WANG RONGAN v. SILVER INTERNATIONAL INVESTMENT LTD AND OTHERS
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HCA 1425/2015
[2022] HKCFI 2586
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1425 OF 2015
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BETWEEN
| Wang Rongan | Plaintiff | |
and | ||
| Silver International Investment Limