on himself - he was involved in disposing of 99 million Imagi Shares, which was an integral part of the disposal of all Sunni’s assets to make funds available for dissipation and in drawing 3 cheques for acquiring Cheung Kong Shares which were then dissipated to Big Plan, which was one of the means of misappropriation.

(4) As such, strands of fact and law were interwoven in this case. No discrete points on facts or law can be safely isolated. It therefore cannot be said that significant time and costs had been wasted to justify the exercise of the discretion to deprive Sunni of part of its costs. (collectively “Point 3”)

11.  It seems to this court Points 1 and 2 simply set out the general legal position. It is Point 3 which explains why this court should adhere to the general legal position in the circumstances of this case. In order to resolve this issue, this court has to examine Michael Kao’s submissions.

12.  On the other hand, Michael Kao’s position is that a fair and proportionate order is that there should be no order as to costs as between Sunni and him.

13.  His counsel Mr Lincoln Cheung submits that following trial, each party has achieved some success. Michael Kao successfully resisted Sunni’s main case of conspiracy to injure by unlawful means (“Conspiracy Claim”), whereas Sunni only partially succeeded in its claim for breach of fiduciary duties against Michael Kao as its authorised signatories (“Breach of Duties Claim”) in respect of two discrete matters: (i) the disposal of 99 million Imagi shares via the Fairwin Account, and (ii) the signing of 3 HSBC cheques relating to the acquisition of Cheung Kong Shares. This court assessed Michael Kao’s liability at HK$26,580,881.95, representing only approximately 24% of the total sum of HK$111,195,705.21 claimed against him.

14.  Mr Cheung further submits the Conspiracy Claim, which the Court ultimately rejected, materially prolonged the proceedings and significantly increased the costs incurred by Michael Kao. As reflected in the Judgment, Sunni failed to adduce cogent evidence to support Michael Kao’s involvement in the alleged concerted scheme but a substantial portion of the pleadings, evidence and submissions were directed to the Conspiracy Claim. In these circumstances, the costs order should properly reflect the disproportionate burden imposed on Michael Kao in defending a claim which was not substantiated.

15.  As for the applicable principles, Mr Cheung has made a number of points which should not be controversial.

16.  First, after the CJR, the Courts are more ready to depart from the traditional starting point of costs following the event, relying on the more recent authority of Chan Shun Kei v Hong Kong Construction (Hong Kong) Ltd unrep., CACV 192/2014, 7 March 2016 at §24, per Lam VP (as he then was) who cited Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No 2) [2012] 2 HKLRD 1128 per Cheung JA and Pfeiffer GmbH v Cheung Hay Kit unrep., CACV 245/2013, 29 October 2014) per Kwan JA (as she then was).

17.  Second, the following 3 principles derived from Cheng Ka Shing v Bonus Plus Co Ltd[2020] HKCFI 828 between §§7 and 11 are particularly relevant for the present purpose:

(1) Under RHC O 62 r 5(1), the Court may take into account the underlying objectives, the conduct of all the parties, and whether a party has succeeded on part of his case, even if he has not been wholly successful.

(2) Under RHC O 62 r 5(2), the conduct of the parties includes (a) whether it is reasonable for a party to raise, pursue or contest a particular allegation or issue; (b) the manner in which a party has pursued or defended his case or a particular allegation or issue; (c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and (d) conduct before, as well as during, the proceedings.

(3) It is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs. The Court may so order where the failed allegation of the successful party has caused a significant increase in the length or costs of the proceedings, which simply requires the Court to be satisfied that the increase is one that can be estimated as a more than a trifling proportion of the total costs.

18.  Third, after the CJR, the issue based approach referred to in Re Elgindata (No 2) should not be narrowly interpreted: Chan Shun Kei at §25 where Lam VP (as he then was) observed:

“25. …Mr Lee submitted that in the application of the issue based approach espoused by In re Elgindata (No 2) [1992] 1 WLR 1207, the court should only embark on that approach if an issue is something so distinct and separate in itself that the decision of it constitutes an event. With respect, that is a too narrow interpretation of the issue based approach after the introduction of Civil Justice Reform. Order 62 Rule 5(2)(a) and (b) particularly directs the court to consider the conduct of the parties including whether it was reasonable for him to raise, pursue or contest a particular allegation or issue and the manner in which a particular allegation or issue was pursued. We do not think the “issue or allegation” in such context should be so narrowly confined. Such narrow construction is not in line with Order 1A Rule 1.”

19.  Fourth, the Court may deprive the successful party of his costs even if the issue on which he failed did not cause a significant increase in the length or costs of the proceedings; for example, where some of the claims failed due to the lack of evidential support: Pfeiffer GmbH at § 23 where Kwan JA (as she then was) explained:

“23. Insofar as it was argued that a successful party should be deprived of his costs only in the situation where the issue on which he failed had caused a significant increase in the length or costs of the proceedings, we would reject this argument. The court should eschew a mechanistic or restrictive approach in exercising its discretion as to costs in view of the amendments to the relevant provisions in the Rules of the High Court. Besides, this argument makes no sense in a case where a claim is doomed to fail due to the lack of evidential support, as naturally little time and costs would be spent where no or little evidence is adduced in support of such a claim.”

20.  Mr Cheung then raises a number of what he describes as the relevant considerations at paras 9 to 15 of his written submissions. They are self-explanatory and need not be repeated here. This court would only highlight those which this court considers to be particularly germane to the question of costs between Sunni and Michael Kao.

21.  To start with, a significant number of issues in these proceedings[3] were not relevant to Michael Kao. There is no reason why Michael Kao should bear Sunni’s costs of those issues which did not concern him.

22.  Next, Sunni has wholly failed in its Conspiracy Claim against Michael Kao, who was entitled to defend the same and be entitled to the costs of doing so[4]. This failed claim had taken up the majority part of Micael Kao’s defence and had caused a significant increase in his costs in defending the proceedings. The Conspiracy Claim significantly expanded the scope of the claims against Michael Kao, which would otherwise have been confined to the issues concerning the disposal of the 585m Imagi Shares, the 3 cheques signed by Michael Kao for the acquisition of the Cheung Kong Shares and the subsequent disposal of the same (i.e. the Breach of Duties Claim). But for the unwarranted introduction of the Conspiracy Claim against Michael Kao, his defence to Sunni’s claim could have been conducted much more economically and focused on the Breach of Duties Claim.

23.  While Mr Cheung is content to make good his point by reciting only part of para 340 of the Judgment in para 12 of his written submissions, for ease of understanding his point, the following paras of the Judgment should also be mentioned here:

“340. But this court is not satisfied that [Michael Kao] had acted in concert with Francis Kao to dispose of all the 585 million Imagi shares. There is also no evidence from which this court can infer Michael Kao was sufficiently aware of or involved in the Disposal of the Other Listed Shares (other than the Cheung Kong shares), the cheque payments to Francis Kao, the Interbenz Cheque, the Yacht Payments, the Miscellaneous Payments etc.

341. The question is: are there enough for this court to draw the inference that Michael Kao was a party to the conspiracy and had the intention to injure Sunni?

342. In both his Opening and Closing, Mr Cheung keeps emphasising that for the present purpose, each of the alleged conspirators must have been sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the act complained of. His ultimate submission, as expected, is that the factual matters relied on by Sunni are not made out and do not amount to overt acts from which a conspiracy can be inferred against Michael Kao.

343. Mr Cheung in his Closing submits at length that Sunni has failed to prove its case of a conspiracy (which this court takes it to mean a “combination, arrangement or understanding”) between Francis Kao and Michael Kao or a common intention on their part to injure Sunni. It is not necessary to recite the entirety of his submissions. The most important point in Michael Kao’s defence is that the primary facts do not support the inference of a combination, arrangement or understanding between the two in relation to Francis Kao’s fraudulent scheme or an intention on the part of Michael Kao to injure Sunni.

…

347. This court has borne in mind that for an allegation of such serious misconduct, it must be able to find the inference “compelling” and “plainly established” on the primary facts. On the evidence, this court is unable to infer that Michael Kao was “sufficiently aware of the surrounding circumstances and share the same object” for it to be properly said that the father and son were acting in concert at the material time. Nor is this court able to infer that Michael Kao harboured an intention to injure Sunni by doing what he did – he may or may not have foreseen that his unlawful conduct may or will probably harm Sunni, but even if he had, that was not enough to infer an intention to injure Sunni.

Conclusion on Unlawful means Conspiracy

348. To conclude, this court finds that Sunni’s unlawful means conspiracy claim is made out against Francis Kao, Win Harvest and Big Plan but not Michael Kao.”

24.  Next, the Conspiracy Claim against Michael Kao was not reasonably brought. As this court held in paras 336-348 of the Judgment in rejecting the Conspiracy Claim against Michael Kao, Sunni’s primary factual case in this regard was deficient and the evidence fell short of supporting a “compelling” inference that Michael Kao was acting in concert with Francis Kao and others to injure Sunni as required by law. This head of claim is unmeritorious and devoid of sufficient evidential basis from the outset.

25.  Further, even in respect of the Breach of Duties Claim, Sunni was not wholly successful. While Sunni prevailed on issues such as the scope of an authorised signatory’s fiduciary duties and limitation:

(1) It failed in its contention that Michael Kao was a de facto director of Sunni and owed Sunni fiduciary duties in that capacity.

(2) It only established that Michael Kao was liable for the disposal of 99 (out of 585) million Imagi shares and the signing of the 3 HSBC cheques for the acquisition of the Cheung Kong shares, but not for the disposal of the remainder of the 585m Imagi Shares or the Other Listed Shares.

26.  There is force in the above submissions.

27.  Having considered both parties’ submissions, this court’s view is that while there is validity in some of Sunni’s submissions in Point 3, on balance this court agrees with the submissions of Counsel for Michael Kao and that in the exercise of the court’s discretion, a just, fair and proportionate result having regard to the circumstances of the case is that there should be no order as to costs. In view of this, it is unnecessary to dwell on the parties’ submissions on Certificate for 3 Counsel.

28.  To be fair to Sunni, this court acknowledges Sunni was presenting a massive case of misappropriation of its assets and quite a number of issues within which the claims against Michael Kao had failed were inextricably linked to the broader issues and claims against the other Defendants especially Francis Kao. This court also accepts the Liquidator rightly felt obliged to adduce all the evidence and arguments in support thereof in order to show this court the full picture, as they could not be easily isolated and separated from one another.

29.  However, this court does not accept the above as a sufficient reason to launch the failed Conspiracy Claim against Michael Kao which was unmeritorious and devoid of sufficient evidential basis from the outset.

30.  Nor does this court accept there was no increase in terms of the length of the proceedings or a significant increase in the overall legal costs of Michael Kao. While Sunni would still have to adduce all the evidence and arguments available to it against all the other Defendants in order to show this court the full picture of its overall case, the failed Conspiracy Claim against Michael Kao inevitably invited a response from Michael Kao who justifiably felt necessary to defend it. That naturally increased the length of the proceedings, from pleadings to evidence to his conduct, particularly submissions, at trial. That also naturally added to the financial burden of Michael Kao in terms of legal costs.

Disposition and costs order nisi

31.  For the above reasons, there shall be no Order as to costs between Sunni and Michael Kao.

32.  Regarding the costs of these submissions on costs, there shall be an Order nisi that they shall be borne by Sunni, to be taxed if not agreed, and paid to Michael Kao forthwith, Certificate for 2 counsel.

Written submissions by Mr Edward Chan SC, Mr Lawrence Cheung and Ms Ann Lee, instructed by M/s T K Tsui & Co, for the Plaintiff in HCA 1884/2018

Written submissions by Mr Lincoln Cheung and Mr Jason Kung, instructed by M/s David Fenn & Co, for the 2nd Defendant in HCA 1884/2018

HCA 1884/2018, HCA 2380/2018 and HCCW 121/2013

[2025] HKCFI 3398

HCA 1884/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1884 OF 2018

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BETWEEN

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HCA 2380/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2380 OF 2018

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BETWEEN

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HCCW 121/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 121 OF 2013

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BETWEEN

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J U D G M E N T

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Introduction

1.  This is the trial of the 3 actions heard together pursuant the Order of Linda Chan J dated 21 May 2020. [1]

2.  Chronologically, the 3 actions were commenced in the following order.

a. On 29 May 2018, Madam Tsen Yun Lei (“Madam Tsen”) issued a Misfeasance Summons in HCCW 121 of 2013 (“HCCW 121”) against Lo Kin Fung (“Alex Lo”) under sections 275 and 276 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“Cap 32”).

b. On 13 August and 10 October 2018, the Plaintiff (“Sunni” or “Company”) in HCA 1884 and HCA 2380 of 2018 (respectively “HCA 1884” and “HCA 2380” and collectively as “2 HCAs”), acting by Mr Fung Chi Keung of Fung Chi Keung & Company (“Liquidator / Fung”), issued the Writ of Summons in HCA 1884 against the 5 named Defendants and in HCA 2380 against the 2 named corporate Defendants.

3.  In a nutshell, HCA 1884 and HCA 2380 concern what the Liquidator describes as an elaborate fraudulent scheme of misappropriation and dissipation of Sunni’s assets by its sole director the 1^st Defendant (“Francis Kao”), the alleged main culprit, in concert with his father the 2^nd Defendant (“Michael Kao”) as well as Francis Kao’s associates, including all the corporate Defendants in the 2 HCAs, rendering Sunni insolvent and leading to its liquidation. Alex Lo was also implicated in the scheme. The Liquidator explains he was not joined as a defendant in either of the 2 HCAs after taking into account inter alia costs considerations and the prospects of actual recovery.

4.  HCA 1884 was commenced by the Liquidator for the fraudulent breach of fiduciary duties by Francis Kao and Michael Kao, the knowing receipt and dishonest assistance by the 3^rd to 5^th Defendants and the unlawful means conspiracy by Francis Kao and Michael Kao together with the 3^rd and 5^th Defendants. HCA 2380 was commenced by the Liquidator for tracing claims against the 2 corporate Defendants.

5.  HCCW 121 was commenced by Madam Tsen as a creditor of Sunni against Alex Lo for what is commonly and conveniently known as fraudulent trading and misfeasance. In gist, it is Madam Tsen’s complaint that Alex Lo had carried on the business of Sunni with intent to defraud its creditors or for a fraudulent purpose and in breach of his duties owed to Sunni for misapplying its assets. The complaint is made in the context of the same fraudulent scheme carried out by Francis Kao, Alex Lo as well as the other Defendants in HCA 1884 and HCA 2380 with the intention and effect of ripping off all the assets of Sunni.

The parties

6.  Sunni was incorporated in the BVI in 1994.

7.  On 3 May 2013, a creditor’s petition for the winding up of Sunni was presented by Pleasure International Limited (“PIL”), a creditor as well as shareholder of Sunni, in HCCW 121 on the ground that it was unable to pay its debts. By Order dated 15 April 2015, Sunni was wound up by the Court.

8.  By Order dated 27 July 2015, the Liquidator was appointed and a committee of inspection (“COI”) was also appointed. The composition of the COI changed from time to time but it consisted of shareholders and/or creditors of Sunni or their representatives, save for those representing the interests of Michael Kao’s Family.

9.  At the material times, the shareholders of Sunni were as follows:

2002 - 18 Sept 2008	Happy Nation Ltd (“HNL”): 54.68%; PIL: (19.17%); Silverbay Group Ltd (“SGL”): 16.89%; Golden Jungle Ltd (“GJL”): 6.26%; Philip Lam Pak Kin (“Philip Lam”): 3%
18 Sept 2008 - 13 Jul 2009	HNL: 54.67%; Francis Kao: 0.01%; PIL (no change); SGL (no change); GJL (no change); Philip Lam (no change)
13 Jul 2009 - 3 Nov 2009	Francis Kao: 54.68%; PIL (no change); SGL (no change); GJL (no change); Philip Lam (no change)
3 Nov 2009 - 15 Apr 2015[2]	Asia Pacific Glory Ltd (“APGL”): 54.68% PIL (no change) SGL (no change) GJL (no change) Philip Lam (no change)

10.  HNL represented the interest of the Kao family including Michael Kao and Francis Kao. PIL represented the interest of the Cheng family ie that of Cheng Ka Yun Garry (“Cheng”), passed away in about 1989, and his wife Madam Tsen. SGL represented the interest of the Law family ie that of Law Pun Leung (“Law”), passed away in about 1992, and his wife Madam Ho Pui Fong (“Madam Ho”). GJL represented the interest of the Kui family ie that of Kui Yiu Ngok (“Kui”) who passed away in about January 2023.

11.  As far as APGL is concerned, other than that it was not incorporated in Hong Kong, the evidence is unclear and the Liquidator has no verifiable source to confirm its place of incorporation, its shareholding or directorship, especially at the material time in 2009 when HNL’s 54.68% shareholding in Sunni was transferred to Francis Kao and then from Francis Kao to APGL.

12.  In Fung’s 1^st witness statement (“Fung 1”) at paras 22(c) and 23, he stated that:

a. The address given of APGL among the documents provided by Sunni’s BVI registered agent was the residential address of Francis Kao in Hong Kong.

b. If the 5,637 shares (representing 54.68%) in Sunni had in fact been transferred to APGL in the way and at the time as the “corporate records” provided by Sunni’s BVI registered agent suggested, APGL was probably merely a nominee of Francis Kao. This is reinforced by Francis Kao’s admissions in his various affirmations filed in HCCW 121 that he was the sole director of APGL.

13.  Fung went on to describe the circumstances of the transfer of the 5,637 shares from HNL to Francis Kao and then to APGL as rather mysterious and that the overall picture throws a lot of suspicion on the accuracy of the transfer documents disclosed by the registered agent. While the parties had spent some time at the trial debating whether APGL represented the interests of the Kao family or just Francis Kao, it does not seem to this court there is any significance to this point.

14.  The composition of Sunni’s board of directors (“Board”) had changed from time to time. Suffice it to say that, at the material times, the composition of its Board was as follows.

Period of Time	Director(s)
July 2004 – April 2006	Michael Kao, Francis Kao, Madam Tsen, Philip Lam
April 2006 – 30 May 2008	Michael Kao, his wife Chan Ming Man, Francis Kao, Madam Tsen, Philip Lam
30 May 2008 – 15 July 2008	Michael Kao, Chan Ming Man and Francis Kao
15 July 2008 – 8 August 2008	Chan Ming Man and Francis Kao
8 August 2008 – 30 March 2011	Francis Kao
30 March 2011 – 15 April 2015[3]	Shinichi Kobayashi (“Kobayashi”)

15.  Michael Kao first became a director of Sunni in September 1994. He remained a director until his resignation on 15 July 2008.

16.  Francis Kao first became a director of Sunni in July 2004. As can be seen from the above, he became the sole director of Sunni from 8 August 2008 until his resignation on 30 March 2011. He is in his 40s.

17.  Kobayashi became the sole director of Sunni upon Francis Kao’s resignation. He had since passed away.

18.  The 3^rd Defendant in HCA 1884 (“Win Harvest”) was a company incorporated in Hong Kong in 2009. Its sole shareholder was and is as follows:

a. From 21 September to 12 November 2009 - Francis Kao.

b. From 12 November 2009 to 4 July 2011 – Big Plan Holdings Limited (“Big Plan”), the 5^th Defendant in HCA 1884.

c. From 4 July 2011 to the present – Famewell Limited (“Famewell”), the 2^nd Defendant in HCA 2380.

19.  Win Harvest’s director was and is as follows:

a. From 21 September 2009 to 26 April 2011 – Francis Kao.

b. From 26 April 2011 to 22 August 2014 – New Goal Management Limited (“New Goal”), a company incorporated in the BVI.

c. From 22 August 2014 to 28 February 2017 – New Goal and Sandy Chan Ka Yee (“Sandy Chan”), the ex-wife of Francis Kao.

d. From 28 February 2017 to present – Philip Kao Pun Yiu (“Philip Kao”), cousin of Francis Kao.

20.  The 4^th Defendant in HCA 1884, Unicorn Animation Studio Limited (“Unicorn”), (formerly known as Sunni Animation Studios Limited), was a company incorporated in Hong Kong in 2009. Its sole shareholder was and is as follows:

a. From 7 September to 12 November 2009 - Francis Kao.

b. From 12 November 2009 to 11 May 2011 – Big Plan.

c. From 11 May 2011 – present – Famewell.

21.  Unicorn’s director was and is as follows:

a. From 7 September 2009 to 26 April 2011 – Francis Kao.

b. From 26 April 2011 to 22 August 2014 – New Goal.

c. From 22 August 2014 to 28 February 2017 – New Goal and Sandy Chan.

d. From 28 February 2017 to present – Philip Kao.

22.  The 5^th Defendant in HCA 1884 viz Big Plan was a company incorporated in the BVI in 2009. Its sole shareholder was and is as follows:

a. 29 July to 3 November 2009 – Sandy Chan.

b. From 3 November 2009 to 11 December 2010 – Sunni.[4]

c. From 11 December 2010 to 29 April 2011 – Asia Fortune Investment Co Ltd (“AFI”), a company incorporated in Seychelles.[5]

d. From 29 April 2011 to 19 August 2013 – Francis Kao.

e. From 19 August 2013 to 22 July 2015 – New Goal.

f. From 22 July 2015 to 13 March 2017 – Francis Kao.

g. From 13 March 2017 to present – AFI.

23.  Big Plan’s director was and is as follows:

a. From 29 July to 9 September 2009 – Sandy Chan.

b. From 9 September 2009 to 23 December 2009 – Francis Kao and Sandy Chan.

c. From 23 December 2009 to 3 May 2013 – Francis Kao.

d. From 3 May 2013 to present – New Goal.

24.  The 2^nd Defendant in HCA 2380 viz Famewell was a company incorporated in Seychelles in 2011. Its sole shareholder was and is as follows:

a. From 26 April 2011 to 8 March 2017 – Big Plan.

b. From 8 March to 5 June 2017 – Philip Kao.

c. From 5 June to 1 November 2017 – Big Plan.

d. From 1 November 2017 to present – Philip Kao.

25.  Famewell’s sole director was and is as follows:

a. From 26 April 2011 to 3 May 2013 – Francis Kao.

b. From 3 May 2013 to 27 July 2020 – New Goal.

c. From 27 July 2020 to present – Philip Kao.

26.  The Applicant in HCCW 121 ie Madam Tsen is a former director and a creditor of Sunni. She is the sole director of PIL. She is in her 70s. So is her witness Madam Ho.

27.  Alex Lo has good business and accounting knowledge and experience. He has an MBA degree from Clayton University in the USA. Since 1990, he has been a fellow of the Association of Cost and Executive Accountants in London. He said he had more than 35 years of accounting experience in his 1^st witness statement in HCCW 121 (“Lo 1”). He is in his 60s.

28.  Alex Lo had co-signed a letter with Francis Kao dated 11 August 2008 on behalf of Sunni to HSBC concerning the deletion of Phillip Lam and Madam Tsen as authorised signatories of the HSBC accounts. Importantly, on 9 April 1999, Alex Lo was appointed by Sunni’s directors as a signatory of Sunni’s HSBC accounts. He had further co-signed a letter with Francis Kao dated 3 November 2009 on behalf of Sunni to HSBC to revise the signing arrangement thereby authorising Francis Kao to sign singly[6]. He remained an authorised signatory of Sunni’s HSBC accounts until its winding up.

Material Procedural events

29.  At the commencement of the 3 actions, all the Defendants in HCA 1884 and HCA 2380 as well as Alex Lo were represented by the same firm of solicitors Chiu & Partners. Defences and their subsequent amendments, if any, were filed by Chiu & Partners on their behalf. So were their witness statements.

30.  By the time of the PTR held on 26 September 2023, Francis Kao, then acting in person, was absent. Michael Kao was legally represented. Philip Kao, the sole director of Win Harvest, Unicorn and Famewell, as well as the sole director of New Goal which in turn was the sole corporate director of Big Plan, purported to represent these corporate Defendants. Alex Lo was also acting in person.

31.  When the trial commenced on 3 January 2024, Francis Kao and Michael Kao were represented by different legal teams. Win Harvest, Unicorn, Big Plan and Famewell were not legally represented or by Philip Kao or any other person. They simply did not participate in the trial. Alex Lo acted in person throughout the trial.

32.  On 3 January 2024, Mr Au, Counsel for Francis Kao, made an application for leave to file his 5^th Supplemental List of Documents, seeking to introduce over 600 pages of documents. Save for a few items which can be found in one of the Core Bundles, this court disallowed the application and ordered Francis Kao to pay indemnity costs summarily assessed at HK$450,000 to Sunni and HK$350,000 to Madam Tsen. Francis Kao failed to pay such costs to Sunni and Madam Tsen.

33.  In the morning of Day 4 ie 8 January 2024, Mr Au informed this court that Francis Kao and Philip Kao had elected not to testify.

34.  By Summons dated 8 January 2024, Sunni sought and obtained an Order from this court that unless Francis Kao paid the costs of Sunni by 4pm on 9 January 2024, his Re-Re-Amended Defence and his Rejoinder be struck out and he be debarred from defending these proceedings (“Unless Order”).

35.  As a result of Francis Kao’s failure to comply with the Unless Order, his Re-Re-Amended Defence and Rejoinder were struck out on Day 5 ie 9 January 2024. Mr Au informed this court that his instructions had been withdrawn.

36.  Shortly afterward, Francis Kao filed a Notice to Act in Person on 10 January 2024. He was absent throughout the trial.

37.  As a result of Francis Kao’s Re-Re-Amended Defence and Rejoinder being struck out, the trial was adjourned between 10 and 15 January 2024 (“Adjournment”) so that the remaining parties could make all appropriate and necessary preparation and revision to their case and strategy arising from this unexpected development.

38.  The long and short of it all is that:

a. Francis Kao was debarred from defending HCA 1884, did not testify or otherwise participate at the trial - his 2 witness statements were not evidence to support his Defence or the Defence of any other Defendants.

b. The corporate Defendants in HCA 1884 and HCA 2380 did not participate at the trial and no one testified on their behalf, albeit Philip Kao had previously made 2 witness statements but did not turn up to testify for them. In other words, there was no evidence in support of their Defence. But their pleadings had not been struck out as such.

c. In the end, only Sunni, Michael Kao, Madam Tsen and Alex Lo participated by their legal teams or in person throughout the trial.

39.  In the absence of participation of the said Defendants at the trial in HCA 1884 and HCA 2380, Sunni has “an obligation of fair presentation” which is described as “less extensive than the duty of full and frank disclosure on a without notice application”. Further, since Sunni’s underlying case is based on the fraud of Francis Kao and his associates, cogent evidence is required in order to discharge its burden of proof on balance of probabilities: Moulin Global Eyecare Holdings Limited (In Liquidation) v Olivia Lee Sin Mei [2019] 3 HKLRD 833 at [3].

40.  On the whole, this court is satisfied that Sunni has fulfilled its obligation of fair presentation of its case against the absent Defendants.

Issues and Witnesses (testifying and non-testifying)

41.  In Annex A of its Amended Opening, Sunni has included a list of 26 issues in this Action. This court is not bound by the list and will only consider those issues which are relevant and necessary in order to resolve these proceedings. In particular, since there is no evidence of BVI law as such – foreign law is a question of fact which must be properly proved – this court will not consider any BVI law points.

42.  Nevertheless, in Sunni’s Closing at paras 29 and 30, it has helpfully set out what have ceased to be live issues ie:

a. As indicated by Mr Cheung for Michael Kao at his oral opening, Issue (24) on whether Michael Kao is entitled to seek any indemnity from Sunni by virtue of s132 of the BVI Business Companies Act.

b. Since Sunni is not seeking to avoid the subject transactions, so far as Issues (8)[7] and (13)[8] are concerned with whether transactions are void, voidable or otherwise, such issues are also not live issues.

43.  At trial, the following persons testified in the 2 HCAs for Sunni:

(1) Fung.

(2) Madam Ho.

(3) Madam Tsen.

44.  Madam Tsen and Madam Ho also testified for Madam Tsen in HCCW 121.

45.  The following persons testified for Michael Kao in HCA 1884:

a. Michael Kao.

b. Vivian Kao (“Madam Kao”), the daughter of Michael Kao and elder sister of Francis Kao.

46.  Alex Lo testified on his own behalf in HCCW 121.

47.  These witnesses have prepared signed witness statements and supplemental witness statements, as the case may be. Their statements will be identified as Fung 1 and Fung 2, Ho 1, Ho 2 and Ho 3, Tsen 1, Tsen 2 and Tsen 3, MK1 and MK2, and Vivian 1 in this Judgment.

48.  Now a brief word about these witnesses.

49.  Fung obviously has no personal knowledge of any events which took place at the material time. His testimony is based on his investigation after he had been appointed as Liquidator which in turn was largely based on the documents and information he managed to obtain in that capacity. From this court’s observation of the way he testified in the box, this court has no reason to doubt the reliability of his testimony as long as he can reasonably explain the basis of what he said. In fact, this court finds Fung to be a bit conservative and very fair. A clear example is the answers he gave during his cross-examination on Day 10 which this court will turn to at the appropriate juncture.

50.  Madam Tsen and Madam Ho are in their 70s and cannot be expected to clearly remember events which took place decades ago. This is not a criticism of them at all but merely a practical observation by this court.

51.  Michael Kao was 79 years old at the time of the trial. While he had not completed primary education, he was a clever and successful businessman and managed to amass great wealth in his prime, including expensive properties in Hong Kong eg Broadwood Villa, Happy Valley. From this court’s observation, he did show some signs of his old age in the witness box. As this court remarked on Day 19 towards the end of his testimony, he could not remember most things without being shown the documents. He is in more or less in the same situation as Madam Tsen and Madam Ho although he is slightly older and his medical condition is different.

52.  Judging from her witness statement ie Vivian 1, Madam Kao did not have any material involvement in Sunni or the material events in this case. While she is being criticised by Sunni for being biased, this court is keenly aware that Madam Kao admitted in the box that she adored her father. That is understandable. However, this court has also observed the way Madam Kao testified. She impressed this court as a straightforward and forthcoming witness and willing to admit her mistakes.

53.  Alex Lo has been associated with Francis Kao for quite some time. He is a professional accountant. He was an authorised signatory of Sunni’s HSBC accounts since 1999 and First Shanghai securities account since 1999. He admitted in his witness statement that he had worked in Sunni in around 2009 until February 2010 for what he described as “clerical matters”. He was also the company secretary of Win Harvest between September 2009 and probably August 2016 and Unicorn between around September 2009 and September 2016.[9] This court expects him to have a lot of personal knowledge of what actually happened to Sunni at the material time.

54.  This court has carefully considered the testimony, as well as the demeanour, of all witnesses at the trial and assessed it against such of the documentary evidence as there is and the known and undisputed circumstances of this case. This court has in particular considered the inherent probabilities or otherwise of the witnesses’ testimony and assessed their credibility accordingly. As a matter of longstanding practice and out of abundance of caution, this court has also reviewed its own notes taken at the trial (especially its observation on the manner in which the witnesses testified) and the transcripts of the trial in order to refresh its memory.

55.  This court shall also refer to Au-Yeung J’s judgment in Tsang Wing Kwai v Wong Wing Sze Tiffany[2019] HKCFI 3148 at [38] on how to assess the credibility of a witness which is not controversial:

“In assessing their credibility, the court is entitled to and should consider:

“(1) whether that part of his/her testimony is inherently plausible or implausible;

(2) whether that part of his/her testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable;

(3) where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility;

(4) whether the witness has any motive for deliberately not giving truthful testimony, for example, where telling the truth may prejudice his interest or a just determination of the litigation may affect his interest.”

56.  This court will bear in mind that the observation at (4) will likely be particularly more pertinent to Michael Kao and Alex Lo than the other witnesses since they are implicated in at least some of the events which led to the collapse of Sunni.

57.  Both Francis Kao and Philip Kao failed to testify at the trial. Though not formally removed from the trial bundles, their witness statements were not in evidence.

58.  Kui’s 2 witness statements, filed on behalf of Sunni prior to his passing away before the trial in about 2023, were admitted as hearsay evidence by this court on Day 9.

Material background

The setting up of Sunni and the Listing of Boto International Holdings Ltd

59.  In the early 1980s[10], Michael Kao, Cheng and Law founded Boto Company Limited (“Former Boto”), a company incorporated in Hong Kong which carried on the business of manufacturing and marketing artificial Christmas trees and other festive products. They were all appointed as directors of Former Boto. In about 1985, Kui joined Former Boto as a shareholder. He became a director later.

60.  After Cheng had passed away in around 1989 and Law in around 1992, Madam Tsen and Madam Ho, their spouses, were appointed directors of Former Boto in 1992 and 1993. They were both described as “housewife” in the notice of change of directors.

61.  Alex Lo, in Lo 1, said he joined Former Boto as a Finance Manager in around 1991. This more or less accords with the recollection of Michael Kao and Madam Tsen.

62.  The business of Former Boto was very successful. In around 1993, Michael Kao proposed to list the business of Former Boto and convinced the other 3 families, namely the Cheng, Ho and Kui families to agree with his listing plan.

63.  In 1994, Sunni was incorporated in the BVI as part of the plan to list the business of Former Boto. Sunni was used as an investment vehicle to hold the interests of the Kao, Cheng, Ho and Kui families (“4 Families”) in the intended listed company. As can be seen from the section “Introduction” above, the 4 Families used their own private companies to hold shares in Sunni and indirectly in the listed company.

64.  In 1997, the intended listed company ie Boto International Holdings Ltd (“New Boto”), incorporated in Bermuda, was listed on the Main Board of the Hong Kong Stock Exchange. Sunni became its controlling shareholder. The Christmas tree business of Former Boto was injected into it.[11] Michael Kao became the chairman of New Boto since its listing.

65.  In 1999, Francis Kao joined New Boto and became his father’s personal assistant.

66.  In about 2002, New Boto sold its Christmas and festive products business to the Carlyle Group in the USA and changed its business focus to animation production.

67.  In 2004, New Boto changed its name to Imagi International Holdings Ltd (“Imagi”). According to its Annual Report 2003/2004, Michael Kao was then its chairman and executive director while Francis Kao was then its deputy chairman and executive director and oversaw the Group’s computer graphics animation business.

68.  New Boto/Imagi’s business performance from 2002 to 2009 was as follows.

Year End	Net profit/(loss) (HK$)
2002	141,421,000
2003	255,997,000
2004	(19,587,000)
2005	(130,270,000)
2006	(72,214,000)
2007	(138,923,000)
2008	(57,829,000)
2009	(177,427,000)

69.  On 9 April 2008, Michael Kao formally retired from Imagi. Francis Kao was then appointed as the chairman of Imagi. The animation production business of Imagi went further downhill. Within less than 1 year of his appointment, Francis Kao resigned from Imagi.

Sunni’s bank accounts and securities accounts

70.  The following are derived from the Amended Statement of Agreed Facts submitted to this court.

71.  At the material times, Sunni had the following bank accounts at HSBC (“HSBC Accounts”):

a. Current Account (No. 555-236892-001) (“HSBC Current Account”),

b. Savings Account (No. 555-7-027736) (“HSBC Savings Account”),

c. Canadian Dollar Account (No. 555-236892-279) (“HSBC CAN Account”), and

d. US Dollar Account (No. 555-236892-274) (“HSBC USD Account”).

72.  Michael Kao had been one of the authorised signatories of the HSBC Accounts since their opening.

73.  Alex Lo was appointed as one of the authorised signatories to the HSBC Current Account and the HSBC Savings Account in 1999.

74.  Francis Kao was appointed as one of the authorised signatories in 2006 and was conferred with the power to operate the HSBC Accounts singly since 3 November 2009.

75.  At the material times, the Company had the following securities accounts:

a. Account No. 110116 at Fairwin Broking Ltd (“Fairwin Account”).

b. Account No. 0551325(A11) at First Shanghai Securities Ltd (“First Shanghai Account”).

c. Account No. 628020-011 at UOB Kay Hian (Hong Kong) Ltd (“UOB Account”).

d. Account No. 80023892 at Emperor Securities Ltd (“Emperor Account”).

Sunni’s assets at the material times

76.  It is not in dispute that at least from 2006, as a result of the subdivision of the shares of Imagi, Sunni held a total of 585,618,505 of its shares (“585m Imagi Shares”).

77.  In Fung 1, he summarises Sunni’s financial position from its incorporation in January 1994 onwards as follows.

a. Prior to the alleged massive misappropriation of Sunni’s assets by Francis Kao and his associates, which started in around August 2009, Sunni had substantial net assets. The major portion of Sunni’s assets was its interest in Imagi.

b. According to Sunni’s audited financial statements from incorporation to the year ended 30 September 2006[12], for the year ended 30 September 2007[13] and the year ended 30 September 2008[14], Sunni’s principal activity was described as “investment holding”.

c. Up to 30 June 2009, the date of its unaudited management accounts, Sunni was still holding very substantial net assets, the bulk of which were “listed shares in Hong Kong”, apparently its Imagi shares, as follows:

	Consolidated balance sheet as at
	30. 9. 2006	30. 9. 2007	30. 9. 2008	30. 6. 2009
Total assets	1,432,159,618	1,036,423,261	218,866,656	373,724,479
Listed shares in HK	1,376,203,487	983,839,088	202,038,384	363,083,473
Total liabilities	(63,329,083)	(64,371,696)	(69,475,764)	(64,123,581)
Net equity	1,368,830,535	972,051,565	149,390,892	309,600,898

78.  The figure of HK$363,083,473 was described in the 2009 management accounts as the value of the 585m Imagi Shares held by Sunni at HK$0.62 per share.

79.  Sunni’s 585m Imagi Shares were completely disposed of in stages within the year 2009.

80.  Since there is no suggestion that Sunni had employed other securities firms than those described above, the disposal of Sunni’s 585m Imagi Shares, would, in all probabilities, have been disposed of through its securities accounts described above.

81.  It is also not in dispute that on about 27 May 2009, Imagi announced the issue of rights shares under which Sunni was entitled to 146,404,626 shares subscription rights (“Rights Shares”). On 4 August 2009, Sunni disposed of the 2009 Rights Shares with the unanimous consent of all the shareholders of Sunni. However, the proceeds of the disposal of the Rights Shares remain to be accounts for by Francis Kao.

A Brief Summary of Sunni’s claims against the Defendants

82.  First, Francis Kao was at the material time (i) the sole director of Sunni between 8 August 2008 and 30 March 2011 and a de facto or shadow director thereafter, and (ii) an authorised signatory of the HSBC Accounts as well as the following 3 securities accounts ie UOB Account, First Shanghai Account and Emperor Account, and owed fiduciary duties to Sunni.

83.  Second, Michael Kao, (i) after his formal resignation as a director of Sunni on 15 July 2008, remained as a de facto or shadow director of Sunni and (ii) was an authorised signatory of the HSBC Accounts, as well as the following 3 securities accounts ie UOB Account, First Shanghai Account and Fairwin Account, and likewise owed fiduciary duties to Sunni.

84.  Third, Win Harvest, Unicorn, Big Plan, Famewell and New Goal, were not subsidiaries of or were associated with Sunni. Instead, at all material times, they were under the control and direction of Francis Kao, by himself as their director or through person or entities connected and associated with him.

85.  Fourth, all the 585m Imagi Shares were disposed of by Francis Kao and Michael Kao (at least with regard to the disposal of 99 million Imagi Shares via the Fairwin Account) through the First Shanghai Account and the Fairwin Account in a concerted manner. In so doing, Francis Kao and Michael Kao fraudulently breached their duties to act in good faith and in the best interests of Sunni as directors and authorised signatories of Sunni’s bank accounts and securities accounts.

86.  Fifth, Sunni’s assets have been disposed of by Francis Kao and Michael Kao, with the assistance of the Corporate Defendants, as follows:

a. causing the disposal of all of Sunni’s Imagi Shares;

b. causing the acquisition and subsequent dissipation of the so-called Other Listed Shares in the sum of HK$78,730,000;

c. causing the acquisition of SOCAM Shares and subsequently withdrawal of the certificates of the SOCAM Shares and their dissipation;

d. drawing the cheque payable to Clifford Chance in the sum of HK$1,710,658.71 for Francis Kao’s costs liability and his own legal fees;

e. causing payments to Francis Kao in the sum of HK$6,624,538.28;

f. causing the acquisition of 3 luxury watches (“Watches”) in the sum of HK$2,322,395 (“Watch Payments”), without the same being in the control, custody and possession of Sunni;

g. causing the acquisition of 3 Lamborghini cars in the sum of HK$8,093,644 (“Lamborghini Payments”) without the same being in the control custody and possession of Sunni;

h. causing payment to Eddie Li (“Eddie Li Payment”) in the sum of HK$3,700,000;

i. causing payments in the sum of HK$19,828,890 (“Yacht Payments”) for the acquisition of a yacht (“Yacht”), without registering the same in the name of Sunni and subsequently disposing of the Yacht, while the sale proceeds (“Yacht Proceeds”) were received by Famewell;

j. causing payments to Win Harvest in the sum of HK$17,251,149;

k. causing payments to Unicorn in the sum of HK$33,148,081.04;

l. causing remittance to Big Plan in the sum of CAD3,990,000; and

m. causing miscellaneous payments in the sum of HK$10,567,672.44 (“Miscellaneous payments”) .

87.  Sixth, the Corporate Defendants:

a. received some of the dissipated assets and/or proceeds of such assets as knowing recipients and/or dishonest assistants;

b. breached their own fiduciary duties to Sunni, so far as Win Harvest and Big Plan are concerned, as constructive trustees by further dealing with such dissipated assets or proceeds of such assets upon receipt; and

c. were not bona fide purchaser for value without notice when they received such dissipated assets or proceeds of such assets - Sunni is entitled to trace into the St Andrew Places Property registered in the name of Win Harvest and the Yacht Proceeds in the hands of Famewell.

88.  Lastly, Francis Kao, Michael Kao, Win Harvest and Big Plan are also jointly and severally liable for conspiring together to defraud Sunni by unlawful means viz the fraudulent breach of fiduciary duties by Francis Kao and Michael Kao, as well as the knowing receipt and dishonest assistance by Win Harvest and Big Plan.

89.  On Day 3 of the trial ie 5 January 2024 and prior to the withdrawal of his instructions, Mr Au for Francis Kao had submitted a one-page document to this court containing Francis Kao’s admission that Sunni disposed of all 585 million Imagi Shares in 2009 for ~HK$200 million. Since he was Sunni’s sole director at the time of the disposal, this essentially amounts to an admission he was the mastermind in procuring the disposal. That one-page document also contains Francis Kao’s averment that the sale proceeds were then advanced to Big Plan as a loan and that Sunni had also advanced funding to Win Harvest and Unicorn.

90.  Lastly, Mr Au referred this court to Francis Kao’s admission that he had caused Sunni to acquire, transfer and/or make payments as follows:

a. Other Listed Shares.

b. SOCAM Shares.

c. Payment to Clifford Chance.

d. Payments to himself.

e. Purchase of Watches.

f. Purchase of 3 Lamborghinis.

g. Purchase of the Yacht.

h. Payment to Win Harvest.

i. Payment to Unicorn.

j. Remittance to Big Plan.

91.  Since Francis Kao’s Re-re-amended Defence has been struck out and he has not testified at the trial, whatever averments he had pleaded to justify his actions or to generally exculpate himself will not be taken into account.

92.  In particular, the so-called Restructuring Scheme which allegedly took place between 2009 and 2011 and which features so prominently in Francis Kao’s Re-re-amended Defence, will not be taken into account.

93.  As Sunni puts it at para 141 of its Closing, it has been the common theme of the Defendants’ defence (except Michael Kao who is silent on this point) that the disposal of all of Sunni’s Imagi Shares and the transfer of Sunni’s funds and assets were done pursuant to the so-called Restructuring Scheme conceived and implemented by Francis Kao in July 2009. The Scheme involved a group of companies, including Win Harvest, Unicorn, Big Plan and Famewell. While the Corporate Defendants’ Defences have not been struck out, neither Francis Kao, Philip Kao nor anyone else has come forward to prove the existence and operation of this Restructuring Scheme or any other defences they seek to put forward. As a result, this court must reject the existence of this alleged Restructuring Scheme and shall so find. That disposes of Issue 9 and Issue 12.

94.  As for Michael Kao, his general pleaded case and testimony is straightforward. He had ceased to take part in the management of Sunni after his resignation as director on 15 July 2008 and he had no knowledge of and was not involved in any of the transactions through which (1) the assets of Sunni were dissipated for no or no proper consideration, and (2) the funds and/or assets of Sunni were transferred or caused to be transferred to Francis Kao, his agents, nominees and/or entities under his control: Re-Amended Defence of the 2nd Defendant at para 16(2)-(4). As indicated by Mr Cheung on Day 3 of the trial, Michael Kao remained neutral on whether or not there was disposal of the funds and assets of Sunni as claimed by Sunni.

95.  In addition, Michael Kao also relies on his pleaded defence under the Limitation Ordinance, Cap 347 (“LO”), in particular section 20(2) whereby Sunni’s claim is time-barred for falling outside the prescribed 6-year limitation period for a claim for breach of fiduciary duties.

Deliberation

2 HCAs – The Claims by Sunni

4-Families Agreement (Issue 1[15]) and its breach (Issue 13)

96.  The 1st issue concerns the existence or otherwise of the so-called 4-Families Agreement prior to the setting up of Sunni in 1994, as pleaded by Sunni, supported by the testimony of Madam Tsen and Madam Ho and the hearsay statement of Kui. On their case, it was a purely oral agreement, not recorded or evidenced in writing. It was not even reached on one single occasion when representatives of the 4 Families were all present. Rather, it was reached as a result of Michael Kao speaking to Madam Tsen, Madam Ho and Kui separately with the same propositions during which he had obtained their consent to his propositions.

97.  In the Re-Amended Statement of Claim at para 4, it was pleaded that Sunni was set up as a passive investment holding company for holding the investment in the shareholding of New Boto for the 4 Families. New Boto has since 19 April 2004 changed its name to Imagi and the shares in Imagi have been listed on the main board of the Stock Exchange of Hong Kong with stock code: 585[16].

98.  At para 4A, it was pleaded that prior to the setting up of Sunni in 1994, it was agreed among the 4 Families (“4-Families Agreement”) that:

a. if New Boto was successfully listed, Sunni would be used as the vehicle for holding the shares and/or interests of the 4 Families in it;

b. Sunni was to be a passive investment holding company, like a sort of “trust company”, for the shareholders of Sunni to collectively hold their shares and/or interests in New Boto;

c. should one of the shareholders of Sunni intend to sell its interests in Sunni, it would first be offered to the other shareholders of Sunni;

d. any disposition or even trading of the shares and/or interests in New Boto to be held by Sunni must be approved or agreed upon by all of the shareholders of Sunni beforehand;

e. dividends to be paid to Sunni on the shares and/or interests in New Boto were to be distributed to the shareholders of Sunni according to their respective shareholdings in it; and

f. Sunni would not engage in other business activities than to hold the shares and/or interests in New Boto for its shareholders collectively.

99.  Sunni’s said pleaded case mirrors what the Liquidator said in Fung 1 at para 20. It is not in dispute that the Liquidator had no personal knowledge of the 4-Families Agreement and he had only been told about it by members of the COI. During cross-examination on Day 11, he elaborated that he was informed by Madam Tsen, Madam Ho and Kui during a meeting of the COI.

100.  The first term that Sunni would be used as the vehicle for holding the shares of the 4 Families in New Boto is not controversial. That was what actually happened and what Michael Kao agreed.

101.  Michael Kao’s pleaded case and testimony is that there were no discussions or agreement as pleaded in para 4 or 4A of the Re-Amended Statement of Claim save and except that it was agreed that Sunni was formed, or, to be precise, to be formed as an investment vehicle of the 4 Families to hold the shares of New Boto which was to be listed. The other terms, particularly the terms that Sunni was to be a “passive” investment holding company and that it would not engage in any other business activities than to hold the shares in New Boto were denied by Michael Kao. It is unclear to this court what Michael Kao intends to deny about the proposition that Sunni was to be a “passive” investment holding company. If it means he denies the term that Sunni would not engage in any other business activities, that adds nothing to his case.

102.  Mr Cheung for Michael Kao submits there are multiple versions of the 4-Families Agreement on Sunni’s evidence and this internal inconsistency alone militates against the existence of the pleaded 4-Families Agreement. In his written Closing, he makes the following points.

103.  First, the Liquidator has given evidence of a version of the ‘4-Families Agreement’ which is the same as the pleaded version. Since he was informed of the same by Madam Tsen, Madam Ho and Mr Kui during a meeting of the COI, one would expect that his evidence to be the same as that given by Madam Ho and Madam Tsen.

104.  Second, the testimony of Madam Ho. According to her, it contains one and only one term. During her cross-examination on Day 13, Madam Ho was asked to tell the court the terms of the 4-Families Agreement one by one. Her testimony was that:

“A. The first term of the four-families agreement was that the Imagi shares were all tied up in Sunni, for receiving dividends. It was not allowed to sell to the outsiders. If there was selling to outsiders, it had to be sold to the persons within the circle.” [17] (emphasis added)

105.  According to Madam Ho, the circle meant the 4 Families. When Madam Ho was asked about any other term, her answer was that there was no other term as far as she could remember.

106.  This court understands the testimony of Madam Ho to mean the agreement among the 4 Families was that Sunni was there to hold the listed company’s shares for the purpose of receiving dividends and those shares would not be sold to third parties. There is not much difference, in substance, between Madam Ho’s testimony and the 1^st, 2^nd and 4^th terms pleaded in para 4A of the Re-Amended Statement of Claim, save for that part of the 2^nd term about Sunni being a “passive” investment holding company, if and in so far as “passive” means or implies that Sunni could not engage in any other business.

107.  Third, the testimony of Madam Tsen contained another version of the 4-Families Agreement.

108.  During her cross-examination on Day 14, her recollection of the 4-Families Agreement was that it contained the following terms:

a. for purpose of listing, the shares of the 4 Families in Former Boto would be tied up together and to set up a company[18] to hold the shares of the listed company[19] and to receive the dividends;

b. Sunni was not to engage in other business, but just to hold the shares of the listed company and to receive the dividends;

c. if there was any offer to sell in relation to the shares of the listed company or the shares of Sunni, then it must have the consent of the other families before they could be sold.

109.  As this court sees it, Madam Tsen’s testimony on the 1^st term and the 3^rd term aforesaid[20] is not that different in substance from Madam Ho’s testimony ie Sunni was there to hold the listed company’s shares for the purpose of receiving dividends and could not sell the listed company’s shares. Obviously, if 1 of the 4 Families procured Sunni to sell the listed company’s shares to third parties without the consent of all the other 3 Families, which is the gist of Sunni’s complaint, the other 3 Families would receive less dividends.

110.  Mr Cheung’s submission in his written Closing is that Madam Tsen’s version also contains a completely new term which is not pleaded ie a shareholder of the Company cannot dispose of their shares of Sunni unless consent from the other 3 families is obtained. Further, Madam Tsen’s version is inconsistent with the other two versions of the “4-Families Agreement” in that (1) it does not have the pre-emption right over the Imagi shares held by the Company, which only exists in Madam Ho’s version; and (2) it does not have the pre-emption right over the shares of the Company held by the other shareholders, which only exists in the Liquidator’s version.

111.  Mr Cheung further submits that if there really was the “4-Families Agreement”, it defies common sense for Madam Tsen and Madam Ho not to ask Michael Kao to reduce it into writing, and did not even keep any record for themselves.

112.  In conclusion, Mr Cheung submits that if there really was the alleged agreement among the 4 Families, it is inconceivable that there could be three different versions. One also struggles to see why the Liquidator’s version would contain terms not present in Madam Ho or Madam Tsen’s version. The “4-Families Agreement” is simply a concoction.

113.  Lastly, this court should mention the hearsay evidence of Kui.

114.  In Kui 1 at paras 31 to 37, Kui gave an elaborate explanation of the listing plan put forward to him by Michael Kao which he agreed. For ease of reference, the relevant extracts from Kui 1 are reproduced below.

“C. The Company as a passive investment holding company

31. I recall in one of the company meetings in around 1993, Michael Kao floated the idea to take the business of the Former Boto public. I expressed to Michael Kao that I was very supportive of the idea of taking the Former Boto public, because by that time the operation of the Buji factory had become well-established and it was functioning very well. The output of the Buji factory had become sizeable. So I considered it was about time for the Former Boto to go public. However, as I was always in mainland China overseeing the production and the factory there, I let Michael Kao take care of taking the business public.

32. Sometime later, Michael Kao told me about his plan about the listing of the business of the Former Boto, which he said he had obtained the advice of advisors for the listing exercise (“the Listing Plan”). Basically, what he told me was that there would be established a “holding company”, which would become a public listed company. The business of the Former Boto, including its artificial Christmas trees and accessory products business and other businesses like for example the said plastic mosaic glass products business, would all be injected or absorbed into that “holding company” for listing. As to the interests of the 4 Families in the business of the Former Boto which were to be injected or absorbed into that “holding company” for listing, we would be entitled to shares in that “holding company” in return. I did not have any problem with the Listing Plan, and that appeared to me to be what normally would be done in the listing of a business. Michael Kao also told me that after the listing, the 4 Families collectively would remain as the majority shareholders of the listed company[21].

34. …[Michael Kao] also told me, as part of the Listing Plan, that the 4 Families could hold their shares in the listed company through another private passive investment holding company, as a sort-of“trust” company, to hold those shares of the 4 Families in the listed company collectively for the 4 Families; and the 4 Families would respectively hold shares in that private holding company in accordance with the ratio of their respective entitlement to the listed shares as held by the private holding company. Michael Kao also said that other than holding those shares in the listed company, the private holding company would not and should not undertake other businesses, the reason he gave was that undertaking other investments may carry risks of liabilities to the private holding company. He said that, and in fact given my knowledge about the business of the Former Boto I also expected that, the dividend to be paid by the listed company to the private holding company would be sufficient to support a very decent living of the 4 Families.

35. Michael Kao also explained to me why there would be the private holding company to hold collectively the shares in the listed company which the 4 Families would be entitled to as a result of the listing. He said that to have those shares in the listed company (which together would constitute the majority shareholding in the listed company) held collectively was a means to prevent any outsiders from seizing control of the listed company from the 4 Families. And he also said that should one family sell their interest in the private holding company, the shares would have to be offered first to the other shareholders of the private holding company, so that the controlling interest of the private holding company, and through it the controlling interest in the listed company, would not be left to any outsiders.

36. The Listing Plan put forward by Michael Kao even included details about how the shares in the listed company to be held by the private holding company were to be dealt with. Michael Kao said that in principle the shares in the listed company to be held by the private holding company for the 4 Families collectively should not be sold or traded; and if they were to be sold or traded, approval must be obtained by all of the shareholders of the private holding company beforehand.

37. The Listing Plan put forward by Michael Kao to me as aforesaid was agreeable to me, and I did agree to the same. I understand that the other 2 families, namely the Cheng family and the Law family also agreed to such arrangement. As it transpired, the said private holding company turned out to be the Company. In view of the long amicable relationship amongst the 4 families, the idea of recording the agreement proposed by Michael Kao did not occur to me, nor, as I would believe, to the other 3 families.” (emphasis added)

115.  It can be seen that the recollection of Kui about the listing plan promoted by Michael Kao is the most comprehensive one in comparison with that of Tsen and Ho. This is not surprising given that he was one of the 4 original shareholders of Former Boto[22] who carried on its business. After Cheng and Law had passed away in 1989 and 1992, Michael Kao and Kui were the only 2 left to manage Former Boto. According to MK 1 at para 18, Michael Kao was left to manage Former Boto while Kui worked in China to manage the factory. On the other hand, Tsen and Ho were basically housewives and were only appointed as directors of Former Boto in 1992 and 1993 respectively.

116.  It can also be seen that the description in Kui 1 of the listing plan supports Sunni’s case that it was going to be a passive investment company to hold the 4 Families’ interest in the listed company ie New Boto/ Imagi and would not venture into anything else. It also supports the proposition that the shares in the listed company ie New Boto/Imagi to be held by the private holding company ie Sunni for the 4 Families collectively should not be sold or traded and if they were, approval must first be obtained from the 4 Families.

117.  Sunni submits at para 107 of its written Closing that the evidence is by and large in support of the existence of the 4-Families Agreement and its terms.

118.  This court agrees that the evidence of Madam Tsen, Madam Ho and Kui is by and large in support of the existence of the 4-Families Agreement. This is not just because this court finds Madam Tsen and Madam Ho are truthful witnesses in this regard, despite Mr Cheung’s criticism of their evidence as unreliable (regardless of their credibility)[23]. Importantly, as a matter of inherent probabilities, this court finds it hard to accept that for a plan to list a successful business carried out by Former Boto, there would not be some sort of discussions and agreement among the 4 Families as to how to go about it and how to protect their interests.

119.  As for the terms of the 4-Families Agreement, concerning how to go about the listing, it is common ground that there were discussions and eventually agreement that Sunni was to be formed as an investment vehicle of the 4 Families to hold the shares of New Boto, primarily for the purpose of receiving dividends. But what about protection of the interests of the 4 Families?

120.  Again, as a matter of inherent probabilities, since Michael Kao accepts there were discussions and eventually agreement of a plan to list the business of Former Boto and to use Sunni to hold the shares of the listed company, the logical next step would be how to protect the interests of the 4 Families in the listed company.

121.  For the purpose of Sunni’s claim, the most important term is that the New Boto/Imagi shares should not be disposed of and if they were, approval must first be obtained from the 4 Families. This is the common denominator of the answers provided by Tsen, Ho and Kui. This is the 4^th term (and to some extent the 2^nd term) pleaded at para 4A of the Re-Amended Statement of Claim.

122.  This court has given serious consideration to the criticisms of Mr Cheung aforesaid about the pleaded 4-Family Agreement but eventually does not find them sufficient to persuade this court to find that it was simply a concoction.

123.  As to why there are different versions of it, this court accepts Sunni’s Reply submissions that (i) since the 4-Families Agreement was made orally and was not made on one single occasion, the words and expression recalled by different parties would not and could not be expected to be identical; and (ii) both Madam Tsen and Madam Ho are over 70 years old with very limited English ability and that it is impossible for them to be able to recite each and every term of the 4-Families Agreement one by one as set out in the pleadings. It seems to this court that the pleaded version ie the Liquidator’s version is mostly based on Kui’s version, something which Mr Cheung has omitted to mention in his written Closing. This court is also conscious of and is prepared to accept the limitations of Sunni’s witnesses and their inability to recall clearly what happened almost 30 years ago.

124.  As to why the 4-Families Agreement was not reduced into writing, the explanation can be found in Kui 1 ie in view of the long amicable relationship amongst the 4 Families, the idea of recording the agreement proposed by Michael Kao in writing did not occur to him. This court accepts that is an entirely credible explanation. Whether or not that was also in the minds of Tsen and Ho did not matter. In all probabilities that would be the case but even if not, that simply means they had not thought carefully about it – it does not mean the 4-Families Agreement was a concoction.

125.  Although the pleaded version of the 4-Families Agreement has altogether 6 terms, for the purpose of adjudicating on Sunni’s case that the alleged Concerted Disposal was conducted in breach of it, it is not necessary for Sunni to prove all 6 terms - in particular, the terms that (i) Sunni would not engage in any business activities other than to hold the shares of New Boto; or (ii) should one of the shareholders of Sunni intend to sell its interests in Sunni, it would first be offered to the other shareholders (“Excluded Terms”).

126.  If so, a lot of the evidence and Mr Cheung’s Closing submissions that (i) Sunni frequently engaged in the trading of Hong Kong listed companies’ securities through the UOB Account and the Fairwin Account, (ii) Sunni has invested in landed properties through Glory Dragon Investment Ltd, (iii) Sunni has advanced funds and paid the expenses of a related company, Boga International Ltd, (iv) the term about a pre-emption right provision over the shares of Sunni was never followed eg when Lawrence Lai transferred his 300 shares to the Kao’s family, it was not offered to Madam Ho, Madam Tsen or Kui, are simply distractions from the real issue and need not be gone into.

127.  For these reasons, this court finds in favour of Sunni on the existence of the 4-Families Agreement and it contained at least the following terms: (i) Sunni was to be formed as an investment vehicle of the 4 Families to hold the shares of New Boto/Imagi, primarily for the purpose of receiving dividends, and (ii) the New Boto/Imagi shares should not be disposed of and if they were, approval must first be obtained from all the 4 Families.

128.  Since there is no dispute that the disposal of the 585 Imagi shares was completed without the consent of the other 3 Families[24], Sunni’s case for breach of the 4-Families Agreement by Francis Kao and Michael Kao (subject to this court’s discussion below as to whether and if yes the extent to which Michael Kao was involved ) is established and this court shall so find.

Fiduciary duties of Francis Kao as director (Issue 2)

129.  Francis Kao was indisputably the sole director of Sunni from 8 August 2008 until 30 March 2011. As such, this court has no difficulty in finding he owed the following duties[25] to Sunni, which are really basic:

a. A duty to act honestly, in good faith and in the best interests of the company.

b. A duty to act and exercise powers for a proper purpose.

c. A duty not to derive any benefit, gain or secret profits from the position as directors and/or by exercise of the powers as directors.

d. A duty not to put himself in a position where he has or can have a personal interest conflicting or which may possibly conflict with the interests of the company which interests he is bound to protect.

e. A duty to account.

130.  For the purpose of establishing liability on the part of Francis Kao as a director, this court needs only concentrate on and find that he owed (i) a duty to act in good faith, (ii) a duty of loyalty to act in the best interests of Sunni, and (iii) a duty to act for proper purposes, to exercise powers for the purpose for which those powers were conferred, including only to use the Company’s property for the benefit of the Company but not for any personal purpose or gain nor for the benefit of any third party, as pleaded in para 15 of the Re-Amended Statement of Claim.

Francis Kao as de facto alternatively shadow director (Issue 2)

131.  Only 2 of the alleged misappropriations of Sunni’s assets took place in 2012 after Francis Kao’s resignation as de jure director of Sunni in March 2011 and the appointment of Kobayashi in his place.

132.  On the evidence, this Kobayashi was such a mysterious figure that no one knows why he was appointed to replace Francis Kao as a director in the first place or what he had done as a director of Sunni. He was not even an authorised signatory of Sunni for any of Sunni’s bank or securities accounts. Nor is there any credible evidence of him managing Sunni or trying, as Sunni’s sole director, to make himself authorised to operate Sunni’s bank and securities accounts. Madam Ho said in Ho 2 she had not even heard of Kobayashi being a director of Sunni until she was told by the Liquidator about it. Madam Tsen said in Tsen 1 that Kobayashi had no disclosed or known address in Hong Kong and whose occupation was reported as "Office Worker". She did not know this Kobayashi, and to her knowledge none of her family, the Law family or the Kui family knew him either. She simply had no idea why Kobayashi was appointed as sole director of the Company.

133.  Alex Lo said next to nothing of Kobayashi in Lo 1. Madam Kao said nothing at all of Kobayashi in her witness statement. Michael Kao also said nothing at all of Kobayashi in his 2 witness statements. Only Francis Kao explained in his witness statement the purpose of appointing Kobayashi as his replacement. But Francis Kao’s statement is not in evidence.

134.  In Re Hydrodan (Corby) Ltd [1994] BCC 161 at 163E-F, Millett J (as he then was) also explained what is required to hold someone as a shadow director, the key question being whether the de jure directors are accustomed to act in accordance with the shadow director’s directions or instructions:

“…To establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether de facto or de jure; (2) that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did so; (3) that those directors acted in accordance with such directions; and (4) that they were accustomed so to act. What is needed is, first, a board of directors claiming and purporting to act as such; and, secondly, a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others.”

135.  For the reasons stated in paras 109 - 110 of Sunni’s Closing, this court is prepared to infer and find that Kobayashi was a puppet or a frontman of Francis Kao. The reasons include inter alia the fact that after his purported resignation, Francis Kao remained at all material times an authorised signatory of Sunni’s HSBC Accounts and 3 of the Securities Accounts (except the Fairwin Account). Indeed, with the exception of 4 cheques which were signed by Michael Kao with Alex Lo, all cheques drawn on Sunni’s bank accounts were either signed by him singly or with Alex Lo. Cheques signed by him singly after his purported resignation include:

a. a cheque dated 20 June 2011 in the sum of HK$1 million odd to Unicorn;

b. a cheque dated 6 November 2012 in the sum of about HK$140,000 also to Unicorn;

c. 2 cheques to Vistra dated 29 April 2011 and 2 May 2012;

d. a cheque dated 28 November 2011 to AIG.

136.  An authorised signatory of course has the power to issue cheques but in the ordinary course of things, only directors can decide how to operate the bank accounts and when to issue cheques, to whom, for how much and for what purpose. In this regard, there was no evidence to suggest it was Kobayashi who gave instructions to Francis Kao to do so.

137.  This means Francis Kao was either a de facto director who had assumed the actual duties of a director of Sunni even after his retirement, alternatively a shadow director, on whose directions or instructions Kobayashi as the de jure director was accustomed to act. This court prefers to and shall hold Francis Kao as a de facto director rather as a shadow director. The reason is that there is no credible evidence that this Kobayashi had acted as a director of Sunni at all at any point of time after his appointment, so it is difficult to infer that he, as a de jure director, had acted and was accustomed to act in accordance with the direction of Francis Kao.

138.  As a de facto director, this court has no difficulty in finding that Francis Kao owed to Sunni similar duties as a de jure director: Cyberworks Audio Video Technology Limited (In Compulsory Liquidation) vMei Ah (HK) Company Limited[2020] HKCFI 398 at [61] - [62]. This included at least the following fiduciary duties: (i) a duty to act in good faith, (ii) a duty of loyalty to act in the best interests of Sunni, and (iii) a duty to act for proper purposes, to exercise powers for the purpose for which those powers were conferred, including only to use the Company’s property for the benefit of the Company but not for any personal purpose or gain nor for the benefit of any third party.

Michael Kao asde factodirector or shadow[26] director (Issue 3)

139.  Michael Kao has indisputably ceased to be a de jure director of Sunni when he resigned on 15 July 2008, before the dissipation of Sunni’s assets complained of, especially the 585m Imagi Shares which started from July 2009 according to the Liquidator.

140.  Sunni however submits in its Closing that after his formal resignation, Michael Kao was a de facto director of Sunni because:

a. Despite his resignation, Michael Kao had at all material times remained an authorised signatory of Sunni’s HSBC Accounts and 3 of the Securities Accounts viz the First Shanghai Account, the UOB Account and the Fairwin Account and continued to operate the said Accounts, including signing 4 cheques on Sunni’s HSBC Accounts in September and October 2009 in the sums of HK$5 million odd, HK$9.45 million odd, HK$9.74 million odd and HK$7.38 million odd, all to UOB Kay Hiaw (Hong Kong) Limited.

b. On 7 July 2008, days before his resignation, Michael Kao chaired a directors’ meeting of Sunni attended also by Francis Kao for the purpose of updating the signing arrangement with Sunni’s securities brokers. It was resolved that Michael Kao and Francis Kao were authorised to sign singly on behalf of Sunni (“7 July 2008 Securities Accounts Resolution”).

c. Other than asking Francis Kao and Alex Lo to remove him as an authorised signatory of the HSBC Accounts and the Securities Accounts before his resignation, as he testified during cross-examination on Day 17, Michael Kao never took any active steps, such as passing a director’s resolution while he was still a director, to cease to be an authorised signatory of any bank or securities accounts of Sunni. Instead, he passed the7 July 2008 Securities Accounts Resolution.

d. On 11 August 2008, about a month after Michael Kao’s resignation, Francis Kao, whilst resolving to remove Madam Tsen and Philip Lam as authorised signatories to the HSBC Accounts, omitted his father, Michael Kao. The letter sent to HSBC enclosing the board minutes to that effect was signed by Francis Kao and Alex Lo.

e. On around 12 August 2008, Michael Kao provided his signature specimen to Imagi’s share registrar, Tricor, stating that “Any ONE of the above signatories[27] signing (singly/jointly).”. Sunni submits that had there been any or any genuine intention of Michael Kao to cease taking part in the affairs of Sunni, Michael Kao (together with Francis Kao) would have attended to Tricor to make the necessary changes to the signing arrangement instead of preparing the said signature specimen. Clearly, Michael Kao intended to and did hold out to the world that he remained involved in and in control of the affairs of Sunni even after his formal resignation as director.

f. Despite his resignation, Michael Kao had at least caused the disposal of 99 million Imagi Shares via the Fairwin Account sometime after July 2009[28] as the only authorised signatory. Evidence that Michael Kao remained the only authorised signatory of the Fairwin Account ever since the Account was opened comes from a letter dated 27 June 2018 from Fairwin to Messrs T K Tsui & Co. The relevant parts of that letter read:

“We refer to the telephone conversation between Ms. Cheung of your firm and our Ms. Lau on 25th June 2018 and the letters dated 8th June 2018 and 21st June 2018.

As to Item 3(b), we do not have any records showing requests for change of authorized person from Sunni International Limited. On this basis, we concluded that the authorized person of Sunni International Limited has been “Kao Cheung Chong” as it is since account opening on 9th October 1997.” (emphasis added)

g. In about August 2010, when the minority shareholders were pressing for an explanation on the proceeds of the 2009 Rights Shares and the whereabouts of the 2010 Rights Shares, those in control of Sunni did not want to reveal the truth viz there were no 2010 Rights Shares because all Imagi shares of Sunni had been sold. It was then conceived that an offer would be made by the majority shareholder of Sunni to buy out the minority. The email exchanges between the solicitors for Sunni (Hastings), Vincent Tam (who worked for Francis Kao) and Francis Kao showed that the offer from the majority should be made in the name of Michael Kao. The offer letter was drafted but eventually it was not issued because Michael Kao considered the minority would not accept the offer.

141.  At this juncture, this court should make two observations.

142.  First, Sunni submits that the series of acts in 2008 of entrenching Michael Kao as an authorised signatory of Sunni’s HSBC Accounts and Securities Accounts would show that it was in contemplation there would be a massive disposal of Imagi shares by Sunni and that Michael Kao would remain as someone being authorised to deal with the sale proceeds. Since by its nature, there would unlikely be any direct evidence on this (other than an admission by Michael Kao or Francis Kao), Sunni’s submissions can only be based on inference.

143.  This court should first remind itself of the law on drawing inferences from circumstantial evidence.

144.  In Luxton v Vines (1952) 85 CLR 352 at 358[29], the High Court of Australia held that a finding of negligence, where direct proof is not available, may be supported by circumstantial evidence if the circumstances appearing in evidence give rise to a reasonable and definite inference. They must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is a mere matter of conjecture; but, if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought, then, although the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise.

145.  Luxton v Vines was cited with approval in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at [185].

146.  Nina Kung v Wong Din Shin itself is a case on forgery and the test for drawing inferences of allegations of such a serious nature is stricter. At [185] and [187], Ribeiro PJ set the standard in the following terms.

“185. …Where, as in the present case, the court is invited to reach a conclusion of forgery as an inference to be drawn on the basis of circumstantial evidence, any such inference must be properly grounded in the primary facts found. The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question…

187. In HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336, Sir Anthony Mason NPJ acknowledged the need for such a disciplined approach to the drawing of inferences and in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling. Dealing with an allegation that senior SFC officers had deliberately and improperly terminated an investigation in order to avoid compromising the standing of the subject of the investigation who was acting as an expert witness in a criminal trial in which the SFC was interested, his Lordship stated:

‘...... that conclusion was not to be reached by conjecture nor, as the respondent submitted, on a mere balance of probabilities. It was to be plainly established as a matter of inference from proved facts’. (at §72)

Reflecting the Re H principle he added:

‘In the particular circumstances, it was for the respondent to establish as a compelling inference that very senior officers of the SFC had deliberately and improperly terminated the investigation into Meocre Li’s conduct for the ulterior purpose alleged, sufficient to overcome the inherent improbability that they would have done so.’ (Ibid.)” (emphasis added)

147.  As this court understands it, the distinction to be drawn between (i) a non-fraud context such as Luxton v Vines and (ii) in a case where fraud or other serious misconduct is alleged such as Nina Kung v Wong Din Shin is that in the former case, an inference can be drawn by circumstantial evidence if the circumstances appearing in evidence give rise to a reasonable and definite inference on balance of probabilities whereas in the latter case, such an inference must be properly grounded in the primary facts found and must be compelling and plainly established from proved facts – mere balance of probabilities is not enough.

148.  The suggestion that it was in the contemplation of Francis Kao and Michael Kao that there would be a massive disposal of the Imagi shares by Sunni means the alleged Concerted Disposal by Francis Kao and Michael Kao of all the Imagi shares behind the back of the 3 other families was conceived sometime in July/August 2008, around the time of Michael Kao’s resignation as a director. However, applying the test in Nina Kung v Wong Din Shin this court is unable to find such an inference compelling or plainly established on the evidence.

149.  On the other hand, it seems that on balance of probabilities a reasonable and definite inference that this court is able and prepared to draw is that it was in the contemplation of Francis Kao and Michael Kao that the latter would retain the ability to operate the HSBC Accounts and some of the Securities Accounts as and when the circumstances required.

150.  Second, about the attempted buy-out incident in about August 2010. It seems to this court Sunni cannot get any mileage out of that incident against Michael Kao.

151.  The email exchanges in that regard were all between Vincent Tam and Francis Kao as clients and Hastings as their solicitors. The idea that the offer letter should be issued on behalf of Michael Kao came from Vincent Tam. One just cannot tell from the emails whether it was his own idea, the idea of his boss Francis Kao or the idea of Michael Kao himself. Mr Antony Wong of Hastings in the email dated 9 August 2010 at 18:51 told Vincent Tam that his firm had not dealt with Michael Kao before and did not know whether or not he agreed to have the offer letter issued on his behalf. Mr Antony Wong asked Vincent Tam for the return of the final approved draft offer letter signed by Michael Kao to indicate his agreement. Michael Kao never signed on that letter and it was never issued.

152.  In one of the emails, Vincent Tam told Antony Wong that Michael Kao thought the minority shareholders would not take up the offer. Antony Wong also expressed his opinion that it might cause an undesirable backfire if an offer to buy out were made at that stage, as it might give the impression that Francis Kao had something to hide in not giving the information sought by the minority shareholders. Again, one just cannot tell whether the letter was not issued simply because of what Vincent Tam told Antony Wong about what Michael Kao thought, or whether Vincent Tam and Francis Kao agreed with Antony Wong’s opinion.

153.  Sunni submits, despite Michael Kao’s resignation as its director, and notwithstanding his testimony that he had asked Francis Kao and Alex Lo to remove him as an authorised signatory of the HSBC Accounts and the Securities Accounts before his resignation, he remained an authorised signatory. He also remained involved in the affairs of Sunni. Sunni further submits that factually, it is strange enough for Francis Kao and Alex Lo to defy Michael Kao’s said instructions. It is even stranger that Michael Kao and Francis Kao passed the 7 July 2008 Securities Accounts Resolution shortly before his retirement when he had indicated his intention to remove himself as an authorised signatory of the HSBC Accounts and the Securities Accounts. Sunni submits that this state of affairs must have been one desired by both Michael Kao and Francis Kao.

154.  These are fair points to make which this court accepts.

155.  Apart from the inference stated above that it was in the contemplation of Francis Kao and Michael Kao that the latter would retain the ability to operate the HSBC Accounts and some of the Securities Accounts if the circumstances required, as a corollary, it seems reasonable and sufficiently definite to draw the inference that it was in the contemplation of Francis Kao and Michael Kao that the latter should have some involvement in the business affairs of Sunni even after he had ceased to be its director. Otherwise, why bother to retain the ability to operate the bank accounts and securities accounts of Sunni?

156.  The eventual question that this court will ask is why?

157.  In this regard, it is pertinent to note that Michael Kao said in MK1 at para 72 that by his resignation as a director, he had made clear his intention to give up all his authority and/or power to act on behalf of Sunni in all aspects and to cease to take part in its management, including the management of and being an authorized signatory of the Securities Accounts. He had also made his intention clear to Francis. If so, what he said in MK1 is incongruous with what in fact happened. This is something which affects his credibility as a witness.

158.  However, the more immediate question to ask is: does the above make Michael Kao a de facto director?

159.  In Re Hydrodan (Corby) Ltd [1994] BCC 161 at 163C-E, Millett J (as he then was) clearly explained what is required to hold someone as a de facto director:

“A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.

A de facto director, I repeat is one who claims to act and purports to act as a director, although not validly appointed as such…” (emphasis added)

160.  On the evidence, it is reasonably clear to this court that Sunni cannot prove Michael Kao had assumed to act as its director after his resignation in July 2008. Nor can Sunni prove Michael Kao was held out to be a director or purported to be so or that he had undertaken functions in relation to Sunni which could properly be discharged only by a director. The fact that Michael Kao signed on a signature specimen addressed to Imagi’s share registrar, Tricor, proves nothing of the sort. It only proves Michael Kao continued to be an authorised signatory when dealing with Tricor.

161.  As far as pleadings are concerned, in Sunni’s Closing at para 113, it relies on paras 8A, 15, 21A and 25B(3) of the Re-Amended Statement of Claim as a sufficient plea, notwithstanding the legal characterization of Michael Kao as a de facto director is not mentioned.

162.  Para 8A is about Michael Kao being an authorized signatory of the HSBC Accounts and 3 of the Securities Accounts. Para 15 is about Michael Kao’s fiduciary duties as a de jure director. Para 21A is about Michael Kao signing cheques together with Alex Lo to pay for the acquisition of some Cheung Kong shares in October 2009. Lastly, para 25B(3) is about Michael Kao having assisted in the commission of and were part and parcel of the fraud by Francis Kao (and/or Big Plan and Win Harvest) against Sunni.

163.  This court simply cannot find from those paragraphs a sufficient plea that Michael Kao, after his formal resignation, was a de facto director of Sunni in the sense explained by Millet J in Re Hydrodan (Corby) Ltd.

164.  To conclude, it does not appear to this court that Sunni has sufficiently pleaded, let alone proved, that after his resignation, Michael Kao was a de facto director and subject to the duties owed by a de facto director. This court is therefore unable to find that Michael Kao was a de facto director as alleged.

Fiduciary duties of Francis Kao and Michael Kao as an authorised signatory (Issues 2 and 3)

165.  On the evidence, Francis Kao had been added as one of the joint signatories to Sunni’s HSBC Accounts on 20 March 2006. He had also been authorised to singly operate the HSBC Accounts since 3 November 2009 up to the winding up of Sunni in 2015.

166.  Previously, Sunni’s mandate to HSBC was that the HSBC Accounts be operated by 2 authorised signatories. From 16 February 1998 onwards, any 2 of Michael Kao, Madam Tsen and Philip Lam were authorised to operate the HSBC Accounts. On 9 April 1999, Alex Lo was added as an additional authorised signatory to inter alia the HSBC Savings and HSBC Current Accounts. By a letter signed by Alex Lo and Francis Kao dated 11 August 2008 on behalf of Sunni to HSBC, Phillip Lam and Madam Tsen, but not Michael Kao, were deleted as authorised signatories of the HSBC Accounts.

167.  Concerning Michael Kao, it is not in dispute that he was one of the authorised signatories of the HSBC Accounts before and after his resignation as a director on 15 July 2008 up to the winding up of Sunni.

168.  As for the Securities Accounts, regarding the Emperor Account, the evidence shows that Francis Kao was the sole authorised signatory since 10 August 2009. There is no suggestion by the Liquidator that Michael Kao was involved in the operation of it.

169.  For the UOB, First Shanghai and Fairwin Accounts, as far as pleadings are concerned, para 8(2) of Michael Kao’s Re-amended Defence reads:

“(i) Prior to his resignation on 15 July 2008, the 2^nd Defendant had made clear his intention to give up all his authority and/or power to act on behalf of the Company in all aspects and to cease to take part in the management of the Company including but not limited to the management of and being an authorised signatory of the First Shanghai Account, UOB Account and the Fairwin Account.

(ii) Upon and after his resignation, the 2^nd Defendant ceased to have any power and/or authority to himself to remove himself from the list of persons authorised to sign and/or give instructions to First Shanghai, UOB and Fairwin in relation to the operation of the First Shanghai Account, UOB Account and the Fairwin Account

(iii) In any case, following his resignation, the 2^nd Defendant has not signed any document, given any instruction to, or effected any transaction with, First Shanghai, UOB or Fairwin. The 2^nd Defendant does not have any knowledge of or participate in any transaction(s) involving the First Shanghai Account, UOB Account and the Fairwin Account after his resignation on 15 July 2008 (which is in any event not admitted).

(iv) Subject to the above, Paragraphs 8(b), 8(c) and 8(d) are not admitted.” (emphasis added)

170.  Paragraphs 8(b), 8(c) and 8(d) are a reference to the Re-amended Statement of Claim which alleged that Francis Kao and Michael Kao were authorised to give instructions to and operate singly the First Shanghai and UOB Accounts, while Michael Kao was solely authorised to give instructions to and operate the Fairwin Account.

171.  What para 8(2)(i) clearly suggests is that prior to 15 July 2008, Michael Kao was authorized to operate the First Shanghai, UOB and Fairwin Accounts. While it was Michael Kao’s intention to give up his authority to do so, there is no plea in para 8(2) that his intention had been put into effect by e.g. giving notice to the securities companies to remove his authorization.

172.  Evidence-wise, for the UOB Account, according to information provided by UOB to the Liquidator by letter dated 12 December 2017, Francis Kao and Michael Kao were both authorised to operate it as from 3 August 2009[30] until the winding up of Sunni, by reference to the 7 July 2008 Securities Accounts Resolution[31], according to which each of them was authorised to operate the UOB Account (as well as other Securities Accounts) singly.

173.  While Michael Kao resigned as a director as from 15 July 2008, information provided by UOB to the Liquidator by the same letter suggested that he was re-appointed as an authorised signatory less than a month later on 12 August 2008. In this regard, Michael Kao explained in MK1 at para 73 that he was aware that he had signed a specimen signatories list of Sunni and provided to Tricor (the share registrar of the Imagi shares) on 12 August 2008 (“Tricor signatories list”) which was disclosed in Item 10 the List of Documents of the Plaintiff. He said the list was “solely for the purpose of adding Francis as ongoing specimen signatory to sign singly for all operations in respect of the Company’s shareholdings in Imagi”. As far as he understood, the Tricor signatories list might have been passed on by Tricor to UOB who, he believed, might have misunderstood the purpose of the list which led UOB to mistakenly state in its letter to the Liquidator that he was “re-appointed to be authorized signatory on 12^th August 2008”. Michael Kao explained that he was kept as one of the signatories in respect of Sunni’s shareholding in Imagi since he was a director of HNL which was the majority shareholder of Sunni at the time.

174.  The difficulty with this explanation is that (i) Michael Kao himself also signed on the Tricor signatories list, and (ii) the list was on its face provided to Tricor together with a resolution of Sunni dated 12 August 2008 to the effect that both Michael Kao and Francis Kao were authorized to sign singly for all operations in respect of Sunni’s shareholding in Imagi with immediate effect (“Tricor resolution”). If being a director of HNL was the only reason why he should continue to be authorized to deal with the Imagi shares, why did he not cease to be authorized to do so after HNL’s shareholding in Imagi was completely transferred to Francis Kao as from 13 July 2009?

175.  It seems to this court that Michael Kao’s explanation is rather far-fetched and should be rejected. This court asks: what was the point of sending the Tricor signatories list to UOB ? The answer must be none other than for the purpose of confirming that Francis Kao and Michael Kao were authorised to deal with the Imagi shares. Further, since it is accepted that UOB had been given the list, what was it supposed to do with it ? Again, the answer must be to accept that Francis Kao and Michael Kao were the authorised persons to operate the UOB Account. While the 2 documents did not say so expressly, the above 2 answers can be drawn as a matter of inference.

176.  This court thus finds UOB had not misunderstood the purpose of the Tricor signatories list sent to it and that Michael Kao was authorized to operate the UOB Securities Account both before and after his resignation as a director until the winding up of Sunni. Again, Michael Kao’s suggestion at MK1 that UOB might have misunderstood the purpose of the Tricor signatories list also affects his credibility.

177.  That leads this court to the First Shanghai Account.

178.  This court asks: if the Tricor signatories list and the Tricor Resolution along with it, were sent to UOB, why would it not be sent to First Shanghai and for the same purpose? MK1 is silent on this but the Plaintiff’s List of Documents provides the answer.

179.  Sunni’s List of Documents dated 3 April 2019 Item 10, which includes the Tricor signatories list and the Tricor Resolution (as well as a “Trading Authorisation” dated 29 July 2009 appointing Alex Lo as an authorised trading representative of Sunni), was described as “Copy of Document from First Shanghai Securities Limited re signatory”. This is not disputed, whether in MK1 or otherwise.

180.  The Liquidator said in Fung 2 at paras 5 (d) and 6 the following:

“(d) As regards “FCK 2-2”, copy of which I received from both UOB and First Shanghai, it is allegedly a written resolution of the Company dated 12 August 2008, allegedly authorizing both Francis Kao and Michael Kao to deal with the Imagi shares by signing singly[32]. I notice that despite according to the records … that Michael Kao had at that time already resigned as director of the Company, Michael Kao was still given the power to deal with the Company’s Imagi Shares by signing singly.

6. From the above, it can be seen that despite having on record resigned as director of the Company on 15 July 2008, Michael Kao was still conferred the power to operate the Company’s Securities Accounts and to deal with the Company’s Imagi Shares by signing singly...”

181.  There is admittedly no direct evidence such as a Trading Authorisation form which shows Francis Kao and Michael Kao were authorized to operate the First Shanghai Account. Mr Cheung for Michael Kao submits in his Closing that it is misconceived for Sunni to rely on the Tricor signatories list and the Tricor Resolution. This is because during cross-examination on Day 10, Fung agreed that the 2 documents did not appoint Michael Kao as an authorised person of the First Shanghai Account, did not authorise him to operate the First Shanghai Account generally and did not authorise him to operate the account orally although that account could be operated orally. Fung also accepted that those 2 documents did not explain how First Shanghai would handle them which were prepared for the share registrar Tricor. Thus, taking the 2 documents to the highest, they at most suggest that Michael Kao may sign in respect of the Imagi shares held in the First Shanghai Account, but not operating the account generally.

182.  On the other hand, Sunni invites this court to infer that Francis Kao and Michael Kao were entitled to operate the First Shanghai Account at least since 12 August 2008, the date of the Tricor Resolution and the Tricor signatories list, or since July 2009 by the latest when the said resolution was sent to First Shanghai[33]. Sunni submits inter alia that while the Tricor Resolution was stated to be for updating the signatory arrangement with Tricor, it would not have been necessary to provide the same to First Shanghai if it was not also meant to indicate to First Shanghai as to who were entitled to give instructions for and on behalf of Sunni.

183.  This court agrees and the same 2 answers given in relation to the UOB Account apply mutatis mutandis to the First Shanghai Account. It is thus prepared to draw the inference, which is reasonable and sufficiently definite, that Francis Kao and Michael Kao were both entitled to operate the First Shanghai Account since 12 August 2008 or shortly thereafter.

184.  Lastly, according to the letter of Fairwin dated 27 June 2018 (“Fairwin letter”), Michael Kao had always been the sole authorised signatory to operate the Fairwin Account since its account opening in October 1997.

185.  Mr Cheung in his Closing submits that Michael Kao was not the only person who could operate the Fairwin Account. The reasons are these.

186.  First, there is serious selective discovery on the part of Sunni in relation to the Fairwin Account. According to the Liquidator’s testimony during cross-examination on Day 10, Fairwin had provided him with the account opening documents, which allegedly showed Michael Kao was the authorised person, but it was decided by the legal team not to disclose it in these proceedings.

187.  It seems to this court that it would make very little difference whether Sunni had or had not disclosed the account opening documents. This is because on the pleadings, there was no dispute by Michael Kao that prior to his resignation as director, he was authorised to operate the Fairwin Account: para 8(2)(i) of Michael Kao’s Re-amended Defence. So whether he was so authorised when the Fairwin Account was opened is not an issue.

188.  Second, the letters to Fairwin dated 8 and 21 June 2018, referred to in the Fairwin letter were also not disclosed. This renders the only disclosed document ie the Fairwin letter completely out of context.

189.  This court does not agree. The Fairwin letter is wholly unambiguous. It is not clear to this court what more information in terms of context that one needs in order to understand it.

190.  Third, it is the evidence of Michael Kao in MK2 at paras 8 - 10 and Lo 2 at para 15 that the Fairwin Account could be operated on the oral instructions of any director of Sunni or even Alex Lo, Sunni submits that is incredible and should be rejected:

a. First of all, Michael Kao has adduced no documentary evidence or evidence of any person then in charge of Fairwin, especially Mrs Lee who owned Fairwin and who was his friend’s wife, to prove that Fairwin’s policy was so loose that any director of Sunni or even a non-director like Alex Lo, though not being an authorised person as such, could orally operate the Fairwin Account.

b. Insofar as Michael Kao said in cross-examination by Sunni on Day 17 that he had no idea that he would be required to look for such a witness, this is incredible. He has always been legally represented and it has already been the pleaded case of Sunni that Michael Kao was solely authorised to operate the Fairwin Account. Further, it has all along been Michael Kao’s pleaded case that he had ceased to operate the Fairwin Account since his resignation: para 8(2)(iii) Re-amended Defence. Had there been any independent evidence in support of that part of his Defence, he and his legal team would have adduced the same.

191.  This court agrees. There is no evidence that Fairwin no longer existed when these proceedings were commenced in 2018. It cannot be too difficult for Michael Kao’s legal team to obtain corroborative evidence to support what he said in MK2. Instead, he chose to rely on Alex Lo to corroborate him when Alex Lo himself is seriously implicated in the collapse of Sunni.

192.  Accordingly, this court rejects Michael Kao’s evidence that the Fairwin Account could be operated on the oral instructions of any director of Sunni or Alex Lo. In other words, this court finds, on balance of probabilities, that Michael Kao was the only person who could operate the Fairwin Account at the material time. If so, any deposits into or withdrawal from the Fairwin Account would have been carried out by him. Further, if any operations of the Fairwin Account were carried out by Michael Kao, then either he was the one who decided to carry out those operations or in doing so, he would be acting on the instructions of and in concert with the sole director of Sunni ie Francis Kao.

193.  As for the duties of an authorised signatory, it is uncontroversial that the signatory of a company’s bank account or securities account for that matter does not owe the full range of directors’ fiduciary duties: Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1290] per Lewison J (as he then was). But it does not mean that an authorised signatory owes no fiduciary duty at all. As Lewison J pointed out in [1290]:

“…By voluntarily becoming the sole signatory on that account, he took it upon himself to assume control of an asset belonging to another. That voluntary assumption must, in my judgment, carry with it a duty to use the asset for the benefit of the person to whom it belongs. That duty is properly called a fiduciary duty.”

(emphasis added)

194.  Similarly, in Barnett v Creggy [2015] PNLR 13 at [73], David Richards J (as he then was) observed that:

“Funds held in the bank accounts of Pound, Glacier and other off-shore companies were therefore legally and beneficially held by those companies. They were not held by Mr Creggy. He was not a trustee of those funds. He had a power to control the disbursement of funds by virtue of being an authorised signatory on the accounts. He owed fiduciary duties in respect of the exercise of his powers as a signatory and would be liable for any misuse by him of those powers. He was in a similar position to a director of a company having powers of disposal of the company’s funds or other assets.” (emphasis added)

195.  As can be seen from the above passage, there is no difference in principle whether the authorised person is dealing with funds in a company’s bank accounts or other assets in its e.g. securities accounts.

196.  In his Closing at paras 140 - 142, Mr Cheung, for Michael Kao, submits that a distinction must be drawn between a signatory who is also a director of the company, and a mere signatory who is not a director.

a. In the former case, the signatory must be in a position to determine whether the underlying transaction in respect of which payment is to be made is or is not in the best interests of the company, precisely because he is holding the office of the director as well. He is duty bound to acquaint himself with all the relevant information, and will be in a position to judge.

b. This is, however, not necessarily or even generally true in the case of a mere signatory – he is no more than an agent of the company insofar as the bank account is concerned. He is therefore obliged to follow the instructions from his principal ie generally the board of directors to effect the transactions.

197.  That leads to para 146 of Mr Cheung’s Closing where he concludes that what an authorised signatory, when exercising his fiduciary power, is required to do is to satisfy himself that the transfer was authorised by the board of directors or that the transfer could be properly ratified: Bishopsgate InvestmentManagement Ltd v Maxwell (No 2) [1993] BCLC 814 at 832i-833a, per Chadwick J (as he then was) ; Bishopsgate InvestmentManagement Ltd v Maxwell (No 2) [1994] 1 All ER 261 (CA) at 264j-265d, per Hoffmann LJ (as he then was).

198.  This court cannot agree if Mr Cheung means in all cases that is the only duty of an authorised signatory because that was not what Chadwick J or Hoffmann LJ suggested. Authorisation by the board of directors is one thing. Whether or not the authorization is proper is another. Authorisation by the board of directors is necessary but not sufficient for the authorised signatory to discharge his fiduciary duties.

199.  In this court’s view, Michael Kao, who owed fiduciary duties in respect of the exercise of his powers as an authorised signatory in relation to the HSBC Accounts and 3 of the Securities Accounts, was according to David Richards J (as he then was) in Barnett v Creggy, in a similar position to a director of a company having powers of disposal of the company’s funds or other assets. If so, he must owe at least the following duties to Sunni as per para 120 of Sunni’s Closing: (i) a duty to act in good faith and in the best interests of Sunni, and (ii) a duty to act for a proper purpose.

200.  To suggest that Michael Kao only had to be satisfied that, at the relevant time, his son Francis Kao had authorised (properly or improperly) the issue of cheques drawn on the HSBC Accounts or the disposal of the Imagi shares or other operations of the 3 Securities Accounts is untenable. No doubt Michael Kao had to be satisfied as to the existence of the authorisation. As a fiduciary, he must also be satisfied the issue of the cheques and the disposal of the Imagi shares or other operations of the 3 Securities Accounts must be in the best interests of Sunni and for a proper purpose.

Disposal of the 585 million Imagi Shares in 2009 (Issues 3 and 8)

201.  In Fung 1 at para 72, the Liquidator explained how, from his investigation, the disposal of the 585 Imagi Shares had taken place between 27 July and 14 October 2009.

“From the transaction records provided by the securities companies, in particular First Shanghai and UOB, I have summarized below the transactions on the 585m Imagi Shares in the table below :-

			Balance Imagi Shares held
	Date	Transaction	Confirmed with statements	Unconfirmed
(a)	By 24 Jul 2009	Deposit to First Shanghai & UOB	585,618,505
(b)	27 to 31 Jul 2009	Sell 23.2m shares via First Shanghai	562,418,505
(c)	31 Jul 2009	Transfer 39m shares from First Shanghai to Fairwin	523,418,505	39,000,000 (with Fairwin?)
(d)	3 to 12 Aug 2009	Sell 61.45m shares through First Shanghai	461,968,505
(e)	12 Aug 2009	Transfer 30m shares from UOB to Fairwin	431,968,505	39,000,000 + 30,000,000 (with Fairwin?)
(f)	13 to 20 Aug 2009	Sell 35.41m shares through First Shanghai	396,558,505
(g)	20 Aug 2009	Transfer 93m shares from UOB to Emperor	303,558,505	39,000,000 + 30,000,000 (with Fairwin?) 93,000,000 (with Emperor?)
(h)	21 to 31 Aug 2009	Sell 86.984m shares through First Shanghai	216,574,505
(i)	31 Aug 2009	Transfer 30m shares from UOB to Fairwin	186,574,505	39,000,000 + 30,000,000 + 30,000,000 (with Fairwin?) 93,000,000 (with Emperor?)
(j)	1 Sep 2009	Sell 5m shares through First Shanghai	181,574,505
(k)	1 Sep 2009	Transfer 80m shares from UOB to First Shanghai	181,574,505
(l)	2 to 18 Sep 2009	Sell 94.928m shares through First Shanghai	86,646,505
(m)	18 Sep 2009	Transfer 93m shares to First Shanghai, probably from Emperor	179,646,505	39,000,000 + 30,000,000 + 30,000,000 (with Fairwin?) 0 (with Emperor?)
(n)	21 Sep to 6 Oct 2009	Sell 73.55m shares through First Shanghai	106,096,505
(o)	6 Oct 2009	Transfer 80.12m shares from UOB to First Shanghai	106,096,505
(p)	7 to 14 Oct 2009	Sell 106,096,505 shares through First Shanghai	0	39,000,000 + 30,000,000 + 30,000,000 (with Fairwin?) 0 (with Emperor?)
Summary : Of the 585,618,505 Imagi Shares, between 27 July 2009 and 14 October 2009 :- - 486,618,505 Imagi Shares were sold through the First Shanghai Account - 99,000,000 Imagi Shares were transferred to the Fairwin Account

202.  There is no dispute that all the 585m Imagi Shares were disposed of between 27 July and 14 October 2009.

203.  As can be seen from the table above, the Liquidator’s evidence is that 486 million Imagi Shares were disposed of via the First Shanghai Account while the remaining 99 million Imagi Shares were disposed of through the Fairwin Account. It is the disposal of the remaining 99 million Imagi Shares which is problematic and seriously contested, no doubt because Michael Kao was, on the documentary evidence which this court accepts, the only person authorised to operate that account.

204.  Before one gets to that problem, there is a prior issue to deal with ie who decided to dispose of the 585m Imagi Shares ?

205.  In this regard, Mr Cheung for Michael Kao submits that it must be Francis Kao, relying on 4 board resolutions signed by Francis Kao as the sole director of Sunni dated 27 July, 26 August, 8 and 22 September 2009 (“Disposal Resolutions”). The wording of the 4 resolutions was very similar save for the quantity of Imagi shares to be sold. Take the resolution dated 27 July 2009 as an example. It reads:

“Mr. Kao Wai Ho Francis being the Sole Director of the Company be appointed to sell the shares of Imagi International Holdings Limited (Stock Code: 0585) at reasonable price via securities participants in Hong Kong Stock Exchange starting from July to August 2009 for a total quantity of 200 Million Shares (Two Hundred Million Shares)”

206.  By the other 3 resolutions, Francis Kao appointed himself to sell 150 million, 60 million and 175,618,505 Imagi shares.

207.  During cross-examination on Day 10, the Liquidator agreed that it was Francis Kao who decided to sell the Imagi shares and that there was no documentary evidence which suggested that Mr Michael Kao was involved in the decision-making of the disposal of the Imagi shares. The context of the Liquidator’s answers was that he was first shown the Disposal Resolutions by Mr Cheung. It was in the face of those resolutions that the Liquidator indicated his agreement with what Mr Cheung put to him but he also qualified his answers by testifying: “As to who decided, I really had no idea, but from the resolution, I saw that it was Francis Kao, being the sole director, signed.”

208.  Sunni invites this court to place no weight on the Disposal Resolutions since they could not be genuine resolutions but were only recent inventions by Francis Kao, firstly because they were discovered by Francis Kao only about 2 weeks before the commencement of the Trial and secondly, because the pleadings of the Defendants, including those of Michael Kao or the Corporate Defendants, have never alluded to the existence of those resolutions as justification for the disposal of the Imagi shares.

209.  What happened was that there was an application by Mr Au for Francis Kao to seek leave to file his 5^th Supplemental list of documents consisting of over 600 pages, supported by Francis Kao’s 7^th affirmation. The Disposal Resolutions were among them. The application was contested and argued on Day 1. This court gave its ruling also on Day 1 rejecting the bulk of the documents disclosed save and except a handful of them including the Disposal Resolutions. This is what this court said according to the official transcript:

“In the seventh affirmation, the 1st defendant tried to explain the delay by relying on the alleged fact that he had passed the corporate documents of the plaintiff to a Mr Kobayashi. Mr Kobayashi had passed away subsequently. And the 1st defendant was only able to retrieve the documents from Mr Kobayashi’s wife in July last year. This was after the 1st defendant has lost contact with the wife. And suddenly, during a trip to Tokyo in July last year, not earlier, not later, he managed to locate the wife through a restaurant owner and was told that some of the plaintiff’s papers had been retrieved from Mr Kobayashi’s business partners. Details of this can be found in the seventh affirmation.

The plaintiff says such an explanation is incredible and wholly unconvincing. This court cannot agree more…However, Mr Au…managed to put in a skeleton submission this morning and purported to explain the relevance of a handful of documents at paragraph 9 of his skeleton.

Paragraph 9(1) refers to D1’s resolutions as a director dated 27 July, 25 and 26 August, 8 September 2009, and 20 to 22 September 2009 concerning the sale of the Imagi shares. This court is satisfied that they are relevant and should be disclosed. Whether they are admissible in evidence for this trial is something else. It depends on whether their authenticity is challenged. We can deal with that later. But disclosure is permissible.” (emphasis added)

210.  The important points to note here are not just the sheer lateness of the discovery, but that firstly, there were no acceptable reasons why the Disposal Resolutions were not disclosed earlier; secondly, there was no proper explanation of the provenance of the documents, and thirdly, Francis Kao chose not to attend trial to affirm, by reference to the resolutions, that it was entirely his own decision to dispose of the Imagi shares. While these are relevant factors in deciding whether to allow a late application for discovery, this court is in no doubt that they are even more relevant to the admissibility and evidential value of the Disposal Resolutions.

211.  In his Reply Closing, Mr Cheung submits that it is not open to Sunni to allege that the Disposal Resolutions were recently made up and backdated for the purpose of the trial and thus were forged. This is because such an allegation must be but is not pleaded by Sunni.

212.  It is not necessary to dwell on the admissibility of the Disposal Resolutions or Mr Cheung’s submissions on why it is not open to Sunni to make that forgery allegation. Suffice it to say that, for the above reasons, assuming the Disposal Resolutions are admissible, this court is unable to place any meaningful evidential value on them.

213.  Now back to the disposal of the 486 million Imagi shares and the remaining 99 million Imagi shares.

214.  Mr Cheung’s submission in his Closing is that there is no evidence that Michael Kao was involved in the disposal of the 585m Imagi Shares at all. He did not even know about it.

215.  Mr Cheung relies on the Liquidator’s testimony during cross-examination on Day 10 that he was unable to tell from the monthly statements that he obtained from First Shanghai (and UOB) as to who actually instructed the securities companies to sell the Imagi shares.[34] The Liquidator also testified on the same occasion that from the information he obtained, it was either Francis Kao or Michael Kao who could operate those securities accounts but he had no information which transaction was done by Francis Kao or Michael Kao. Lastly, the Liquidator said he did not know whether Michael Kao knew about the decision to dispose of the Imagi shares.

216.  In its Closing, Sunni fairly accepts that the dealings with the Imagi Shares through the First Shanghai Account and UOB Account could have been done by Francis Kao and there is no direct evidence suggesting that it was Michael Kao who operated these 2 Accounts. Since the circumstances are that they only give rise to conflicting inferences of equal degrees of probability, the choice between finding it was Michael Kao instead of Francis Kao or it was both Michael Kao and Francis Kao who dealt with the Imagi shares is merely a matter of conjecture and is not permissible.

217.  Next, the disposal of the remaining 99 million Imagi Shares via the Fairwin Account.

218.  In Fung 1, the Liquidator asserts that a total of 99 million Imagi shares had been transferred from the First Shanghai Account on 31 July 2009, and from the UOB Account on 12 and 30 August 2009, to the Fairwin Account. Mr Cheung submits that the assertion is unsupported by evidence.

(1) First, this assertion is said to be “unconfirmed” in Fung 1 para 72. Further, the Liquidator said during cross-examination on Day 10 that he did not know whether any of the 585M Imagi Shares were in the Fairwin Account or whether any Imagi shares were sold through the Fairwin Account.[35]

(2) Second, the relevant entry in the contract note of the First Shanghai Account for the month of July 2009 does not show to whom the 39 million Imagi shares had gone. The Liquidator accepted that it was only his guess that the shares were transferred to the Fairwin Account. [36]

(3) Similarly, the relevant entries in the monthly statement of the UOB Account for August 2009 do not show that the 60 million Imagi shares were delivered to the Fairwin Account. It merely shows that there were deliveries of 30 million Imagi shares each on 12 and 31 August 2009 to “Fairwin Broking Ltd FOP”.

219.  This court agrees that there is no direct evidence in the form of monthly statements from the securities companies or the oral testimony from someone working in Fairwin at the material time to support the Liquidator’s assertion, but in the absence of direct evidence, it is still open to this court to draw inferences if such inferences are based on primary facts found and, on balance of probabilities, are reasonable and sufficiently definite.

220.  To put the Liquidator’s evidence in context, one should start with Fung 1 at para 74:

“74. In relation to the Imagi shares transferred to the Fairwin Account, I would like to add the following:

(a) From the above table, it can be seen that a total of 99 million Imagi Shares were transferred to the Fairwin Account (39 million from the First Shanghai Account and 60 million from the UOB Account).

(b) I have made enquiries with Fairwin for the transaction records, but their eventual reply was that they no longer had the same.

(c) According to information available to me, a total of 486,618,505 shares of Imagi were sold through the First Shanghai Account for a total consideration of about HK$202 million (i.e., at an average price of HK$0.41 per share), with net proceeds of around HK$199 million being deposited into the HSBC Bank Accounts after deduction of the expenses, and around HK$3 million were being used to purchase certain shares of SOCAM forming part of what would further be explained and referred to as the 3,360,000 SOCAM Shares hereinbelow.

(d) As mentioned above, between 5 August 2009 and 10 September 2009, there were a total of 28 deposits from Fairwin into the HSBC Bank Accounts in the total sum of HK$36,980,837.84. It is likely that the said sum of HK$36,980,837.84 represented the proceeds from the sale of the said 99 million Imagi shares transferred to the Fairwin Account.

(e) Having said that, I must say that I am not sure and cannot verify exactly how the said 99 million Imagi shares had been dealt with.” (Emphasis added)

221.  Thus, it seems to this court that the Liquidator was trying to be fair to Michael Kao when he said what he said at para 74(e) for the simple reason that he could not obtain the transaction records from Fairwin.

222.  The Liquidator’s testimony during his cross-examination on Day 10 follows the same line of reasoning. In answer to inquiries from the bench, he explained the reason why he used the term “unconfirmed” in the table at para 72 of Fung 1 was because he did not have the Fairwin statements. Further, the monthly statement from First Shanghai for July 2009, while showing a withdrawal and delivery of 39 million Imagi shares, does not say whether Fairwin was the deliveree. And when he said it was only his guess that the Imagi shares were transferred to the Fairwin Account, this court does not understand the Liquidator to mean it was his wild guess. Rather, it was a reasoned inference. His reasoning is encapsulated in the following answer he gave:

“I remember that during my investigation, there was money deposited into Sunni from Fairwin. And I gave a rough estimate about the market price. At that time, it was roughly around 36 million. So, together with item (e), that is transfer from UOB to Fairwin, altogether there was 69 million. So I could roughly estimate that the withdrawal of that 39 million probably went to Fairwin account.”

223.  Later in his cross-examination on Day 10, the Liquidator said this:

“Q.	Following that, you would also agree with me that you do not know whether any Imagi shares were sold through Sunni’s Fairwin account?
A.	Agree, but I have something to add, because I do not have the monthly statements, so I cannot say for certain. But when you refer to the above paragraph (d)[37], I saw there was roughly a sum of 36 million from Fairwin to be deposited into the HSBC bank account of Sunni. Therefore, I have reasons to believe these 99 million shares of Imagi were sold by Fairwin and then deposited into the HSBC account of Sunni.
…
Mr Cheung:	…First of all, can you tell us where in the bank statement did it tell you that the 28 deposits were from Sunni’s Fairwin account to the HSBC account?
A.	It cannot be seen from the statement, but in my investigation, I sought help from HSBC in relation to the cheque of the deposits from where the cheques came from, and it was discovered that it was from Fairwin’s securities firm – Fairwin brokerage.” (emphasis added)

224.  Sunni’s submission in this regard can be summarised as follows.

225.  On 31 July 2009, 39 million Imagi Shares were withdrawn from the First Shanghai Account. Whilst there is no direct evidence, a reasonable inference is that these 39 million Imagi Shares were transferred to the Fairwin Account. This is because it is clear from First Shanghai’s contract note that when a transaction involved a sale to a third party, First Shanghai would charge a number of fees, including commission and stamp duty. One would also be able to see the sale price. However, there was no charge in relation to these 39 million Imagi Shares and no sale price indicated. As clarified by the Liquidator during re-examination on Day 12, this means that there was no change of beneficial ownership of the Imagi shares in question which also means the shares were transferred to another securities account in Sunni’s name.

226.  By elimination, the only securities account of Sunni which could have received these 39 million Imagi Shares was the Fairwin Account. This is because one can see from UOB’s monthly statement that there was no deposit of 39 million Imagi Shares into the UOB Account on 31 July 2009, whereas the Emperor Account was only opened no earlier than 10 August 2009. This leaves Sunni’s Fairwin Account as the only candidate.

227.  On 12 and 31 August 2009, a total of 60 million Imagi Shares were transferred from UOB to an account in Fairwin. Again, no stamp duty or other fees were charged for the 2 transfers. Therefore, it is unlikely that the transfers involved a sale. This court should point out that Fairwin Broking Ltd which appears in the UOB monthly statement is Fairwin as defined in Fung 1. In the absence of evidence that there are 2 securities companies with the same name or that the 60 million Imagi shares were transferred to a third party for free who happened to have an account with Fairwin, the transfers would more probable than not be to the Fairwin Account. In other words, it is a reasonable and definite inference that the transfers were to the Fairwin Account as clarified by the Liquidator in re-examination on Day 12.

228.  Further, based on the investigation of the Liquidator, he found a total of 28 deposits from Fairwin into Sunni’s HSBC Accounts in the total sum of HK$36.9 million odd between 5 August 2009 and 10 September 2009, which is likely to represent the proceeds of the sale of these 99 million Imagi Shares. While again there is no direct evidence of this, it appears to this court that it is a reasonable and definite inference which this court should and is prepared to accept.

229.  While Alex Lo had testified that Francis Kao was the only one who gave instructions to the securities companies to dispose of the Imagi shares, this court agrees with Sunni that such testimony should be rejected for the reason that Alex Lo never actually witnessed Francis Kao giving any instructions to dispose of the Imagi Shares.

230.  To conclude, this court agrees with Sunni and finds as a fact that Michael Kao was the one who instructed Fairwin to dispose of the 99 million Imagi shares as the only recognised signatory of the Fairwin Account and the only person who could operate it.

231.  The next question is whether the disposal of the 585 million (or the 99 million Imagi shares) was carried out by Francis Kao and Michael Kao in concert, as submitted in section L.2. of Sunni’s Closing.

232.  In Sunni’s Closing, it principally relies on 2 matters to support its submission.

233.  First, in May 2008, one year before the disposal of the 585 Imagi Shares, Francis Kao attempted to procure Sunni to make a gift[38] of 210 million Imagi Shares to 2 third parties[39]. It is Michael Kao’s evidence in MK1 that in reaching this decision, Francis Kao had discussed the same with him and they both agreed that it was feasible.

234.  Sunni submits that even though Michael Kao was no longer a director of Sunni by the time of the disposal of the 585 million Imagi shares, Francis Kao must have also discussed his plan with Michael Kao to dispose of all 585m Imagi Shares as the first step for the implementation of the alleged Restructuring Scheme, the existence of which this court has rejected earlier in this Judgment.

235.  Second, the disposal of all 585m Imagi Shares was done in 2009 through the First Shanghai and Fairwin Accounts (with the involvement of the UOB Account where 60 million Imagi shares were transferred from this account to the Fairwin Account). During the time of the disposal,

a. Michael Kao was the sole signatory to the Fairwin Account;

b. Francis Kao and Michael Kao were signatories to the UOB Account, each entitled to operate the said Account singly; and

c. Francis Kao, Michael Kao and Alex Lo were signatories to the First Shanghai Account, each entitled to operate the said Account singly.

236.  Earlier in this Judgment, this court has found it reasonable and sufficiently definite to draw the inference that, despite his resignation, it was in the contemplation of Francis Kao and Michael Kao that the latter should retain the ability to operate the HSBC Accounts and some of the Securities Accounts if the circumstances required and should continue to have some involvement in the business affairs of Sunni even after he had ceased to be its director, and asked why.

237.  No doubt Sunni would have answered that question by saying it was because Francis Kao and Michael Kao were paving the way for the eventual disposal of the 585 million Imagi shares. But this means the two had all along been plotting to do so on the pretext of that non-existent Restructuring Scheme, or that at some later point in time, Francis Kao had owned up to his father his fraudulent scheme and Michael Kao agreed to it. In order to draw this inference, this court cannot just rely on balance of probabilities, but must be able to find that inference “compelling” and “plainly established” on the primary facts found.

238.  The primary facts found are:

a. Despite his resignation, Michael Kao had at all material times remained an authorised signatory of Sunni’s HSBC Accounts and 3 of the Securities Accounts viz the First Shanghai Account, the UOB Account and the Fairwin Account and signed 4 cheques on Sunni’s HSBC Accounts in September and October 2009.

b. On 7 July 2008, days before his resignation, Michael Kao chaired a directors’ meeting of Sunni attended by Francis Kao for the purpose of updating the signing arrangement with Sunni’s securities brokers and passed the 7 July 2008 Securities Accounts Resolution.

c. Michael Kao never took any active steps, such as passing a director’s resolution while he was still a director, to cease to be an authorised signatory of any bank or securities accounts of Sunni. Instead, he passed the 7 July 2008 Securities Accounts Resolution.

d. On 11 August 2008, about a month after Michael Kao’s resignation, Francis Kao, whilst resolving to remove Madam Tsen and Philip Lam as authorised signatories to the HSBC Accounts, omitted his father, Michael Kao.

e. Before or after his resignation, Michael Kao did not attend to Tricor to make the necessary changes to the signing arrangement. Instead, on around 12 August 2008, Michael Kao signed on the Tricor signatories list.

f. Despite his resignation, Michael Kao, as the only authorised signatory, was the one who instructed Fairwin to dispose of the 99 million Imagi Shares sometime after July 2009.

239.  The disposal of the Imagi shares is in all probabilities to have been part of the scheme conceived by Francis Kao as the sole director of Sunni. But why should Michael Kao want to get involved or why should Francis Kao tell his father everything about it? The fact that Francis Kao did not come forward to testify can reasonably be interpreted as a sign of his guilt. But it cannot reasonably be interpreted a sign that he and Michael Kao had acted in concert to plot the disposal of the Imagi shares to the serious detriment of Sunni - Michael Kao himself has come forward to defend himself in the trial, unlike Francis Kao.

240.  Indeed, since Francis Kao was the sole director in 2009, there was no particular necessity for him to involve his father or tell Michael Kao everything what he was up to. The fact that Michael Kao resigned as a director on 15 July 2008 but retained some ability to operate Sunni’s bank accounts and securities accounts is equally consistent with him not wanting to get involved in the daily management of Sunni and be laden with the onerous liability of a director generally as with him trying to disassociate from Francis Kao’s scheme which he was all along aware of and agreed to. The fact that he was the one who instructed Fairwin to dispose of the 99 million Imagi Shares is as consistent with him being asked by Francis Kao to do so because he was the only authorized signatory of the Fairwin Account as with him acting in concert with his son, not just to dispose of the 99 million Imagi shares, but the other 486 million Imagi shares as well.

241.  This court has taken on board the extensive criticism of Michael Kao’s testimony as unreliable at pp 19 - 31 of Sunni’s Closing. They are too numerous to be recited here.

242.  This court is also very conscious that the credibility of Michael Kao has been dented by some of his testimony rejected by this court, in particular his denial of the existence of the 4- Families Agreement at all and that he had instructed Fairwin to dispose of the 99 million Imagi shares. But this court is not satisfied that the entirety of his testimony should be rejected as submitted by Sunni.

243.  For the above reasons, this court finds that the disposal of the 585 million Imagi Shares in 2009 was solely masterminded by Francis Kao. While Michael Kao had assisted him in disposing of the 99 million Imagi shares in the Fairwin Account, this court is not satisfied that Michael Kao was a party to Francis Kao’s scheme.

Liability of Francis Kao - Fraudulent breach of fiduciary duties as director (Issues 10 - 13) and failure to exercise such care diligence and skill as director (Issue 14)

244.  Sunni’s case is that Francis Kao had acted in fraudulent breach of his fiduciary duties owed to Sunni as its de jure sole director between 8 August 2008 and 30 March 2011 and subsequently as its de facto director since 30 March 2011 up to the winding up of Sunni by the following conduct, as well as being negligent in the exercise of his duties as director: Sunni’s Closing at paras 147 and 166.

245.  A revised and simplified version of the table at para 147 is reproduced below.

	Conduct	(A) Amount Claimed in the Re-Amended Statement of Claim	(B) Re-payment made	Net Amount Claimed (A) – (B)
(a)	Causing the disposal of all the 585m Imagi Shares, to liquidate the Shares into cash for his further misappropriation and dissipation.	-	-	-
(b)	Causing the acquisition of the Other Listed Shares with Sunni’s funds via the UOB Account and subsequently causing the Other Listed Shares to be transferred to Big Plan’s Credit Suisse Singapore Account	HK$78,730,000.00	-	HK$78,730,000.00
(c)	Causing the acquisition of 3,448,000 SOCAM Shares with Sunni’s funds via the First Shanghai Account and subsequently causing the withdrawal of the share certificates for 3,360,000 SOCAM shares which were eventually deposited into Big Plan’s Credit Suisse Singapore Account	HK$41,321,626.42	-	HK$41,321,626.42
(d)	Causing a cheque of Sunni in the sum of HK$1,710,658.71 to be drawn and paid to Clifford Chance to settle the plaintiffs’ costs in the Injunction Lawsuit ie HCA 1753/2008 in respect of which Francis Kao was personally liable and his other legal fees with Clifford Chance	HK$1,710,658.71	-	HK$1,710,658.71
(e)	Causing cheques of Sunni in the total sum of HK6,624,538.28 to be drawn paid to himself	HK$6,624,538.28	-	HK$6,624,538.28
(f)	Causing cheques and remittance in the total sum of HK$2,322,395.4 from Sunni’s HSBC Accounts for the acquisition of 3 luxury Watches ie the Watch Payments, without keeping the same in the possession, custody and control of Sunni but in Big Plan instead	HK$2,322,395.40	-	HK$2,322,395.40
(g)	Causing a cheque of Sunni in the total sum of HK$8,093,644 to be drawn and paid to Interbenz (“Interbenz Cheque”) for the acquisition of 3 Lamborghini Cars ie the Lamborghini Payments without keeping the same in the possession, custody and control of Sunni but in Big Plan and subsequently in Win Harvest (in respect of Lamborghini LP670-4 and Lamborghini LP550)	HK$8,093,644	-	HK$8,093,644
(h)	Causing cheques in the total sum of HK$3,700,000 to be drawn in favour of and paid to Eddie Li ie the Eddie Li Payment	HK$3,700,000	HK$3,167,000	HK$533,000
(i)	Causing remittance of HK$ HK$19,828,890 from Sunni’s HSBC Accounts to Sunseeker for the acquisition of the Yacht ie the Yacht Payments whilst executing a Letter of Understanding to relinquish Sunni’s interest in the Yacht and vesting the same in Win Harvest	HK$19,828,890	-	HK$19,828,890
(j)	Causing cheques of Sunni in the total sum of HK$17,251,149 to be drawn in favour of and paid to Win Harvest, a company under his control and direction	HK$17,251,149	HK$3,011,435.4	HK$14,239,713.60
(k)	Causing cheques of Sunni in the total sum of HK$33,148,081.04 to be drawn in favour of and paid to Unicorn, a company under his control and direction	HK$33,148,081.04	HK$4,860,000	HK$28,288,081.04
(l)	Causing remittance in the total sum of CAD3,990,000 from Sunni’s HSBC CAD Account in favour of Big Plan, a company under his control and direction	CAD 3,990,000 (equivalent to HK$29,402,254.14)	HK$6,403,134.42	HK$22,999,119.72
(m)	Causing the Miscellaneous Payments, including but not limited to HK$949,357.10 to Alex Lo and HK$ HK$1,600,000 to Imagi for the acquisition of the HKCC Membership which he enjoyed between 27 November 2009 and 17 September 2013 whilst the refund of the HKCC Membership Payments (the “HKCC Membership Refund”) in the sum of HK$1,300,000 was paid to Big Plan instead of Sunni	HK$10,567,672.44	-	HK$10,567,672.44
Total :-		HK$252,700,909.43	HK$17,411,568.82	HK$235,259,339.61

246.  This court has earlier in this Judgment referred to Francis Kao’s admissions by his counsel on Day 3 of the trial. It seems to this court that his admissions tie in with Sunni’s claims against him to the extent that he had:

a. caused the disposal of all of Sunni’s Imagi Shares;

b. caused the acquisition and subsequent dissipation of the Other Listed Shares in the sum of HK$78,730,000;

c. caused the acquisition of SOCAM Shares and subsequently withdrawal of the certificates of the SOCAM Shares and their dissipation;

d. drawn the cheque payable to Clifford Chance in the sum of HK$1,710,658.71 for Francis Kao’s liability for costs and his legal fees;

e. caused payments to himself in the sum of HK$6,624,538.28;

f. caused the acquisition of 3 luxury watches in the sum of HK$2,322,395 ie the Watch Payments without the same being in the control, custody and possession of Sunni;

g. caused the acquisition of 3 Lamborghini cars in the sum of HK$8,093,644 ie the Lamborghini Payments, without the same being in the control custody and possession of Sunni;

h. caused payments in the sum of HK$19,828,890 for the acquisition of the Yacht ie the Yacht Payments, without registering the same in the name of Sunni and subsequently disposing of it, while the the Yacht Proceeds were received by Famewell;

i. caused payments to Win Harvest in the sum of HK$17,251,149;

j. caused payments to Unicorn in the sum of HK$33,148,081.04;

k. caused remittance to Big Plan in the sum of CAD3,990,000; and

l. caused the Miscellaneous Payments in the sum of HK$10,567,672.44.

247.  In any event, since Francis Kao’s pleaded Defence and his witness statements are not before this court, he has no defence or justification for any of the transactions identified in the table above.

248.  On the other hand, the evidence of the Liquidator, which this court accepts, is that:

a. There was no apparent business justification for these transactions.

b. There were no resolutions (board or shareholders) among the records of Sunni evidencing or regarding these transactions. Neither has Francis Kao (nor any other Defendants) produced any such resolutions approving or authorising the same.

c. By these transactions, nearly all the proceeds from the disposal of the 585m Imagi shares (as well as the disposal of the 2009 Rights Shares), being nearly all of Sunni’s assets, were depleted. Sunni was left with next to no assets and was unable to repay its creditors, leading to its eventual winding up.

249.  Earlier in this Judgment, this court has found that Francis Kao was a de jure and a de facto director and owed to Sunni all or some of the following duties (i) a duty to act in good faith, (ii) a duty of loyalty to act in the best interests of Sunni, and (iii) a duty to act for proper purposes, to exercise powers for the purpose for which those powers were conferred, including only to use Sunni’s property for its benefit but not for any personal purpose or gain nor for the benefit of any third party.

250.  In these circumstances, this court has no difficulty in finding that Francis Kao had been in fraudulent breach of his fiduciary duties to act in good faith and in the best interests of Sunni, to act for proper purposes, not to make secret profits, and to avoid conflict of interests. In so doing he had caused substantial losses to Sunni.

251.  Next, Francis Kao’s breaches of his duty of care.

252.  Putting it simply, issue 14 is framed in terms of whether Francis Kao was negligent in:

(a) causing the Watch Payments without the same being in the control custody and possession of Sunni;

(b) causing the Interbenz Cheque/Lamborghini Payments without the Lamborghini Cars being in the control custody and possession of Sunni;

(c) causing the Eddie Li Payment.

253.  It is trite law that a director owes an equitable as well as a common law duty of care[40] – he must exercise such care, diligence and skill that a reasonable director would exercise in the circumstances: Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157 at [19].

254.  Sunni submits that Francis Kao failed to exercise such care diligence and skill which a reasonable director would exercise in respect of the Watch Payments, the Interbenz Cheque/ Lamborghini Payments and the Eddie Li Payment.

255.  For the Watch Payments, Sunni submits that no reasonable director would have deprived Sunni of the possession, custody and/or control of the Watches acquired with Sunni’s funds and worth over HK$2.3 million. Francis Kao was therefore negligent in transferring and/or causing to transfer the Watches to Big Plan, instead of keeping the same in the safe custody of Sunni. This court should add that according to Fung 1, the Liquidator could not find any credible business justification for the purchase of the Watches in the first place or the transfer of the Watches to Big Plan. Further, neither Francis Kao nor Big Plan had accounted for the sale proceeds when the Watches were allegedly sold to a third party.

256.  For the Interbenz Cheque/Lamborghini Payments, Sunni submits that no reasonable director would have deprived Sunni of the possession, custody and/or control of any of the 3 Lamborghini Cars, which were acquired with Sunni’s funds and which were worth over HK$8 million. Francis Kao was negligent in transferring and/or causing to transfer the 3 Lamborghini Cars to Big Plan and/or Win Harvest thereafter, instead of keeping the same in the safe custody of Sunni. This court should add that in Fung 1, the Liquidator said Francis Kao did not provide any explanation for the purchase of the 3 Lamborghini Cars despite his inquiries.

257.  Lastly, for the Eddie Li Payment, Sunni submits that it was not a moneylender and there was no business justification for the said payment. Even if the same was a loan, there was no loan agreement, no security for the loan and there was never full repayment to Sunni. Sunni further submits that no reasonable director would have made the said payment to Eddie Li, without obtaining any security and without ensuring that Eddie Li would be able to repay. Francis Kao was negligent in transferring and/or causing the transfer the said HK$3,700,000 to Eddie Li.

258.  In this court’s view, as there is no credible business justification at all for the Watch Payments, the Interbenz Cheque/ Lamborghini Payments and the Eddie Li Payment and there is no evidence that Sunni had received full value or full repayment for the Watches, the 3 Lamborghini Cars or the Eddie Li Payment, Francis Kao was at the very least in breach of his duty of care to Sunni and shall so find.

Liability of the Corporate Defendants viz Win Harvest, Unicorn, Big Plan and Famewell (Issues 15-20)

259.  The corporate Defendants in HCA 1884 and HCA 2380 did not participate at the trial and no one testified on their behalf. In other words, there was no evidence in support of their pleaded Defences against Sunni’s claims, whether by reference to the non-existent Restructuring Scheme or whatever else they may be. Nevertheless, in so far as their pleaded Defences contain admissions on their part, the same can still be used against them since, unlike Francis Kao, their pleadings have not been struck out.

260.  On the evidence of Fung, the available documentation and the admissions made by the Corporate Defendants in their pleadings, this court is satisfied that Win Harvest, Unicorn, Big Plan and Famewell have received the following assets deriving from funds of Sunni: Sunni’s Closing para 181.

Assets	Net Amount Now Claimed by Sunni
Win Harvest
2 out of the 3 Lamborghini Cars, namely ie Murcielago LP670-4 & Gallardo LP550, funded by the Interbenz Cheque	HK$5,840,445
The Yacht	HK$19,828,890
Payments to Win Harvest	HK$14,239,713.60
Total	HK$39,909,048.6
Unicorn
Payments to Unicorn	HK$28,288,081.04
Total	HK$28,288,081.04
Big Plan
The Other Listed Shares	HK$78,730,000.00
The 3,360,000 SOCAM Shares	HK$38,572,800
The 3 Watches deriving from the Watch Payments	HK$2,322,395.40
3 Lamborghni Cars deriving from the Interbenz Cheque	HK$8,093,644
The Big Plan Remittance	HK$22,999,119.72
The HK Country Club Membership and its Refund deriving from the Payments to Imagi (Within the Miscellaneous Payments)	HK$1,600,000
Total	HK$152,317,959.12
Famewell
The Yacht Proceeds, deriving from the Yacht Payments	EUR 1,000,000
Total	EUR 1,000,000

261.  The Liquidator’s evidence, which this court accepts, is that:

(i) Sunni has received no consideration in relation to the aforesaid transactions with Win Harvest, Unicorn, Big Plan and Famewell;

(ii) There was no business justification; and

(iii) Win Harvest, Unicorn, Big Plan and Famewell all failed to account to Sunni for the aforesaid assets.

Knowing receipt and Dishonest assistance

262.  To establish a claim of knowing receipt, the plaintiff must show:

a. a disposal of its assets in breach of fiduciary duty;

b. the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and

c. knowledge of the defendant that the assets he received are traceable to a breach of fiduciary duty.

BCCI v Akindele [2001] Ch 437 at 448C.

263.  This court is satisfied that the 1^st and 2^nd requirements are met.

264.  Sunni submits and this court agrees that the aforesaid assets received by Win Harvest, Unicorn, Big Plan and Famewell (including the 2 Lamborghini Cars transferred from Big Plan to Win Harvest and the Yacht Proceeds which Win Harvest directed to be paid to Famewell) were proceeds of disposals by Francis Kao in breach of his fiduciary duties.

265.  As far as beneficial receipt is concerned, there is no evidence from the Corporate Defendants to show their receipt of the aforesaid assets and/or funds was not beneficial but as an agent ie ministerial receipt. There is certainly no evidence that they were bona fide purchaser for value without notice. It is also not in dispute that the assets they received were derived from Sunni’s funds or assets.

266.  Regarding the knowledge of the recipient, all that is necessary is that the recipient's state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt of those assets: Akindele at 455E-F.

267.  When it comes to knowledge of a company, the question is whose knowledge or state of mind is to be attributed to the company in question. In Bilta (UK) Ltd v Nazir (No 2) [2016] AC 1, the UK Supreme Court explained:

a. While there is a role for the concept of the “directing mind and will” of a company, it is important to analyse that role and in particular to avoid the dangers of ascribing human attributes to a company [180].

b. In most circumstances, the acts and state of mind of its directors and agents can be attributed to a company by applying the law on agency [181].

c. Whether an act or a state of mind is to be attributed to a company depends on the context in which the question arises [181].

d. Where a third party makes a claim against the company, the rules of agency will normally suffice to attribute to the company not only the act of the director or employee but also his or her state of mind where relevant. [205]

268.  The shareholding and directorship structure of Win Harvest, Unicorn, Big Plan and Famewell have been set out at length in the beginning section of this Judgment entitled “The Parties”. They are derived from the Schedules in Sunni’s dramatis personae. For ease of reference here, a simplified version of the Schedules are annexed to this Judgment as Annexes 1 to 4.

269.  Sunni submits that given the shareholding and directorship structure of Win Harvest, Unicorn, Big Plan and Famewell, Francis Kao was at all material times the director and/or directing will and mind of them and was in control of them by himself or through his associates, including Sandy Chan, his then wife, Philip Kao his cousin and/or his company New Goal.

270.  As such, the fraudulent state of mind of Francis Kao is attributable to Win Harvest, Unicorn, Big Plan and Famewell vis-a-vis Sunni. In any event, through Francis Kao and/or his associates, Win Harvest, Unicorn, Big Plan and Famewell must have acquired the knowledge that (i) the assets and/or funds disposed of by Francis Kao in breach of his fiduciary duties to Sunni belonged beneficially to Sunni, (ii) (ii) no consideration was given for the funds and/or assets that the Corporate Defendants received, (iii) there was no justification for Francis Kao’s disposal of Sunni’s assets and/or funds or the Corporate Defendants’ receipt. It is thus unconscionable for Win Harvest, Unicorn, Big Plan and Famewell to retain any of the assets and/or funds received by them. This court agrees and shall so find.

271.  To conclude, this court finds Win Harvest, Unicorn, Big Plan and Famewell had received Sunni’s aforesaid assets and/or proceeds deriving from its assets as knowing recipients and are liable to Sunni as such.

272.  Further, as far as the 2 Lamborghini Cars and the Yacht are concerned, they were disposed of in breach of the fiduciary duties owed by Big Plan and Win Harvest to Sunni. This is because:

a. As knowing recipients, Big Plan held the 2 Lamborghini Cars and Win Harvest held the Yacht and the Payments to Win Harvest on constructive trust for Sunni: Sansom v Gardner [2009] EWHC 3369 (QB) at [156]. They were under a fiduciary duty to restore the misapplied assets to Sunni: Williams v Central Bank of Nigeria [2014] AC 1189 at [31]; Lewin On Trusts 20th Ed. para 42-91.

b. In Williams v Central Bank of Nigeria at [31], Lord Sumption explained the law as follows:

“31. The essence of a liability to account on the footing of knowing receipt is that the defendant has accepted trust assets knowing that they were transferred to him in breach of trust and that he had no right to receive them. His possession is therefore at all times wrongful and adverse to the rights of both the true trustees and the beneficiaries. No trust has been reposed in him.”

273.  Yet, instead of restoring the assets to Sunni,

a. Big Plan admittedly sold Lamborghini LP550-2 to a party not revealed by Big Plan and transferred Lamborghini LP670-4 & Lamborghini LP550 to Win Harvest;

b. Win Harvest sold the Yacht in April 2017 and directed the Yacht Proceeds to be paid to Famewell instead of Sunni despite that the Yacht was purchased with the funds of Sunni and despite the fact that Sunni had by then been wound up to the knowledge of Francis Kao; and

c. Win Harvest admittedly used HK$6 million out of the Payments to Win Harvest to purchase the Pagani Sports Car (which at the time was worth HK$12 million) but registering the same in the name of Beauty Bloom Ltd (“Beauty Bloom”). Subsequently, when the Pagani Sports Car was sold by Beauty Bloom at HK$14 million, Win Harvest used the proceeds to acquire the St Andrews Place Property (as defined below) instead of restoring any part of the proceeds to Sunni.

274.  Sunni submits that by dealing with them other than returning to or accounting for the same to Sunni, Big Plan and Win Harvest had acted in breach of their fiduciary duties to Sunni. This court agrees.

275.  As far as dishonest assistance is concerned, the requirements of a claim of this nature were helpfully summarised by Cockerill J in FM Capital Partners Ltd v Marino [2018] EWHC 1768 (Comm), as follows[41]:

“82… i) There must be a trust or fiduciary obligation owed by the trustee/fiduciary to the claimant. It suffices if the trust in question is a constructive or resulting trust: McGrath, Commercial Fraud in Civil Practice (2nd ed.) at [9.34].

ii) Because dishonest assistance is a type of accessory liability, there must be a breach by the trustee/fiduciary: Royal Brunei Airlines v Tan [1995] 2 AC 378, 382, Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908; [2015] QB 499.

…

iii) The breach by the trustee/fiduciary need not be dishonest: because liability of the third party is fault-based, what matters is the nature of their fault, not that of the trustee/fiduciary: Royal Brunei Airlines, 384-5, 392, Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 AC 164 at [109].

iv) The third party must have assisted in, induced or procured the breach. It is necessary to show that the relevant assistance played more than a minimal role in the breach being carried out, but there is no requirement to show that the assistance provided would inevitably have resulted in the beneficiary suffering a loss: Baden v Société General pour Favoriser leDevelopment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509 at [246].

v) The third party must have acted dishonestly in providing the assistance.

…

vi) However, the standards in question are those of an ordinary honest person in the circumstances of the defendant. Thus, in applying the test of dishonesty, the Court must have regard to all the circumstances known to the defendant at the time, and have regard to the defendant's personal attributes, such as their experience and the reason why they acted as they did: RoyalBrunei Airlines v Tan at 391.”

276.  On the question of dishonesty, one needs only refer to Lord Nicholls of Birkenhead’s opinion in Royal Brunei Airlines Sdn Bhd v Tan [1995] AC 378 and Twinsectra v Yardley [2002] 2 AC 164.

277.  In Royal Brunei Airlines Sdn Bhd at 392, Lord Nicholls summarised the basis of liability as follows:

“Drawing the threads together, their Lordships’ overall conclusion is that dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. “Knowingly” is better avoided as a defining ingredient of the principle, and in the context of this principle the Baden scale of knowledge is best forgotten.” (emphasis added)

278.  In Twinsectra, the House of Lords held that dishonesty in this context means:

a. The conduct complained of must be dishonest by the ordinary standards of reasonable and honest people; and

b. The defendant must have been himself aware that, by those standards, he was acting dishonestly.

279.  Assistance is not limited to assistance in the original breach but extends to assistance in the continuing diversion of the money, such as covering it up afterwards by helping to launder the money and hiding away the assets beyond the reach of the beneficiaries who might seek their recovery: Ultraframe at [1497]; Lewin at para 43-034.

280.  Sunni submits that by receiving Sunni’s funds and/or assets without accounting to it and by further dealing with them eg Big Plan’s transfer of 2 Lamborghini Cars to Win Harvest, Win Harvest’s sale of the Yacht and directing the Yacht Proceeds to be paid to Famewell, Big Plan’s disposal of the Watches to Ip, Win Harvest’s acquisition of the Pagani Sports Car while registering the same in the name of Beauty Bloom, Win Harvest, Unicorn, Big Plan and Famewell have assisted in hiding away from Sunni the funds and assets beneficially belonging to it and in preventing and hindering the recovery of them. As such, Win Harvest, Unicorn, Big Plan and Famewell have assisted in the breach of fiduciary duties of Francis Kao to Sunni. Further, for the same reasons as set out above in relation to the claim in knowing receipt, Sunni submits the fraudulent state of mind of Francis Kao was attributable to Win Harvest, Unicorn, Big Plan and Famewell and that no reasonable honest person according to normally acceptable standards of honest conduct would have rendered such assistance. As such, Win Harvest, Unicorn, Big Plan and Famewell were dishonest in providing their assistance to Francis Kao’s breach of fiduciary duties to Sunni.

281.  This court agrees and shall so find.

282.  To conclude, on the available evidence, this court is satisfied that Sunni has made out its claims in knowing receipt and dishonest assistance against Win Harvest, Unicorn, Big Plan and Famewell and shall so find.

Sunni’s tracing claims in HCA2380 against Win Harvest and Famewell

283.  The general principle is that a plaintiff can trace into the hands of the wrongdoing fiduciary and anyone who derives title from him except a bona fide purchaser for value without notice.

284.  The tracing rules were neatly explained by Lord Millet in Foskett v McKeown [2001] 1 AC 102 at 130:

“The simplest case is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund. He will normally exercise the option in the way most advantageous to himself. If the traceable proceeds have increased in value and are worth more than the original asset, he will assert his beneficial ownership and obtain the profit for himself.

…

…The beneficiary's proprietary claims to the trust property or its traceable proceeds can be maintained against the wrongdoer and anyone who derives title from him except a bona fide purchaser for value without notice of the breach of trust. The same rules apply even where there have been numerous successive transactions, so long as the tracing exercise is successful and no bona fide purchaser for value without notice has intervened.

…

… if a trustee buys property partly with his own money and partly with trust money, the beneficiary should have the option of taking a proportionate part of the new property or a lien upon it, as may be most for his advantage. In principle it should not matter (and it has never previously been suggested that it does) whether the trustee mixes the trust money with his own and buys the new asset with the mixed fund or makes separate payments of the purchase price (whether simultaneously or sequentially) out of the different funds. In every case the value formerly inherent in the trust property has become located within the value inherent in the new asset.” (emphasis added)

Against Win Harvest

285.  Putting it simply, for its tracing claim against Win Harvest, Sunni relies on the following facts.

286.  Among Win Harvest Payments of over HK$14.2 million odd from Sunni to Win Harvest, there was a payment of HK$6 million which was cleared on 9 December 2009. On the same day, Win Harvest as buyer paid the said HK$6 million to SPS Automotive Performance (HK) Limited as the first deposit for the purchase of a Pagani Sports Car at the price of HK$12 million. [42] As Sunni contributed to half of the price for the acquisition of the Pagani Sports Car, it was entitled to half of the beneficial interest in it.

287.  The Pagani Sports Car was registered in the name of Beauty Bloom, a company incorporated in Hong Kong in 2008, and wholly owned by Francis Kao between 3 March 2008 and 9 November 2009 and by APGL thereafter. Between February 2008 and September 2018, Francis Kao was its only director.[43]

288.  There is no evidence that Beauty Bloom had provided any consideration for the Pagani Sports Car. Thus, Sunni submits Beauty Bloom Ltd merely held the Pagani Sports Car for Francis Kao and Win Harvest which in turn held its interest in the Pagani Sports Car for Sunni.

289.  On 3 May 2011, Beauty Bloom sold the Pagani Sports Car to one Sui Lili for HK$14 million. Sunni submits that in respect of this sum, it was entitled to half of it viz HK$7 million, representing its half beneficial interest in the Pagani Sports Car.

290.  Also on 3 May 2011, Win Harvest entered into a Memorandum Agreement for Sale and Purchase for the acquisition of the property situated at “9 Cameron” House No. H26, St Andrews Place, No. 38 Kam Chui Road, Sheung Shui, New Territories, Hong Kong (“St Andrews Place Property”) with Sui Lili at the price of HK$52 million. As admitted by Win Harvest in its pleaded Defence, the proceeds of the sale of the Pagani Sports Car ie HK$14 million were used to fund the purchase of the St Andrews Place Property.

291.  The St Andrews Place Property is still registered in the name of Win Harvest.

292.  On the aforesaid facts, which are well-documented, Sunni submits that it is entitled to trace the initial HK$6 million into the half interest of the Pagani Sports Car, then into the half share of the sale proceeds of the Pagani Sports Car to the value of HK$7 million and ultimately to the St Andrews Place Property to the extent of the said HK$7 million which contributed to the acquisition of the St Andrews Place Property.

Against Famewell

293.  Putting it simply, for its tracing claim against Famewell, Sunni relies on the following facts.

294.  In early September 2009, Francis Kao remitted a total sum of HK$19,828,890 from Sunni’s HSBC Accounts to Sunseeker Asia Ltd (“Sunseeker”) for the acquisition of the Yacht at the price of GBP 1,500,000. The order confirmation for the purchase of the Yacht was signed by Francis Kao for and on behalf of Sunni.

295.  According to Fung 1, the sum of HK$19,828,890 (equivalent to GBP1,553,750) was made up of 2 remittances from the HSBC Current Account:

a. A remittance of GBP1,500,000 (equivalent to HK$19,138,500) on 7 September 2009, which was signed by Francis Kao and Alex Lo jointly; and

b. Another remittance of GBP53,750 (equivalent to HK$690,390) on 16 September 2009.

296.  On 7 September 2009, Francis Kao, purportedly on behalf of Sunni and Win Harvest, executed a Letter of Understanding between the two, which stated that:

“It is agreed between [Sunni] and [Win Harvest] that [Sunni] will act as a nominee in signing documents with manufacturer: Sunseeker International Limited. The legal and beneficial owner of the Yacht belongs to [Win Harvest].”

297.  The Yacht was delivered to Hong Kong in around October 2009.

298.  Win Harvest had never provided any consideration to Sunni for the Yacht but it was registered in the name of Win Harvest instead of Sunni. As such, Sunni submits that at all material times, Win Harvest held the Yacht for and on behalf of Sunni.

299.  On 5 April 2017, Win Harvest entered into a sale and purchase agreement with Marine Italia Ltd for the sale of the Yacht at the price of €1,000,000 ie the Yacht Proceeds. The Yacht Proceeds (which beneficially belonged to Sunni) were directed to be paid and was paid to Famewell. There is no evidence of any consideration having been paid by Famewell to Sunni for the Yacht Proceeds.

300.  On these facts, Sunni submits that the Yacht and the Yacht Proceeds beneficially belonged and still belong to Sunni. As such, Sunni is entitled to trace the Yacht Proceeds and any assets derived therefrom the hands of Famewell.

301.  To conclude, on the available evidence, this court is satisfied that Sunni has made out its tracing claims against Win Harvest and Famewell and shall so find.

Liability of Michael Kao - fraudulent breach of fiduciary duties (Issue 11)

302.  First, disposal of Imagi shares.

303.  This court has found Michael Kao to be responsible for the disposal of 99 million Imagi shares via the Fairwin Account as the only authorised person to do so (but is not satisfied that he had acted in concert with Francis Kao to dispose of the other 486 million Imagi shares). Sunni submits that by doing so, Michael Kao had failed to act in good faith and in the best interest of Sunni.

304.  Michael Kao denies having anything to do with the disposal of Imagi Shares through Fairwin, which denial has been rejected by this court. By taking such a stance, Michael Kao could not and did not claim that (i) he had exercised any reasonable care or had made any inquiry into the purpose of the disposal or (ii) he was acting in good faith and in the best interest of Sunni in making the disposal.

305.  In First Subsea Ltd (formerly BSW Ltd) v Balltec Ltd [2017] EWCA Civ 186 at [64], the English Court of Appeal held that for a breach of trust to be fraudulent, there must be an absence of honesty or good faith. This can include being reckless as to the consequences of the action complained of.

306.  In these circumstances, this court finds the inference that Michael Kao was being reckless as to the consequences of his action is compelling and plainly established with regard to his disposal of the 99 million Imagi shares. If so, this court must find that he had acted in fraudulent breach of his fiduciary duties to Sunni.[44]

307.  Second, drawing of 3 cheques for the acquisition of the Cheung Kong shares and the subsequent dissipation of them to Big Plan.

308.  Just to re-cap, earlier in this Judgment, this court has ruled that Michael Kao, who owed fiduciary duties in respect of the exercise of his powers as an authorised signatory in relation to the HSBC Accounts was in a similar position to a director of a company having powers of disposal of the company’s funds or other assets. If so, he must owe at least (i) a duty to act in good faith and in the best interests of Sunni and (ii) a duty to act for a proper purpose, in addition to the duty to satisfy himself as to the existence of authorisation by the board of Sunni.

309.  The undisputed evidence shows that Michael Kao co-signed 4 cheques with Alex Lo in September and October 2009, out of which 3 cheques[45] were in the total sum of over HK$26 million on 8 and 12 October 2009 all to UOB.

310.  Sunni submits that these 3 cheques were used to acquire 275,000 Cheung Kong shares via the UOB Account on 6 and 8 October 2009. About a month later on 17 November 2009, these 275,000 Cheung Kong shares (together with another 100,000 Cheung Kong shares) were transferred from the UOB Account to an unknown HSBC securities account and were eventually deposited into Big Plan’s Credit Suisse Account in Singapore with a value date of 17 November 2009.

311.  Sunni submits that, based on the investigation of the Liquidator, Sunni had received no consideration for the transfer of the said Cheung Kong shares to Big Plan. In light of the proximity of time between drawing of the cheques for the acquisition, the actual acquisition of the Cheung Kong Shares and their subsequent disposal, Sunni invites the Court to consider these 3 events as a single composite transaction with a view to give away the Cheung Kong shares to Big Plan for free.

312.  In answer to Sunni’s case, Mr Cheung in his Closing does not dispute Michael Kao co-signed the 3 cheques for the purpose of settling the purchase of 275,000 Cheong Kong shares (which formed part of the so-called Other Listed Shares). However, Mr Cheung submits there is no evidence to show that Michael Kao had instructed UOB to purchase the said Cheung Kong shares or to dispose of them. Mr Cheung relies on the following:

a. It is accepted by the Liquidator in cross-examination on Day 10 that normally, it must be Francis Kao as the sole director who decided to purchase the said Cheung Kong shares.

b. It is also accepted by the Liquidator in cross-examination on Day 10 that on the documentary evidence including the monthly statements of the UOB Account, it cannot been seen that Michael Kao was the one who gave instructions to purchase the said Cheung Kong shares.

313.  Mr Cheung further submits that, although his client was authorised to, the above are consistent with Michael Kao’s evidence that he did not effect any transactions or give any instructions in relation to the UOB Account since his resignation as a director of Sunni.[46] In the circumstances, it is more likely than not that Francis Kao was the one who operated the UOB Account and placed the orders for the purchase of the said Cheung Kong shares in October 2009.

314.  In respect of the signing of the 3 cheques, the circumstances were explained in MK2 at para 12 and corroborated in Lo 2 at paras 21-25 as follows.

315.  First, MK2 at para 12.

“12. I deny any suggestion that I dissipated and/or assisted in the dissipation of the Company’s assets. Whilst I may have signed the said cheques, as far as I can remember, I did so under the following circumstances:-

(1) On or around 11 September 2009, more than a year after I resigned, Francis called me and told me that there was a cheque of the Company which had to be signed. Francis told me that he could not sign the cheque because he had other engagements that day. He asked me to do him a favour and co-sign the cheque with Alex. I thought that I could no longer sign cheques of the Company, but Francis told me that I could still sign the cheque because I had not been formally removed as a signatory of the relevant account. I thought that it was an urgent matter because, otherwise, Francis would not have asked for my help all of a sudden. Hence, I acceded to Francis’ request and went to the Company’s office situated at 22/F Eight Commercial Tower, Chai Wan, Hong Kong and co-signed cheque no. 16072 with Alex on 11 September 2009.

(2) The same thing happened around a month later. On or around 8 October 2009, I received another call from Francis in the morning He asked me to meet up with Alex again to co-sign some other cheques as he was not available to sign the said cheques. I therefore went to the Company’s office in the morning and signed cheque no. 16089. I recall that I was rather free that day, and was able to visit the office and sign the cheque. When I was at the office, I asked Alex if there were any other cheques that needed to be signed, as I did not want Francis to trouble me again. Alex then also passed cheque nos. 16090 and 16091 for me to sign.

(3) The four cheques that I signed were all drawn in favour of UOB. Before I signed the cheques, Alex told me that the cheques were drawn to settle the purchase price of certain securities acquired by the Company and he showed me the relevant documentation before I signed the cheques. There was nothing untoward about the said transactions, especially given that it was Francis (then the sole director of the Company) who asked me to sign the cheques and the sale and purchase of securities had always been a part of the Company’s normal business.

(4) For the avoidance of doubt, I stress that I did not have any detailed understanding of the underlying transactions in respect of which payment was made. It was because I was not the person who agreed, gave instructions or authorised the underlying transactions of the shares and did not execute any documents in respect of such transactions.” (emphasis added)

316.  Second, Lo 2 at paras 21 to 26.

“21. As far as I can remember, the circumstances in which Michael Kao, instead of Francis Kao, co-signed the Four Cheques are as follows.

22. On 11 September 2009, I received a call from Francis Kao asking me about whether Michael Kao could still sign cheques drawn on the Company’s HSBC account. I replied to Francis Kao in the affirmative. I informed Francis Kao that while I had told the Chai Wan branch manager of HSBC about Michael Kao’s resignation, I had not yet completed the necessary paperwork to formally remove Michael Kao as a signatory because I inadvertently omitted from doing that. After this telephone call, I was informed that Michael Kao would come to the office of the Company to sign a cheque later that day for settling a share transaction done through UOB.

23. Later that day, Michael Kao and I co-signed cheque no. 16072. Before signing the said cheque, I recall that I had cross-checked the name of the payee, the exact amount payable and the payment due date with the relevant documentation of the share transaction as usual. I had also explained to Michael Kao and showed him the relevant documentation that the cheque was for settling a share transaction done through UOB.

24. On around 8 October 2009, a similar incident happened again. In the morning that day, around an hour after I was back to office, Michael Kao appeared in the office and asked me if there was a cheque to be signed by him again. He was asked by Francis Kao to co-sign cheque no. 16089 that day, which was also for settling a share transaction done through UOB. Similarly, before signing, I went through my routine procedure of cross-checking the name of the payee, the exact amount payable and the payment due date with the relevant documentation. I explained to Michael Kao the purpose of the cheque and we co-signed the same.

25. I have a clearer recollection on what happened that day because Michael Kao, strangely, did not leave the office after signing cheque no. 16089. He remained in the office for some time, and it appeared to me that he had a loose schedule that day. Later, he even asked me if there were other share transactions going on, and if so, he could co-sign the cheques altogether because he did not want Francis Kao to bother him with that again in the coming Monday. As I also did not want to trouble Michael Kao, I handed over to him cheques nos. 16090 and 16091, which were concerned with share transactions just completed that day, for Michael Kao to sign.

26. After Michael Kao signed these two cheques, he further told me not to bother him with signing any other cheques for the Company. I have relayed the message to Francis Kao thereafter.” (emphasis added)

317.  In this court’s view, Alex Lo’s evidence above that when Francis Kao called him on 11 September 2009, he instantly told Francis Kao on the phone that Michael Kao could sign cheques on the HSBC Accounts because he had inadvertently omitted to complete the necessary paperwork to formally remove Michael Kao as an authorised signatory is nothing short of fanciful. This court simply asks: how could a person instantly remember what he had inadvertently omitted to do what he said he was asked by Michael Kao to do when the latter resigned as a director of Sunni in July 2008? When a person had inadvertently omitted to do something he was supposed to do a year ago, as a matter of inherent probabilities, it means he had forgotten all about it, not that he had constantly kept this in mind.

318.  Alex Lo’s evidence above is also unreliable for another reason. While he said he had checked “the relevant documentation” of the share transaction and shown it to Michael Kao, he was extremely vague as to what the “relevant documentation” was supposed to be. Did he mean Francis Kao had sent his instructions in writing to UOB or UOB had sent a written confirmation of the purchase and/or an invoice to Sunni for payment? If so, none of these are not in evidence. If he meant something other than the above, then what could the “relevant documentation” be?

319.  As for Michael Kao, his explanation during cross-examination in the afternoon of Day 17 is wholly inconsistent with what he said in MK2.

“MR CHAN: The question is straightforward: at the time when you were asked to sign these cheques, have you enquired as to what these cheques are for?

A. No.

COURT: Why not?

A. Because I saw the signature behind, therefore I put my signature in front and did not pay particular attention to try to understand the matter.

COURT: All right. Let’s start with 968. All right? Who signed first?

A. Alex Lo signed first.

COURT: Fine. 969?

A. Same.

COURT: 970?

A. Same.

COURT: 971?

A. Same.

COURT: So you are saying Alex Lo signed the cheque and you co-signed it because Alex Lo had signed it?

A. Yes.

…

MR CHAN: All right. My question is, what I’m suggesting to you is, there was -- from your answer -- no other reason for you to sign the cheques, other than having seen that Alex Lo had already signed it.

A. Correct.

COURT: Move on, please.

MR CHAN: Yes. And you didn’t even enquire as to whether the company has got enough money to meet the cheque?

A. I never asked.

Q. I see.

COURT: Right now we’re talking about -- we’re talking about money. We’re not talking about -- we’re not talking about a few dollars.

A. I really didn’t ask.

COURT: Why not?

A. I already resigned from all the positions in that company. I did not want to understand it and I did not want to know it.

MR CHAN: All right.

…

MR CHAN: Now, I suggest to you, Mr Kao, you knew full well, in signing these cheques, the only source of funds of the company must be the proceeds of the disposal of the Imagi shares.

A. I have no idea.

Q. And I suggest to you that you felt confidence because at least you personally was responsible for causing the disposal of 99 million Imagi shares through Fairwin, not to mention other disposal from other securities companies.

A. Disagree.

Q. I suggest to you that you knew that this was for the purchase of shares which is intended not for the benefit of Sunni.

A. I did not think about that.

Q. So you did not and have never considered whether it was for the benefit of Sunni to issue the cheques to buy the shares?

A. I did not consider that because I already resigned from the company and I did not want to know.” (emphasis added)

320.  This court accepts Sunni’s submission that in light of the proximity of time between drawing of the cheques for the acquisition of the Cheung Kong Shares, their actual acquisition and their subsequent disposal, these 3 events should be seen as a single composite transaction with a view to giving away the Cheung Kong shares to Big Plan.

321.  Sunni next submits had Michael Kao made sufficient enquiry as to the purpose of the cheques he was asked to sign, he would have found out the eventual purpose of the purchase of the Cheung Kong shares was for them to be given away to Big Plan.

322.  Sunni invites this court to take inter alia the following into account:

(a) Francis Kao, his son, was the sole director of Sunni at the time of the acquisition and the subsequent disposal of the Cheung Kong shares.

(b) Michael Kao and Francis Kao were authorised signatories to operate the UOB Account singly.

(c) Either Michael Kao or Francis Kao or both must have given instructions to UOB to acquire and subsequently transferred away the Cheung Kong shares. They must have some record of the instructions given.

(d) Taking Michael Kao’s case at its highest that it was Francis Kao who gave the requisite instructions to UOB, given their father-son relationship, Michael Kao could have asked Francis Kao for documents or called him to testify to show it was indeed him who alone gave the instructions to UOB.

(e) No such documents have been adduced in evidence. Michael Kao did not call Francis Kao to testify on his behalf.

(f) At the material time, both Francis Kao and Michael Kao lived in different flats in the same building ie Broadwood Villa.

(g) Any suggestion by Michael Kao that he was in a hostile relationship with Francis Kao is incredible and ought to be rejected.

323.  In this court’s view, whether or not Michael Kao was in a hostile relationship with Francis Kao, he could have made inquiries with Francis Kao (or Alex Lo) and would have been able to find out more about Francis Kao’s plan. Had he made the necessary inquiries, he might have found out Francis Kao had given instructions to UOB for the acquisition of the Cheung Kong shares but also their transfer out from the UOB Account. He might even have found out what Francis Kao was ultimately up to with those Cheung Kong shares. But he just did not ask because he did not want to know.

324.  What Michael Kao admitted in cross-examination is tantamount to deliberately turning a blind eye to the immediate or eventual purpose of drawing the 3 cheques in question and him being reckless as to the consequences of his actions complained of. That is sufficient to justify a finding of absence of honesty or good faith.

325.  In Armitage v Nurse [1998] 1 Ch 241 at 251, Millett LJ (as he then was) said that “actual fraud” “connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not.” (emphasis added)

326.  A similar principle was more recently laid down by the English Court of Appeal in First Subsea Ltd at [64].

327.  In doing what he did, this court finds that Michael Kao had acted in fraudulent breach of his fiduciary duties as an authorised signatory of the HSBC Accounts to act in good faith and in the best interests of Sunni and to act for a proper purpose. To be more specific, the testimony of Michael Kao in cross-examination that he did not make any enquiry and he “did not want to know” gives rise to a compelling inference that he was being recklessly indifferent and thus not acting in good faith. This court is entitled to draw that inference and shall so find.

Sunni’s Unlawful means conspiracy claim against Francis Kao, Michael Kao, Win Harvest and Big Plan (Issue 22)

328.  Sunni submits that Francis Kao, Michael Kao, Win Harvest and Big Plan jointly conspired together to defraud Sunni by depriving Sunni of or otherwise misappropriating its assets by unlawful means.

329.  To start with, it is undisputed by Mr Cheung that the elements of an unlawful means conspiracy are as follows:

(1) A combination, arrangement or understanding between 2 or more people. It is not necessary for all the conspirators to join the conspiracy at the same time so long as they must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the acts complained of.

(2) An intention to injure another person or separate legal entity - there is no need for that to be the sole or predominant intention. The necessary intent can be and often will need to be inferred from the primary facts. Foresight that his unlawful conduct may or will probably damage the claimant cannot be equated with intention.

(3) Concerted action in the sense of active participation consequent upon the combination or understanding.

(4) Use of unlawful means as part of the concerted action.

(5) Loss being caused to the target of the conspiracy.

Iranian Offshore Engineering & Construction Co v Dean Investment Holdings SA [2019] EWHC 472 (Comm) at [171][47]

330.  The Court will scrutinise the overt acts relied upon in order to draw the inferences as to the existence or otherwise of the alleged conspiracy since it is often in conspiracy cases, the implementing action is itself the only evidence of conspiracy – that is the doctrine of overt acts: Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd [1994] 2 HKC 264 at 271I. It is not necessary for all the conspirators to take part in all the concerted overt act(s). It is permissible for there to be a number of overt acts which include at least one act on the part of each conspirator: Aktieselskabet Dansk Skibsfinansiering at 272E. See also [2017] HKCA 642, para 24.

331.  Unlawful means clearly include acts such as fraud and a director’s breach of his or her fiduciary duties: Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435 at 462; Keymed (Medical & Industrial Equipment) Ltd v Hillman [2019] EWHC 485 at [122]. In Iranian Offshore Engineering at [172 (2)], Butcher J also included as unlawful means breaches of duties by 2 principal defendants, assistance by other defendants and receipt of the claimant’s funds by them as well as their distribution. But there is no requirement that the unlawful means themselves are independently actionable: Iranian Offshore Engineering at [171].

Francis Kao, Win Harvest and Big Plan

332.  Sunni submits that Francis Kao was the main culprit and the front man behind the fraudulent scheme to misappropriate and dissipate Sunni’s assets by utilising his position as its sole director since 8 August 2008 and an authorised signatory to Sunni’s HSBC Accounts and Securities Accounts. He gave instructions to sell all the 585m Imagi shares within 4 months and then misappropriated the sale proceeds by channelling most of the funds and assets of Sunni to himself and his associates. By the aforesaid misappropriation, Francis Kao was in fraudulent breaches of his fiduciary duties to Sunni with intent to injure Sunni. This court should add that he even devised this non-existent Restructuring Scheme to cover up his breaches of fiduciary duties and the misdeeds of Win Harvest and Big Plan.[48]

333.  Save for this court’s finding that it was Michael Kao, rather than Francis Kao, who instructed Fairwin to dispose of 99 million Imagi shares, more probable than not at the request of Francis Kao, this court accepts Sunni’s said submission.

334.  Sunni further submits that Win Harvest and Big Plan, being Francis Kao’s associates and companies under his control and direction, were also actively involved in Francis Kao’s fraudulent scheme by being the channels through which Francis Kao misappropriated Sunni’s assets, details of which can be found in the section above on the “Liability of the Corporate Defendants”.

335.  In the circumstances, Sunni submits Francis Kao, Win Harvest and Big Plan have combined together to achieve the common end of misappropriating and dissipating all of Sunni’s assets, by Francis Kao’s fraudulent breaches of his fiduciary duty to Sunni coupled with the knowing receipt and dishonest assistance of Win Harvest and Big Plan. This court agrees and is satisfied that Sunni’s case of unlawful means conspiracy against Francis Kao, Win Harvest and Big Plan is made out on the evidence and shall so find.

Michael Kao

336.  Sunni submits in its Closing that despite Michael Kao’s denial, he played a crucial role in Francis Kao’s fraudulent scheme and was a party to the same. Further, Michael Kao must know of and must have agreed, albeit tacitly, to Francis Kao’s fraudulent scheme to misappropriate all assets of Sunni.

337.  In this regard, Sunni relies on the following overt acts / unlawful means:

a. disposing of all the 585m Imagi Shares to make funds readily available for misappropriation;

b. drawing cheques on the HSBC Current Accounts of over HK$26 million for the acquisition of the Cheung Kong shares (amongst the Other Listed Shares) which were subsequently dissipated to Big Plan.

338.  Sunni submits that, by taking these steps, Michael Kao himself was in fraudulent breach of his fiduciary duties to Sunni. Further, as found by this court, Michael Kao was also in breach of the 4-Families Agreement[49]. All these constitute the unlawful means for the purpose of the conspiracy claim. This court should add that Sunni would probably wish to pray in aid all the available “primary facts” said to implicate Michael Kao (as to which see the section above on “Disposal of the 585 million Imagi Shares in 2009”).

339.  This court has earlier found that Michael Kao was in fraudulent breach of his fiduciary duty to Sunni as an authorised signatory for the disposal of 99 million Imagi shares via the Fairwin Account and for drawing the 3 cheques for the acquisition of the Cheung Kong shares. This court has also found Michael Kao to have acted in breach of the 4-Families Agreement for disposing of the Imagi shares without the consent of the other 3 Families.

340.  But this court is not satisfied that he had acted in concert with Francis Kao to dispose of all the 585 million Imagi shares. There is also no evidence from which this court can infer Michael Kao was sufficiently aware of or involved in the Disposal of the Other Listed Shares (other than the Cheung Kong shares), the cheque payments to Francis Kao, the Interbenz Cheque, the Yacht Payments, the Miscellaneous Payments etc.

341.  The question is: are there enough for this court to draw the inference that Michael Kao was a party to the conspiracy and had the intention to injure Sunni?

342.  In both his Opening and Closing, Mr Cheung keeps emphasising that for the present purpose, each of the alleged conspirators must have been sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the act complained of. His ultimate submission, as expected, is that the factual matters relied on by Sunni are not made out and do not amount to overt acts from which a conspiracy can be inferred against Michael Kao.

343.  Mr Cheung in his Closing submits at length that Sunni has failed to prove its case of a conspiracy (which this court takes it to mean a “combination, arrangement or understanding”) between Francis Kao and Michael Kao or a common intention on their part to injure Sunni. It is not necessary to recite the entirety of his submissions. The most important point in Michael Kao’s defence is that the primary facts do not support the inference of a combination, arrangement or understanding between the two in relation to Francis Kao’s fraudulent scheme or an intention on the part of Michael Kao to injure Sunni.

344.  With regard to the disposal of the 585 million (or the 99 million for which Michael Kao was responsible) Imagi Shares in 2009, this court has found it was solely masterminded by Francis Kao and Michael Kao was not a party to his scheme. There was thus no combination, arrangement or understanding between Francis Kao and Michael Kao to effect the disposal.

345.  With regard to Michael Kao’s breach of the 4-Families Agreement, this court is prepared to infer an intention on his part to injure the other 3 Families (as a direct consequence of his instructions to dispose of the 99 million Imagi shares behind their back). But that cannot be translated as an intention to injure Sunni.

346.  Lastly, with regard to the drawing of the cheques of over HK$26 million for the acquisition of the Cheung Kong shares (amongst the Other Listed Shares), this court has found that Michael Kao was being recklessly indifferent whether his action was contrary to Sunni’s interests. But that is not the same as Michael Kao harboring an intention to injure Sunni – even foresight that his unlawful conduct might or would probably damage Sunni cannot be equated with intention to injure Sunni.

347.  This court has borne in mind that for an allegation of such serious misconduct, it must be able to find the inference “compelling” and “plainly established” on the primary facts. On the evidence, this court is unable to infer that Michael Kao was “sufficiently aware of the surrounding circumstances and share the same object” for it to be properly said that the father and son were acting in concert at the material time. Nor is this court able to infer that Michael Kao harboured an intention to injure Sunni by doing what he did – he may or may not have foreseen that his unlawful conduct may or will probably harm Sunni, but even if he had, that was not enough to infer an intention to injure Sunni.

Conclusion on Unlawful means Conspiracy

348.  To conclude, this court finds that Sunni’s unlawful means conspiracy claim is made out against Francis Kao, Win Harvest and Big Plan but not Michael Kao.

Limitation Defence (Issue 23)

349.  Francis Kao has been debarred from defending and his pleadings have been struck out. There is thus no need to consider whether the claims against him is time-barred.

350.  Next, Michael Kao’s limitation Defence.

351.  Mr Cheung submits that both the breach of fiduciary duty claim and the unlawful means conspiracy claim against Michael Kao are time-barred.

352.  Mr Cheung submits that a claim for breach of fiduciary duty is subject to the 6 years limitation period under section 20 (2) LO; Hui Chun Ping v Hui Kau Mo[2022] HKCFI 2451 at [53] - [54] & [58], per DHCJ H Au-yeung (as he then was).[50]

353.  Section 20 LO provides that:

“(1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Ordinance, shall not be brought after the expiration of 6 years from the date on which the right of action accrued…”

354.  In reply, Sunni submits that so far as its claims against Michael Kao are concerned, no limitation period is applicable by virtue of section 20(1) LO.

355.  Sunni submits it is well-established that for the purpose of section 20(1) LO, a director is regarded as a trustee of the company’s assets: Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139 at [18] per Lord Hoffmann NPJ.

356.  Sunni further submits that its claims against Michael Kao, in his capacity as the authorised signatory of inter alia the HSBC Accounts and the Fairwin Account and owed fiduciary duties, likewise falls within the scope of “trustee” in section 20(1) by analogy.

357.  In Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) [2003] EWCA Civ 1048 at [89] and [90], Mummery LJ explained the legal position of someone who owed fiduciary duties as thus:

“[89] A similar distinction to that drawn in the law of trusts is drawn in cases of breach of fiduciary duty. The fiduciary relationship has developed by analogy from the trust relationship to cover cases in which a person has assumed responsibilities for the management of another person’s assets. There is a distinction between—

‘those whose fiduciary obligations preceded the acts complained of and those whose liability in equity was occasioned by the acts of which complaint was made.’ …

[90]For limitation purposes the two classes of trust and/or fiduciary duty are treated differently. The first class of case arising from the breach of a pre-existing duty is, or is treated by analogy as, an action by a beneficiary for breach of trust falling within s 21(1) of the 1980 Act. This means that there is no limitation period for the cases falling within s 21(1)(a) or (b)…” (emphasis added)

358.  In Peconic Industrial Development Ltd at [19], Lord Hoffmann NPJ further explained as follows:

“19. The language of s.20 [LO], like most of the Ordinance, is taken word for word from the UK Limitation Act 1939. It was obviously intended to have the same meaning … For the purposes of limitation, however, there are two kinds of constructive trustees… First, there are persons who, without any express trust, have assumed fiduciary obligations in relation to the trust property; for example as purchaser on behalf of another, trustee de son tort, company director or agent holding the property for a trustee. I shall call them fiduciaries. They are treated in the same way as express trustees and no limitation period applies to their fraudulent breaches of trust…” (emphasis added)

359.  Sunni submits that an authorised signatory with the power to operate a company’s bank accounts and/or securities accounts has access to and control of the company’s assets therein. But he does not have access and control in his own right, but by being entrusted by the company with the operation of those accounts. His access and control are coloured by the trust and confidence and fiduciary duties by means of which he obtained it and independent of any breach of duties thereafter. By taking the position as an authorised signatory, he has also voluntarily assumed fiduciary obligations in relation to the assets in the accounts and should therefore be regarded as “trustee” for the purpose of section 20(1) LO.

360.  The context of Hui Chun Ping v Hui Kau Mo was a defendant’s appeal against a Master’s Order granting leave to the plaintiff to amend its Writ and Statement of Claim. This court observes that [53] - [54] are conclusions based on Counsel for the plaintiff’s concession. [58] simply reads as follows without much further explanation:

“I accept [Counsel for the defendant’s] submissions[51] and agree that the six-year limitation period is applicable to the claim regarding the removal of the plaintiff as signatory of the Bank Account.”

361.  In these circumstances, with respect to the learned Deputy Judge, it is difficult to accept the first instance decision of Hui Chun Ping v Hui Kau Mo as authoritative for the present purpose.

362.  Hui Chun Ping v Hui Kau Mo actually went all the way up to the Court of Final Appeal: (2024) 27 HKCFAR 634. In Lord Hoffmann NPJ’s judgment, the distinction between the 2 categories of trustees was reiterated: “Category 1” trustees are those who had accepted fiduciary duties in relation to the trust property prior to a subsequent breach of trust whereas “Category 2” trustees are those whose liability arose solely as a result of their wrongful conduct. Section 20(1) LO governs “Category 1” trustees so that no limitation period is applicable whereas the 6-year limitation period in section 20(2) LO governs “Category 2” trustees. The actual decision of that case was the defendant in question was a “Category 2” trustee and the claim was time-barred. Both Gwembe Valley Development Co Ltd (in receivership) and Peconic Industrial Development Ltd among others were referred to and applied in Lord Hoffmann NPJ’s judgment.

363.  This court finds Sunni’s aforesaid submissions and based as they are on the authorities cited persuasive (and binding on this court as far as Peconic Industrial Development Ltd is concerned) and agrees with them. In consequence, this court holds that Sunni’s claim of fraudulent breach of fiduciary duty against Michael Kao, being a “Category 1” trustee, falls within section 20(1)(a) LO and no limitation period is applicable. Michael Kao’s limitation defence fails.

364.  Next, the Corporate Defendants’ limitation Defence.

365.  Sunni submits that section 26(1)(a) LO applies to extend the limitation period in relation to the claims of (i) dishonest assistance (ii) unlawful means conspiracy and (iii) knowing receipt.

366.  In relation to (iii), Sunni relies on the requirement of the unconscionable knowledge of a defendant to establish a claim of knowing receipt. Sunni submits that is sufficient for the purpose of “fraud” under section 26(1)(a) which provides for the postponement of a limitation period if the action is based on the fraud of the defendant.

367.  Section 26(1)(a) LO states:

“(1) …where in the case of any action for which a period of limitation is prescribed by this Ordinance, either—

(a) the action is based upon the fraud of the defendant;

…

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

368.  Since there is no evidence from any of the Corporate Defendants as to when the Liquidator could with reasonable diligence have discovered the fraud, if section 26(1)(a) applies, which this court rules it does for the reasons below, then the limitation period would only start to run when the Liquidator actually discovered the fraud. As such, the claims against the Corporate Defendants cannot be time-barred – the Liquidator was only appointed in 2015.

369.  It is trite law that an action is based on fraud if fraud is an essential part of the cause of action: Beaman v ARTS Ltd [1949] 1 KB 550 at 558.

370.  As far as dishonest assistance is concerned, it is uncontroversial that such a claim falls within section 26(1)(a): Lewin on Trusts 20^th Ed at para 50-153; Williams v Central Bank of Nigeria [2014] AC 1189 at [68]; Madoff Securities International Ltd v Raven [2013] EWHC 3147 (Comm) at [387].

371.  As far as unlawful means conspiracy is concerned, in China Everbright-IHD Pacific Ltd v Ch’ng Poh unrep, HCA 12837 of 1995, 20 January 2000, Yuen J (as she then was) observed at pp 6-7 as follows:

“The second matter which has been debated before me is whether fraud as one of the unlawful means for a cause of action in conspiracy has been pleaded…

…

I have been referred to the case of Beaman v. Arts Limited [1949] 1 KB 550 which at page 558 said that where one makes a claim for “fraudulent conversion”, that does not make it a claim based on fraud, because fraud is not a necessary allegation to constitute the cause of action of conversion.

Similarly, fraud is not a necessary allegation to constitute a conspiracy, in the sense that one can have a conspiracy to do lawful acts which is still actionable because of a pre-dominant intention to injure.

However, if one says that there has been a conspiracy to do unlawful acts by unlawful means, one looks to see what are the unlawful means alleged, and in my view, as I have indicated, the way I would read paragraph 6(1) is that the unlawful means have been confined to the contravention of Section 48, concealment of the contravention of Section 48 and conversion.

Therefore in my view of the pleading of paragraph 6(1), I would agree with Mr Strachan that fraud is not one of the unlawful means constituting the cause of action of conspiracy as pleaded under 6(1)…” (emphasis added)

372.  So, whether or not fraud is part of the unlawful means and thus comes within section 26(1)(a) depends on how the claim for unlawful means conspiracy is pleaded and ultimately whether it is proved.

373.  If one looks at what are the unlawful means alleged and proved in this case, then the present case is clearly different from China Everbright-IHD Pacific Ltd v Ch’ng Poh. This is because fraud is indeed relied upon and proved by Sunni against Win Harvest and Big Plan as the unlawful means for the purpose of the unlawful means conspiracy claim. If so, this court does not see why section 26(1)(a) LO is inapplicable: Galsworthy Ltd v Liu Por[2019] HKCFI 2397 at [398]-[399] per Marlene Ng J.

374.  To conclude, this court rules that section 26(1)(a) applies to the unlawful means conspiracy claim and is equally not time-barred.

375.  Whether a claim in knowing receipt also falls within section 26(1)(a) is less well settled – there is no general rule and it all depends on the allegations put forward by a claimant in support of the claim.

376.  In Brent LBC v Davies [2018] EWHC 2214 (Ch) at [574] - [576] Zacaroli J was in favour of the proposition that section 26(1)(a) did not apply to a claim in knowing receipt. This court has considered [574] - [576] and, with respect to the learned Judge, finds the analysis of the authorities over-simplified.

377.  While there is a suggestion that fraud is not an essential element for a claim of knowing receipt in Lewin on Trusts at para 50-153, which in turn is based on Brent LBC v Davies, Sunni submits that section 26(1)(a) extends to the claim for knowing receipt in the present case.

378.  Sunni submits in its Opening[52] that the essential ingredient of knowing receipt is the “unconscionability” of the defendant’s state of mind. As held by Godfrey J (as he then was) in Yeu Shing at 714C, unconscionable behaviour could be taken as within the scope of “fraud” under section 26(1)(a). In this court’s view, it all depends on the context.

379.  In China Medical Technologies, Inc. & Ors v The Bank of East Asia Limited[2023] HKCFI 2156, this court was faced with the defendant’s application to strike out the plaintiff’s claims in knowing receipt on the ground that they were time-barred and did not fall within the postponement provision under section 26 of LO. Putting it simply, the Defendant submitted that knowing receipt was not a cause of action “based upon fraud”.

380.  In the end, this court dismissed that part of the application. The analysis of the authorities at [42] to [54] is particularly germane for the present purpose and is worth repeating here.

“ 42. The issue was canvassed by Mimmie Chan J in Hing Yip Holdings (Hong Kong) Limited v Cellmark China Limited[2021] HKCFI 1396, 17 May 2021 concerning claims based on want of authority and knowing receipt. At [230] to [236], the learned Judge analysed the authorities and concluded obiter that fraud was not an essential element of either claim so that section 26(1) had no application. At [232] to [235], the learned Judge explained her reasoning as follows:

‘232. For section 26 (1) to apply, the Plaintiff has to establish either that the action is based upon the fraud of the Defendants, or any fact relevant to the Plaintiff’s right of action had been deliberately concealed from the Plaintiff by the Defendants, in which case limitation shall not begin to run until the Plaintiff had discovered the fraud or concealment, or could with reasonable diligence have discovered it.

233. Whilst the Defendants accept that dishonest assistance is based upon fraud (to fall within section 26 (1) (a)), they do not accept fraud to be a necessary allegation to constitute knowing receipt and want of authority. Knowing receipt requires unconscionability on the basis of the defendant’s knowledge (BCCI v Akindele; Williams v Central Bank of Nigeria [2014] AC 1189) but as Counsel submitted in the context of the Plaintiff’s claim in knowing receipt, unconscionability requires a lower standard than dishonesty (Akai). The Plaintiff relies on Williams v Central Bank of Nigeria [2014] AC 1189 to contend that knowing receipt is accepted as activating section 26 (1) (a) of LO. In that case, Lord Neuberger observed at para 119 of his judgment:

‘Finally, it is right to mention that in some cases of dishonest assistance or knowing receipt, even though the normal six-year period may have expired, a claimant may be able to invoke section 32 of the 1980 Act, which postpones the commencement of the six years, in cases ‘based on the fraud of the defendant’, or where the defendant has ‘deliberately concealed’ relevant facts from the claimant.’

234. The above only states that in some cases, the six-year limitation may be postponed either in cases which are based on fraud, or where the defendant has deliberately concealed relevant facts. It is not, on its face, a broad and general statement that all cases of knowing receipt are based on fraud as a necessary element of the cause of action.

235. The Defendants rely on Brent Borough Council v Davies [2018] EWHC 2214 (Ch), which contains a more thorough analysis. There, the Court explained its basis for finding that knowing receipt is not based on fraud, and I agree with that finding…’ (emphasis added)

43. The issue was canvassed in [China Medical Technologies, Inc & Ors v Bank of China (Hong Kong) Ltd[2021] HKCFI 3042] at [82] - [86]. After referring to Beaman v ARTS Ltd [1949] 1 KB 550 and Hing Yip Holdings (Hong Kong) Limited, this court then turned to DHCJ Le Pichon’s decision in China Metal Recycling (Holdings) Limited (in Liquidation) & Anor v UBS AG & Anor[2021] HKCFI 918 at [61] - [72] in which the learned Judge examined the issue whether section 26 LO was limited to common law fraud or could be extended to unconscionable conduct.

44. At para 61 of his submissions, Mr Man SC has helpfully summarised the reasoning of DHCJ Le Pichon as follows:

‘61.1 Section 26(1) of the LO is based on s.32(1) of the English Limitation Act 1980. The predecessor of s.32(1) of the 1980 Act is s.26 of the Limitation Act 1939.

61.2 The event justifying postponement under s.26(b) of the 1939 Act was in the terms of ‘the right of action was concealed by the fraud of the defendant’. Section 26(a) of the 1939 Act reads ‘the action is based upon the fraud of the defendant’, which is identical to the current s.32(1)(a) of the 1980 Act and s.26(1)(a) of the LO.

61.3 Under s.26(b) of the 1939 Act, there were various cases to the effect that ‘fraud’ covered unconscionable behaviour…’

45. At [70], the learned Judge observed that when one looked at the language of section 26 (a) and (b) of the 1939 Act, ‘fraud’ was the term used in both limbs. It was not obvious why the same term should be interpreted differently. Subsequent legislative changes to the provision dealing with concealment could not affect what the term ‘fraud’ meant as used in both limbs in the 1939 Act.

46. Then, at [72], the learned Judge concluded that there was a serious question to be tried that the meaning of fraud in section 26 LO included where the defendant acted with “some knowledge of the impropriety of the conduct involved” or unconscionably.

47. On the basis of the above, this court concluded at [86] of [China Medical Technologies, Inc & Ors v Bank of China (Hong Kong) Ltd] that ‘it is at least arguable that section 26(1) can cover the Plaintiffs’ claim for knowing receipt, as the Defendant originally conceded in its skeleton submissions.’

48. The Defendant submits at para 62 of its skeleton that: ‘DHCJ Le Pichon’s reasoning is flawed and unsustainable because the two provisions dealt with different concepts of ‘fraud’. This is clear from the legislative history (which does not appear to have been placed before the court in China Metal or in the BOC Decision).’

49. The Defendant at paras 63 and 64 refers to various passages in the Law Revision Committee Fifth Interim Report (Statutes of Limitation) (1936) Cmd 5334 and the Law Reform Committee Twenty-First Report (Final Report on Limitation of Actions) (1977) (Cmnd. 6923) and submits that s.26(a) was not to be construed in the same way as s.26(b) and that s.26(a) simply refers to common law fraud. Hence, its aforesaid submission that DHCJ Le Pichon’s reasoning is flawed and unsustainable.

50. This court has also been referred to a much earlier decision of the Court of Appeal decision in China Everbright-IHD Pacific Ltd v Ch’ng Poh unrep, CACV 513/2001, 19 February 2002, Rogers VP, Le Pichon JA and Suffiad J. At [73] - [74], Rogers VP and Le Pichon JA observed:

‘73. In her ruling dated 20 January 2000, the judge held (at pages 6J – 7R) that the word “fraudulently” in paragraph 6(1) of the re-re-amended statement of claim described the conspiracy but not the unlawful means used which were the contravention of section 48 of the Companies Ordinance, the concealment of that contravention and the conversion. Fraud was not an essential ingredient in any of the relevant causes of action in the present case. For that reason, the judge did not consider that paragraph (a) of section 26(1) was applicable: see Beaman v A.R.T.S. Limited [1949] 1 KB 550 at 558, 567 and 571.

74. In its respondent’s notice, the plaintiff contended that the judge was wrong, that section 26(1)(a) also applied and formed an additional reason for affirming the judgment below. The plaintiff submitted that the word “fraud” was not used in the common law sense but in the equitable sense and if that was right, “fraud” must be given the same meaning in both limbs of the same subsection. It relied on the observations of Somervell LJ in Beaman’s case at 567 to the effect that there may perhaps be equitable claims in which there would be scope for argument as to whether the claim was based on fraud and on King v Victor Parsons & Co. [1973] 1 WLR 29. But the question before the Court of Appeal in that case related to the predecessor provision of a different limb of section 26(1), namely, paragraph (b) rather than paragraph (a). Moreover, the successor provision to paragraph (b) of section 26(1) of the 1939 Act no longer refers to concealment by fraud but to deliberate concealment. In these circumstances, King v Victor Parsons case can be of no assistance in the construction of section 26(1)(a). In our judgment, the reasoning of the court in Beaman’s case stands and paragraph (a) of section 26(1) of the Limitation Ordinance cannot avail the plaintiff.” (emphasis added)

51. It can be seen from para 74 that while the Court of Appeal was of the view King v Victor Parsons (a case on s 26(b) of the 1939 Act) was of no assistance to the construction of s 26(a) of the 1939 Act ie section 26(1)(a) of LO, that passage did not demur from the observation of Somervell LJ in Beaman v ARTS Ltd (a case on s 26(a) of the 1939 Act) at 567 to the effect that there might be equitable claims in which there would be scope for argument as to whether the claim was based on fraud. This is echoed in Williams v Central Bank of Nigeria [2014] AC 1189 where Lord Neuberger observed at para 119 of his Judgment that in some cases of dishonest assistance or knowing receipt, even though the normal six-year period might have expired, a claimant might be able to invoke section 32 of the 1980 Act, which postpones the commencement of the six years, in cases “based on the fraud of the defendant”.

52. Somervell LJ also made the general observation at 567 that where a word has been construed judicially in a certain legal area, it is right to give it the same meaning if it occurs in a statute dealing with the same general subject matter, unless the context makes it clear that the word must have a different construction. In this court’s view, a fortiori if the same term “fraud” was used in the same section of the same statute ie s 26 of the 1939 Act.

53. In view of the above, this court is far from convinced that the suggested legislative intention that s.26(a) was not to be construed in the same way as s.26(b) can be clearly ascertained from a few passages of the Law Revision Committee’s Interim Report or Final Report.

54. Further, DHCJ Le Pichon’s decision was affirmed by the Court of Appeal in China Metal Recycling (Holdings) Ltd (In Liq) v UBS AG [2021] 4 HKLRD 594 refusing to grant leave to appeal. At [38] - [40], Godfrey Lam JA, giving the judgment of the Court, explained thus:

‘38. The Judge agreed with the plaintiffs that there is a serious issue to be tried that “fraud” in section 26 includes where the defendant acts with “some knowledge of the impropriety of the conduct involved” (a phrase used in Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 286 in relation to a provision similar to section 20(1)(a) of the Limitation Ordinance) or unconscionably.

39. As pointed out by the plaintiffs, UBS Ltd did not initially seek leave to appeal on this point, but only sought to add this ground after the decision in Hing Yip Holdings (Hong Kong) Ltd (in compulsory liquidation) v Cellmark China Ltd (in voluntary liquidation), supra, was handed down on 17 May 2021, in which Mimmie Chan J expressed the view, obiter, that a claim in knowing receipt is not an action based upon fraud within the meaning of section 26(1)(a), adopting the reasoning in a first instance English decision: Brent Borough Council v Davies [2018] EWHC 2214 (Ch).

40. Although the cases on knowing receipt refer to a state of mind such as to make it unconscionable for the defendant to retain the benefit of the receipt, the degree of knowledge which might make such retention unconscionable varies with the context. This allows the court to set a standard that is appropriate to exigencies of the transaction in question: Snell’s Equity (34th ed), §30-072. What precisely is the knowledge that is required on the part of UBS Ltd in the present case, and what knowledge it in fact had, are questions for the trial. It would in our view be undesirable to try to determine, at this stage, based on the (unproven) facts alleged in the statement of claim alone, the controversial question of what “fraud” means within section 26(1)(a) and whether section 26(1)(a) can apply in this case as against UBS Ltd: see Moulin Global Eyecare Holdings Ltd, §11; Altimo Holdings and Investment Ltd, §84. It is often undesirable to determine novel and difficult points of law based on hypothetical facts…” (emphasis added)

381.  Both China Medical Technologies, Inc. & Ors v The Bank of East Asia, Limited and China Medical Technologies, Inc & Ors v Bank of China (Hong Kong) Ltd were striking out applications and this court concluded that the claim of knowing receipt was not plainly and obviously unsustainable. Since this is a trial, the time has come for this court to come to a concluded view on the law and how it applies to the present case.

382.  On the basis of the analysis of the authorities explained above, this court is of the view is that a claim in knowing receipt in the present case (but not in all cases), also falls within section 26(1)(a) LO and shall so find. If so, there is no time-bar problem for Sunni’s claims against the Corporate Defendants.

Relief sought by Sunni against Francis Kao, Michael Kao and the Corporate Defendants (Issue 26)

383.  This court accepts, with modification, Sunni’s summary of the legal principles on relief in its Closing as follows.

a. A fiduciary is under a duty to pay sufficient equitable compensation to put the estate back to what it would have been had the breach not been committed: Libertarian at [87].

b. A dishonest assistant is jointly and severally liable to Sunni with Francis Kao (and in so far as applicable Michael Kao) for any loss which Sunni suffers as a result of the breach of fiduciary duties: Ultraframe at [1600].

c. Sunni can claim against a knowing recipient for any trust property or its identifiable substitute he has received or acquired by invoking the principles of following and tracing. If the original recipient has passed on the property or its substitute to another person, the principles of following and tracing continue to apply to the property or its substitute in the hands of that other: Ultraframe at [1486].

d. Any defendants found liable for unlawful means conspiracy are jointly and severally liable for losses which Sunni suffered as a result: Iranian Offshore Engineering at [174].

e. As for the tracing claims, Sunni can trace the misappropriated assets into the hands of the wrongdoing fiduciary and anyone who derives title from him except a bona fide purchaser for value without notice. The same rules apply even where there have been numerous successive transactions. Where the wrongdoing fiduciary uses trust funds to provide part of the costs of acquiring an asset, Sunni is entitled at its option either to claim a proportionate share of the traceable asset or to enforce a lien upon it to secure its personal claim for the amount of the misapplied money: Foskett at 130D-E, 131G-H.

f. Compound interest may be ordered where a fiduciary has misappropriated funds which the Court assumes would have been used by him to earn profits. Instead of ordering an account of those profits, the Court orders him to pay compound interest on the sum extracted: Libertarian at [142].

384.  On the aforesaid legal principles, Sunni submits in its Closing:

a. By virtue of Francis Kao’s fraudulent breach of fiduciary duties, Sunni is entitled to equitable compensation in the sum of HK$235,259,339.61[53] (being the value of Sunni’s assets misappropriated by Francis Kao).

b. By virtue of Michael Kao’s fraudulent breach of fiduciary duties, Sunni is entitled to equitable compensation in the sum of:

i. HK$78,730,000 (being the value of the Other Listed Shares wrongfully misappropriated as referred to in para 21 of the Re-Amended Statement of Claim); or

ii. alternatively, and in view of para 21A of the Re-Amended Statement of Claim, Sunni is content with HK$26,580,881.95 (being the amount of the 3 cheques co-signed by Michael Kao for the acquisition of 275,000 Cheung Kong shares).

iii. Sunni further submits in its Closing that in principle it is also entitled to HK$36,980,837.84 being the proceeds of the sale of 99 million Imagi shares through Fairwin. For practical reasons, Sunni no longer seeks an account from Michael Kao for that sum.

c. By virtue the Corporate Defendants’ dishonest assistance and/or knowing receipt, Sunni is entitled to equitable compensation in the following sums (being the value of Sunni’s assets misappropriated):

i. Win Harvest: HK$39,909,048.60 (subject to any sum recovered by Sunni by enforcing its lien against the St Andrews Place Property to the extent of HK$7,000,000);

ii. Unicorn: HK$28,288,081.04;

iii. Big Plan: HK$152,327,959.12; and

iv. Famewell: EUR1,000,000.

385.  Alternatively, so far as Francis Kao (and in so far as applicable Michael Kao), Win Harvest and Big Plan are concerned, they are jointly and severally liable for the losses suffered by Sunni as a result of their unlawful means conspiracy:

a. Francis Kao: HK$111,195,705.21 (Sunni submits that in principle it is entitled to the whole sum of the proceeds of the Concerted Disposal but in view of para 94A of the Re-Amended Statement of Claim, it shall limit its claim to the sum claimed therein).

b. Michael Kao (in so far as applicable): HK$111,195,705.21 (Sunni submits that in principle it is entitled to the whole sum of the proceeds of the Concerted Disposal but in view of para 98A of the Re-Amended Statement of Claim, it shall limit its claim to the sum claimed therein).

c. Win Harvest: HK$27,729,536.53 (Sunni says in principle Win Harvest is jointly and severally liable with Francis Kao to the same amount of HK$111,195,705.21, but in view of para 101A of the Re-Amended Statement of Claim, it limits its claim to the sum claimed therein).

d. Big Plan: HK$86,823,644 (Sunni says in principle Big Plan is jointly and severally liable with Francis Kao to the same amount of HK$111,195,705.21, but in view of para 105A of the Re-Amended Statement of Claim, it limits its claim to the sum claimed therein).

386.  Further, in relation to Win Harvest, Sunni is entitled to a lien on the St Andrews Place Property to the extent of HK$7 million representing half of the proceeds of the Pagani Sports Cars which Win Harvest acquired with the HK$6 million from Sunni.

387.  On interest, Sunni submits the present case falls within the circumstances in which compound interest is appropriate. Sunni seeks compound interest at judgment rate against Fancis Kao, Michael Kao, Win Harvest (except for the conspiracy claim), Unicorn and Big Plan (except for the conspiracy claim) on the sums claimed from them in HCA1884 from the date of Writ ie 13 August 2018 until payment and against Win Harvest and Famewell for the claims against them in HCA2380 from the date of the Writ ie 10 October 2018, until payment.

388.  On the evidence set out in Sunni’s Table of Reliefs[54] which this court takes as Sunni’s ultimate definitive version and supersedes all the figures previously put forward in its submissions, this court is prepared to grant the following reliefs against the Defendants.

389.  As against Francis Kao:

a. Equitable compensation in the sum of HK$235,269,339.61.

b. Damages for unlawful means conspiracy in the sum of HK$111,195,705.21.

c. Compound interest on a. and simple interest on b. at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment.

390.  As against Michael Kao:

a. Equitable compensation in the sum of HK$26,580,881.95.

b. Compound interest at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment.

391.  As against Win Harvest:

a. Equitable compensation for knowing receipt and/or dishonest assistance in the sum of HK$39,909,048.60.

b. Damages for unlawful means conspiracy in the sum of HK$27,729,536.53.

c. Compound interest on a. and simple interest on b. at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment.

d. A lien on the St Andrews Place Property to the extent of HK$7,000,000 and compound interest thereon at the prevailing judgment rate from 10 October 2018, the date of the Writ in HCA 2380/2018, to the date of Judgment and thereafter until payment.

392.  As against Unicorn:

a. Equitable compensation for knowing receipt and/or dishonest assistance in the sum of HK$28,288,081.04.

b. Compound interest at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment.

393.  As against Big Plan:

a. Equitable compensation for knowing receipt and/or dishonest assistance in the sum of HK$152,327,959.12.

b. Damages for unlawful means conspiracy in the sum of HK$27,729,536.53[55].

c. Compound interest on a. and simple interest on b. at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment

394.  As against Famewell:

a. A declaration that Famewell is liable to account to and pay Sunni the sum EUR1,000,000.

b. Compound interest at the prevailing judgment rate from 10 October 2018, the date of the Writ in HCA 2380/2018, to the date of Judgment and thereafter until payment.

395.  On the question of costs of the Adjournment, both Sunni and Madam Tsen seek costs against Francis Kao on an indemnity basis. The material procedural events have been set out at the beginning of this Judgment and need not be repeated.

396.  Sunni submits that as a result of Francis Kao’s pleadings having been struck out, the landscape of the trial changed fundamentally. In order to enable the parties to reconsider their approach to the trial and to make all necessary consequential amendments to their opening and the agreed documents, this court adjourned the trial between 10 and 15 January 2024. The Adjournment was a direct result of Francis Kao’s non-observance of the orders of the Court. As a result of the Adjournment, the parties have incurred costs which are now wasted including but not limited to such costs of unused refreshers and for live note services.

397.  Similarly, Madam Tsen submits that the Adjournment was caused by Francis Kao’s conduct both before and at the beginning of the trial.

398.  It is very clear to this court that the Adjournment was caused by Francis Kao’s “erratic” behaviour both before and at the beginning of the trial[56]. As a result, at least Sunni and Madam Tsen had to take time to adjust their approach to the trial and revise whatever submissions or documents they saw fit to place before this court, and they did.

399.  For the above reasons, this court considers it appropriate to order costs of the Adjournment be to Sunni and Madam Tsen to be taxed if not agreed on an indemnity basis and paid forthwith.

HCCW121 - The claims by Madam Tsen against Alex Lo

400.  Madam Tsen’s case originally focused on the following detailed issues:

a. Issue 4: whether Alex Lo owed any fiduciary duties to Sunni by being an authorized signatory to Sunni’s bank and securities accounts and the extent of such duties? In particular, whether he was caught by (i) section 275 of Cap 32 by being a person who knowingly was a party to the carrying on of the business of the Company and (ii) section 276 of Cap 32 by being a de facto director, an officer, a manager of Sunni or being a person who had taken part in the management of Sunni.

b. Issue 21: Whether Alex Lo was in breach of his fiduciary duties to Sunni and/or had conducted its business for a fraudulent purpose by:-

i. drawing HK$140,191,077.92 in favour of UOB, which were used for the acquisition of the Other Listed Shares which were subsequently disposed of;

ii. causing the Payments to First Shanghai in the sum of HK$31,656,060.30 which were used for the acquisition of the SOCAM Shares amongst which share certificates of 3,360,000 SOCAM Shares were subsequently withdrawn;

iii. causing part of the Payments to Francis Kao in the sum of HK$1,578,840;

iv. causing part of the Watch Payment in the sum of HK$610,000;

v. causing the Interbenz Cheque in the sum of HK$8,093,644 for the acquisition of the Lamborghini Cars;

vi. causing the Yacht Payment in the sum of HK$19,138,500 to be made for the acquisition of the Yacht;

vii. causing part of the Payments to Win Harvest in the sum of HK$1,000,000;

viii. causing part of the Payments to Unicorn in the sum of HK$5,200,000;

ix. causing the payment of HK$13,804,039.72 in favour of Michael Kao together with Francis Kao;

x. causing Payments to PBE in the sum of HK$6,871,891;

xi. causing the payments in the total sum of HK$625,586 to himself and further receiving the additional sum of HK$296,771.10 paid to him by Francis Kao;

xii. causing the payments in the total sum of HK$2,836,678.80 to Emperor; and

xiii. causing the Other Payments in the aggregate sum of HK$2,580,894.92 to various persons or entities.

c. Issue 23: whether Madam Tsen’s claim against Alex Lo is time barred.

d. Issue 25: whether Alex Lo is entitled to relief from his breaches of duties under sections 902-904 of the Companies Ordinance, Cap 622 (“Cap 622”).

e. Issue 26: what reliefs are Madam Tsen entitled to as against Alex Lo.

401.  By the time they filed their written Closing, Madam Tsen and Alex Lo were much more focused and the issues were refined and considerably more succinct.

402.  In Madam Tsen’s Closing, her claims against Alex Lo are put on the following bases:

a. Under section 275 Cap 32, he was a person who was knowingly a party to the carrying on the business of Sunni.

b. Under section 276 Cap 32, as de facto director, officer or manager of Sunni or being a person who had taken part in the management of Sunni, he had misappropriated its assets by making payments (together with Francis Kao) of HK$234,214,212.66 (“$234M Payments”).

403.  Under section 275, Madam Tsen seeks:

a. A declaration that Alex Lo is personally liable for all of the debts of Sunni as well as any interest as maybe payable thereon.

b. An order that Alex Lo do pay to Sunni all its debts as well as any interest as maybe payable thereon.

Particulars : Creditors with proof of debts

	Name of Creditor	Amount (HK$)
(I)	PIL	3,710,225.31
(II)	SGL	10,190,269.59
(III)	GJL	1,038,026.20
(IV)	Madam Tsen	8,025,808.00
(V)	Kui’s estate	1,932,611.27
Total :		24,896,940.37

404.  Under section 276, Madam Tsen seeks an order that Alex Lo do repay to Sunni the sum of HK$234,510,923.76[57] being Sunni’s monies which had been misapplied by him, together with interest thereon at judgment rate starting from the date of the Misfeasance Summons of 29 May 2018 until payment.

405.  In his Points of Defence at para 19(1), Alex Lo admitted “he jointly signed with Francis Kao so as to cause the transfer of HK$234 million out of the HSBC Bank Accounts.”

406.  Apart from denying any wrongdoing, Alex Lo’s pleaded Defence, confirmed and supplemented by Lo 1 and Lo 2, are as follows.

407.  He was not a director (actual or de facto), manager or officer of Sunni. Instead, he was merely a part-time/causal worker providing services to Sunni with no official job title or position. In Lo 1 at para 27, he described his work with Sunni as thus:

“When I was with the Company my main responsibilities were to ensure that payments were made in accordance with the instructions of the Board [ie Francis Kao] and to assist the Board in its clerical matters. I would handle the payments requests as instructed by the Board, cross check the documents provided against the payment requests and to draw cash cheques from the company’s bank account with HSBC…”

a. As an authorised signatory of the HSBC Accounts or the First Shanghai Account, his role was purely “administrative” and “mechanical” in nature: Lo 1 para 31.

b. Regarding the HSBC Accounts, he would check all incoming documents for payment by Sunni, the name of the payee, the exact amount and the payment due date and would further cross-check the documentary proof and whether the payment was approved or authorised by the Board: Lo 2 at para 36.

c. Regarding the First Shanghai Account, he simply took orders from the Board and placed them with First Shanghai. In Lo 1 at para 33(1), he described himself as a “messenger”.

d. Thus, he was under no duty to and did not inquire into the substantive reason or justification of any particular transaction he handled.

408.  He owes no fiduciary duties towards Sunni.

409.  He relies on section 4 of LO by asserting that the claims against him are time-barred.

410.  Finally, Alex Lo seeks to be relieved from liability under sections 902 to 904 of Cap 622 if he is found to be liable for any misconduct as an officer of Sunni as he had acted honestly and reasonably and ought fairly to be excused for such misconduct.

411.  Mr Li SC submits in his Closing that the relevant issues are refined as follows:

a. Whether Alex Lo was caught by section 275 in that he was knowingly a party to carry on the business of Sunni. (“Issue 1”)

b. Whether Alex Lo was caught by section 276 as being a de facto director, officer, manager of Sunni or being a person who had taken part in the management of Sunni (“Issue 2”);

c. Whether under section 275, Alex Lo had carried on the business of Sunni with an intent to defraud its creditors or for any fraudulent purpose and hence be responsible for all the debts and liabilities of Sunni (“Issue 3”);

d. Whether under section 276 Alex Lo is guilty of misfeasance, breach of duty or breach of trust in relation to Sunni and hence liable to account for restore to the money and property of Sunni misapplied by him (“Issue 4”);

e. Whether Madam Tsen’s claim against Alex Lo is time-barred (“Issue 5”);

f. Whether Alex Lo is entitled to relief from his misconduct under sections 902 to 904 of Cap 622 (“Issue 6”);

g. What are the appropriate reliefs for Madam Tsen if she succeeds in against Alex Lo (“Issue 7”).

Whether Alex Lo was caught by section 275 and liable under it (Issues 1 & 3)

412.  The relevant parts of section 275 provide as follows:

“275. Responsibility of directors for fraudulent trading

(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court, on the applicationof the Official Receiver, or the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.

…

(2) Where the court makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration, and in particular may make provision for making the liability of any person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him, or any company or person on his behalf, or any person claiming as assignee from or through the person liable or any such company or person, and may from time to time make such further order as may be necessary for the purpose of enforcing any charge imposed under this subsection.” (emphasis added)

413.  Mr Li SC submits that in order to establish liability for fraudulent trading under section 275, the following must be proved:

a. Any business of the company has been carried on with intent to defraud the creditors of the company or for a fraudulent purpose.

b. The person involved was knowingly a party to the carrying on the business in such manner.

414.  “Any business” of the company should be given its full width and is apt to describe any transaction which is a business transaction of the company. It is not limited to trading[58] or even the company’s usual business. It covers any dealings or commercial activities carried out with the requisite fraudulent intention or purpose: Re Nimbus Trawling Co Ltd [1986] 2 NZLR 308 at 311 per Cooke P. Hence, Mr Li SC submits and this court agrees that the drawing of cheques, making of remittances applications, receipt of cash cheques and cash withdrawals etc out of the $234M Payments would be within the meaning of the “business” of Sunni.

415.  It is clear that section 275 applies to persons other than directors[59] and extends to any individual who was knowingly a party to the carrying on a company’s business inter alia for any fraudulent purpose: Re Days Impex Limited [2022] 1 HKLRD 124 at [5]. In [5], Harris J opined that the respondent’s precise position in the company was in itself irrelevant. This court agrees. There is thus no need to closely examine Alex Lo’s precise title/position within Sunni.

416.  The question of whether someone had carried on the business with a fraudulent intent or purpose is subjective in that he must have been dishonest upon an assessment of all the facts - he is not allowed to shelter behind some private standard of honesty not shared by the community: Aktieselskabet Dansk Skibsfinansiering v Brothers [2000] 1 HKLRD 568[60] at 577 and 580. For the present purpose, reckless indifference will also suffice: Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co [1998] 3 HKC 153 at 168, per Godfrey and Liu JJA.

417.  In the present case, this court is in no doubt that Francis Kao, as the principal culprit, had carried on Sunni’s business at the material time with a fraudulent intent to defraud Sunni’s creditors and with a fraudulent purpose. By depleting practically the entirety of Sunni’s assets, how could he honestly and reasonably believe that Sunni could still have funds to repay its creditors?

418.  As to what it means for a person to be a knowing party, in Morris v Bank of India [2004] EWHC 528 (Ch) at [13], Patten J (as he then was) explained:

“The liquidators have to show that BOI (through its relevant officers and employees) knew that the six transactions (or one or more of them) were being entered into either to defraud the creditors of BCCI or for a fraudulent purpose. They did not have to know every detail of the fraud or the precise mechanics of how it would be carried out, but clearly they did have to know, either from their own observation of what was being done or from what they were told, that BCCI was intent on a fraud.” (emphasis added)

419.  On the evidence, the case against Alex Lo as a knowing party to Francis Kao’s fraudulent scheme to carry on Sunni’s business with intent to defraud its creditors or for a fraudulent purpose is very strong.

420.  His defence that he simply provided part-time casual clerical services to Sunni with no official job title/ position and his role as an authorised signatory of the HSBC Accounts or the First Shanghai Account was purely “mechanical” is completely far-fetched and must be rejected. The reasons are these.

421.  First, this court takes into account Alex Lo’s educational and professional background and experience, highlighted earlier in this judgment.

422.  Second, Alex Lo’s official job position in Sunni included at least the following: authorized signatory of the HSBC Accounts and authorized representative of the First Shanghai Account. In his Closing, Mr Li SC draws this court’s attention to the fact that Alex Lo was the only person who was made a bank signatory of Sunni without ever being formally appointed as a director and remained so until Sunni’s winding up.

423.  Third, by written resolution dated 7 August 2009 signed by Francis Kao, he was appointed as the financial controller of Sunni with a joining bonus of HK$300,000.

424.  In his Closing, Alex Lo does not dispute the resolution was genuine but claims he did not accept the appointment and immediately rejected it when Francis Kao showed him the resolution. The reason was purportedly that he did not consider himself qualified to take it up. His explanation means that Francis Kao came up with the resolution without any prior discussion with him, as he accepted in the witness box.

425.  During his cross-examination on Day 21, he said this:

“A. I did not accept this appointment.

Q. I see. So, if I understand you rightly, you were aware of such resolution?

A. On that day, he showed it to me, and I immediately rejected him on the spot.

Q. “On that day”, you mean the date we see on this document, 7 August 2009?

A. Correct.

Q. Are you telling the court that Mr Francis Kao, without any prior consultation with you, just made up a resolution?

A. Correct.

Q. Did you ever ask Mr Francis Kao why he did so?

A. I did not.

Q. I see. Why did you reject an obviously more eminent post of financial controller, in contradistinction to a casual/part-time worker?

A. As I answered this morning, I have been working for a long time and I needed to take rest. Therefore, I only could work in the morning.

Q. If this resolution, according to you, has somehow become redundant because you refused to take up the appointment, can you think of any reason why Mr Francis Kao came to discover it close to the trial?

A. I have no idea.” (emphasis added)

426.  In this court’s view, the explanations in his cross-examination and Closing are contradictory and wholly disingenuous. This court must reject them. As a matter of common experience, people take up well paid job positions all the time when offered to them whether they think they are or are not qualified. With Alex Lo’s background, experience and long working history with Former Boto as a financial manager from 1991 and then with New Boto, this court does not believe that he seriously considered he was not qualified to take up the post. If Alex Lo did reject the appointment, he would have to give up the joining bonus of HK$300,000, in addition to whatever salary that came with the appointment. That sounds a bit over altruistic. As to whether he needed a rest, this court notes that Alex Lo was only in his 60s at the time of the trial. Further, he did not even ask Francis Kao how physically exacting the job was before he allegedly turned it down.

427.  In Lo 1 at para 43, he claimed his remuneration from Sunni was HK$40,000. Mr Li SC submits that this would be excessive for doing the alleged part-time clerical work at Sunni. Whether or not that was so, this sort of clerical work was too low-level for someone like Alex Lo, in this court’s opinion. On the evidence, Alex Lo had signed cheques, executed remittances applications and withdrawals forms for the HSBC Bank Accounts to the tune of HK$234 million. Mr Li SC submits and this court agrees his work was more akin to that of a financial controller than a part-time clerk. In that case, HK$40,000 was really not that much.

428.  In this regard, Alex Lo admitted[61] also in Lo 1 at para 43 that he had co-signed with Francis Kao a cheque of HK$300,000 payable to himself, cleared on the date of the resolution ie 7 August 2009 “as an incentive payment made by the Company.” He did not explain what incentive that was supposed to be. However, as a matter of inherent probabilities, it would be an unlikely coincidence that he was paid HK$300,000 on the very same day he was shown the resolution to appoint him as financial controller with a joining bonus of exactly HK$300,000.

429.  Fourth, Alex Lo had signed a large number of documents[62] as authorized signatory or witnesses, including instructions letters regarding the signing arrangements of Sunni’s bank and securities accounts. That was not really the job of a part-time casual clerk. Further, at least some of them, such as Instruments of Transfer of Sunni shares, had little to do with Sunni’s principal business as an investment holding company. Indeed, he even signed documents on behalf of some of the Corporate Defendants.

430.  Fifth, Alex Lo acknowledged that he was involved in the 78 payment transactions in connection with the $234M Payments between 1 June and 10 November 2009 as a co-signatory with Francis Kao and he knew the funds for the payments came from the disposal of Sunni’s Imagi shares. He also confirmed he never enquired about the purpose of the payments: cross-examination on Day 21. As a matter of inherent probabilities, anyone with Alex Lo’s background and professional experience would know something was seriously wrong with the management of Sunni by Francis Kao. At the very least, he was recklessly indifferent to it and just went along with Francis Kao. This will become very obvious when the $234M Payments are analysed by the nature of the payments below.

431.  Sixth, despite his denial, it is wholly improbable that Alex Lo did not know or suspect the disposal of the Imagi shares and most of the consequent $234M Payments within such a short time were not for a proper purpose and not in the best interest of Sunni.

432.  Mr Li SC has helpfully set out in Schedule 1 to his Speaking Note these payments by categories. A copy of Schedule 1 is annexed hereto as Annex 5. For reasons given below, save for 1 exception, none of the payments can be justified as being for the proper purpose of Sunni or for its benefit.

433.  First, “Self-authorized Payments to Alex Lo” in the sum of HK$652,586 (see Schedule 1 of the Speaking Note) being part of the $234M Payments he signed as a co-signatory with Francis Kao[63]. In addition, Madam Tsen claims against Alex Lo the Additional Payments of HK$296,771.10 ie a cash cheque of HK$117,995.10 dated 27 November 2009 and another one of HK$178,776 dated 4 January 2010 signed by Francis Kao which was cashed by Alex Lo. The total amount of claim against Alex Lo is HK$949,357.10, as pleaded in the Points of Claim[64].

434.  Alex Lo tries to justify his receipt of HK$610,000 out of the HK$949,357.10 as his own remuneration of HK$40,000 per month as well as bonus from June 2009 to 4 January 2010. The balance were amounts due to other unknown and unnamed workers save for a driver by the name Mr Luk Kwok Keung who drove for Francis Kao. He claims that in order to pay the monthly remuneration to himself and other workers, Francis Kao only signed a single cash cheque for the total payable amount and gave him the figure to be paid to each other worker. He was then instructed to withdraw cash from the counter and to distribute the amounts due to other workers in cash after keeping his HK$40,000. The total payable amount would be different month by month. That seems a rather odd and cumbersome way for Francis Kao to pay Sunni’s staff.

435.  Alex Lo’s explanation is just his unparticularised bare assertion wholly unsupported by documentation such as a contract or even a memorandum of his employment. There were no tax returns or MPF records or bank passbooks. Further, the payments to him were of very odd sums (except for the HK$300,000 dated 7 August 2009) which are rather improbable if they were salaries or bonus.

436.  The explanation is also rather far-fetched. This is because Sunni was basically an investment holding company with little to no need for fixed staff. Its audited accounts for the year ended 30 September 2007 reveal staff costs of merely HK$146,610 while the audited accounts for the year ended 30 September 2008 reveal zero staff costs. Further, during cross-examination on Day 20, Alex Lo admitted that Sunni had no fixed staff from 1994 to around 2009, and that when he worked at Imagi, he would be paid by Imagi but if Michael Kao asked him to do something for Sunni, he would oblige. He also admitted that Sunni had got no business for the years 2008 and 2009.

437.  All in all, this court rejects Alex Lo’s explanation as incredible and finds that the payments had been made to him personally and for his own benefit.

438.  Second, “Payments to Francis Kao”. In Lo 1 and his Closing, Alex Lo said he honestly believed that those payments were for Francis Kao's director remuneration. The difficulty with this explanation is that Francis Kao has become the sole director of Sunni since August 2008 but the 5 payments to Francis Kao was dated between August and November 2009. Further, the management account of Sunni for the period 1 October 2008 to 30 June 2009 did not reveal any item for remuneration to director. During cross-examination on Day 21, when this was pointed out to him, Alex Lo simply could not answer save that the management account was not prepared by him.

439.  The long and short of it is that there were fairly substantial sums of over HK$1.5 million paid to Francis Kao within a matter of 4 months. Francis Kao was not at the trial to justify the payments and Alex Lo also could not provide any justification for them.

440.  Third, “Payment to Michael Kao”.

441.  The sum of HK$13,804,039.72 was said to be repayment of a loan advanced by Michael Kao to Sunni. In evidence was a Facility Agreement dated 27 November 2008 signed by Francis Kao and Michael Kao. According to this Facility Agreement, HK$10 million was drawn down on 27 November 2008 and HK$3.5 million was drawn down on 23 December 2008. During cross-examination by Mr Li SC on Day 19, Michael Kao confirmed that the loan was indeed made by him to Sunni.

442.  Madam Tsen disputes the loan and hence the propriety of the repayment on the ground there was no evidence that Michael Kao did advance the loan to Sunni and the absence of record of the loan in Sunni’s management account. The Liquidator on the other hand is sufficiently satisfied there was indeed a loan from Michael Kao to Sunni. While both the Liquidator and Madam Tsen have no personal knowledge of the loan, the Liquidator has the advantage of being the person who conducted the massive investigation into Sunni’s affairs. It seems to this court that the absence of record of the loan in Sunni’s management account is only one matter for this court to take into account. As a matter of inherent probabilities, this court asks: is it likely that Francis Kao and Michael Kao instructed Clifford Chance in 2008 to prepare the Facility Agreement so as to generate an excuse for the payment of the HK$13.8 million by Sunni to Michael Kao in August 2009? If one looks at Sunni’s audited accounts for the year ended 30 September 2008, Sunni was not particularly cash rich: it only had slightly over HK$6 million in cash and bank balance and total current assets of only HK$15.9 million. Compare that to its current liabilities of HK$69.4 million, it was not improbable that Sunni was in need of a loan.

443.  To conclude, this court agrees with the Liquidator and accepts the existence of the loan from Michael Kao to Sunni and that the sum of HK$13,804,039.72 was the repayment of it.

444.  Fourth, the “Watch Payment to Rich Watch Co Ltd”.

445.  The invoice from Rich Watch Co Ltd shows that it was for 1 piece of A Lange 18K white gold watch. Mr Li SC submits that it is impossible for Alex Lo to maintain that the purchase of an expensive watch was for the proper purpose and benefit of Sunni. All he claims in Lo 1 and his Closing is that he had reviewed the invoice and the amount payable, that Francis Kao had acknowledged the watch was delivered to Sunni in good and sound condition and he had satisfied himself that the transaction had been authorized by Francis Kao.

446.  It seems ludicrous to suggest that an investment holding company needs an expensive watch for its proper purpose and its benefit.

447.  Fifth and sixth, the “Car Payment” and the “Yacht Payment”.

448.  These 2 categories fall within the same category as the Watch Payment.

449.  The Car Payment was for the purchase of 3 Lamborghini sport cars and Alex Lo acknowledged in cross-examination on Day 21 that the business of Sunni had nothing to do with investment in sport cars (or expensive watches for that matter). Further, even the sales contracts concerned, all dated 24 or 25 August 2009, were addressed to Francis Kao as Deputy Chairman & Co-CEO of Imagi.

450.  The Yacht Payment was acknowledged by Alex Lo in cross-examination on Day 21 that it was not for Sunni’s proper purpose and its benefit, which should be self-evident - the Yacht was not even registered in Sunni’s name but in the name of Win Harvest. Having said that, in his Closing, Alex Lo came up with a new allegation which he did not make in Lo 1 ie he had enquired the purpose of the acquisition of the yacht and Francis Kao told him it was an investment for Sunni.

451.  It seems to this court quite obvious that the white gold watch, the Lamborghini sport cars and the Yacht was really for Francis Kao’s personal enjoyment and Alex Lo either knew this at the time or preferred to turn a blind eye to it.

452.  Seventh, Alex Lo claims in his Closing that he was instructed by Francis Kao that the Win Harvest Payment, Unicorn Payments and PBE Payments were all intra group transfers as part of the alleged Restructuring Scheme. Since this court has held that there was no such scheme, there was no question of any intra-group transfers between Sunni and these 3 companies.

453.  Eighth, Alex Lo’s case in relation to the First Shanghai Payments, UOB Payments and Emperor Payment is that before he signed each of the cheques in question, he had reviewed the Trade Confirmation from the accounts of the payees and the amount payable and had satisfied himself that all the Trade Confirmations and the information tendered to him were in good order and correct and the transactions had been authorized by Francis Kao. Save that in Closing, he claims to remember the payments were generally for investment in stocks, there was no attempt on his part to enquire into whether there were any resolutions, notes or memos authorizing the transactions or what happened to the stocks acquired via these securities companies.

454.  It should be noted that these payments involved huge sums of monies ie HK$31.6 million odd to First Shanghai, a staggering HK$140 million odd to UOB and HK$2.8 million odd to Emperor and took place between August and October 2009. Yet, Alex Lo said during cross-examination on Day 21 that he did not find them unusual, even though the scale and the speed of these transactions were quite unprecedented as far as Sunni was concerned. That was clearly a disingenuous answer.

455.  Lastly, “the Other Payments”.

456.  It can be seen from Annex 5 that the nature of the Other Payments varies quite considerably covering eg credit card bills and air tickets expenses. It is difficult to see how these payments can be justified as being for the purpose and benefit of Sunni and in his Closing, Alex Lo did not even try to justify them. His usual line of defence is that before he signed the cheques or remittance forms, he had reviewed the official invoices or contracts from the payees and had reviewed the amount payable to them. He was only responsible for checking whether the transaction had been authorized by Francis Kao and whether the relevant supporting documents were provided to him - he was not authorized or required to inquire why the payments were made.

457.  Even that usual line of defence falls apart in the case of the payment to Tricor Services Ltd. Mr Li SC’s team found out the two invoices for the payment of HK$90,000 were in fact addressed to Imagi attention to Alex Lo for services provided. Mr Li SC submits this reinforces that Alex Lo knew that the payments he co-signed were not for the benefit of Sunni alternatively he turned a blind-eye to it notwithstanding his claim that he had reviewed the relevant invoices before signing the cheque.

458.  In the premises, this court is of the view that Alex Lo was caught by section 275 and liable under it, for being knowingly a party to Francis Kao’s scheme in the carrying on of Sunni’s business for a fraudulent purpose or with intent to defraud the creditors of Sunni. If so he is held responsible for being a party to the fraud even if he did not know every detail of the fraud or the precise mechanics of how it was to be carried out.

Whether Alex Lo was caught by section 276 and liable under it (Issues 2 & 4)

459.  The relevant parts of section 276 Cap 32 provide:

“Power of court to assess damages against delinquent officer, etc.

(1) If in the course of winding up a company it appears that any of the persons specified in subsection (1A) has misapplied or retained or become liable or accountable for any money or property of the company, or been guilty of any misfeasance, breach of duty or breach of trust in relation to the company which is actionable at the suit of the company, the court may, on the application of the Official Receiver, or of the liquidator, or of any creditor or contributory, examine into the conduct of the person, and compel the person to repay or restore the money or property or any part thereof respectively with interest at such rate as the court thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance, breach of duty or breach of trust as the court thinks just.

(1A) The following persons are specified for subsection (1)—

(a) a person who is or has been an officer of the company;

(b) a person who is or has acted as a provisional liquidator or liquidator of the company;

(c) a person who is or has acted as a receiver or manager of the property of the company;

(d) a person, other than a person falling within paragraph (a), (b) or (c), who is or has been concerned, or is taking or has taken part, in the promotion, formation or management of the company. (emphasis added)

460.  In Cap 32, section 2(1) defines director (董事) to includes any person occupying the position of director by whatever name called; manager (經理), in relation to a company, to mean a person who, under the immediate authority of the board of directors, exercises managerial functions; and officer (高級人員), in relation to a body corporate, includes a director, manager or company secretary of the body corporate.

461.  In In re A Company [1980] 1 Ch 138 at 144, Shaw LJ explained the meaning of a “manager” under the Companies Act 1948: [65]

“…The expression ‘manager’ should not be too narrowly construed. It is not to be equated with a managing or other director or a general manager. As I see it, any person who in the affairs of the company exercises a supervisory control which reflects the general policy of the company for the time being or which is related to the general administration of the company is in the sphere of management. He need not be a member of the board of directors. He need not be subject to specific instructions from the board. If he fulfils a function which touches the central administration of the company, that is sufficient in my view to constitute him an "officer" or "manager" of the company for the purposes of section 441 of the Act.” (emphasis added)

462.  Mr Li SC submits that applying the above, it is plain that Alex Lo was an officer or manager of Sunni and a person who had fulfilled a function which had touched on the central administration of Sunni. Further, section 276 also applies to a person who is or has been concerned, or is taking or has taken part, in the management of a company. Hence, various other degrees of involvement in the conduct of the company’s affairs will be capable of bringing a person within the broad terms of section 276 (1A)(d).

463.  As noted above in relation to section 275, during the relevant period, Alex Lo had signed a large number of documents as authorized signatory or witnesses, including instructions letters regarding the signing arrangements of Sunni’s bank and securities accounts. He had also been held out to HSBC and First Shanghai as representing Sunni. He was of course also involved in the making of the $234M Payments as a co-signatory with Francis Kao. By such acts among others, this court accepts that Alex Lo was an officer or manager or a person who had fulfilled a function which had touched on the central administration of Sunni. Further, this court accepts he was a person who had been concerned or had taken part in the management of Sunni and shall so find.

464.  The main thrust of Madam Tsen’s claim against Alex Lo is for his breach of fiduciary duties and breach of trust arising out of the fiduciary relationship between him and Sunni as an officer or manager or being a person who had taken part in the management of Sunni. In McLachlin J’s statement in Canson Enterprises Ltd v Boughton & Co[66] (cited with approval in Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at [72]), it is the essence of a fiduciary relationship that:

“The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges herself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged. The freedom of the fiduciary is diminished by the nature of the obligation he or she has undertaken — an obligation which ‘betokens loyalty, good faith and avoidance of a conflict of duty and self-interest’: Canadian Aero Service Ltd v O’Malley, [1974] S.C.R. 592 at 606, 40 DLR (3d) 371, 11 CPR (2d) 206. In short, equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart.” (emphasis added)

465.  By applying the above, this court agrees that someone in the position of Alex Lo and carried out the functions that he did within Sunni was in a fiduciary relationship with Sunni. If so, he owed fiduciary duties to exercise his power or discretion in the interests of Sunni: per Mason J (as he then was) in Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97 (cited with approval in Libertarian Investments Ltd at [68]).

466.  Anyway, as in the case of Michael Kao, he was an authorised signatory of the HSBC Accounts. Thus, he was in a similar position to a director of a company having powers of disposal of the company’s funds or other assets. If so, as in the case of Michael Kao, he must owe at least (i) a duty to act in good faith and in the best interests of Sunni, and (ii) a duty to act for a proper purpose. His claim that he owed no fiduciary duties towards Sunni at all is untenable as a matter of law and is hereby rejected.

467.  Further, Alex Lo’s case is that he was not required to look into the reasons or justifications of the payment transactions he handled, and he did not do so. Mr Li SC submits that he was in fraudulent breach of trust and duties as he was in the least reckless as to the consequences of his action. That is sufficient to justify a finding of absence of honesty or good faith: First Subseas Ltd at [64]. Indeed, his action was similar to that of Michael Kao but much more egregious in that he was instrumental to the making of the whopping $234M Payments.

Whether the claims against Alex Lo are time-barred (Issue 5)

468.  This point can be disposed of fairly quickly.

469.  Mr Li SC accepts that claims against Alex Lo under sections 275 and 276 are subject to a limitation period of 6 years. This is because both claims constitute actions “to recover any sum recoverable by virtue of any Ordinance”, and are therefore subject to a 6-year limitation period under section 4(1)(d) of LO.

470.  Mr Li SC further submits that the earliest time when both causes of action accrued was when the winding up order for Sunni was made on 15 April 2015: In re Overnight Ltd (in liquidation) [2009] EWHC 601 (Ch) [22].

471.  In re Overnight Ltd, Sir Andrew Morritt C was dealing with the preliminary issue whether an application under section 213 of the Insolvency Act 1986[67]. At [22] – [24], his Lordship observed that:

“22 Section 213 creates a statutory cause of action…The ingredients of the statutory cause of action must be ascertained from the statute. It appears to me that section 213 imports two essential conditions quite apart from the need to prove that the business of the company had been carried on with intent to defraud creditors. Those two essential conditions are: (1) that the company is in the course of being wound up and (2) that the application is made by the liquidator.

23 …Counsel for Mr Andreous contends that the terms of 129(2) show that the first condition was satisfied as from the time the petition on which the order was made was presented, that the date of presentation is the date of the winding up is deemed to have commenced.

24 I do not accept that submission. The need to deem the commencement of the winding up to be the date when the petition is presented arises from the terms of, for example, sections 127 and 128 of the 1986 Act. Without some such provision, the presentation of a petition would invite a race by creditors to grab such assets of the company as they could find which is the exact opposite of the purpose of a winding up. But the very fact that it is necessary, for some purposes, to deem the winding up to commence at a time before the winding up order is made shows clearly that as of that date for other purposes the company is not “in the course of being wound up” for the purposes of section 213.” (emphasis added)

472.  In the end, his Lordship held the application was not time-barred since the date on which all the elements necessary to plead the claim was the date of the winding up Order and the application was made within 6 years of that date.

473.  Mr Li SC submits that the reasoning in re Overnight Ltd applies equally to a claim under section 276. Since both claims under sections 275 and 276 were commenced by the Misfeasance Summons dated 30 May 2018, they were commenced within the 6-year limitation period beginning 15 April 2015.

474.  This court accepts Mr Li SC’s submission and rule that the claims under sections 275 and 276 were not time-barred. There is thus no need to dwell on his alternative submissions based on section 20(1) or section 26 (1)(a) and (b) of LO.

Whether Alex Lo can rely on sections 902 – 904 Cap 622 to relief himself of liability (Issue 6)

475.  The relevant parts of sections 902 to 904 provide as follows.

“902. Interpretation

In this Division—

misconduct (不當行為) means negligence, default, breach of duty or breach of trust;

specified person (指明人士) means—

(a) an officer of a company; or

(b) a person employed by a company as an auditor.

903. Court may grant company officer etc. relief in proceedings for misconduct

(1) This section applies if, in any proceedings for any misconduct against a specified person, it appears to the Court that the person—

(a) is or may be liable for the misconduct;

(b) has acted honestly and reasonably; and

(c) ought fairly to be excused for the misconduct, having regard to all the circumstances of the case (including those connected with the person’s appointment).

(2) The Court may relieve the specified person, either wholly or partly, from the liability on any terms that the Court thinks fit.

…

904. Court may grant company officer etc. relief for misconduct on officer’s application

(1) A specified person may apply to the Court for relief if the person has reason to apprehend that a claim will or might be made against the person for any misconduct.

(2) On an application, the Court may relieve the specified person, either wholly or partly, from the liability on any terms that the Court thinks fit if it appears to the Court that the person—

(a) is or may be liable for the misconduct;

(b) has acted honestly and reasonably; and

(c) ought fairly to be excused for the misconduct, having regard to all the circumstances of the case (including those connected with the person’s appointment).”

476.  It is clear from the plain wording of sections 903 and 904 that in order to obtain relief, the twin pre-conditions that Alex Lo has acted both honestly and reasonably must be satisfied, the burden being on him as the applicant for relief: Bairstow v Queens Moat Houses Plc [2001] EWCA Civ 712 at [58].

477.  As far as honesty is concerned, one needs only refer to Royal Brunei Airlines Sdn Bhd and Twinsectra[68].

478.  In Royal Brunei Airlines Sdn Bhd at 389 (cited in Bairstow at [58]) Lord Nicholls explained that:

“The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.”

479.  In Twinsectra, the House of Lords further elaborated that dishonesty requires:

a. The conduct complained of must be dishonest by the ordinary standards of reasonable and honest people; and

b. The defendant must have been himself aware that, by those standards, he was acting dishonestly.

480.  It is not controversial that reasonableness is an objective standard: Bairstow at [58], by reference to the knowledge, skill and experience which might reasonably be expected of a person carrying out the functions in question: Cullen Investments Ltd v Brown [2017] EWHC 2793 (Ch) at [10].

481.  For reasons given on Issues 1 to 4 above, this court has found Alex Lo was a knowing party to Francis Kao’s fraudulent trading for the purpose of section 275 and that he was in fraudulent breach of trust and duties for the purpose of section 276. This court is not prepared to find (and it is really not open to this court to find) that for the purpose of sections 903 and 904, Alex Lo has somehow acted honestly so as to satisfy the 1st pre-condition. Further, this court does not find Alex Lo has acted reasonably in the circumstances of the case so as to satisfy the 2nd pre-condition. For completeness, this court is also unable to find any reason why Alex Lo ought fairly to be excused for his misconduct.

482.  In these circumstances, no relief should be granted to Alex Lo.

What relief is available to Madam Tsen against Alex Lo (Issue 7)

483.  In Mr Li SC’s Closing, he seeks the relief set out in his Speaking Note at Schedule 3 against Alex Lo. In Mr Li SC’s Reply Submissions, he has revised the relief sought and set it out in a detailed Annex D, and subsequently submitted to the court an even more detailed Amended Annex D. Essentially, he has made some downward adjustment to the monetary relief sought under section 276 by adopting the lesser figures advanced by the Liquidator who has taken into account repayments made to Sunni.

484.  On the basis of section 275, this court finds Madam Tsen is entitled to:

a. A declaration that Alex Lo is personally liable for all of the debts of Sunni as well as any interest as may be payable thereon.

b. An Order that Alex Lo do pay the sum of $24,896,940.37 to Sunni’s liquidator being all of the debts of Sunni with interest thereon at judgment rate from the date of the Misfeasance Summons ie 29 May 2018 until payment.

485.  On section 276, this court does not find the wording of the section necessitates the grant of any declaratory relief. This court finds Madam Tsen is entitled to an Order that Alex Lo do repay to Sunni the adjusted sum of HK$167,189,845.84, minus the “Payment to Michael Kao” in the sum of HK$13,804,039.72, being monies misapplied by him together with interest thereon at judgment rate from 29 May 2018 until payment.

Disposition and costs order nisi

486.  In relation to the 2 HCAs, there shall be an Order in terms of paras 389 to 394 against the Defendants.

487.  In relation to HCCW 121, there shall be an Order in terms of paras 484 and 485 against Alex Lo.

488.  As far as costs are concerned, the following are all Orders nisi.

489.  In terms of costs of the Adjournment, there shall be an Order in terms of para 399 against Francis Kao in favour of Sunni and Madam Tsen.

490.  In relation to the 2 HCAs, costs of the 2 actions shall be to Sunni and borne by the Defendants, except Michael Kao, to be taxed on a party and party basis if not agreed, and paid forthwith.

491.  With regard to Michael Kao, the parties are directed to exchange their written submissions on costs (not exceeding 10 pages) and submit to this court within 14 days from the date hereof. Costs will be disposed of on paper subject to further directions from this court.

492.  In relation to HCCW 121, costs shall be to Madam Tsen, to be taxed on a party and party basis if not agreed, and paid by Alex Lo forthwith.

493.  Liberty to apply.

494.  Lastly, this court wishes to thank all parties for their meticulous submissions.

Mr Edward Chan SC, Mr Lawrence Cheung and Ms Ann Lee, instructed by M/s T K Tsui & Co, for the Plaintiff in HCA 1884/2018 and HCA 2380/2018

Mr Alan K L Au, instructed by M/s Yick & Chan, appeared for the 1st Defendant in HCA 1884/2018 on 3, 4, 5, 8 & 9 January 2024. Otherwise, the 1^st Defendant in HCA 1884/2018 was not represented and did not appear

Mr Lincoln Cheung and Mr Jason Kung, instructed by M/s David Fenn & Co, for the 2nd Defendant in HCA 1884/2018

Mr C Y Li SC, Mr Chan Chun Sang and Mr Vincent Wan, instructed by M/s Lau, Chan & Ko, for the Applicant in HCCW 121/2013

The 3rd, 4th and 5th Defendants in HCA 1884/2018 were not represented and did not appear

The 2nd Defendant in HCA 2380/2018 was not represented and did not appear

The Respondent in HCCW 121/2013 appeared in person

Annex 1

Win Harvest (威盈企業有限公司)

SHAREHOLDING
21 Sept - 12 Nov 2009	Francis Kao
12 Nov 2009 - 4 Jul 2011	Big Plan
4 Jul 2011 - present	Famewell
DIRECTORSHIP
21 Sept 2009 - 26 Apr 2011	Francis Kao
26 Apr 2011 - 22 Aug 2014	New Goal
22 Aug 2014 - 28 Feb 2017	New Goal, Sandy Chan
28 Feb 2017 - present	Philip Kao

Annex 2

Unicorn (夢馬動畫制作室有限公司)

SHAREHOLDING
7 Sept 2009 - 12 Nov 2009	Francis Kao
12 Nov 2009 - 11 May 2011	Big Plan
11 May 2011 - present	Famewell
DIRECTORSHIP
7 Sept 2009 - 26 Apr 2011	Francis Kao
26 Apr 2011 - 22 Aug 2014	New Goal
22 Aug 2014 - 28 Feb 2017	New Goal, Sandy Chan
28 Feb 2017 - present	Philip Kao

Annex 3

Big Plan[69]

SHAREHOLDING
29 Jul - 3 Nov 2009	Sandy Chan
3 Nov 2009 - 11 Dec 2010	The Company
11 Dec 2010 - 29 Apr 2011	AFI
29 Apr 2011 - 19 Aug 2013	Francis Kao
19 Aug 2013 - 22 Jul 2015	New Goal
22 Jul 2015 - 13 Mar 2017	Francis Kao
13 Mar 2017 - present	AFI
DIRECTORSHIP
29 Jul - 9 Sept 2009	Sandy Chan
9 Sept 2009 - 23 Dec 2009	Francis Kao, Sandy Chan
23 Dec 2009 - 3 May 2013	Francis Kao
3 May 2013 - present	New Goal

Annex 4

Famewell

SHAREHOLDING
26 Apr 2011 - 8 Mar 2017	Big Plan
8 Mar - 5 Jun 2017	Philip Kao
5 Jun - 1 Nov 2017	Big Plan
1 Nov 2017 - present	Philip Kao
DIRECTORSHIP
26 Apr 2011-3 May 2013	Francis Kao
3 May 2013 - 27 Jul 2020	New Goal
27 Jul 2020 - present	Philip Kao

Annex 5

HCCW 121/2013 Re Sunni International Ltd

Schedule showing the transactions for which Alex Lo did sign as a co-signatory with Francis Kao

Date	Cheque Number	Payee	Withdrawals	A/C
			HKD
	Self-authorized Payments to R
01/06/2009	W/D	Lo Kin Fung - Cash	42,000.00	HKD S/A
31/07/2009	783268	Lo Kin Fung - Cash	84,803.70	HKD C/A
07/08/2009	783277	Lo Kin Fung	300,000.00	HKD C/A
28/08/2009	783292	Lo Kin Fung - Cash	83,991.80	HKD C/A
02/11/2009	CASH 016110	Lo Kin Fung - Cash	141,790.50	HKD C/A
		subtotal	652,586.00
	Payments to Francis Kao
03/08/2009	783269	Kao Wai Ho Francis	300,000.00	HKD C/A
31/08/2009	783291	Kao Wai Ho Francis	300,000.00	HKD C/A
30/09/2009	16085	Kao Wai Ho Francis	300,000.00	HKD C/A
02/11/2009	16109	Kao Wai Ho Francis	300,000.00	HKD C/A
10/11/2009	16114	Kao Wai Ho Francis	378,840.00	HKD C/A
		subtotal	1,578,840.00
	Payment to Michael Kao
31/08/2009	783296	Kao Cheung Chong	13,804,039.72	HKD C/A
	Watch Payment
05/08/2009	783274	Right Watch Co. Ltd	610,000.00	HKD C/A

	Car Payment
25/08/2009	783289	Interbenz Autohaus HK Company	8,093,644.00	HKD C/A

	Yacht Payment
07/09/2009	HK1070990KMVVJPC REM GBP1,500,000	Sunseeker Asia Limited	19,138,500.00	HKD C/A
	Win Harvest Payment
02/11/2009	16108	Win Harvest Enterprises Limited	1,000,000.00	HKD C/A
	Unicorn Payments
21/10/2009	16101	Unicorn Animation Studios Ltd (former name: Sunni Animation Studios Ltd)	2,000,000.00	HKD C/A
10/11/2009	16113	Unicorn Animation Studios Ltd (former name: Sunni Animation Studios Ltd)	3,200,000.00	HKD C/A
		subtotal	5,200,000.00
	PBE Payments
01/09/2009	783298	PBE International Holdings Ltd	4,500,000.00	HKD C/A
02/09/2009	16061	PBE International Holdings Ltd	56,358.00	HKD C/A
09/09/2009	16069	PBE International Holdings Ltd	250,000.00	HKD C/A
18/09/2009	16075	PBE International Holdings Ltd	475,833.00	HKD C/A
14/10/2009	16094	PBE International Holdings Ltd	1,589,700.00	HKD C/A
		subtotal	6,871,891.00
	First Shanghai Payments
16/10/2009	16097	First Shanghai Securities Ltd	27,736,873.64	HKD C/A
19/10/2009	16100	First Shanghai Securities Ltd	3,075,740.87	HKD C/A
20/10/2009	16103	First Shanghai Securities Ltd	843,445.79	HKD C/A
		subtotal	31,656,060.30
	UOB Payments
05/08/2009	783275	UOB Kay Hian (HK) Ltd	3,081,492.81	HKD C/A
11/08/2009	783279	UOB Kay Hian (HK) Ltd	5,740,634.80	HKD C/A
12/08/2009	783280	UOB Kay Hian (HK) Ltd	3,906,794.75	HKD C/A
13/08/2009	783282	UOB Kay Hian (HK) Ltd	4,158,976.96	HKD C/A
14/08/2009	783283	UOB Kay Hian (HK) Ltd	2,296,400.66	HKD C/A
26/08/2009	783288	UOB Kay Hian (HK) Ltd	1,933,955.69	HKD C/A
28/08/2009	783290	UOB Kay Hian (HK) Ltd	3,064,854.95	HKD C/A
31/08/2009	783294	UOB Kay Hian (HK) Ltd	961,467.96	HKD C/A
31/08/2009	783295	UOB Kay Hian (HK) Ltd	1,524,398.53	HKD C/A
01/09/2009	783297	UOB Kay Hian (HK) Ltd	453,636.24	HKD C/A
02/09/2009	783299	UOB Kay Hian (HK) Ltd	87,295.28	HKD C/A
03/09/2009	783300	UOB Kay Hian (HK) Ltd	173,827.79	HKD C/A
07/09/2009	16062	UOB Kay Hian (HK) Ltd	900,649.19	HKD C/A
08/09/2009	16063	UOB Kay Hian (HK) Ltd	937,482.34	HKD C/A
09/09/2009	16067	UOB Kay Hian (HK) Ltd	6,732,583.76	HKD C/A
11/09/2009	16072	UOB Kay Hian (HK) Ltd	5,015,039.23	HKD C/A
16/09/2009	16073	UOB Kay Hian (HK) Ltd	11,279,575.87	HKD C/A
18/09/2009	16074	UOB Kay Hian (HK) Ltd	4,211,069.41	HKD C/A
21/09/2009	16077	UOB Kay Hian (HK) Ltd	5,782,007.57	HKD C/A
22/09/2009	16079	UOB Kay Hian (HK) Ltd	10,036,000.00	HKD C/A
23/09/2009	16081	UOB Kay Hian (HK) Ltd	5,300,188.13	HKD C/A
25/09/2009	16082	UOB Kay Hian (HK) Ltd	3,789,655.84	HKD C/A
29/09/2009	16083	UOB Kay Hian (HK) Ltd	61,263.09	HKD C/A
30/09/2009	16084	UOB Kay Hian (HK) Ltd	3,305,058.02	HKD C/A
05/10/2009	16088	UOB Kay Hian (HK) Ltd	660,381.96	HKD C/A
08/10/2009	16089	UOB Kay Hian (HK) Ltd	9,450,405.74	HKD C/A
12/10/2009	16091	UOB Kay Hian (HK) Ltd	7,384,262.07	HKD C/A
12/10/2009	16090	UOB Kay Hian (HK) Ltd	9,746,214.14	HKD C/A
15/10/2009	16093	UOB Kay Hian (HK) Ltd	10,522,741.15	HKD C/A
15/10/2009	16092	UOB Kay Hian (HK) Ltd	11,570,489.11	HKD C/A
16/10/2009	16096	UOB Kay Hian (HK) Ltd	2,286,447.89	HKD C/A
16/10/2009	16095	UOB Kay Hian (HK) Ltd	3,835,826.99	HKD C/A
		subtotal	140,191,077.92
	Emperor Payment
25/08/2009	783285	Emperor Securities Ltd	2,836,678.80	HKD C/A
	Other Payments
30/09/2009	16080	American Express Int'l Inc.	514,984.75	HKD C/A
27/10/2009	16104	American Express Int'l Inc.	364,979.75	HKD C/A
16/10/2009	16099	Marine Italia	210,000.00	HKD C/A
14/08/2009	783284	Richburg Motors Ltd	120,000.00	HKD C/A
30/06/2009	W/D	Cash (Signed jointly with Francis Kao)	65,270.00	HKD S/A
30/09/2009	16087	Cash (Signed jointly with Francis Kao)	139,539.50	HKD C/A
17/10/2009	16107	Cash (Signed jointly with Francis Kao)	78,000.00	HKD C/A
15/08/2009	783276	Chan Yat Ping	300,000.00	HKD C/A
09/07/2009	783267	Hastings & Co	77,800.00	HKD C/A
14/09/2009	16064	Hastings & Co	36,750.00	HKD C/A
04/08/2009	783273	Hong Kong Air Ticketing Service & Trading Co	12,809.00	HKD C/A
10/09/2009	16071	Hong Kong Air Ticketing Service & Trading Co	16,599.00	HKD C/A
21/09/2009	16078	Hong Kong Air Ticketing Service & Trading Co	2,780.00	HKD C/A
19/10/2009	16098	Hong Kong Air Ticketing Service & Trading Co	73,004.00	HKD C/A
05/11/2009	16111	Hong Kong Air Ticketing Service & Trading Co	173,050.00	HKD C/A
21/09/2009	16076	IFC Development (Suite) Ltd	126,093.33	HKD C/A
08/09/2009	Cash 016068	Lee Kwok Yee William (E840996(3)) - Cash	83,000.00	HKD C/A
05/11/2009	REM US10,000	Sunni USA LLC	77,625.00	HKD C/A
24/07/2009	783266	Tricor Services Ltd	90,000.00	HKD C/A
15/10/2009	HK1151090NQD337K REM USD2,397.5	Weissmann Wolff Bergman Coleman Grodin & Evall LLP	18,610.59	HKD C/A
		subtotal	2,580,894.92
		Grand total	234,214,212.66

Annex 6

Other documents bearing AL’s signature

Date	Document	Role
13 April 2000	Authorisation to debit the HSBC Current Account for repayment of commercial loan in the sum of HKD12 million	Co-signatory of letter to HSBC on behalf of Sunni
11 August 2008	Instruction to remove PL and Tsen as authorised signatory for all HSBC accounts	Co-signatory of letter to HSBC on behalf of Sunni
18 September 2008	Instrument of Transfer transferring one Sunni share from HNL to FK	Witness
13 July 2009	Instrument of Transfer transferring 5,636 Sunni shares from HNL to FK	Witness
7 September 2009	Letter of Understanding (Sunni as nominee, WH as legal and beneficial owner of the Yacht)	Witness
3 November 2009	Instrument of transfer transferring X (left blank) Sunni shares from FK to APGL	Witness
3 November 2009	Instruction to add new signing arrangement (FK to sign singly all HSBC accounts)	Co-signatory of letter to HSBC on behalf of Sunni
6 September 2010	AR1 of WH	Signed AR1 as company secretary
11 December 2010	Share transfer form Sunni to transfer 50,000 shares in BP to AFI, AFI to issue 1,000,000 shares to Sunni	Witness
1 January 2011	Lease agreement between Sunni Animation Studios Limited and PBE International Holdings Limited	Signatory (and contact person) on behalf of Sunni Animation Studios Limited
31 March 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
26 April 2011	Share transfer form Sunni to transfer 1,000,000 shares in AFI to AFH, AFH to issue 1,000,000 shares to Sunni	Witness
29 April 2011	Declaration of Trust FK to hold 50,000 BP shares on behalf of AFI	Witness
30 April 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
3 May 2011	Sale and Purchase agreement of Pagani	Witness
11 May 2011	Instrument of Transfer transferring 2 Sunni Animation Studios Limited shares from BP to Famewell	Witness
31 May 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
30 June 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
4 July 2011	Instrument of Transfer transferring 10,000 WH shares from BP to Famewell	Witness
31 July 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
31 August 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
1 September 2011	Agreement between WH and Unicorn (re New York Walker)	Authorised signatory and contact person of WH
6 September 2011	AR1 of WH	Signed AR1 as company secretary
30 September 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
10 October 2011	AR1 of Unicorn	Signed AR1 as company secretary
13 October 2011	1. AR1 of 夢馬國際控股有限公司	Signed AR1 as company secretary
15 October 2011	Invoice issued by Unicorn to RoCs for work done of New York Walker up to 30 September 2011	Authorised signatory
31 October 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
15 November 2011	Receipt issued by Unicorn to RoCs (acknowledged receipt for work done of New York Walker up to 30 September 2011)	Authorised signatory
30 November 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
31 December 2011	Invoice issued by Unicorn Studios Limited to Unicorn for consultancy fee (for New York Walker)	Authorised signatory
31 December 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
14 February 2012	AR1 of Unicorn Studios Limited	Signed AR1 as company secretary
16 February 2012	Invoice issued by Unicorn to RoCs for work done of New York Walker from October 2011 to January 2012	Authorised signatory
24 February 2012	Receipt issued by Unicorn to RoCs (acknowledged receipt for work done of New York Walker from October 2011 to January 2012)	Authorised signatory
10 October 2012	AR3 of WH (for the period 3 August 2011 to 3 August 2012)	Signed AR3 as company secretary
10 October 2012	AR3 of Unicorn (for the period 7 September 2011 to 7 September 2012)	Signed AR3 as company secretary
19 August 2013	Declaration of Trust NG to hold 50,000 BP shares on behalf of AFI	Witness
26 August 2013	AR1 of WH	Signed AR1 as company secretary
25 September 2013	AR1 of Unicorn	Signed AR1 as company secretary
2 January 2014	Declaration of Trust NG to hold AFH shares on behalf of SGL, PIL, APGL, GJL and PL	Witness
19 August 2014	NAR1 of WH	Signed NAR1 as company secretary
25 August 2014	ND2A of WH (Appointing CHAN KA YEE SANDY as director)	Signed ND2A as company secretary
25 August 2014	ND2A of Unicorn (Appointing CHAN KA YEE SANDY as director)	Signed ND2A as company secretary
24 September 2014	NAR1 of Unicorn	Signed NAR1 as company secretary
22 July 2015	Declaration of Trust FK to hold 50,000 BP Shares on behalf of AFI	Witness
17 August 2015	NAR1 of WH	Signed NAR1 as company secretary
23 September 2015	NAR1 of Unicorn	Signed NAR1 as company secretary

HCCW 121/2013

[2025] HKCFI 2925

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 121 OF 2013

______________________________

______________________________

_______________

D E C I S I O N

_______________

I.  INTRODUCTION

1.  By Summons (the “Summons”) filed by the liquidator (the “Liquidator”) of Sunni International Limited (in liquidation) (the “Company”) on 4 July 2024, pursuant to sections 286B and 286C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32) (the “Ordinance”), the Liquidator seeks, against Mr Ip Wai Ching (“Ip”) as the respondent herein:-

“1. By virtue of section 286B of… the Ordinance, IP WAI CHING… (“Ip”), a person known or suspected to have in the person’s possession any property of the Company, do attend before the Court and be examined under section 286C of [the] Ordinance;

2. Ip is required to submit to the Court an affidavit containing an account of his dealings with the Company and information concerning the promotion, formation, trade, dealings, affairs or property of the Company, including but not limited to the followings:-

(a) A A. Lange 18K Gold Watch [the “A Lang Watch”] which was sold to him at a consideration of HK$610,000 pursuant to [the Big Plan Contract as defined below];

(b) A HM1, 18ct Red Gold Watch [the “HM1 Watch”]” which was sold to him at a consideration of HK$1,216,585 pursuant to the Big Plan Contract;

(c) A HM2-CTi Watch [the “HM2 Watch”] which was sold to him at a consideration of HK$506,101 pursuant to the Big Plan Contract;

(d) A sales order of the P&L Club (#0378) which was sold to him at a consideration of HK$378,840 pursuant to the Big Plan Contract;

(e) A motor vehicle being Toyota Alphard 350S Black [the “Toyota Alphard”]… which was sold to him at a consideration of HK$474,565 pursuant to [the Win Harvest Contract as defined below]; and

(f) A motor vehicle Mercedes Benz CL63 AMG Black [the “Mercedes Benz”]… which was sold to him at a consideration of HK$300,000 pursuant to the Win Harvest Contract;

3. Ip is also required to produce any books and papers in his custody or power relating to the Company of the promotion, formation, trade, dealings, affairs or property of the Company and relating to the assets as identified in paragraph 2 hereinabove”.

2.  For convenience, I shall refer to the assets listed out in §2(a)-(f) of the Summons collectively as the “Assets”.

II.  BACKGROUND

3.  The Company was a British Virgin Islands company incorporated as an investment vehicle for four families, namely:-

(1)  The Kao’s family, represented by Mr Kao Cheung Chong Michael (“Michael Kao”) and his son Mr Kao Wai Ho Francis (“Francis Kao”). The Kao family held shares in the Company via Happy Nation Limited (“HNL”), which was held by Asia Pacific Glory Limited (“APGL”);

(2)  The Cheng’s family;

(3)  The Law’s family; and

(4)  The Kui’s family.

4.  The Company held shares in a Hong Kong public listed company named Imagi International holdings Ltd (“Imgai”). The last known sole director of the Company was Francis Kao, who, according to records, resigned on 30 March 2011 and was replaced by Mr Shinichi Kobayashi, deceased (“Kobayashi”). However, Kobayahsi was never made a signatory to the Company’s account maintained with HSBC (the “Company’s HSBC Account”) and its securities accounts while Francis Kao remained one of the signatories, and for the Company’s HSBC Account, he was the only signatory until the winding up of the Company on 15 April 2015.

5.  On 27 July 2015, the Liquidator was appointed.

6.  Upon investigation, the Liquidator discovered evidence that tends to show that Francis Kao and his associates, namely:-

(1)  Win Harvest Enterprises Limited (“Win Harvest”);

(2)  Big Plan Holdings Limited (“Big Plan”);

(3)  Unicorn Animation Studios Ltd (“Unicorn”);

(4)  Famewell Ltd;

(5)  Alex Lo; and

(6)  Michael Kao;

misappropriated substantial assets of the Company involving payments totalling more than HK$345million out of the Company’s bank accounts (the “HK$345 Million Payments”). The apparent misappropriation was the subject of HCA 1884/2018 and HCA 2380/2018 (collectively, the “Misappropriation Lawsuit”). The trial of both actions took place in March 2024 and the judgment is pending.

7.  In the course of the discovery during the Misappropriation Lawsuit, various documents regarding the Company’s HSBC Account were disclosed. From such documents (the “HSBC Documents”), the Liquidator discovered that the HK$345 Million Payment appeared to be related to the purchases of the Watches. In particular:-

(1)  Payment of HK$610,000 by the Company to Right Watch Co Ltd by way of Company cheque jointly signed by Francis Kao and Alex Lo for the A. Lange Watch on or about 4 August 2019;

(2)  Payment of CHF162,000 (approximately HK$1,216,584.60) to MB&F SA by remittance from the Company’s account on 21 September 2009 for the HM1 Watch;

(3)  Payment of CHF66,000 (approximately HK$505,810.80) to MB&F SA by remittance from the Company’s account on 17 November 2009 for the HM2 Watch.

8.  In the Re-Re-Amended Defence of Francis Kao in HCA 1884, in relation to the Watches, he pleaded that:-

“(1) Paragraph 44(a) is admitted. It is averred that:-

(a) The Watches were purchased as items of investment and/or corporate gifts to potential investors and were later transferred to Big Plan (D5) as intra-group transfers as part of the Restructuring Scheme pleaded hereinabove.

(b) The Watches were sold to one Ip Wai Ching on 13^th August 2010. It is averred that the Watches were in the custody or possession of Big Plan (D5) and the control of the Company prior to the aforesaid sale.”

9.  The purported sale of the Watches by Big Plan (an associate of Francis Kao) to Ip was by way of the Big Plan Contract, which was also disclosed in the Misappropriation Lawsuit. It provided:-

“CONTRACT FOR SALE OF GOODS

Agreement made and entered into this 13^th August 2010, by and between [Big Plan]… herein referred to as ‘Seller’, and [Ip]… herein referred to as ‘Buyer’.

Seller hereby agrees to transfer and deliver to buyer, on or before 17^th August 2010, the following goods:

Details per attached Schedule I

[Schedule I
Item Description Unit
(1)	[A Lange Watch] ($610,000.00)	One
(2)	[HM1 Watch] ($1,216,585.00)	One
(3)	[HM2 Watch] ($506,010.00)	One
(4)	Sales Order of The P&L Club #0378 ($378,840.00)	One]

Buyer agrees to accept the goods and pay HK$2,711,435.00 for them in accordance with the terms of the contract.

…

Signed by

(signed)

Big Plan Holdings Limited

(signed)

Mr. Ip Wai Ching”

10.  Besides the transaction in relation to the Watches, the Liquidator discovered from the HSBC Documents that the Company made 11 payments totalling more than HK$6,600,000 to Francis Kao, among which there was a payment of HK$378,840 by cheque (the Subject Payment to Francis Kao), jointly signed by Francis Kao and Alex Lo and cleared on 10 November 2009.

11.  In §38(2) of his Re-Re-Amended Defence in HCA 1884, Francis Kao pleaded:-

“The payment… was used for purchasing the club membership of P&L Club for Big Plan (D5). It is averred that on around 13 August 2010, Big Plan sold the P&L Club membership to [Ip] for HK$378,840, and that Win Harvest (D3) received the sale proceeds and used the same to repay the Company’s shareholder’s loan to it.”

12.  This is Item (4) under Schedule I to the Big Plan Contract.

13.  Despite the above being their defence, neither Francis Lao nor Big Plan gave evidence in support at the trial of the Misappropriation Lawsuit. There is no evidence of any payment by Ip of the amount under the Big Plan Contract, but there is evidence that on 18 August 2010, Win Harvest deposited HK$2,711,435.40 by cheque to the Company, and on the same day, the Company issued a cheque to Unicorn (as mentioned above, an associate of Francis Kao) for the sum of HK$2,700,000.00.

14.  In addition to the Big Plan Contract, on 13 August 2010, Ip also entered into a contract for sale of goods with Win Harvest. The terms were similar, though with respect to different goods:-

“CONTRACT FOR SALE OF GOODS

Agreement made and entered into this 13^th August 2010, by and between [Win Harvest]… herein referred to as ‘Seller’, and [Ip]… herein referred to as ‘Buyer’.

Seller hereby agrees to transfer and deliver to buyer, on or before 17^th August 2010, the following goods:

Details per attached Schedule I

[Schedule I
Item Description Unit
(1)	[Toyota Alphard] ($474,565.00)	One
(2)	[Mercedes Benz] ($300,000)	One]

Buyer agrees to accept the goods and pay HK$774,565.00 for them in accordance with the terms of the contract.

…

Signed by

(signed)

Win Harvest Enterprises Limited

(signed)

Mr. Ip Wai Ching”

15.  In relation to the Toyota Alphard, the documentary evidence discovered by the Liquidator suggests that it is likely that it was with the Company’s funds that Win Harvest (an associate of Francis Kao) acquired Toyota Alphard (HK$402,975) and the Richburg VIP Club Owners Club Membership (HK$212,025), or at least part of them. In relation to the sale to Ip, there is no evidence of payment by Ip to Win Harvest or the Company, although there is evidence of deposit of HK$300,000 by Win Harvest to the Company in September 2010. There is no evidence of transfer of the ownership of the Toyota Alphard. After the Win Harvest Contract, the Mercedes Benz was registered in the name of Cheerco Enterprise Ltd, a company that appeared to be controlled by the Kao.

16.  In relation to the Mercedes Benz, the documentary evidence discovered by the Liquidator suggests that it is like that it was with the Company’s funds that Win Harvest acquired the Mercedes Benz, or at least part of it, and the fund seemed to come from the Restructuring Scheme pleaded in Francis Kao’s Re-Re-Amended Defence but as mentioned above, no evidence was adduced at trial to prove it. It also happened that the vendor from whom Win Harvest acquired the Mercedes Benz was Imagi Animation Studios Ltd, which is a subsidiary of Imagi. In relation to the sale to Ip, there is no evidence of payment by Ip to Win Harvest or the Company. There is no evidence of transfer of the ownership of the Mercedes Benz. At least as at 9 October 2013, the vehicle was registered in the name of Beauty Bloom Limited (“Beauty Bloom”), which shared one of the residential addresses of Francis Kao and under the control of Francis Kao and/or his wife.

III.  IP

17.  Ip graduated from the Hong Kong Polytechnic University with a Bachelor’s Degree in Graphic Design. In 2000, he joined Imagi, whose chairman was Michael Kao. In 2003, the Annual Report of Imagi described Ip as a senior manager, and the President of the Creative & Art Department. At that time, Michael Kao was still the Chairman, and Francis Koa had been the Chief Executive Officer of Imagi Animation Studios Ltd, which, as mentioned above, is a subsidiary of Imagi and from which Win Harvest acquired the Mercedes Benz. Ip’s name did not appear in Imagi’s Annual Reports 2005 and 2006, and re-appeared in 2007 named as the Creative Director of Imagi. At that time, Michael Kao remained as the Chairman and Francis Kao was the Deputy Chairman and the Co-Chief Executive Officer and Chief Creative Officer of Imagi. Ip continued to be part of the senior management of Imagi until 2009, when Francis Kao resigned. The evidence suggests that he joined Unicorn, which was under Francis Kao’s control and a defendant to the Misappropriation Lawsuit. Further, between 2010 and 2015, Ip was the sole director of a limited company called Well Money Limited, whose sole shareholder was Francis Kao.

18.  The long and short of all these is that Ip has worked with and for Francis Kao for a long time, and judging from Ip’s various positions, it is fair to say that there exists a degree of trust between Ip and Francis Kao.

IV.  IP’S CASE IN RELATION TO THE CONTRACTS

19.  Ip’s evidence in relation to the two Contracts is contained in the following six paragraphs of his affirmation in opposition:-

“19. In or around August 2010, Francis extended to me an opportunity to purchase the Assets under the Big Plan Contract and the Win Harvest Contract.

(1) A point for clarification: the P&L Club Sales Order is referred to in the Liquidator’s 9^th Affirmation as an acquisition of a cigar club membership. This is incorrect. The P&L Club Sales Order was in fact a purchase of cigars.

20. In the heat of the moment, I decided to sign these two contracts with Francis to purchase the Assets.

21. Shortly after, however, I began having second thoughts on the purchases. I had concerns, especially since the purchase price of the respective contracts was not a small figure. In addition to the hefty purchase price, I would have to maintain the assets, particularly the Vehicles. Though I did wish to own a few of the Assets, it was excessive to own them all.

22. I then decided to back out of both the Big Plan Contract and Win Harvest Contract.

23. I thus went and spoke to Francis about terminating the two contracts. He was gracious enough to overlook my buyer’s remorse and agreed to cancel both contracts I had signed. Given our long-standing working relationship, we merely had an oral conversation on this and did not see the need to officiate this termination of contract with further documentation. We simply did not carry out the contracts.

24. I never received the Assets or had them in my possession.”

20.  There is no evidence of the circumstances leading to the Contracts, for example, when the discussion started, how the prices were reached, and so on. There is no evidence of how Ip made the decision “[i]n the heat of the moment” (for example, was he persuaded? Was there a bargaining process on the prices), and why Ip would, “[s]hortly after”, have second thoughts (for example, why did he “shortly after” come to realise that it was not a small figure and he had to spend on maintenance?). There is no evidence to explain why while they thought fit to have written contracts, they thought it unnecessary to cancel the written contracts in writing.

V.  LEGAL PRINCIPLES

21.  The legal principles are trite. For the present purpose, I only need to highlight the following:-

(1)  “The key issue arising from an application of this nature is whether the information or documents sought by way of examination or production of documents are reasonably required by the liquidators to carry out their functions, and that the orders sought are not unreasonable, unnecessary or oppressive”: see Re Allied Weli Development Ltd (formerly known as Hennabun Capital Group Limited) [2022] HKCA 664 at §22 per Kwan VP and Yuen JA;

(2)  “The discretion to order an examination or make other relevant orders is one that has been described as ‘general’ and ‘unfettered’, even though well-established principles have been laid down to guide the exercise of that discretion”: see Re Allied Weli Development Ltd (formerly known as Hennabun Capital Group Limited), supra at §23;

(3)  “Whether and if so how that discretion should be exercised in any given case would depend on the circumstances of the case, and the question of whether that discretion was properly exercised is a question that must be considered in the context and the facts of the case”: see Re Allied Weli Development Ltd (formerly known as Hennabun Capital Group Limited), supra at §24; and

(4)  The Court would not grant an order of examination or producing affirmation and documents if no useful purpose could be served by such an order: see Re Tom Ip & Partners, Architects, Engineers & Development Consultants Ltd (in liquidation) [2021] HKCFI 105 at §12 per DHCJ William Wong SC (as he then was).

VI.  ANALYSIS

22.  At the outset of the hearing, Mr Lawrence Cheung (leading Ms Ann Lee) confirmed, rightly, that the present hearing should be focused only on paragraph 1 of the Summons, given that Ip’s affirmation filed in opposition essentially is an affirmation sought under paragraphs 2 and 3 of the Summons.

23.  Subject to the submissions made in her valiant efforts by Ms Elizabeth Lee, counsel for Ip, which I shall deal with later, I think that the information sought by way of examination of Ip in relation to the two Contracts and the Assets would be necessary for the Liquidator to carry out his functions, and would be reasonable, necessary and not oppressive. This is because Ip’s evidence that he entered into the Contracts “in the heat of the moment” and “shortly after” cancelled the written Contracts orally is, without any details as pointed out above, very suspicious, to put mildly, without any oral evidence from the examination. It is particularly so given that Ip’s such version of event surfaced for the first time only in his affirmation (while in his solicitors’ letter dated 20 May 2024 in reply to the Liquidator’s demand for document and information in relation to the Assets, Ip only stated that the records sought are no longer available). In such circumstances, the oral evidence would be useful in the following manner:-

(1)  Ip’s oral evidence may dispel the suspicion and if so, the Liquidator may confront Francis Kao in the account processes that may be ordered in the Misappropriation Lawsuit and tell him that Ip has been unshakeable as to the cancellation of the Contracts and thus the Assets are still owned by Big Plan, Win Harvest and/or indirectly by him.

(2)  Ip’s oral evidence may reinforce the suspicion of Ip’s such evidence such that there were the Contracts but the Contracts were not cancelled. In this scenario, the Liquidator would go along with Francis Kao’s version and may there and then decide whether he should go after Ip, considering, among others, whether any action against Ip has been time-barred. This would still be useful for the Liquidator’s collection of assets in the sense that the Liquidator could decide whether to spend resources on the Assets in the overall scheme of things.

(3)  Ip’s oral evidence may reinforce the suspicion of Ip’s such evidence such that there were no Contracts or such Contracts were sham. In this scenario, the Liquidator may confront Francis Kao in the account process that may be ordered in the Misappropriation Lawsuit.

(4)  In the event that no order of account would be ordered in the Misappropriation Lawsuit and/or Francis Kao successfully defends the Misappropriation Lawsuit, the likelihood would be that the trial court there accepted Francis Kao’s version that the Assets were sold to Ip. That judgment would not bind Ip. To go after Ip, examination would therefore be necessary for evidence that the Assets were indeed owned by Ip, and for that purpose, evidence about the suspicious Contracts would be useful.

24.  Ms Lee, for Ip, makes the following submissions in opposition to the Summons.

25.  First, she submits that it is the Liquidator’s own belief that “it is more likely” that the Assets are “probably” not in Ip’s possession, custody or power. Therefore, there is no point examining Ip, because Ip has also deposed in his affirmation that the Assets are not in his possession, custody or power. However, in my view, that is merely the Liquidator’s belief of a likelihood or a probability. It is because of such uncertainty that examination is needed. Further and in any event, there would also be issue of the ownership of the Assets in the Liquidator’s collection of the Assets. I note that Ip has been careful in his affirmation to say that the Assets have never been in his possession, custody or power. However, he has not deposed positively about the ownership. In the light of the suspicious evidence about the Contracts and the cancellation thereof, the Liquidator’s mere belief is not a ground for opposing the Summons.

26.  Second, Ms Lee submits that the Misappropriation Lawsuit covers the Assets, and if an order of account would be ordered, the Liquidator could ask Francis Kao about the Assets in the accounting process. However, I cannot see why Francis Kao, in the accounting process, would change his story to make it consistent with Ip’s. Therefore, evidence from Ip’s examination may be useful in the accounting process.

27.  Third, Ms Lee submits that if no order of account would be granted, there is no point examining Ip given that Ip already deposes that the Contracts were cancelled, and the Assets were not in his possession, custody or power, consistent with the Liquidator’s (mere) belief as mentioned above. However, as I pointed out above, the ownership of the Assets would be an issue. In any event, Ip’s evidence that the Assets are not in his possession, custody or power, in the light of his suspicious evidence about the Contracts, warrants examination.

28.  Fourth, Ms Lee submits that there can be no proprietary claim against Ip given Ip’s evidence that the Assets have not been his possession, custody or power. To deal with this submissions, I repeat the preceding paragraph.

29.  Fifth, Ms Lee submits that any claim against Ip has been time-barred. That may or may be correct depending on how the evidence would come out, but even if any action against Ip has been time-barred, I bear in mind that the purpose of examination of Ip would not be solely for the purpose of commencing an action against Ip. For example, other purposes include to decide whether there is any claim against Francis Kao, to decide whether to spend more resources on collecting the Assets, as clear from my analysis above.

30.  Sixth, Ms Lee submits that an order of examination would be oppressive in that Ip is a third-party and the Liquidator has recourse in the Misappropriation Lawsuit. However, as I analyse above, even in the accounting process that may be ordered in the Misappropriation Lawsuit, Ip’s evidence would still be useful. A mere recourse against Francis Kao without Ip’s evidence may not be facilitative enough or at all for the Liquidator’s collection of the Assets.

31.  Seventh, Ms Lee submits that it would be wasteful to examine Ip given that he has already deposed in relation to the Contracts and the Assets. Nevertheless, as I analyse above, the evidence he deposed in relation to the Contracts and the Assets is, put mildly, very suspicious, and examination would be necessary in the circumstances.

32.  Eighth, Ms Lee submits that Ip should have examined in the Misappropriation Lawsuit, and ordering examination here would effectively allow the Liquidator to re-open the matter. Ms Lee may be correct that Ip could have been subpoenaed, but Francis Kao raised the allegation mentioning Ip, and I can see why the Liquidator in the Misappropriation Lawsuit had no incentive to subpoena Ip. Absent any suggestion that there is any abuse of process (for which I see no evidence before me), Ms Lee such submissions carry her nowhere.

33.  Ninth, Ms Lee submits that the Liquidator seems to want to examine Ip on his financial capability at the time of the Contracts, and examination for such information is impermissible as examination for private information. She refers me to McPherson & Keay The Law of Company Liquidation (5^th ed), §15-057:-

“In Finnigan v Ellis, the New Zealand Court of Appeal said that an order could not require a former director of the company in liquidation to provide personal financial information to a liquidator under the New Zealand equivalent of s.236. In this case liquidators wanted to know whether it was economically worth suing a director and so they wanted to ascertain what his financial situation was. It is submitted that an English court is likely to take the same view as its New Zealand counterpart on the basis that in such circumstances the application would be oppressive. The English courts have always been more conservative about the breadth of examinations when compared with Australian courts, and this is likely to be the case here with private information.” (emphasis added)

34.  Mr Cheung submits that this passage has to be read in the context of the Liquidators’ desire to know the financial worth of the potential defendant. I agree – this submission is in line with the general guidance that the discretion should be exercised with the specific context and facts of the particular case: see §21(3) above. In the present case, the context is that Ip “in the heat of the moment” entered into the Contracts for a substantial amount of money, and shortly after, he realised he had financial concern. Therefore, his financial capability at that time would be relevant to the credibility of his own story. For example, if Ip were very wealthy, then his alleged concern that allegedly led to the cancellation of the Contracts would not be well-founded, and this would undermine the credibility of his story. This is relevant to the central issue, as opposed to the “judgment worth” of a potential defendant irrespective of the merits of the central issue.

35.  Lastly, Mr Cheung lists out questions that may be asked during the examination. Ms Lee submits that some questions are not relevant and oppressive. Ms Lee’s concern can be readily dealt with by making it clear that the order of examination would be limited to the circumstances leading to the entering into the Contract, circumstances leading to the alleged cancellation of the Contracts, and the ownership and whereabouts of the Assets. For the avoidance of doubt, any order I am going to make should not be taken as endorsement of the questions listed by Mr Cheung or as disagreement therewith. The relevance of the questions to be asked would be determined with reference to the scope in the context. One cannot limit the questions in advance, given that a question may become relevant or irrelevant depending on the evidence already given in the examination.

36.  Having considered the above, I am satisfied that in the present case, the information sought by way of examination of Ip is reasonably required by the Liquidator to carry out his functions, and that the examination sought are is reasonable, necessary and not oppressive.

VII. CONCLUSION

37.  In the circumstances, I make the following order:-

(1)  Ip do attend before the Court and be examined under section 286C of the Ordinance in relation to (1) the circumstances leading to the entering into the Contracts; (2) the circumstances leading to the alleged cancellation of the Contracts; and (3) the ownership and whereabouts of the Assets; and

(2)  Costs of and occasioned by this application and examination thereunder be determined by the Master before whom the examination shall take place.

38.  It remains for me to thank Mr Lawrence Cheung and Ms Ann Lee (for the Liquidator) and Ms Elizabeth Lee (for Ip) for their assistance.

Lau, Chan & Ko, for the Petitioner and the 2^nd Applicant did not appear

The 1^st, 2^nd, 3^rd and 4^th Respondents were not represented and did not appear

Ms Elizabeth Lee, instructed by Cedric & Co., for the 5^th Respondent

The Company was not represented and did not appear

Chiu & Partners, for the 1^st Applicant did not appear

Mr Lawrence Cheung and Ms Ann Lee, instructed by T.K. Tsui & Co., for the Liquidator

The Official Receiver, of the Official Receiver’s Office was not represented and did not appear

HCA 1884/2018
HCA 2380/2018
& HCCW 121/2013
[2021] HKCFI 2472

HCA 1884/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1884 OF 2018

_________________

BETWEEN

_________________

HCA 2380/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2380 OF 2018

_________________

BETWEEN

_________________

HCCW 121/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 121 OF 2013

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BETWEEN

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DECISION ON COSTS

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Introduction

1.  By summons dated 27 October 2020 (“Summons”) filed in HCA 1884/2018 (“HCA1884”) and HCA 2380/2018 (“HCA2380”) (collectively “HC Actions”), the Plaintiff applies for specific discovery and production of documents pursuant to RHC O24 rr 7(1) and 11(2) against the 1st, 3rd, 4th and 5th Defendants in HCA1884, the 2nd Defendant in HCA2380 as well as Alex Lo, Respondent in HCCW 121/2013 (collectively “Defendants”). The Summons is supported by the Second Affirmation of Fung Chi Keung dated 27 October 2020 (“Fung 2”). In the Schedule to the Summons, the Plaintiff seeks a wide range of documents from the Defendants comprising 33 or so categories[1]. A copy of the Schedule is annexed hereto for ease of reference. 

2.  The Summons was originally fixed to be heard by this court on 2 March 2021. On the application of the parties by consent summons dated 23 February 2021, this court ordered by consent on 24 February 2021 that leave be granted to the Plaintiff to withdraw the Summons and that the question of costs be dealt with on paper. Subsequently, this court directed that there be an oral hearing which is now before this court.

Deliberation

3.  The applicable principles are not seriously in dispute. They are neatly summarised in Uni-Creation Investments Limited v Secretary for Justice, unrep, HCMP 2166 of 2015, 30 June 2017, Au-Yeung J at [9] - [11]:

“9. As a general rule, an applicant or appellant has to pay the other side’s costs if he decides to withdraw an application or appeal: To Wai Chan Henry v Aon Services Hong Kong Ltd [2015] 1 HKLRD 811 at §24, G Lam J; Best Joint Investments Ltd v Kagani Ltd (unrep, HCA 2608/2006, 20 June 2008) at §§8-9, Chung J.

10. To persuade the court to depart from the general rule, the minimum an applicant has to do is to show that the discontinuance is for reasons other than an acknowledgment of defeat or likely defeat. The most direct way of proof is to show that the applicant would have succeeded if the application had been proceeded with: see Coqueen Co Ltd v Chui Wai Kwan & ors (unrep, HCMP 438/2010, 8 December 2015) at §40, To J.

11. Even if the applicant had behaved ‘reasonably’ in making the application, he would still have to pay the costs of such application to the respondent. …”

4.  Relying on the principles set out above, the Defendants submit that they are entitled to the costs of and occasioned by the Summons. 

5.  The Plaintiff, on the other hand, seeks to justify a departure from the general rule by reference to the following events which took place after the issue of the Summons.

6.  First, two of the Defendants have filed further supplemental lists of documents on 11 January 2021. Second, Francis Kao, Alex Lo and 4 corporate Defendants have filed 3 affirmations in opposition on 11 and 18 January 2021 respectively:

(1) The 2nd Supplemental List of Documents of the 3rd Defendant ie Win Harvest.

(2) The 2nd Supplemental List of Documents of the 4th Defendant ie Unicorn. 

(3) The 5th Affirmation of Francis Kao (“Francis Kao 5”).

(4) The 3rd Affirmation of Alex Lo (“Alex Lo 3”).

(5) The 2nd Affirmation of Philip Kao (“Philip Kao 2”) on behalf of Win Harvest, Unicorn, Big Plan and Famewell.

7.  The Plaintiff submits that having regard to the said further supplemental lists of documents and affirmations, it considered that it was no longer necessary to further pursue the Summons. 

8.  By letter dated 8 February 2021, the Plaintiff informed the Defendants of the decision not to further pursue the Summons and suggested in a draft Consent Summons attached thereto that “costs of and occasioned by the Summons be in the cause”. In response, the Defendants insisted that costs of and occasioned by the Summons be paid by the Plaintiff. The inability of the parties to agree on costs cumulated in the consent summons and consent order referred to in paragraph 2 above.

9.  As far as the supplemental lists of documents are concerned, the Plaintiff has identified what have been disclosed and compared them with the Schedule, but only in very general terms, in paragraph 20 of its main skeleton submissions as follows[2]:

“20. By the 2^nd Supplemental Lists of Documents:-

20.1 Win Harvest has disclosed further documents, being some of the documents for which discovery was sought under some Items of the Schedule to the Discovery Summons:-

	Further Documents discovered in Win Harvest’s 2nd Supple LoD [Item]	Item in Schedule to Discovery Summons
(1)	Credit Suisse account statements [122]	Item (2)(e)
(2)	Credit Suisse account statements of investments [123]	Item (2)(f)
(3)	Book movement [124]	Item (2)(a)(v)
(4)	Journal entries [125]	Item (2)(a)(iii)

20.2 Unicorn has also disclosed numerous further documents allegedly in relation to its alleged animation film projects and/or other transmedia projects, in Items [37] to [122] of Unicorn’s 2^nd Supplemental List of Documents. Those apparently being documents for which discovery was sought under Item (3)(g) of the Schedule to the Discovery Summons.” (emphasis added)

10.  As far as Win Harvest is concerned, the request in the Schedule is for documents either from the date of incorporation ie 3 August 2009 to date or 1 January 2013 to date. Whereas the further documents discovered encompassed only a very limited duration ie January to October or November 2010 and January to April 2011. 

11.  As for Unicorn, it is accepted by Mr Scott SC that, broadly speaking, all but one of the further documents discovered relate to (3)(g) in the Schedule. The only exception is item 120 in its 2nd Supplemental List of Documents consisting of 5 HSBC bank statements from January to May 2011. Contrast that with (3)(e) of the Schedule which seeks all bank account statements, not just from HSBC, from the date of incorporation ie 7 September 2009 to date.

12.  As far as Francis Kao 5 is concerned, the bulk of his affirmation is to oppose the discovery application on the ground that it “was attempting to impermissibly fish for evidence”, “wholly unnecessary either for disposing fairly of the cause or matter or for saving costs” etc. Only a small part of it is to explain why, owing to the lapse of time, he no longer keeps the documents sought or is unable to locate them.

13.  As for Alex Lo 3, the Plaintiff seeks only 1 category of documents from him in the Schedule and it is correct that he did confirm that, owing to the lapse of time, he no longer keeps the documents sought or is unable to locate them.

14.  Lastly, Philip Kao 2 filed on behalf of Win Harvest, Unicorn, Big Plan and Famewell. The bulk of it is to oppose the discovery application on the ground of irrelevance, oppressiveness, fishing etc. It is only in relation to Big Plan that Philip Kao 2 confirms that it does not have in its possession, custody or power the documents specified in (4)(b), (e), (g) or (h) of the Schedule out of the 8 categories of documents sought from it. 

15.  To conclude, there has only been very limited further discovery given by Win Harvest and Unicorn after the issue of the Summons. As for Francis Kao, Alex Lo and Big Plan, their confirmation that they no longer keep the documents sought or are unable to locate them relates to a very small number of the documents covered in the Schedule. In other words, a large part of the documents sought in the Schedule were still outstanding. In these circumstances, it is very difficult for this court to accept the Plaintiff’s submission that it considered that it was no longer necessary to further pursue the Summons by reason of the said further supplemental lists of documents and affirmations.

16.  Mr Scott SC asks rhetorically: if the discovery application had good merits, as the Plaintiff now claims, why would it agree to withdraw the Summons, knowing full well that, under the general rule, it is likely to be liable for the other side’s costs? This court cannot see any credible answer to that question from the Plaintiff. 

17.  On the merits of the application, this court has also considered Fung 2 in which he has only spent a few paragraphs ie 37 - 42 in explaining the relevance of the documents sought in the Schedule and the necessity of their disclosure.  The explanation is in the broadest and most general terms.  Apart from bare assertions like, at paragraph 39, “the documents sought are highly relevant to the question of whether there is in existence the alleged ‘Restructuring Scheme’ and whether the misappropriations of the Company’s funds and assets were in fact the so-called ‘intra-group transfers’ allegedly carried out pursuant to the purported ‘Restructuring Scheme’”, Fung has made no attempt to explain the relevance and the need to obtain each of the 33 or so categories in the Schedule.  On such evidence, it is difficult for this court to even come to a preliminary view on the merits of the application, let alone to the view that the Plaintiff has good merits. 

18.  To conclude, the Plaintiff has failed to show that the withdrawal of the Summons is for reasons other than an acknowledgment of defeat or likely defeat. If so, this court should apply the general rule that the Plaintiff should bear the Defendants’ costs.

Disposition and costs

19.  There shall be an Order that costs of and occasioned by the Summons be to the 1st, 3rd, 4th and 5th Defendants in HCA1884, the 2nd Defendant in HCA2380 and Alex Lo, to be taxed if not agreed, and paid by the Plaintiff forthwith, certificate for counsel.

20.  As for the costs of this hearing, the parties agree that costs should follow the event. There shall be an Order that costs of this hearing be to the 1st, 3rd, 4th and 5th Defendants in HCA1884, the 2nd Defendant in HCA2380 and Alex Lo, to be taxed if not agreed, and paid by the Plaintiff forthwith, certificate for leading counsel.

Mr Edward Chan, SC and Mr Lee Tung-ming, instructed by Anthony Siu & Co, for the Plaintiff in HCA 1884/2018 and HCA 2380/2018

Mr John Scott, SC, Mr Lincoln Cheung and Mr Terrence Tai, instructed by Chiu & Partners, for the Defendants in HCA 1884/2018 and HCA 2380/2018 and the Respondent in HCCW 121/2013

The Applicant in HCCW 121/2013 was excused from attendance

Schedule of Documents

In this Schedule, the abbreviations used in the Amended Statement of Claim in HCA 1884 of 2018 and in the Statement of Claim in HCA 2380 of 2018 are adopted :-

HCA 1884/2018
HCA 2380/2018
& HCCW 121/2013
[2021] HKCFI 2418

HCA 1884/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1884 OF 2018

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HCA 2380/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2380 OF 2018

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HCCW 121/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 121 OF 2013

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JUDGMENT

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Introduction

1.  By summons dated 29 October 2020 (“Defendants’ Summons”) filed in HCA 1884/2018 (“HCA1884”) and HCA 2380/2018 (“HCA2380”) (collectively “HC Actions”), the Defendants apply to strike out the entire witness statement of Fung Chi Keung (“Fung”) dated 16 September 2020 (“Fung’s WS”).  Fung is the liquidator of Sunni International Limited, the Plaintiff in the HC Actions.

2.  By summons also dated 29 October 2020 (“Alex Lo’s Summons”) filed in HCCW 121/2013 (“HCCW121”), Mr Lo Kin Fung (“Alex Lo”) applies to strike out paragraphs 45-73 of the witness statement of Madam Tsen Yun Lei (“Madam Tsen”) dated 2 October 2019 (“Tsen’s WS”).  Madam Tsen is the Applicant of a misfeasance summons dated 30 May 2018 (“Misfeasance Proceedings”) while Alex Lo is the Respondent thereto. At the hearing, Mr Scott SC confirms that he only seeks to strike out paragraphs 51 to 73 of Tsen’s WS.

3.  The grounds for the striking out applications have been identified in the summonses and more particularly set out in Annexes 1 and 2 of Mr Scott SC’s skeleton submissions.  For ease of reference, they are reproduced and attached to this Judgment.  In summary, the grounds relied upon are that the witnesses have no personal knowledge of the matters stated therein (“Ground 1”), the statements contain (i) inadmissible hearsay evidence (“Ground 2”), (ii) commentary on documents (“Ground 3”), (iii) arguments, expressions of opinion or submissions of law (“Ground 4”), (iv) offensive and inflammatory language (“Ground 6”), and are unnecessarily prolix (“Ground 5”) and an abuse of the procedure (“Ground 7”). 

Background

4.  The material background can be found in paragraphs 3 to 18 of a Judgment of this Court dated 12 January 2021 in the HC Actions as follows. 

“3. The Plaintiff is a private company incorporated in the BVI on 4 January 1994. Upon the petition by Pleasure International Limited (‘PIL’) on 3 May 2013 in HCCW 121/2013 (‘HCCW121’), the Plaintiff was wound up by Order of the Court on 15 April 2015 (‘Winding Up Order’) on the ground that it was unable to pay its debts.

4. According to the Re-Amended Petition in HCCW121, the shareholders of the Plaintiff included inter alia:

(1) PIL;

(2) Silverbay Group Limited (‘Silverbay’);

(3) Golden Jungle Limited (‘Golden Jungle’);

(4) Happy Nation Limited (‘Happy Nation’).

5. The debt owed by the Plaintiff to PIL arose out of a default judgment obtained in HCA 2042/2011 (‘HCA2042’) in the sum of over HK$2.91 million plus interest. Other plaintiffs in HCA2042, who also obtained default judgment against the Plaintiff in the following sums plus interest, were:

(1) Silverbay—HK$8.02 million;

(2) Golden Jungle—HK$0.81 million;

(3) Madam Tsen Yun Lei (‘Madam Tsen’)—HK$6.31 million; and

(4) Kui Yiu Ngok (‘Kui’)—HK$1.51 million.

6. In HCA1884 and HCA2380 commenced in August and October 2018, the Plaintiff contends that a substantial amount of its funds and assets had been misappropriated and siphoned off. It claims that the Defendants were either primarily responsible for the said misappropriations or were liable as accessories. Prior to the commencement of HCA1884 and HCA2380, on 30 May 2018, Madam Tsen issued a misfeasance summons against Lo Kin Fung (‘Alex Lo’) in HCCW121 (‘Misfeasance Proceedings’) who was also allegedly implicated in the said misappropriations. On 21 May 2020, Linda Chan J gave directions that all the aforesaid 3 proceedings be heard and tried together.

7. The proposed draft re-Amended Statement of Claim in HCA1884 runs to over 140 pages. The Statement of Claim in HCA2380 is almost 40 pages long. In very simple terms, the following is, as set out in the Plaintiff’s skeleton submissions, the material background to the 3 proceedings.

8. The Plaintiff was set up as a passive investment holding company for holding the listed shares in Imagi International Holdings Limited (‘Imagi’) (previously known as Boto International Holdings Limited) for 4 families viz (i) the Cheng family, now represented by Madam Tsen, (ii) the Law family, now represented by Madam Ho, (iii) the Kui family, and (iv) the Kao family, of which Francis Kao and his father Michael Kao are the 1st and 2nd Defendants in HCA1884. Under the so-called ‘4-Families Agreement’, the Plaintiff’s shares/interests in Imagi were not to be disposed of unless approved or agreed upon by all its shareholders.

9. According to the audited financial statements and the management accounts of the Plaintiff available to the Liquidator, up to at least 30 June 2009, the Plaintiff was still holding 585 million Imagi shares worth over HK$363 million and had substantial net equity of over HK$309 million. As a result of the rights issue by Imagi, the Plaintiff was further entitled to over 146 million of the ‘2009 Rights Shares’.

10. Francis Kao and Michael Kao, acting by themselves and with Alex Lo who was authorized to operate the Plaintiff’s 4 securities accounts (‘Securities Accounts’) and/or its 4 HSBC bank accounts (‘HSBC Accounts’), had:

(1) disposed of all the 146 million 2009 Rights Shares on 4 August 2009, generating proceeds of over HK$15 million, and all the 585 million Imagi shares between 27 July and 14 October 2009, generating proceeds of over HK$238 million; and

(2) dissipated all the listed shares and funds, purchased with or generated from the aforesaid disposals of the 2009 Rights Shares and Imagi Shares, held in the Securities Accounts, and all the funds in the HSBC Accounts.

11. While the sale of the 2009 Rights Shares had the prior approval of all shareholders and was in accordance with the 4-Families Agreement, the sale of the 585 million Imagi shares was carried out secretively and without the knowledge, approval or consent of the other shareholders and therefore in breach of the 4-Families Agreement.

12. Between 3 August and 8 September 2009, in a concerted manner,

(1) over 346 million Imagi shares were disposed of through 1 of the Securities Accounts which Michael Kao was the only person authorized to operate and another 1 of the Securities Accounts which Michael Kao, Francis Kao and Alex Lo were authorized to operate; and

(2) all the 2009 Rights Shares were disposed of through 2 of the Securities Accounts which Michael Kao and Francis Kao were both authorized to operate.

13. Further, despite over HK$254 million had been generated from the sale of the 2009 Rights Shares and the 585 million Imagi shares and the other shareholders’ repeated demands in 2009, 2010 and 2011, the Plaintiff did not repay its debts of around HK$20 million to the other shareholders and their associated persons including Madam Tsen and Kui. In contrast, the debt said to be owed by the Plaintiff to Michael Kao was fully repaid with interest in the total sum of about HK$13.8 million.

14. As a result of the Plaintiff’s refusal to repay the other shareholders and their associated persons, they commenced HCA2042 against the Plaintiff in 2011 and eventually obtained default judgment in December 2012. That resulted in the Plaintiff being wound up by the Court in April 2015.

15. In HCA1884, the Plaintiff seeks recovery of assets and funds which Francis Kao and Michael Kao had misappropriated through payments and transfers made to (i) Francis Kao himself, (ii) his associates viz the 3rd, 4th and 5th Defendants in HCA1884 or (iii) other third parties, for no apparent reason or business justification. The misappropriations took place by transfers or withdrawals from the Securities Accounts and/or HSBC Accounts. By so misappropriating the Plaintiff’s assets, Francis Kao and Michael Kao were acting in fraudulent breach of trust and fiduciary duties owed to the Plaintiff. The associates of Francis Kao, by receiving the misappropriated funds and assets, were accessories to such breach of trust. By the proposed re-amendment to the Amended Statement of Claim in HCA1884, the Plaintiff further avers that Michael Kao acted jointly with Francis Kao to defraud the Plaintiff and are liable for conspiracy to injure the Plaintiff by unlawful means.

16. The Plaintiff’s claims have been grouped under 12 heads and involve too numerous transactions to be recited here.

17. The subject matter of HCA2380 relates to at least 2 heads of the misappropriations in HCA1884:

(1) Misappropriation through the purchase of a yacht with the Plaintiff’s funds in September 2009 and registered in the name of the 1st Defendant in HCA2380 (‘Win Harvest’). The yacht was, after the winding up of the Plaintiff, sold by Francis Kao for €1 million in 2017 and the sale proceeds were paid to the 2nd Defendant in HCA2380 (‘Famewell’). The Plaintiff seeks recovery of and tracing remedies in respect of the sale proceeds from Famewell.

(2) At least HK$6 million which the Plaintiff paid to Win Harvest had been applied as partial payment for a Pagani Sports Car which was later sold for HK$14 million. The sale proceeds were applied by Win Harvest as partial payment for the so-called St Andrews Place Property in Fanling, New Territories which is still owned by Win Harvest. The Plaintiff seeks tracing and other remedies in respect of the St Andrews Place Property from Win Harvest.

18. The Amended Defences of the 1st to 5th Defendants in HCA1884 consist of over 130 pages, whereas the Defences of the 2 Defendants in HCA2380 run to over 40 pages.  Again putting it very simply, the Defendants contend that they should not be held liable for breach of trust or fiduciary duties and/or liable as accessories to the alleged breach of trust or fiduciary duties.  Amongst other reasons, the Defendants contend that the payments and transfers, which were alleged to be wrongful by the Liquidator, were intra-group transfers and/or legitimate business transactions made in the course of a restructuring scheme which took place since July 2009. In particular, Michael Kao retired from his directorship of the Plaintiff in July 2008, ceased to take part in its management and was not involved in the alleged misappropriations.  The Defendants also contend that the Plaintiff’s claims are time-barred.”

5.  To recap, the Plaintiff alleges that Francis Kao and Michael Kao (“Kaos”) had acted in fraudulent breach of their duties to the Plaintiff for misappropriating its assets.  To the extent that the other Defendants in the HC Actions viz Win Harvest, Unicorn, Big Plan and Famewell had been the recipients of the monies or property misappropriated by the Kaos, they had acted in collaboration with the Kaos and are liable as accessories.  In the Misfeasance Proceedings, Madam Tsen alleges that Alex Lo is also implicated in the aforesaid misappropriations. 

6.  As stated in Mr Scott SC’s skeleton submissions, the Defendants and Alex Lo contend that they should not be held liable for the claims advanced by the Plaintiff or Madam Tsen because:

(1)  The payments and transfers were intra-group transfers and/or legitimate business transactions made in the course of a restructuring scheme taking place since July 2009 (“Restructuring Scheme”).  There can be no breach of fiduciary duties in respect of such payments, transfer or transactions.

(2)  Michael Kao had retired from his directorship of the Plaintiff at the material time and was not involved in the alleged misappropriations.  Alex Lo did not take part in the management of the Plaintiff at the material time and in any event had discharged his duties as a signatory of the Plaintiff’s bank accounts.

(3)  There was no breach of fiduciary duties on the part of Francis Kao, Michael Kao and Alex Lo, and therefore Win Harvest, Unicorn, Big Plan and Famewell cannot be liable as accessories.

(4)  Further, save where fraud is alleged, the claims raised by the Plaintiff and/or Madam Tsen are time-barred.

Deliberation

7.  As a general principle, a witness statement should cover only those issues on which the party serving it wishes that witness to give as evidence-in-chief.  It is not the function of a witness statement to provide a commentary on the documents in the trial bundle, to set out quotations from such documents, to engage in matters of argument or to deal with other matters merely because they arise in the course of the trial.  However, the rules as to witness statements and their contents are not rigid statutes and it is conceivable that in particular circumstances they may properly be relaxed in order to achieve the overriding objective in CPR r 1 of dealing with cases justly: JD Wetherspoon plc v Harris [2013] 1 WLR 3296 at [39] - [41].

8.  There is an obligation on the parties preparing the witnesses’ statements to ensure that they contain no inadmissible evidence.  They must take care to omit any statements of information and belief, even if the grounds and sources thereof are given, or any expression of opinion, or any matter which is scandalous, irrelevant or otherwise oppressive: Hong Kong Civil Procedure 2021 para 38/2A/13.

9.  Last but not least, the Court must be astute in furthering the underlying objectives of the CJR as set out in RHC O 1A r 1 as well as the primary aim, set out in RHC O 1A r 2(2), to secure the just resolution of disputes in accordance with the substantive rights of the parties.

Fung’s WS

10.  Fung is the liquidator of the Plaintiff appointed in July 2015. 

11.  Ex hypothesis, Fung, as liquidator, is a stranger to the Plaintiff’s affairs prior to its liquidation and would not have personal knowledge of the matters giving rise to the claims in the HC Actions, which took place prior to his appointment.  Yet, it is the function of Fung, as liquidator, to investigate the causes of the Plaintiff’s failure and the conduct of those concerned in its dealings and affairs.  It has been said that extraordinary powers have been conferred on the Court by legislation eg formerly s 221 of the Companies Ordinance, Cap 32[1], to enable the liquidator to perform such function:  The Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766 at [24].  Given a liquidator’s function to investigate the conduct of those concerned in a company’s dealings and affairs and the legislative powers to enable him to perform it, it seems extraordinary to suggest that somehow he is not allowed to testify in subsequent legal proceedings on the conduct and the result of his investigation in so far as those matters are relevant to the proceedings.

12.  Hence, as a general observation, it seems to this court there is no reason why a liquidator cannot testify as to what he manages to discover in the investigation process, either from people with personal knowledge of the affairs of the company or from documents obtained from the company itself or from third parties. In practice, it is often the case that what a liquidator manages to discover is technically hearsay evidence. But there is no absolute bar to adducing hearsay evidence in civil proceedings: see s 47 Evidence Ordinance, Cap 8 (“EO”), subject to arguments on its weight.

13.  Fung’s WS is 259 pages long and contains 435 paragraphs.  It contains 4 main sections viz Introduction, Overview of the Plaintiff, Misappropriations of the Plaintiff’s Assets and the Restructuring Scheme alleged by the Defendants. 

14.  If the Defendants wish to strike out the entire statement, it is incumbent on them to satisfy this court that each and every of the 435 paragraphs of Fung’s WS falls foul of the Wetherspoon principle, is irrelevant or is otherwise inadmissible.  In support of the application to strike out the entirety of Fung’s WS, the Defendants rely on Grounds 1, 5 and 7. Whether Fung’s WS is an abuse of procedure ie Ground 7 really depends on the validity of the other grounds and cannot be considered independently.  In this court’s view, Grounds 1 and 5 are without merits and can be disposed of briefly.

15.  As far as Ground 1 is concerned, Mr Chan SC submits that, as an all-embracing ground for striking out the entire statement, it has not been made out.  In this regard, Mr Chan SC points to a number of sample paragraphs in Fung’s WS which simply sets out the investigation he had carried out into the affairs of the Plaintiff.  They are paragraph 29 onwards (enquiries with members of the Plaintiff’s Committee of Inspection and an auditing firm CCIF CPA Limited), paragraph 37 onwards (enquiries with major banks in Hong Kong) and paragraph 48 onwards (enquiries with 4 securities companies viz First Shanghai, UOB, Fairwin and Emperor).  Mr Chan SC submits and this court agrees that these are obviously matters which Fung would be able to prove with his own personal knowledge since they are matters concerning his own investigation. 

16.  As far as Ground 5 is concerned, Mr Chan SC submits that in considering the length of Fung’s WS, one has to bear in mind the number of heads of claims, the number of transactions involved as well as the nature of the Plaintiff’s claim and the Defendants’ defence. The complexity of the claims and the defence can be seen from the length of the pleadings in the HC Actions.  On any view of the matter, the HC Actions are a very heavy piece of litigation.  In these circumstances, it is entirely understandable that Fung considers that he needs to provide details of his investigation in support of the misappropriation claim and to dismantle the main defence of the “Restructuring Scheme”.  Fung’s WS is undeniably lengthy. A different drafter of Fung’s WS could conceivably have cut it shorter and made it more succinct. But it is inimical to the underlying objectives of the CJR to order the Plaintiff itself to re-draft Fung’s WS for the sake of making it shorter as it would only increase the legal costs involved and also would prevent the case from being dealt with as expeditiously as is reasonably practicable. All in all, this court is not persuaded that Fung’s WS is “unnecessarily prolix” such as to justify its striking out in the entirety.

17.  Grounds 2 and 3 can be dealt with together. 

18.  The “offending” examples given by Mr Scott SC include inter alia paragraphs 16 - 20, 76 and 221-2 of Fung’s WS. For ease of comprehension, extracts of some of those paragraphs are reproduced below:

“16. I have been told by the members of the Committee of Inspection[2] that back in the 1980s, Law Pun Leung, deceased (‘Mr. Law’), Cheng Ka Yun, deceased (‘Mr. Cheng’) and Michael Kao had started a plastic manufactory business through a company incorporated in Hong Kong in the name of Boto Company Limited(‘Former Boto’)then mainly for manufacturing artificial Christmas trees. Not long after the start of the business of Former Boto, Mr. Kui (Kui Yiu Ngok) also joined in as a shareholder.

17. The business of Former Boto was very successful. But, unfortunately, Mr. Cheng passed away in 1989 and Mr. Law also passed away in 1992. After their demise, their respective widow, i.e. Ms. Tsen (widow of Mr. Cheng) and Ms. Ho Pui Fong (‘Ms. Ho’) (widow of Mr. Law), became the persons around representing the respective interests of Mr. Cheng’s family and Mr. Law’s family in the business.

18. In about 1993, there was a plan for the listing of the businesses and group of companies of Former Boto. For that purpose, the Company was set up as a passive investment holding company for holding collectively the investments in the shares of the company to be listed for the 4 families of Mr. Law, Mr. Cheng, Michael Kao and Mr. Kui (collectively ‘the 4 Families’).

19. The listing materialized in 1997 with Boto International Holdings Limited being listed on the main board of the Stock Exchange of Hong Kong with stock code: 585. The name of the listed company has since 19 April 2004 been changed to Imagi International Holdings Limited (‘Imagi’).

20. I have also been told by the members of the Committee of Inspection that before the listing of Imagi materialized, there was an oral agreement among the 4 Families (‘the 4-Families Agreement’), inter alia, that

(a) The Company would be used as the vehicle for holding the shares of the 4 Families in the listed company collectively,

(b) The Company would be a passive investment company, like a sort of ‘trust’ company, for the shareholders of the Company to collectively hold their interests in the listed company,

(c) If any of the shareholders of the Company intended to sell its interests in the Company, it would first be offered to the other shareholders of the Company,

(d) Any disposition or even trading of the shares and/or interests in the listed company to be held by the Company must be approved or agreed upon by all of the shareholders of the Company beforehand,

(e) Dividends to be paid to the Company on the shares in the listed company were to be distributed to the shareholders of the Company according to their respective shareholdings in the Company, and

(f) The Company would not engage in other business activities than to hold the shares and/or interests in the listed company for the shareholders of the Company collectively.

…

76. However, I wish to point out that according to the members of the Committee of Inspection, the sale of the 585m Imagi Shares was undertaken without the prior knowledge or consent of PIL, SGL, GJL and Mr. Lam. Prima facie, the sale of the 585m Imagi Shares was contrary to the 4-Families Agreement. Nor have I been able to find among the records of the Company or even from the documents discovered by the Defendants any resolution, whether shareholders’ or director’s resolution, relating to the sale of the 585m Imagi Shares by the Company. This is in stark contrast to the sale of the 2009 Rights Shares, which was carried out with the consent given by all of the shareholders of the Company through the written resolution signed by all of them.

…

221. Firstly, from the documents discovered by Win Harvest, it can be seen that Win Harvest had purchased at least 2 residential properties between 2010 and 2012, namely, (1) a property in the ‘Beverly Hills’ in Tai Po (‘the Beverly Hills Property’) in 2010 at the price of HK$13.7 million, and (2) the St Andrews Place Property in 2011 at the price of HK$52,000,000. However, on top of the purchase price and the necessary conveyancing expenses, very substantial sums have been spent by Win Harvest on the fitting out of the 2 properties, apparently not for the benefit of Win Harvest, but for the use and benefit of Francis Kao.

…

(g) According to audited reports of Win Harvest, the properties were booked as ‘Property, plant and equipment’. The definition of ‘Property, plant and equipment’ are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period. However, the Defendants seem to be alleging that the property was held for investment purposes. For accounting purpose, if the properties were held for investment, they should be booked as ‘Investment properties’, instead of ‘Property, plant and equipment’.

222. Secondly, from the documents discovered by Win Harvest, it also appears that the expenses for the Yacht have been paid for by Win Harvest, but the Yacht was apparently under the use of Francis Kao. Annexed hereto marked ‘FCK-10’ is a schedule summarizing the running expenses incurred on the Yacht as shown in the documents disclosed in Win Harvest’s list of documents and Philip Kao’s 2nd Affirmation in HCCW 121. Some of those expenses are also shown in the Win Harvest 2009 and 2010 Book Movement extracts discovered by Win Harvest …” (emphasis added)

19.  What Ground 2 boils down to is that Fung is giving hearsay evidence as to what he learned from third parties including members of the Committee of Inspection.  Ground 3 is also about hearsay evidence since according to s 46 EO, hearsay means a statement made otherwise than by a person while giving oral evidence in the proceedings which is tendered as evidence of the matters stated. Here, what the Defendants are complaining in essence is that Fung is purporting to summarise what the authors purported to convey in those documents. 

20.  But as s 47(1) EO provides, in civil proceedings, evidence shall not be excluded on the ground that it is hearsay unless—

(1)  a party against whom the evidence is to be adduced objects to the admission of the evidence; and

(2)  the court is satisfied, having regard to the circumstances of the case, that the exclusion of the evidence is not prejudicial to the interests of justice.

21.  Mr Chan SC submits and this court agrees that given the nature of the Plaintiff’s claims in the HC Actions, the number of heads of claims and the transactions involved which are said to be supported by the documents obtained by Fung in the course of his investigation, some of which from the Defendants themselves, it is clearly necessary and conducive to the trial that what is considered to be relevant information as derived from the documents be extracted and highlighted in Fung’s WS. This is especially so when thus far there is no dispute on the authenticity of those documents.

22.  This court of course accepts the Wetherspoon principle that normally it is not the function of a witness statement to provide a commentary on the documents in the trial bundle.  But in the case of a liquidator who is a stranger to the affairs of the company in liquidation, the rules as to witness statements and their contents may properly be relaxed in order to achieve the overriding objective of dealing with cases justly.  Otherwise, the only alternative available is for the liquidator to put volumes and volumes of documents before the court and ask the court itself to search for something relevant to the claim or the defence, as the case may be.  This is hardly conducive to the underlying objective of the CJR to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings.

23.  To conclude, it is this court’s view that exclusion of Fung’s WS on Grounds 2 and 3 by taking a “broad brush approach” at this pre-trial stage of the proceedings is indeed prejudicial to the interests of justice.  As a matter of prudence, the matter should be left for determination by the trial judge.

24.  As for Ground 4, some of the “offending” examples given by Mr Scott SC in court eg paragraphs 99 - 100, 173 and 329 - 330 are indeed expressions of Fung’s opinion or submissions of law.  As for Ground 6, the “offending” examples given by Mr Scott SC are also expressions of Fung’s opinion eg paragraphs 73(f), 82, 96 and 97 which the Defendants may find offensive since they are critical of the Defendants for being inter alia untruthful, uncooperative, evasive, obstructive etc.

25.  Insofar as Fung’s WS contains expression of his opinion on the Defendants’ conduct personally perceived by him or on the contents of the documents personally examined by him, in the course of being a liquidator, such statements of opinion on any relevant matter, if made as a way of conveying relevant facts personally perceived by him, is admissible as evidence: Re Jinro (HK) International Limited, unrep, HCCW 1352 of 2001, 26 July 2002 at [23]-[24] , Kwan J (as she then was); Lawrence v Kent County Council [2012] EWCA Civ 493 at [23] - [25].

26.  Further, as Barma J (as he then was) explained in Re Linea Trading Company Limited, unrep, HCCW 350 of 2004, 11 July 2005 at [4(5)], the court may take one of three approaches to an affidavit in which there is scandalous, irrelevant or oppressive matter:

(1)  It may decline to strike the matter out, on the basis that it is capable of excluding such material from its mind when deciding the issues which arise for decision; or

(2)  It may think it appropriate to strike out some or all of the material complained of; or

(3)  It may, in an extreme case, order the entire affidavit to be taken off the court file.

27.  In the present case, even if some of the “offending” paragraphs under “Ground 4” and “Ground 6” are inadmissible opinion evidence, this court will still decline to strike them out at this stage.  As Barma J (as he then was) rightly points out, Judges are quite capable of excluding these materials from their mind and in practice they often do when the occasion arises.  It seems to this court inimical to the underlying objectives of the CJR to order the Plaintiff to cross out one or two expressions or sentences here and there in the “offending” paragraphs so as to strictly comply with the Wetherspoon principle, the reason being it would likewise increase the legal costs involved and also would prevent the case from being dealt with as expeditiously as is reasonably practicable.  In this regard, the Defendants have not taken it upon themselves to apply the blue pencil approach to cross out what they regard as offensive in Fung’s WS.  Rather, they take the short cut of inviting this court to apply a broad brush approach and strike out the entire so-called “offensive” paragraphs listed in their Annex I.  In this court’s view, that approach at this pre-trial stage of the proceedings is not conducive to securing the just resolution of disputes in accordance with the substantive rights of the parties.

28.  In the premises, this court rejects all 7 Grounds and the Defendants’ application fails.

Tsen’s WS

29.  As this court mentions earlier, Mr Scott SC confirms that he only seeks to strike out paragraphs 51 to 73 of Tsen’s WS, consisting of section “II.  Investigation of the assets of the Company by the Liquidator” and section “III.  This application against Lo”.  In his skeleton submissions, Mr Scott SC submits that many of the problems in relation to Fung’s WS apply to the offending paragraphs in Tsen’s WS with equal if not more force.  In Annex II, he relies on the same 7 grounds for striking out Tsen’s WS with the relevant paragraphs identified. 

30.  As a preliminary observation, since Mr Scott SC’s submission is that the problems in relation to Fung’s WS apply at least equally to the offending paragraphs in Tsen’s WS and since he is relying on the same 7 grounds for striking out Tsen’s WS, logically, once this court decides those matters against him in relation to Fung’s WS for the reasons given, that should prima facie also determines his application in relation to Tsen’s WS, unless there is something materially different between Fung’s WS and Tsen’s WS in terms of details, which this court cannot find. 

31.  In support of the application to strike out the entirety of paragraphs 51 to 73 of Tsen’s WS, the Defendants rely on the same Grounds 1, 5 and 7.  As far as Ground 7 is concerned, whether Tsen’s WS is an abuse of procedure depends on the validity of the other grounds and cannot be assessed independently.  As far as Ground 1 is concerned, it seems to this court that this ground, as an all-embracing one for striking out the entire statement, has not been made out.  This is because there are paragraphs in Tsen’s WS in which she is clearly able to testify by reference to her own personal knowledge.  Examples given by Mr Li SC include parts of paragraphs 58(a), 58(a)(ii), 59(c)(iii), 59(g)(vi) & (vii), 59(o) and 60.  This court agrees.  As for Ground 5, this court reiterates the point that whether Tsen’s WS is or is not unnecessarily lengthy or prolix really depends on how complex Madam Tsen’s pleaded case against Alex Lo is.  For the present purpose, the only sure guidance which can be obtained is from the pleadings in HCCW121, in particular the Points of Claim and Points of Defence which are quite lengthy, albeit not as lengthy as the pleadings in the HC Actions.  Given the Misfeasance Proceedings are separate proceedings against Alex Lo from the HC Actions brought by the Plaintiff against the other Defendants and that the evidence filed in the HC Actions would not entirely cover what Madam Tsen wishes to adduce against Alex Lo, this court is not persuaded that Tsen’s WS is “unnecessarily prolix” such as to justify the striking out of the entire “offending” paragraphs. 

32.  As far as Grounds 2 and 3 are concerned, the complaint is that Madam Tsen has referred to documents and/or information provided by or relayed to her by Fung or her solicitors and she has made some comments on those documents.  The relatively small number of “offending” paragraphs have been set out in Annex II.  Since the objection is in essence that Madam Tsen is giving hearsay evidence as to what she learned from third parties or is purporting to set out what she perceives as the effect of those third party documents, for reasons given in paragraphs 19-23 above, this court is similarly of the view that exclusion of the “offending” paragraphs in Tsen’s WS on Grounds 2 and 3 by taking a “broad brush approach” at this pre-trial stage of the proceedings is prejudicial to the interests of justice.  Instead, the matter should be left for determination at trial at which stage the parties may well find the more practicable and fruitful course to take is to concentrate on arguments on weight. 

33.  As for Ground 4 and Ground 6, it is true that parts of the “offending” paragraphs given in Annex II contain Madam Tsen’s expression of opinion, some of which the Defendants may find offensive.  Just to give 2 obvious examples at paragraph 59(k)(viii) regarding the purchase of a luxury yacht and 59(l) regarding the purchase of 3 Lamborghini cars as follows:

“ (viii) None of the Creditors (who were also members of the COI) had any idea why the Company, being a passive investment holding company as stated hereinabove, would buy the Yacht. Further, why would the Company pay for the Yacht when it came to be registered in Win Harvest’s name? Where is the Yacht now? Who is its current owner? ... Not only Francis Kao did not deliver up the Yacht, he even sold it and pocketed the money! This is blatant theft under the daylight!

(l)  There was one payment of HK$8,093,644.00 to a ‘Interbenz Autohaus HK Company’ (‘Car Payment’).  It was charged to Francis Kao for the purchase of 3 Lamborghini cars at the consideration of GBP634,000.00. … The COI was informed by Simon Fung that, upon enquires made by Simon Fung to Francis Kao regarding this transaction, Francis Kao claimed that the said 3 Lamborghini cars were purchased as investment items using the Company's fund and were then transferred to Big Plan. Ultimately, one of cars was sold by Big Plan for HK$1,710,000 in 2010. Another one was transferred by Big Plan to and registered under Win Harvest in March 2010, which was later being traded in for a Mercedes Benz sports car in November 2010. The third car was being transferred by Big Plan to and registered under Win Harvest in November 2013. However, Francis Kao never revealed at all the whereabouts of these cars. Again, why would the Company buy lavish sports cars and in fact 3 such cars? Most importantly, where are the cars now? These cars are clearly assets of the Company, but so far neither Francis Kao nor Lo had ever disclosed the whereabout of them, nor had he or Francis Kao deliver them up to Simon Fung. Blatantly this is nothing more than Francis Kao/Lo making use of the Company’s money as their own and for their own benefit.”

34.  For reasons already given earlier in relation to Fung’s WS, Judges are quite capable of excluding these expressions of opinion or offensive remarks from their mind and in practice they often do when the occasion arises.  It is not conducive to the underlying objectives of the CJR to order the Plaintiff to cross out one or two expressions or sentences here and there in the “offending” paragraphs so as to strictly comply with the Wetherspoon principle, especially when the Defendants themselves have not taken it upon themselves to apply the blue pencil approach to cross out what they regard as “offending”.

35.  For the above reasons, this court rejects all 7 Grounds and Alex Lo’s application also fails.

Disposition and costs order nisi

36.  The Defendants’ Summons is hereby dismissed.  There be an order nisi that costs of and occasioned by the summons be to the Plaintiff, to be taxed if not agreed, and paid by the Defendants forthwith, certificate for 2 counsel.

37.  Alex Lo’s Summons is hereby dismissed.  There be an order nisi that costs of and occasioned by the summons be to Madam Tsen, to be taxed if not agreed, and paid by the Defendants forthwith, certificate for 2 counsel.

Annex I: Grounds for Striking Out Fung WS 

Annex II: Grounds for Striking Out §§45-73 of Tsen’s WS

HCCW 121/2013

[2018] HKCFI 2371

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) PROCEEDINGS NO 121 OF 2013

____________

____________

__________________________

J U D G M E N T

__________________________

Introduction

1.  There is before this court an application by Asia Pacific Glory Limited (“Applicant”)[1] for an order that Fung Chi Keung (“Fung”or “Liquidator”) of Fung Chi Keung & Company be removed as liquidator of Sunni International Limited (“Company”) under s 196 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“CO”) and that Mr John Robert Lees and Mr Mat Ng of JLA Asia Limited be appointed the joint liquidators of the Company.

2.  The Company was wound up by the Court on 15 April 2015 while Fung was appointed as liquidator of the Company on 27 July 2015.

3.  The application is principally supported by the 2^nd affirmation of Francis Kao Wai Ho (“Francis Kao”), the sole director of the Applicant. In addition to being the sole director of the Applicant, Francis Kao was also the sole director of the Company until, on his evidence, 30 March 2011 when he resigned and was replaced by Shinichi Kobayashi (“Kobayashi”) as the Company’s sole director.  The Company was incorporated in the BVI.

4.  Fung’s reply to Francis Kao’s 2^nd affirmation is principally contained in his 5^th affirmation.

5.  The Applicant makes the present application in its capacity as a contributory.  Indeed, the Applicant is, on the evidence presently available, the majority shareholder of the Company since November 2009, holding 54.6% of its shares.  The Applicant’s status as a contributory is not disputed by Fung for the purpose of this application.  Further, at the hearing, Mr Scott SC frankly accepted the Applicant is not a creditor of the Company and has not filed a proof of debt.

Material Background

6.  The material background facts concerning the Company, its shareholding structure, directorship and business as well as the circumstances leading to the appointment of Fung as liquidator and the present application are complicated but there is little common ground between the Applicant and Fung.  This is unsatisfactory but not entirely surprising since a liquidator is usually a stranger to the company in liquidation and, most of the time, depends on the cooperation of the company’s former management[2] in order to gather information about its affairs.  In the present case, Fung alleges Francis Kao (and his associates) of being uncooperative and even obstructive.  Similar allegations are made against Fung by the Applicant via Francis Kao, which forms one of the grounds in support of the Removal Summons.

7.  In these circumstances, this court can do no better than setting out the background facts summarised by the Applicant and Fung in their skeleton submissions separately.

8.  In the Applicant’s skeleton submissions, a brief summary of the material background[3] is stated as follows.

9.  The Company was set up in about 1994 by Francis Kao’s father Mr Michael Kao (“MK”) and was used to hold the investments of the respective shareholders’ families in the shareholding of Boto International Holdings Ltd (“Boto”).  Boto was listed on the Main Board of the Hong Kong Stock Exchange in March 1997 (stock code: 585).  Boto’s present name is Imagi International Holdings Limited (“Imagi”).

10.  Boto was principally engaged in the business of designing, manufacturing, marketing and distribution of Christmas festive products, including artificial Christmas trees and other decorative accessories.  In the financial year of 1997/1998, it had a turnover of HK$665,429,000.

11.  MK, Mr Lawrence Lai Chi Kin (“Lai”), Mr Kui Yiu Ngok (“Kui”), Mr Lam Pak Kin (“PK Lam”) and Ms Lilian Tsen Yun Lei (“Tsen”) were directors when Boto was listed in 1997 and MK, Lai, Kui and Tsen held shares in Boto through the Company on their behalf and on behalf of their family members.  Subsequently, PK Lam was also gifted with 5% shares in the Company as a former employee.  The Company was the major shareholder in Boto holding over 50% of Boto’s shares.  MK was the largest beneficial shareholder in Boto holding 313,446,180 shares.  Kui and Tsen, among others, held 9,442,620 and 31,224,600 in Boto respectively.

12.  In 2000, Boto announced that it would raise fund from a placing exercise and the funds obtained would be used for the technology/content development of the Company’s infotainment, e‑commerce business and other internet‑related investment.  Shares in Boto were sold by the Company in the placing.  With funds raised from this placing, the first computer graphics studio under the name of Imagi Animation Studios Limited (“Imagi Studios”) was set up.

13.  Boto gradually changed its line of business to computer graphics animation production and in 2002 sold its Christmas festive products and leisure furniture business to a US private equity firm for over HK$1,000 million.  The net proceeds were channelled into the newly established Imagi Studios.

14.  In November 2002, Boto changed its name to IMI Global Holdings Limited (“IMI”).  In 2004, IMI further changed its name to Imagi.  Imagi later acquired a controlling stake in a failing computer graphics animation studio in Japan and further obtained the production rights of the well‑known Teenage Mutant Ninja Turtle (“TMNT”).  The production of TMNT was a major one because around 370 designers were involved which was the major milestone for Imagi’s animation production.

15.  In 2005, Francis Kao became the CEO of Imagi.  In 2008, Francis Kao became its chairman until he resigned in February 2009.

16.  Subsequently, Imagi Studios spent HK$500 million on the production of a computer graphics animation film viz Astro Boy but when it was released in 2009, it flopped in the box office.  Imagi Studio’s fortunes dwindled following Astro Boy’s global box office losses and it had to make a substantial lay off of staff in December 2009.  The Company suffered losses on the shares in the listed company[4] which were sold in 2009 and afterwards, movie production business continued with Unicorn Animation Studios Limited (“Unicorn”).

17.  As for the background of the present application, it is stated in the Applicant’s skeleton submissions that, while it was and is the majority shareholder/contributory of the Company, it had no knowledge that the Company had been wound up until about 11 March 2016 when Francis Kao received a letter from Fung stating that he was appointed the liquidator of the Company and demanded Francis Kao to deliver assets, books and records of the Company and submit a Statement of Affairs.

18.  On about 11 April 2016, Francis Kao’s former solicitors Hastings & Co wrote to Fung and informed him, inter alia, that Francis Kao was no longer a director of the Company, having resigned some 5 years ago in March 2011 and thus was not in a position to provide a Statement of Affairs.  Further, by the same letter, a Certificate of Incumbency of the Company dated 23 March 2016 (“Certificate of Incumbency”) was provided to the Liquidator.

19.  Despite repeated requests, Fung has refused to provide relevant documents to the Applicant concerning the liquidation of the Company except the Winding‑Up Order dated 15 April 2015 (“Winding‑Up Order”) and the Order appointing the Company’s Liquidator dated 27 July 2015 (“Appointment Order”).  The Orders reveal that the Company was not represented at the hearing of the Winding Up Petition and the Liquidator was appointed pursuant to an ex-parte summons.

20.  The Applicant as the majority shareholder of the Company has a right to be involved in the liquidation process.  However, at all times, Fung has continued to be evasive and obstructive to the disclosure of documents which are of vital importance to the Applicant.  Further, whilst the Applicant had not been given any notice of the proceedings[5], ithas also not been provided with (1) any notice to prove its debt owed by the Company as creditor (2) any notice or information regarding meetings of contributories or creditors.

21.  On the other hand, Fung’s brief summary of the material background, set out in his skeleton submissions[6], is this.

22.  The Company was incorporated in the BVI but had never been registered in Hong Kong as a foreign corporation, whether under the former Companies Ordinance, Cap 32, or the current Companies Ordinance, Cap 622.  There was no record of its place of business in Hong Kong or where its books and records were to be found.

23.  The Company was an investment holding company to hold interests in Imagi whose shares are listed in Hong Kong.  Basically, the Company was the corporate vehicle for holding the investments for 4 families who were the founders of Imagi viz the Kao family (of which Francis Kao and Philip Kao are members), the Cheng family, the Law family and the Kui family.  Those 4 families in turn held shares in the Company.  According to the latest available audited financial statements of the Company for the year ended 30 September 2008 (“2008 Audited Accounts”), the Imagi shares that the Company held was valued at HK$202,038,384.

24.  The 4 families gradually developed arguments regarding the management and operation of the Company.  Arguments among the shareholders of the Company came to a head in around 2008, with the Kao family (being the majority shareholder and with Francis Kao being the sole director of the Company at that time) on the one side, and the other shareholders of the Company on the other.

25.  Francis Kao unilaterally caused the Company to transfer by way of gift tranches of Imagi shares for no consideration to third parties.  The other shareholders of the Company viz Pleasure International Limited (“PIL”), Silverbay Group Limited (“Silverbay”), Golden Jungle Limited (“Golden Jungle”) and PK Lam commenced a derivative action in HCA 1753/2008 (“HCA 1753”) against Francis Kao to restrain him from making gifts of the Company’s Imagi shares.  They eventually obtained a summary judgment against Francis Kao on 25 June 2009.

26.  After that, despite enquires made by the other shareholders of the Company, Francis Kao refused to divulge any information about the Company to them.

27.  PIL, Silverbay, Golden Jungle, Tsen and Kui were also creditors of the Company.  They commenced proceedings in HCA 2042/2011 (“HCA 2042”) against the Company and obtained a default judgment against it on 12 December 2012.

28.  By a Petition dated 3 May 2013, PIL, with the support of the other Plaintiffs in HCA 2042, petitioned for the winding up of the Company for failing to pay its debts.

29.  By the Winding‑Up Order dated 15 April 2015, the Company was wound up by the Court and the Official Receiver (“OR”) became its provisional liquidator.  On 9 July 2015, the OR convened the first meetings of creditors and contributories of the Company in which resolutions for the appointment of Fung as liquidator and the appointment of a Committee of Inspection (“COI”) were passed. 

30.  By the Appointment Order dated 27 July 2015, upon the application of the OR as the provisional liquidator of the Company, Fung was appointed as liquidator of the Company and that there should be a COI consisting of 3 members. In the “Report of the Official Receiver and Provisional Liquidator in support of Appointment of Liquidator and Committee of Inspection” dated 21 July 2015 filed in support of the application, the OR had confirmed that he was satisfied that Fung was a fit and proper person to act as the liquidator of the Company.

31.  On 27 January 2016, Fung was provided by the OR a set of papers regarding the Company (“OR Papers”).  However, the OR Papers contained very limited information about the Company and contained nothing about its financial affairs or its assets.  Fung was not even provided with a Statement of Affairs or any books or records of the Company.  From the OR Papers, Fung gathered inter alia:

(1)   The identity of the Company’s shareholders and their shareholdings, which did not include the Applicant as a shareholder.

(2)   The identity of the creditors of the Company were shareholders of the Company or their beneficial owners and their respective debts came to over HK$24 million.  The Applicant was not a creditor of the Company.

(3)   Francis Kao was the last known sole director of the Company, and Kobayashi, who according to Francis Kao had replaced him as the sole director of the Company on 30 March 2011, did not appear in the OR Papers at all.

32.  After Fung’s appointment, he tried to obtain information on the financial affairs of the Company from Francis Kao and those associated with him, but had met with grave difficulties:

(1)   On 11 March 2016, Fung wrote to Francis Kao requesting him inter alia to deliver all the books, documents and assets of the Company and to submit a Statement of Affairs. 

(2)   The reply from Francis Kao, via Hastings & Co’s letter dated 11 April 2016, was that he had resigned as the sole director of the Company on 30 March 2011 and documents of the Company had been passed to its sole director Kobayashi.  Francis Kao did not supply any information about the whereabouts of the Company’s assets.

(3)   Kobayashi lived in Japan.  He had no address in Hong Kong and was never made a signatory of the Company’s bank accounts.

(4)   On the other hand, Francis Kao was all along a signatory of the Company’s bank accounts and was able to sign singly since 3 November 2009.  Despite having resigned as the sole director of the Company, Francis Kao remained the authorised signatory of its bank accounts and could operate them singly.

(5)   When Fung wrote to Hastings & Co for the address of Kobayashi, the response was that the firm no longer acted for Francis Kao and that Francis Kao would revert to him after his travelling, which he never did.

33.  Upon being alerted by Hastings & Co’s letter, Fung made enquiries with the Company’s registered agents.  After rounds of correspondence with the registered agents in Hong Kong and in the BVI between June 2016 and February 2017, one of the registered agents viz Offshore Incorporations HK Limited (“OIL Hong Kong”) provided some records to Fung which showed that the Applicant was a shareholder of the Company.  But, there was still no information about the Applicant’s registered office or address save that it was neither incorporated nor registered as a foreign company in Hong Kong.

34.  Subsequently, Fung, through other means, discovered, inter alia, Francis Kao had caused the Company to pay out around HK$345 million (“HK$345 million Payments”) from 31 January 2009 to 5 October 2013, including substantial sums paid to himself, his associates or third parties for no obvious justifications. After the HK$345 million Payments, the Company’s bank accounts were left with zero balance.

35.  From 20 January 2017, Fung started to seek information from Francis Kao on some of the HK$345 million Payments, including, for example, HK$19.8 million for the purchase of a yacht and over HK$8 million for the purchase of 3 Lamborghini cars, all of which were never registered in the name of the Company.  When Fung enquired with Francis Kao about the HK$345 million Payments, he refused to provide information on most of the transactions.  For the few transactions which he did, the information provided was wholly unsatisfactory.

36.  Fung then arranged for a private interview with Francis Kao regarding the financial affairs of the Company to take place on 16 August 2017.  When Francis Kao attended the interview on 16 August 2017 with his solicitors, he refused to answer Fung’s questions while his solicitors questioned Fung’s authority as liquidator.  The interview ended with Fung getting no information from Francis Kao at all.

37.  Fung attempted to obtain information on the financial position (such as the audited accounts) of the only known Hong Kong subsidiary of the Company viz PBE International Holdings Ltd (“PBE”) in which the Company held 70% of its shares and to which the Company had paid over HK$9 million out of the HK$345 million Payments.  But such attempts were obstructed by Francis Kao’s cousin Philip Kao who is the sole director of PBE. 

38.  Letters sent by Fung to associates of Francis Kao who had received substantial funds of the Company out of the HK$345 million Payments, viz Unicorn, Win Harvest Enterprises Ltd and Lo Kin Fung, to enquire about those payments yielded no response.  Fung then took out summonses on 25 July 2017 for the examination of them.  On 4 October 2017, Harris J adjourned the 3 summonses for argument and gave directions for the filing of evidence.  Before the adjourned hearing of the 3 summonses on 25 April 2018, the Applicant issued the Removal Summons on 21 November 2017.

The applicable legal principles

39.  In Re Legend International Resorts Ltd unrep, HCCW 1139 of 2004, 7 March 2011, Fok JA (as he then was), the learned Judge set out the principles on which the court will remove a liquidator at [27]‑[35] in these terms:

“ 27. Under s.196(1) of the CO, an applicant seeking the removal of a liquidator bears the burden of showing cause why the liquidator should be removed. It is well established that the provision confers a wide discretion on the court which is not dependent on the proof of any particular breaches of duty by the liquidator.

28. It is not necessary to prove misconduct or personal unfitness on the part of the liquidator and it is sufficient if it can be shown that it is on the whole desirable that the liquidator be removed: Re Marseilles Extension Railway and Land Co (1867) LR 4 Eq 692 per Malins VC at p 694. It is clear that in removing the liquidator there need not be anything against the individual: Re Adam Eyton Ltd (1887) 36 Ch D 299 per Cotton LJ at p 303. Due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed: ibid per Bowen LJ at p 305.

29. The words of the statute are very wide and it would be dangerous and wrong for a court to seek to limit or define the kind of cause required and it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the particular liquidation: Re Keypack Homecare Ltd [1987] BCLC 409 per Millet J (as he then was) at p 416, approved in Re Edennote Ltd; Tottenham Hotspur plc v Ryman [1996] 2 BCLC 389 per Nourse LJ at p 398a‑c.

30. As an officer of the court, the liquidator is subject to duties which the law regards as fiduciary. He is entrusted with the reputation of the court for impartial and proper dispatch of duties and, in that regard, no lesser standard is to be expected of him than of a court or judge: Re Timberland Ltd (1979) 4 ACLR 259 at p 286. A liquidator should not only be independent and impartial, he should also been seen to be so and any conflict of interest or even over‑familiarisation should be discouraged: Re Akai Holdings Ltd [2001] 2 HKLRD 411 per Yuen J (as she then was) at p 421A and McPherson’s Law of Company Liquidation (2^nd Ed) at §8.023.

31. Where conduct of a liquidator has been such as to or at least to give rise to a perception, on reasonable grounds, that he was biased, or where his conduct has been such as to give rise to a real, and reasonable, loss of confidence in him by the creditor, the court may accede to an application to remove him: Re Gold Pleasure Industrial Co Ltd & Ors, unrep, HCCW 49‑52/2006, 7.1.09 per Barma J at §§23‑25. The court must make up its mind by looking at the overall picture, whether there is a manifested tendency of the liquidators to favour certain interests at the expense of others. If there is that perception, and if in the eyes of a reasonable observer there is not the carrying on of the liquidation to the general advantage of the persons interested in the winding up, the court may act: Re Biposo Pty Ltd (1995) 120 FLR 399 at p 405.

32. Nevertheless, as Yuen J pointed out in Re Akai Holdings Ltd at p 421B, it is not every connection or action that can give rise to an allegation of an appearance of lack of independence and impartiality on which the court should act. (Insofar as Mr Richard Zimmern, counsel for the Liquidator, sought to argue, however, that this part of her judgment indicated that lack of independence was dependent on establishing a conflict of interest on the part of a liquidator, I do not agree that lack of independence is limited to that situation. It is clear that a liquidator is under a duty to avoid a conflict of duty and interest and also, separately, a duty to act impartially: see McPherson’s Law of Company Liquidation (2^nd Ed) at §§8.019‑8.023.)

33. Furthermore, in Re Edennote Ltd, Nourse LJ observed (at p 398f) that the creditors’ loss of confidence must be reasonable: the court does not lightly remove its own officer and will, amongst other considerations, pay a due regard to the impact of a removal on his professional standing and reputation.

34. The onus of proof on an applicant will not be easy to discharge where the liquidator has become well acquainted with the business and affairs of the company or the process of winding up has almost reached completion: McPherson’s Law of Company Liquidation (2^nd Ed) at §8.046 (pp 474‑475). Even if grounds for removal are made out, it is also necessary to take into account the disadvantages that would arise from the removal of the liquidator in terms of costs and delay: Re Gold Pleasure Industrial Co Ltd & Ors at §§24 & 26. The confidence of the majority creditors in the liquidators is an important factor when there is little in the way of assets in a company, so that the process of liquidation will have to be financially supported by funds raised from creditors: Re Akai Holdings Ltd at p 419A.

35. Finally, in this context, it is right to bear in mind the dicta of Neuberger J (as he then was) in AMP Enterprises Ltd v Hoffman & Anor [2003] 1 BCLC 319 at §27:

‘ On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. Otherwise, it would encourage applications under s 108(2) [of the Insolvency Act 1986] by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.’ ” (emphasis added)

40.  In Re Luen Tat Watch Band Manufacturer Ltd unrep, HCCW 497 of 2009, 27 November 2017, DHCJ To also set out the legal principles which govern applications to remove liquidators.  For the present purpose, one needs only recite the following paragraphs:

“ 3. Under section 196, the court has wide discretion to remove a liquidator for cause shown. The primary purpose of liquidation is for the general advantage of those interested in the assets of the company. The interest of those who are interested in the assets of the company is the single most important factor to consider in an application for removal of the liquidator. It is of such a paramount importance that a liquidator might be removed even if he was utterly without fault. Thus a liquidator may be removed if the court is satisfied that his removal is for the general advantage of those interested in the assets of the company notwithstanding no personal misconduct or unfitness is established against him: Re Mainkey Development LtdHCCW 1195/2000 (unreported), 10 November 2014, para 35, per Lam J and Re Keypak Homecare Ltd. (1987) 3 BCC 558, at 564, per Millett J (as he then was).

4. The next important justification for removal of a liquidator is the liquidator’s conduct. A liquidator is an officer of the court. He is subject to duties which the law regards as fiduciary. He is entrusted with the [reputation] of the court for the impartial and proper dispatch of those duties. In that regard, no less standard is to be expected of him than of a court or a judge: Re Legend International Resorts LtdHCCW 1139/2004 (unreported), 7 March 2011, at para 30, per Fok JA (as he then was). Flowing from that standard is the duty to act fairly and honourably: Macau First Universal International Ltd v Ding Xiaohong (No 2) [2012] 2 HKLRD 494, at para 47. This is a very strict obligation. Not only must he act fairly, he must be seen to be fair. He must not only be independent but must also be seen to be independent and completely impartial…

5. Thus, a liquidator may be removed if he has been shown to have been bias, or to give rise on reasonable grounds to a perception of bias, or to give rise to a real and reasonable loss of confidence in him by the petitioner, creditor or contributories.

….

9. The burden of proof is on the party seeking to remove the liquidator. The onus is very high and not easy to discharge. This is because the court does not lightly remove its own officer and will amongst other considerations, pay due regard to the impact of a removal on his professional standing and reputation: Macau First Universal International Ltd v Ding Xiaohong (No 2) Supra, at para 55.

...

11. As for the approach in assessing a liquidator’s conduct in an application seeking his removal, the court must bear in mind that liquidators are officers of the court. They have a public duty to serve. In discharging that duty, they may be placed in a position of conflict with parties who may have personal interests to pursue. Thus, when assessing the conduct of a liquidator, the starting point must be a presumption of good faith in favour of the liquidator. A complaint against the conduct of the liquidator must at least be viewed with some caution.” (emphasis added)

Deliberation

41.  According to the Applicant’s skeleton submissions, the 3 main grounds it relies upon in removing Fung are summarized as follows:

(1)   Fung was partial in failing or refusing to provide documents concerning his appointment — Ground 1.

(2)   Fung failed to ascertain or verify the identities and particulars of the company’s contributories and creditors by independent investigation and deliberately ignored the Applicant’s status as contributory in the course of the liquidation — Ground 2.

(3)   Fung knowingly deprived the Applicant of its rights and interest in the liquidation process — Ground 3.

Ground 1

42.  With regard to Ground 1, the Applicant’s complaint appears to be that before the issue of a summons dated 4 October 2017 pursuant to s 219 of CO (“Inspection Summons”) and the Removal Summons, other than copies of the Winding‑Up Order and the Appointment Order, Fung had failed to provide the Applicant with the documents sought in the Inspection Summons ie all court documents in the present winding up proceedings, including the petition, affirmations, summonses and orders made, all books, correspondence, records and documents relating to his appointment as liquidator and all documents relating to the creditors and contributories meetings of the Company.  Further, after the issue of the Inspection Summons, Fung, in his 3^rd and 4^th affirmations, had only provided a number of further documents to the Applicant including documents relating to contributories meetings, accounts that Fung had lodged with the OR and Report of the 1^st Meeting of Creditors held on 9 July 2015. 

43.  The Applicant submits, without any elaboration, at paragraph 12 of its skeleton submissions, that the documents requested were necessary and essential for it to assess its position for “the purpose of the liquidation process”, the winding up proceedings and to seek legal advice based on these outstanding documents. But it is difficult to see why that is so — the Applicant has never explained either in Francis Kao’s 2^nd affirmation or in its skeleton submissions what “the purpose of the liquidation process” it was that the documents were required.  The Company is insolvent with outstanding debts of over HK$20 million but no significant assets had been ascertained or recovered.  Hence, unless the Company is able to recover other assets via legal claims, it will not have any surplus assets for distribution to its contributories.  That was in fact one of the reasons why Fung had refused to allow the Applicant to inspect all the documents requested.

44.  As Mr Chan SC submits, and this court agrees, Ground 1 can actually be disposed of quickly.

45.  Whatever the Applicant may choose to assert, the simple fact is that the Inspection Summons has been heard and dismissed by the Court on 1 February 2018 with costs to Fung.  Importantly, apart from a bare assertion, there is no explanation as to why Fung’s failure to provide the documents requested, which ex hypothesis was found to be justified, shows he was partial.  There is simply no substance in the Applicant’s assertion and making such a serious allegation against a liquidator in these circumstances is highly unsatisfactory, to say the least.

46.  Ultimately, the Applicant’s allegation of lack of partiality on the part of Fung rests on his evidence that in around June 2015, he was approached by Messrs Lau Chan & Ko, the former solicitors of PIL, a creditor and contributory, to ascertain whether he would be willing to be appointed as liquidator of the Company and Fung agreed.[7]  This was so despite Fung’s evidence on oath that before his appointment, he did not know any of the shareholders, directors or officers of the Company.

47.  In Re Akai HoldingsLtd [2001] 2 HKLRD 411, the issue before the court was who should be appointed liquidators of the 2 companies in liquidation when the creditors voted in favour of one team viz Christensen, Hodgkinson and Fan, while the contributories voted in favour of another viz Kennic Lui, Lauren Lau and Ruby Leung.  One of the objections raised against the creditors’ choice was that there was an appearance of lack of independence and impartiality since a bank had entered into a funding agreement on the basis that the creditors’ choice would be appointed and a set‑off by that bank might have to be investigated in the liquidation process.  With regard to this objection, Yuen J (as she then was) pointed out at 422 D‑H:

“  69.   As for the funding, it is well‑established that the fact that a creditor is funding the liquidation (or even only specific parts or steps in the liquidation) is not a reason for criticism.  Indeed it has been accepted that “where a company is being wound up and it has no assets, or insufficient assets, to enable the due processes of the liquidation to be carried through, a creditor is to be encouraged, rather than criticized, in making funds available to the liquidators.  Nor need a liquidator be diffident in accepting funds or indemnities from creditor so as to enable a winding‑up to proceed” (Re Allebart Pty Ltd [1971] 1 NSWLR 24, 28).

70.   So the fact that a creditor is funding the liquidators does not mean that liquidators are “in the pocket”, or would be properly perceived to be “in the pocket” of a creditor.  Nor the fact that a creditor would only fund certain liquidators.  A creditor who has already lost his money is reasonably expected to be careful that he is not throwing good money after bad.  He is entitled to make sure that the funds are not wasted and to be vigilant that the liquidators who will be expending the funds are worthy of his confidence.  In my view it was reasonable for SCB to provide that Christensen, Hodgkinson and Fan and, importantly, “any other persons reasonably acceptable to SCB” would be appointed.  That does not make them beholden to it.”

48.  If the fact that a creditor is funding a liquidator is not per se a sufficient reason to doubt the partiality of the liquidator, the mere fact that he had been approached by a creditor’s solicitors to take up the role of a liquidator should a fortiori not be a reason to do so.

49.  In this court’s view, Ground 1 is entirely without merits.

Ground 2

50.  Concerning this ground, the Applicant’s complaint is that Fung should not simply have relied on the OR Papers including inter alia the 2008 Audited Accounts to ascertain the identity of the shareholders and directors of the Company without prior verification.  Instead, Fung only did an independent verification at a late stage by (i) by contacting the Company’s BVI registered agent on 14 June 2016 and (ii) performing a company search on the Applicant on 16 November 2016, notwithstanding the fact that Fung was aware of the Applicant’s shareholding in the Company by virtue of Hastings & Co’s letter dated 11 April 2016.

51.  The Applicant complains that owing to Fung’s undue delay and failure to investigate the matters independently, its rights as a contributory were substantially prejudiced in that due notices should have been but were not given to the Applicant to attend all meetings of contributories and/or that the Applicant might have been appointed to sit in the COI without hindrance.  There is also a bare assertion that Fung’s alleged delay is another example of Fung’s bias and lack of independence, without really explaining why.

52.  In this court’s view, Ground 2 is equally unmeritorious.

53.  To start with, the 1^st meetings of creditors and contributories were convened by the OR, not Fung, and notices of those 1^st meetings were sent out by the OR based on information available to it.  It was in those 1^st meetings that the Company’s creditors and contributories voted in favour of appointing Fung as liquidator and appointing a COI.

54.  Second, unless Fung had reasons to think the OR’s lists of creditors and contributories were in any way defective, it is difficult to see why he should spent his time and the resources available to him to do an independent verification, instead of getting on with his much more important task as liquidator ie to investigate the Company’s financial affairs, ascertain and collect its assets, settle its liabilities and distribute funds amongst creditors.[8]

55.  Third, in none of the OR Papers did it show that the Applicant was a shareholder or creditor of the Company.  This is not disputed by the Applicant.  It was only from the Certificate of Incumbency enclosed in Hastings & Co’s letter dated 11 April 2016 that the Applicant was listed as the holder of 5,637 shares of the Company.  According to the OR Papers, the same number of shares was held by Happy Nation Ltd (“Happy Nation”).  On Fung’s evidence, that was the first time he was informed that the Applicant was a shareholder of the Company and that Kobayashi, instead of Francis Kao, was its sole director.

56.  After receiving the said letter from Hastings & Co, Fung had carried out investigations into the circumstances pertaining to the Applicant becoming a shareholder and Kobayashi becoming the sole director of the Company, but with little success.  Fung also tried to obtain information on the Applicant from Francis Kao’s and the Applicant’s solicitors Chiu & Partners (“CP”) but also without success, as evident from the exchange of correspondence between Fung’s then solicitors and CP dated 21 and 30 September 2017 referred to at [62] below.  On Fung’s evidence on oath, even now, he is still unable to ascertain the registered office of the Applicant or the identities of its shareholders.  

57.  Lastly, at least in the case of an insolvent company, the wishes of the major creditors generally command greater weight over those of its contributories in determining who would be appointed as liquidator or members of the COI.  Further, in the case of an insolvent company, it is unnecessary for the COI to consist of contributories at all.

58.  In Re Hung Fung Holdings Ltd [2001] 3 HKLRD 692[9], Chu J (as she then was) observed at [9] and [12] as follows:

“ 9. The authorities have established that the Court has a wide discretion over the question of appointment of liquidators: Re DunquilPty Ltd (1985) 9 ACLR 950 and Re Australian National Finance Ltd (1992) 7 ACSR 697. An important consideration in the exercise of the discretion is the wishes of the major creditors: Sections 287(1) and (2) of Companies Ordinance, see also Re Goldcone Properties Ltd [1999] 4 HKC 602.

…

12.   From the information provided to the Court by the Official Receiver at the hearing, it can be seen that the Company, as it now stands, is insolvent.  It is therefore likely that the creditors will not recover their debts in full.  Given that the rights of the contributories rank after that of the creditors, it is probable that the contributories will not receive any distribution or dividends.  Considering that the main functions and powers of the CI are to act with the liquidators and to oversee the liquidators in the exercise of their powers: see sections 206(1) and 200(1) of Companies Ordinance, I am of the view that it is not necessary for the CI of the Company to consist of the contributories or their representatives when the contributories are unlikely to be paid out of the estate of the Company: see also Re James, Exparte Cowra Processors Pty Ltd (1995) 13 ACLC 1582.”

59.  The Applicant was and is not a creditor of the Company.  Hence, even if it had been given notice of and attended the 1^st meeting of contributories in July 2015 and voted for someone else as liquidator or members of the COI, the wishes of the creditors would still likely to have prevailed and the appointment of Fung and the 3 members of the COI would still have been approved.  It is therefore difficult to see how the Applicant’s so‑called rights as a contributory could be said to have been substantially prejudiced by Fung’s alleged undue delay and failures.

Ground 3

60.  Ground 3 is in essence a minor variant of Ground 2. The Applicant’s complaint is that Fung must have been fully aware of its shareholding in the Company at the very latest by:

(1)    11 April 2016 upon the receipt of Hastings & Co’s letter enclosing the Certificate of Incumbency; or

(2)    6 February 2017 upon the receipt from OIL Hong Kong of the Bought and Sold Notes and Instruments of Transfer which showed that (i) on 13 July 2009, Happy Nation transferred 5,636 shares to Francis Kao and (ii) on 3 November 2009, Francis Kao transferred the 5,636 shares to the Applicant, both for nil consideration.

61.  Yet, notwithstanding the above, Fung still deliberately refused to recognize the Applicant’s interest in the Company in an unreasonably obstructive manner.  In particular, on 21 September 2017, Fung’s then solicitors wrote to CP and “requested the ‘documentary proof’ of the shareholding of [the Applicant] in the Company as it ‘alleges itself a shareholder and contributory of the Company and/or creditor of the Company’ ”.^[10]

62.  While CP was first instructed to act for Francis Kao in May 2017^[11] and subsequently for the Applicant, for the present purpose, the relevant chain of correspondence between CP and Fung’s then solicitors started from 17 August 2017 ie the day after the private interview referred to in [36] above.  The gist of the correspondence from 17 August to 30 September 2017 is that:

(1)   CP insisted on Fung providing them with the documents in the present winding up proceedings, including the petition, affirmations, summonses and orders made as a prerequisite to Francis Kao providing the information sought by Fung about the Company’s affairs, in particular, the various payments out of the Company’s bank accounts.

(2)   After Fung’s solicitors had provided the Winding‑Up Order and the Appointment Order to CP on 24 August 2017, CP then wrote back to Fung’s then solicitors on 29 August 2017 and provided some of the information sought by Fung about the payments but still insisted on Fung providing him with the documents in the present winding up proceedings.

(3)   On 6 and 16 September 2017, CP then raised the allegation that the Applicant was not just a contributory, but also a creditor of the Company and complained that the Applicant had not received notice of the present winding up proceedings, notice to prove its debt owed by the Company or notice of any creditor’s meetings.

(4)   In response, Fung’s then solicitors replied to CP by the said letter dated 21 September 2017.  Importantly, the main thrust of the letter is not quite what the Applicant submits at paragraph 26 of its skeleton submissions.  Paragraph 2 of letter reads:

‘ Asia Pacific Glory Limited alleges itself a shareholder and contributory of the Company and/or creditor of the Company. We have instructions to request the documentary proof thereof. Please also provide further details such as the address of its registered office, its shareholders/members and its directors and their addresses.’

(5)   On 30 September 2017, CP wrote back, persisting with the Applicant’s request for the documents in the present winding up proceedings and refusing to provide information about the Applicant as requested.

63.  On 4 October 2017, the Applicant issued the Inspection Summons.

64.  In summary, while the request of Fung, or rather his former solicitors, for documentary proof of the Applicant’s status as contributory might have been overcautious or even redundant, it is no proof that Fung had knowingly deprived the Applicant of its rights and interest in the liquidation process.  It certainly does not justify the description that Fung’s attitude was oppressive, obstructive and biased^[12].

65.  In this court’s view, Ground 3 is entirely devoid of merits.  To the credit of Mr Scott SC, he did not really press on this Ground at the hearing.

Interest of those interested in the assets of the Company

66.  As stated in Re Luen Tat Watch Band Manufacturer Ltdquoted above at [40], the interest of those who are interested in the assets of the Company is the single most important factor to consider in an application for removal of the liquidator. 

67.  Presently, the Company has no significant assets to speak of[13] but with outstanding debts of over HK$20 million.  The liquidation process is currently funded by the creditors of the Company.  The discovery by Fung of the HK$345 million Payments raises the prospect that the Company may be able to recover some assets via legal claims but unless there is continued funding of the liquidation process and the pursuit of any potential legal claims and unless the recovery (net of legal costs and expenses so far incurred and to be incurred) far exceeds the Company’s debts, the parties who are principally interested in the assets of the Company are its creditors[14].  In a letter dated 22 December 2017 to Fung, Messrs Lau Chan & Ko representing all the creditors and all members of the COI stated categorically that they:

“(a) Continue to support Mr Fung as the sole Liquidator of the Company;

(b) Refuse to appoint anyone, especially anyone nominated by Francis Kao and/or any associates of Francis Kao, to replace Mr Fung as Liquidator of the Company; and

(c) Refuse to accept any proposal to appoint anyone, especially anyone nominated by Francis Kao and/or any associates of Francis Kao, to otherwise be appointed as Joint Liquidator to work together with Mr Fung regarding the liquidation of the Company.”

68.  Since Francis Kao is the main target of Fung’s investigation and one of the potential candidates should Fung, as Liquidator, decide to pursue the Company’s legal claims, it is perfectly understandable and reasonable for the creditors to support Fung to continue his investigation into the HK$345 million Payments and oppose the appointment of any persons nominated by Francis Kao to replace him.  Further, the removal of Fung will inevitably lead to additional costs and expenses which will have to be borne by someone, most likely the Company’s creditors, as well as delay to the liquidation process.  As stated in Re Legend International Resorts Ltd quoted above at [39], the confidence of the majority creditors in the liquidators is an important factor when there is little in the way of assets in a company, so that the process of liquidation will have to be financially supported by funds raised from creditors.  A fortiori, in the present case, Fung has the confidence of all the creditors.

69.  In this court’s view, not only has the Applicant failed to make out a case for the removal of Fung, it has also utterly failed to persuade this court that it is to the general advantage of those interested in the assets of the Company that Fung be removed.

70.  For all these reasons, the application must fail.

Disposition and costs order nisi

71.  This court hereby dismisses the Applicant’s summons dated 21 November 2017 as amended on 3 May 2018, with costs to the Liquidator, to be taxed if not agreed, with certificate for 2 counsel, on a nisi basis.

HCCW 121/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 121 OF 2013

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D E C I S I O N

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Introduction

1.  This is an ex parte application for leave to serve a winding-up petition out of the jurisdiction on a foreign company. The application initially went before a master, but was adjourned to a judge in chambers since there is some uncertainty as to the legal basis for service out of the jurisdiction of a petition to wind up a foreign company.

Facts

2.  Sunni International Limited (“the company”) is a company incorporated in the British Virgin Islands (“BVI”).  It is not registered in Hong Kong under Part 11 of the old Companies Ordinance (Cap 32) or Part 16 of the new Companies Ordinance (Cap 622).

3.  By the amended petition herein dated 28 February 2014, the petitioner seeks an order to wind up the company as an unregistered company pursuant to s 327(3)(b) of the Companies Ordinance (Cap 32) (since renamed the Companies (Winding Up and Miscellaneous Provisions) Ordinance), on the ground that the company is unable to pay its debts.

4.  The petitioner is a judgment creditor of the company.  It is also a shareholder of the company.  It commenced an action, along with a few other shareholders in respect of their several debts, against the company in High Court Action No 2042 of 2011 in Hong Kong.  On 12 December 2012, final judgment was entered against the company in default of notice of intention to defend, in the sum of over HK$2.9 million in favour of the petitioner and in various sums totalling over HK$16.6 million in favour of the other plaintiffs.

5.  The petition states that the company is the corporate vehicle used by four families for their investment in business ventures.  These families, comprising of Hong Kong permanent residents, hold shares in the company through other companies, including the petitioner.

6.  The company used to hold a substantial number of shares in Imagi International Holdings Limited, a public company incorporated in Bermuda whose shares are listed on the Hong Kong stock exchange.  The shares owned by the company were registered in its name but ceased to be so in 2011 or 2012.  The petition asserts that if the shares are not being held by a nominee for the company but have been sold, then the proceeds of sale are still held within the jurisdiction.

7.  The company also has a 60% equity interest in PBE International Holdings Limited, a company incorporated in Hong Kong, as well as bank accounts in Hong Kong including an account held in HSBC.

8.  The sole director of the company since August 2008 is one Mr Francis Kao who holds a Hong Kong permanent resident identity card and ordinarily resides in Hong Kong.  On this basis it is said that the central management and control of the company is exercised from Hong Kong.

9.  On 10 January 2013, the petitioner’s lawyers in the BVI served on the registered agent of the company (who shares the same address as the registered office of the company) a sealed copy of the judgment and a demand to satisfy the judgment debt.  The company has failed to pay any part of the debt.

10.  On 3 May 2013, the petition herein was presented to the High Court of Hong Kong for the winding up of the company on the ground that it had failed to satisfy the judgment debt.

11.  In August 2013, the petitioner caused a notice of the petition to be published in the Hong Kong Government Gazette and in Chinese and English newspapers published and circulating in Hong Kong.  The petitioner also caused a sealed copy of the petition to be delivered to and left with an officer of the registered agent of the company.  In September 2013, the petitioner placed an advertisement of the petition in two BVI newspapers and caused a notice to be published in the BVI Gazette.

12.  In September 2013, a master of this court raised a requisition with the petitioner as to whether leave had been obtained to serve the petition out of the jurisdiction on the company.  By an affirmation filed in November 2013, the petitioner asked for leave to re-serve the petition on the company at its registered office out of the jurisdiction.

13.  Thereafter further requisitions were raised by the master with regard to the legal basis for obtaining leave to serve the petition out of the jurisdiction.  Eventually, in June 2014, the companies judge was consulted and directed that the matter be fixed for hearing before a judge in chambers.

14.  The Official Receiver, who has been served with the petition, has not taken part in these proceedings.

Jurisdiction

15.  The jurisdiction to wind up foreign companies is derived from s 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.  That section provides:

“(1) Subject to the provisions of this Part, any unregistered company may be wound up under this Ordinance, and all the provisions of this Ordinance with respect to winding up shall apply to an unregistered company, with the exceptions and additions mentioned in this section.

(2) No unregistered company shall be wound up voluntarily under this Ordinance.

(3) The circumstances in which an unregistered company may be wound up are as follows-

(a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the court is of opinion that it is just and equitable that the company should be wound up.

(4) An unregistered company shall, for the purposes of this Ordinance, be deemed to be unable to pay its debts-

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum then due equal to or exceeding the specified amount, has served on the company, by leaving at its principal place of business, or by delivering to any officer of the company, or by otherwise serving in such manner as the court may approve or direct, a demand under his hand requiring the company to pay the sum so due, and the company has for 3 weeks after the service of the demand neglected to pay the sum or to secure or compound for it to the satisfaction of the creditor;

(b) if any action or other proceeding has been instituted against any member for any debt or demand due, or claimed to be due, from the company, or from him in his character of member, and notice in writing of the institution of the action or proceeding having been served on the company by leaving the same at its principal place of business, or by delivering it to any officer of the company, or by otherwise serving the same in such manner as the court may approve or direct, the company has not within 10 days after service of the notice paid, secured or compounded for the debt or demand, or procured the action or proceeding to be stayed, or indemnified the defendant to his reasonable satisfaction against the action or proceeding, and against all costs, damages and expenses to be incurred by him by reason of the same;

(c) if execution or other process issued on a judgment, decree or order obtained in any court in favour of a creditor against the company, or any member thereof as such, or any person authorized to be sued as nominal defendant on behalf of the company, is returned unsatisfied;

(d) if it is otherwise proved to the satisfaction of the court that the company is unable to pay its debts.

…”

16.  The phrase “unregistered company” is defined in s 326(1) as follows:

“For the purposes of this Part, ‘unregistered company’ includes any partnership, whether limited or not, any association and any company with the following exceptions –

(a) a company registered under the Companies Ordinance 1865 (1 of 1865), or under the Companies Ordinance 1911 (58 of 1911), or under the pre-amended Ordinance, or under the Companies Ordinance (Cap 622);

(b) a partnership, association or company which consists of less than 8 members and is not formed or established outside Hong Kong;

(c) a partnership registered in Hong Kong under the Limited Partnerships Ordinance (Cap 37).”

17.  A foreign company is an unregistered company and may therefore be wound up by the court under s 327. There are other kinds of unregistered companies within the meaning of s 326 such as partnerships and associations.  They are not relevant for present purposes and I shall not deal with them in this judgment.

18.  Service of the petition on the company to be wound up is required by general principles of justice as the foundation of jurisdiction.  Where the foreign company is a “non-Hong Kong company”[1] and registered under s 333 of the previous Companies Ordinance (Cap 32) or s 777 of the Companies Ordinance (Cap 622), the petition may of course be served in Hong Kong on the specified person authorised to accept service of process on behalf of the company.[2]

19.  Where the foreign company has no place of business in Hong Kong and is not so registered, the petition cannot be served on the company at any address in Hong Kong.  Instead, the petition has to be served on the company outside the jurisdiction.

RHC Order 1 rule 2(2)

20.  RHC Order 11 contains provisions that govern service of documents out of the jurisdiction.  However, Mr Albert Yau, who appears for the petitioner, submits that the starting point is RHC Order 1 rule 2(2), by virtue of which Order 11 has no application to winding-up proceedings.

21.  Order 1 rule 2 relevantly provides as follows:

“(1) Subject to the following provisions of this rule, these rules shall have effect in relation to all proceedings in the High Court.

(2) These rules shall not have effect in relation to proceedings of the kinds specified in the first column of the following Table (being proceedings in respect of which rules may be made under the enactments specified in the second column of that Table)-

 

TABLE
	Proceedings		Enactments
1.	Bankruptcy proceedings.		Bankruptcy Ordinance (Cap 6), section 113.
2.	Proceeding relating to the winding-up of companies.		Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), section 296.
2A.	Proceedings relating to remedies for unfair prejudice to members’ interests.		Companies Ordinance (Cap 622), section 727.

…”

22.  It is correct that Order 1 rule 2(2) means that, by the terms of the Rules of the High Court themselves, those rules do not prima facie apply to winding up proceedings.  However, rule 210 of the Companies (Winding-up) Rules (Cap 32H) provides:

“In all proceedings in or before the court, or any Registrar or officer thereof, or over which the court has jurisdiction under the Ordinance and rules, where no other provision is made by the Ordinance or rules, the practice, procedure and regulations shall, unless the court otherwise in any special case directs, be in accordance with the rules and practice of the court.”

23.  The “rules” referred to in rule 210 means the Companies (Winding-up) Rules and the “court” referred to is the Court of First Instance: see rule 2.  It is clear from rule 210 that the Companies (Winding-up) Rules are not intended to be a complete code: Murray-Jones v Guardforce Ltd [1982] HKC 31, 38C.  The effect of rule 210 is that unless there is some other specific provision in the Companies Ordinance or the Companies (Winding-up) Rules, or unless the court otherwise directs, the Rules of the High Court apply to winding up proceedings.

Rule 25 of Companies (Winding-up) Rules

24.  Is there then any provision in the Companies Ordinance or the Companies (Winding-up) Rules that is relevant in the present context?  The rule that deals specifically with service of petition is rule 25 of the Companies (Winding-up) Rules, which provides:

“Every petition shall, unless presented by the company, be served upon the company at the registered office, if any, of the company, and if there is no registered office, then at the principal or last known principal place of business of the company, if any such can be found, by leaving a copy with any member, officer, or servant of the company there, or in case no such member, officer, or servant can be found there, then by leaving a copy at such registered office or principal place of business, or by serving it on such member, officer, or servant of the company as the court may direct; and where the company is being wound up voluntarily, the petition shall also be served upon the liquidator (if any), appointed for the purpose of winding up the affairs of the company.”

25.  However, it has been held, correctly if I may respectfully say so, that the “registered office” and “principal place of business” referred to in that rule mean the registered office and principal place of business in Hong Kong.  The rule is not intended to require or enable a petition to be served out of the jurisdiction at a place outside Hong Kong.  Thus, in Re Tea Trading CoK and C Popoff Brothers[1933] Ch 647, 651, Maugham J, referring to the English equivalent of rule 25, held that:

“On the other hand, the Companies (Winding Up) Rules 1929, and in particular, r.28, seem to provide a method of serving a petition which will be effective as a compliance with the rules, and, so far as I can see, that is the best if not the only way of dealing with an unregistered company which has been dissolved or has otherwise ceased to exist. That rule provides [His Lordship read it and continue:] In my opinion it is reasonably clear that “registered office” there means “registered office within the jurisdiction” and that “last known principal place of business” refers to the last known principal place of business of the company within the jurisdiction.”

26.  The case is cited in Buckley on the Companies Acts (14^th ed, 1981), vol 2, p 1665, as authority on the equivalent rule in England.  Similarly, in Re Giant Wizard Corporation (HCCW 1196/2004; 22 December 2005), in the context of a winding-up petition under s 327 of the Companies Ordinance (Cap 32), Deputy Judge Mayo held, at §29, that:

“Winding-up Rule 25 does not assist the petitioner as there is nothing in the rule to make it applicable to service out of jurisdiction.”

27.  Thus, where an unregistered company has or had a principal place of business in Hong Kong, even if it has not supplied the requisite particulars for registration under Part 16 of the Companies Ordinance (Cap 622), a petition to wind it up may be served on it at that place of business even after it has ceased business or been dissolved in its place of incorporation: Re Tea Trading CoK and C Popoff Brothers(supra); Re Naamlooze Vennootschap Handelmaatschappij Wokar [1946] Ch 98.

28.  But rule 25 does not assist if the unregistered company has never had a registered office or place of business in Hong Kong. In such a case, there being no relevant provision in the winding-up rules or the Ordinance, one falls back on to the general rules of the High Court.  It follows that what has been excluded for winding-up proceedings by RHC Order 1 rule 2(2) is made applicable by rule 210 of the Companies (Winding-up) Rules. The result seems to me to be that Order 11 is prima facie applicable to service of winding-up petitions outside the jurisdiction.

29.  The same result obtains with respect to orders made in winding-up proceedings.  Thus, as there is no provision in the winding-up rules on the service of orders made in winding-up proceedings, it has been held that Order 11 rule 9(4) applies to the service of an order for private examination under s 221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance: Joint and Several Liquidators of B+B Construction Co Ltd (in liquidation) v Weinmann (HCCW 114/2001; 8 June 2004), §§88-91, per Kwan J (as she then was).

RHC Order 11

30.  I turn therefore to the provisions of RHC Order 11.  Order 11 rule 1(1) is the sub-rule that sets out the numerous “gateways” for service of a writ of summons out of jurisdiction. It provides that service of a writ out of the jurisdiction is permissible with the leave of the court if the action begun by the writ satisfies any one of the conditions in paragraphs (a) to (p).

31.  Rule 1(2) makes provisions as to when leave is not required for service of a writ out of the jurisdiction.  This sub-rule reads:

“(2) Service of a writ out of the jurisdiction is permissible without the leave of the Court provided that each claim made by the writ is-

 (b) a claim which by virtue of any written law the Court of First Instance has power to hear and determine notwithstanding that the person against whom the claim is made is not within the jurisdiction of the Court or that the wrongful act, neglect or default giving rise to the claim did not take place within its jurisdiction.”

32.  Order 11 rule 9(1) makes rule 1 applicable to originating summonses, motions and petitions by providing as follows:

“(1) Subject to Order 73, rule 7,[3] rule 1 of this Order shall apply to the service out of the jurisdiction of an originating summons, notice of motion or petition as it applies to service of a writ.”

33.  Order 11 rule 9(4) deals with documents other than the originating process, as follows:

“(4) Subject to Order 73, rule 7, service out of the jurisdiction of any summons, notice or order issued, given or made in any proceedings is permissible with the leave of the Court, but leave shall not be required for such service in any proceedings in which the writ, originating summons, motion or petition may by these rules or under any written law be served out of the jurisdiction without leave.”

34.  Since an application to wind up a company is made by petition, by virtue of rule 9(1), rule 1 applies to the service out of the jurisdiction of a winding-up petition.

RHC Order 11 rule 1(2)(b)

35.  Mr Yau argues that, if Order 11 rule 1 applies at all to winding-up petitions, the applicable part of rule 1 is sub-rule (2)(b). His bald submission is that s 327 is a “written law” by virtue of which the court has power to hear and determine the claim notwithstanding that the person against whom the claim is made, namely, the foreign company sought to be wound up, is not within the jurisdiction of the court.  It follows, he says, that by virtue of Order 11 rule 1(2)(b) a winding-up petition may be served out of the jurisdiction on a foreign company without the leave of the court.

36.  I am unable to accept this submission, which seems to me to be contrary to the authorities on the kind of enactment that falls within Order 11 rule 1(2)(b).

37.  In In re Harrods (Buenos Aires) Ltd [1992] Ch 72[4], the petitioner, who was a minority shareholder in a company incorporated in England, complained of unfairly prejudicial conduct of the affairs of the company by the majority shareholder, who was a Swiss company, and sought an order that the majority shareholder purchase its shares in the company.  At first instance Harman J held that the petition could be served on the majority shareholder in Switzerland without the leave of the court on the ground, inter alia, that Order 11 rule 1(2)(b) so permitted.  The Court of Appeal unanimously reversed him on this point.  Dillon LJ stated (at pp 115E-116E):

“[RSC Order 11 rule 1(2)(b)] was first introduced in, for practical purposes, its present form, by paragraph 5 of the Rules of the Supreme Court (No. 2) Order 1963 (S.I. 1963 No. 1989 L. 16). It seems plain that the reason for its introduction was the enactment of the Civil Aviation (Eurocontrol) Act 1962. …

It appears, however, that rule 1(2)(b) may have been intended to have a wider scope than only applying where its actual wording has been used in a statute …

But in my judgment to be within Ord. 11, r. 1(2)(b) an enactment must, if it does not use the precise wording in the rule, at least indicate on its face that it is expressly contemplating proceedings against persons who are not within the jurisdiction of the court or where the wrongful act, neglect or default giving rise to the claim did not take place within the jurisdiction.  It is not enough, in my judgment, that the enactment, like the Companies Act 1985,gives a remedy in general cases - against ‘other members of the company’ - without any express contemplation of a foreign element.  Indeed if the judge’s reasoning on this point were right it would seem that any proceedings to claim an injunction could be brought, without leave under Order 11, against a person who is not within the jurisdiction of the court and could proceed to trial without any such leave because under an enactment, section 37 of the Supreme Court Act 1981, the High Court has power by order (whether interlocutory or final) to grant an injunction in all cases in which it appears to the court to be just and convenient to do so.”

Stocker and Bingham LJJ both agreed with Dillon LJ on the construction of Order 11 rule 1(2)(b): see pp 118H-119A and 123D.

38.  In Hong Kong, Barnett J arrived at a similar conclusion in Re S (A minor) (Wardship: Jurisdiction) [1992] 2 HKLR 39 at 42, though it appears that In re Harrods (Buenos Aires) Ltd was not cited to him. The case concerned an originating summons seeking relief under the wardship jurisdiction of the court conferred by s 26 of the Supreme Court Ordinance (Cap 4) and the Guardianship of Minors Ordinance (Cap 13), which the plaintiff purported to serve on her husband in the Philippines without the leave of the court.

39.  S 26 of the Guardianship of Minors Ordinance provided:

“The jurisdiction conferred on any court by this Ordinance shall be exercisable notwithstanding that any party to the proceedings is not domiciled in Hong Kong.”

40.  S 26 of the Supreme Court Ordinance provided:

“(1) Subject to the provisions of this section, no infant shall be made a ward of court except by virtue of an order to that effect made by the High Court.

…

 (3) The High Court may, either upon an application in that behalf or without such an application, order that any infant who is for the time being a ward of court shall cease to be a ward of court.”

41.  Rejecting the argument that the plaintiff’s claim fell within Order 11 rule 1(2)(b), Barnett J said:

“I am satisfied that the correct interpretation of Order 11, rule 1(2)(b) requires legislation that specifically provides for the court to deal with a claim although the defendant is not jurisdiction of the court. There appears to be no such provision in Hong Kong’s legislation in relation to the court’s wardship jurisdiction. Accordingly, I find that leave is required to serve an originating summons out of the jurisdiction when the relief sought by that summons is in the court’s wardship jurisdiction.”

42.  This approach has been adopted in Re Giant Wizard Corporation (supra) at §§25-31, where Deputy Judge Mayo stated that

“It is evident from the judgment of Bernett J in Re S (A minor) that in interpreting Order 11 rule 1(2)(b) the legislation being relied upon to obviate the requirement of obtaining leave must be specific.”

He then held that leave was necessary for the service out of the jurisdiction of a winding-up petition on a shareholder of the company to be wound up, having said at §28:

“In the present case, I do not think that it is clear that the exemption could be extended to the 5^th respondent which is only a party to the petition and not the subject matter of the winding-up order sought.”

43.  The last few words in the passage quoted above might suggest the judge took a different view in relation to service on the subject company itself.  I do not think, however, that the learned judge there intended to decide that Order 11 rule 1(2)(b) rendered it unnecessary to obtain leave to serve a winding-up petition out of the jurisdiction on the company to be wound up itself.  The question was not before him or relevant to his decision.

44.  There is nothing in s 327 which specifically obviates the requirement of obtaining leave. There is nothing in s 327 which specifically deals with the question of service of the petition out of the jurisdiction (unlike, for example, rule 109 of the Matrimonial Causes Rules (Cap 179A)) or expressly deals with foreign companies.

45.  It is true that in an appropriate case, s 327 empowers the court to wind up a company even though it is a foreign company without any presence within the jurisdiction.  But it has to be borne in mind that s 327 was enacted to provide for the winding up of unregistered companies generally, not specifically foreign companies.[5] It was only settled by decisions of the courts, years after the equivalent provision was first enacted in England in the Companies Act 1862, that it applied to foreign companies: Re Commercial Bank of India (1868) LR 6 Eq 517; Re Matheson Bros Ltd (1884) 27 Ch D 225.  The statute on its terms applies not only to companies incorporated overseas but to “any partnership, whether limited or not, any association and any company” with specified exceptions.  Unregistered companies are not necessarily foreign entities.

46.  Apart from s 327, the winding-up jurisdiction of the court is conferred by s 176 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, which provides:

“The Court of First Instance shall have jurisdiction to wind up any company.”

This power however applies only to a “company” as defined in s 2, namely, a company formed and registered under the Companies Ordinance (Cap 622) or an existing company (as defined).

47.  The main thrust of s 327 is to confer a winding-up jurisdiction on the court notwithstanding that the entity against which the order is sought is not a “company” as so defined, provided it falls within the definition of “unregistered company”, which includes certain partnerships, associations and companies.  The section is, in my view, not specific legislation allowing the court to wind up a company “notwithstanding that the [company] is not within the jurisdiction”.

48.  It seems to me a statutory provision that enables the court to wind up a wide assortment of entities, the description of which has been held to include foreign companies, is not a sufficiently specific enactment that qualifies as the kind of written law that removes the requirement of leave for service out of the jurisdiction by virtue of Order 11 rule 1(2)(b). 

49.  This leads me to the conclusion that Order 11 rule 1(1) applies. 

Problem in applying Order 11 rule 1(1) to winding-up petition

50.  As noticed in a number of recent cases, however, the grounds for granting leave for service of a writ outside the jurisdiction under paragraphs (a) to (p) of Order 11 rule 1(1) are not apt to cover a winding-up petition.  Where, for example, a creditor seeks to wind up a company based on an unpaid contractual debt, the petition cannot properly be described as a “claim … brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract” (rule 1(1)(d)): see Re Up Energy Group Ltd (unreported, HCCW185/2013, 25 Oct 2013).  Likewise, a petition based on an unpaid judgment debt cannot properly be characterised as a “claim … brought to enforce any judgment or arbitral award” (rule 1(1)(m)): see Re Grand China Logistics Holding (Group) Co Ltd (HCCW 130/2013; 19 August 2013)at §3.  This has led Harris J to observe in Re Up Energy Group Ltd at §5:

“I would note in passing that it is unclear how, if at all, Order 11 applies to a petition to wind up an unregistered company, which does not have a place of business in Hong Kong and cannot be served pursuant to section 338 of the Companies Ordinance, but this is not a matter that it is necessary for me to determine in the present case.”

51.  The problem has also been noted in GraemeJohnston,The Conflict of Laws in Hong Kong (2^nd ed, 2012), where the learned author stated at §8-061:

“It is further suggested that the ordinary requirements of O.11 must, however, be regarded as subject to the following points: …

First, it is suggested, the requirements of O.11 r.1(1) ought to be read as implicitly inapplicable in this context.  They are plainly not drafted with winding-up proceedings in mind, and it would be absurd to apply them in this context, in which the existence and exercise of jurisdiction are governed by very different principles from those applicable in the in personam context.  English law expressly recognises this by making provision in the Insolvency Rules for the disapplication of the English equivalent of O.11 r.1(1).  In Hong Kong, the same can and should, it is suggested, be implied in the overall scheme, even though this goes against the literal meaning of RHC O.11 r.9(1).”

52.  In In re Paramount Airways Ltd [1993] Ch 223 at 241E, Sir Donald Nicholls VC (as he then was) discussed the relationship between Order 11 of the Rules of the Supreme Court and rule 12.12 of the (UK) Insolvency Rules[6] in the following terms:

“Hambros Jersey contended that the jurisdiction conferred by this rule can only properly be exercised by analogy to R.S.C., Ord. 11, so that leave should not be granted unless the case falls within one of the paragraphs of Ord. 11, r.1(1). This is not a tenable interpretation of rule 12.12 of the Rules of 1986, given the clear language of paragraph (1) of the rule and given also that by their nature proceedings under the Insolvency Act 1986 cannot be expected to be addressed by Ord. 11, r.1.” (emphasis added)

53.  A winding-up petition seeks to initiate a statutory process of bringing the operations of the company to a close and results in a class remedy in the form of the distribution of the assets of a company for the benefit of its creditors generally.  The incongruity in trying to apply the various paragraphs in Order 11 rule 1(1) to a winding-up petition is hardly surprising given that the gateways in rule 1(1) are primarily intended for claims in personam whereas s 327 provides the court with a power to make a winding-up order and nothing else.  No personal claims can be made in such a petition: Re Victorius Run Ltd [2010] 3 HKLRD 473 §§16-25 per Barma J (as he then was). 

54.  I should mention that in Re Gottinghen Trading Ltd [2012] 3 HKLRD 453 at §32, Harris J referred to Order 11 rule 1(1)(a) and (c) as possible bases for service of a winding-up petition out of the jurisdiction.  However, his lordship was alluding to the special case of a contributory’s petition where a shareholder respondent is ordinarily resident or domiciled in the jurisdiction, with the subject foreign company being a necessary or proper party.  This does not detract from the problem that exists generally, especially in the case of creditors’ petitions.

The position prior to 1988

55.  The problem referred to above did not exist before the amendment of Order 11 rule 9 in Hong Kong in the 1980s.  Before that amendment, rule 9(1)-(4) provided:

“(1) Subject to paragraph (2) and to Order 73, rule 7, service out of the jurisdiction of an originating summons is permissible with the leave of the Court.

(2) Where the proceedings begun by an originating summons might have been begun by writ, service out of the jurisdiction of the originating summons is permissible as aforesaid if, but only if, service of the notice of the writ out of the jurisdiction would be permissible had the proceedings been begun by writ.

(3) Where any proceedings are authorized by these rules or (apart from these rules) by or under any written law to be begun by motion or petition, service out of the jurisdiction of the originating notice of motion or of the petition is permissible with the leave of the Court.

(4) Subject to Order 73, rule 7, service out of the jurisdiction of any summons, notice or order issued, given or made in any proceedings is permissible with the leave of the Court.”

56.  When the rule was in that form, petitions to wind up foreign companies could be served outside the jurisdiction with leave given under rule 9(3) which dealt specifically with petitions and motions.  In Dicey & Morris on The Conflict of Laws (10^th ed, 1980), p 732 at footnote 54, it was stated, in the context of winding-up proceedings, that “petitions and orders may be served outside England under R.S.C., Ord. 11, r. 9(3) and (4)”.  This suggests that petitions to wind up foreign companies used to be served out of the jurisdiction with leave granted by the court under Order 11 rule 9(3).[7]  The discretion for giving leave under rule 9(3) appears to have been at large and not limited to the gateways under rule 1(1). 

57.  By the Rules of the Supreme Court (Amendment) Rules 1984, however, rule 9(1) was amended to its present form while rule 9(2) and (3) were deleted.  The perhaps unintended result in Hong Kong was that, although rule 1(1) was clearly inapt for insolvency proceedings, it became applicable to service out of the jurisdiction of, inter alia, all petitions, including winding-up petitions.

The position in England and Wales

58.  The amendments in Hong Kong were modelled on the same amendments made to the Rules of the Supreme Court of England and Wales[8] (which became effective on 1 January 1987).  However, the problem described above did not occur there because the Insolvency Rules (made under the Insolvency Act 1986) were also enacted, and came into effect on 29 December 1986.  Rule 12.12 of the Insolvency Rules, as it was first enacted, provided:

“(1) Order 11 of the Rules of the Supreme Court, and the corresponding County Court Rules, do not apply in insolvency proceedings.

(2) A bankruptcy petition may, with the leave of the court, be served outside England and Wales in such manner as the court may direct.

(3) Where for the purposes of insolvency proceedings any process or order of the court, or other document, is required to be served on a person who is not in England and Wales, the court may order service to be effected within such time, on such person, at such place and in such manner as it thinks fit, and may also require such proof of service as it thinks fit.

(4) An application under this Rule shall be supported by an affidavit stating-

(a) the grounds on which the application is made, and

(b) in what place or country the person to be served is, or probably may be found.”

59.  By rule 12.12(1), Order 11 was expressly stated to be inapplicable to insolvency proceedings.  By rule 12.12(3), the English court had a very wide discretion to grant leave for service out of the jurisdiction, more extensive than equivalent provisions in RSC Order 11 and without being limited by the gateways in RSC Order 11 rule 1(1): In re Busytoday Ltd [1992] 1 WLR 683, 690; In re Paramount Airways Ltd (supra) at 241D; Re Howard Holdings Inc [1996] BCC 549, 553E.  There was therefore, in England and Wales, a seamless transition from Order 11 rule 9(3) of the Rules of the Supreme Court to rule 12.12 of the Insolvency Rules.[9]

60.  Unfortunately, in Hong Kong, Order 11 rule 9 was amended following similar amendments in England, but no equivalent of rule 12.12 of the Insolvency Rules was enacted in the Companies (Winding-up) Rules or elsewhere. 

The proper approach

61.  It is highly unsatisfactory that leave to serve a winding-up petition outside the jurisdiction should be required under a rule when none of the paragraphs under that rule is apt to apply to such a petition. In this state of affairs, there is in my view much to be said for Mr Johnston’s suggestion in The Conflict of Laws in Hong Kong (2^nd ed, 2012) at §8-061 that the rules be amended.

62.  Faced with the existing rules, however, I have considered the following possible solutions to this conundrum.  First, straining the language of one or more of the paragraphs in Order 11 rule 1(1) to fit them to a winding-up petition.  I consider this course entirely unattractive. The established principle is that for leave to be granted, a case must fall within the spirit as well as the letter of the Order: Mercedes-Benz AG v Leiduck [1996] AC 284.  The language of rule 1(1) is plainly inapt for winding-up.  There is a limit to how much it can be strained or stretched within the bounds of intellectual honesty.  Harris J has already rejected rule 1(1)(d) and (m) as possible bases (see §50 above).  One author has called it “absurd” to apply the paragraphs in rule 1(1) to a winding-up petition (see §51 above).

63.  Secondly, I have not been able to find any authority to suggest that where leave is required, there is any inherent jurisdiction to grant leave to serve out other than under the paragraphs of Order 11 rule 1(1).  On the contrary, there is authority that Order 11 forms an entire code such that any gaps in it cannot be filled by the court’s inherent powers: Union Bank of Finland v Lelakis [1997] 1 WLR 590, 593H.  Nor, in my view, can the problem be solved by exercising the court’s inherent jurisdiction – if there be any – to dispense with service.  As held by the Court of Appeal in Bank of China (Hong Kong) Ltd v Regal Link Investment Ltd [2009] 3 HKLRD 203 at §38, any power to dispense with service should not be used to circumvent the requirement for leave for service out of the jurisdiction.

64.  Nor can substituted service be the answer.  The Court of Appeal has held that allowing substituted service of a writ in Hong Kong on a foreign defendant has the same effect of granting leave to serve out of the jurisdiction. Such an order should therefore be refused unless it is demonstrated that the case falls clearly within one of the sub-paragraphs of Order 11 rule 1(1): Tillemont Shipping Corp SA v Taitexma Enterprise Corp [1993] 2 HKC 129, 132H-133B.[10]

65.  In my opinion, the preferable, though far from ideal, route is to rely on the wording of rule 210 of the Companies (Winding-up) Rules itself.  The rule incorporates the Rules of the High Court for the purposes of winding-up proceedings, but this is subject, inter alia, to the clause “unless the court otherwise in any special case directs”.  While these words may not be wide enough to permit the court to re-write the rules[11], they in my view empower the court, faced with a petition to wind up an unregistered company which is a foreign company without a registered office or principal place of business in Hong Kong, to direct that the rules and procedure applicable shall be in accordance with RHC Order 11 with the exception that the words “if in the action begun by the writ …” in rule 1(1) together with all the paragraphs following those words under that sub-rule shall be treated as inapplicable.  In other words, rule 1(1) as so adapted for the purpose of winding-up proceedings would provide:

“Provided that the writ is not a writ to which paragraph (2) of this rule applies, service of a writ out of the jurisdiction is permissible with the leave of the Court.”

66.  Where this approach is taken, the adapted rule 1(1), as applied to petitions by rule 9(1), means that:

(1) leave of the court is required for the service out of the jurisdiction of a winding-up petition on a foreign company to be wound up; and

(2) the decision whether to grant leave is in the discretion of the court, which is to be exercised generally without requiring the petitioner to show that the petition falls within any of the paragraphs in Order 11 rule 1(1).

67.  It is well established that the court’s jurisdiction to wind up a foreign company will not be exercised unless there is a sufficient connection between the company and Hong Kong.  In particular, three core requirements have to be satisfied which are, in the words of the Court of Appeal in Re Yung Kee Holdings Ltd [2014] 2 HKLRD 313 at §38, as follows:

“(1) there must be a sufficient connection with Hong Kong, but this does not necessarily have to consist in the presence of assets within the jurisdiction;

(2) there must be a reasonable possibility that the winding-up order would benefit those applying for it; and

(3) one or more persons interested in the distribution of the company’s assets must be persons over whom the court is able to exercise jurisdiction.”

68.  In my opinion, leave to serve a petition out of the jurisdiction should not be given unless the applicant demonstrates a good arguable case that these conditions are met in the particular case.  The applicant must also demonstrate there is a serious issue to be tried on the merits, for example, as to the existence of the debt on which the petition is founded. The grant of leave, on an ex parte application as is usually the case, will not, of course, preclude the company or any other proper party from contesting jurisdiction subsequently.  Such a threshold requirement at the leave stage is, in my view, appropriate in order to ensure that there are prima facie grounds for invoking what has been called an “exorbitant”[12] jurisdiction under s 327 before the petitioner is permitted to serve the process on the company out of the jurisdiction.

Conclusion in the present case

69.  On the basis of the facts set out above and the matters mentioned by Mr Yau at the hearing, I am satisfied that there may well be a good arguable case that the three core requirements can be met in this case.  However, as is accepted by Mr Yau, the evidence does not cover all the requirements.  I shall therefore simply adjourn the petitioner’s application for it to be revised as appropriate and then re-submitted to the master to be dealt with in the light of my judgment.  The costs of the hearing before me shall be costs of the application to be dealt with by the master.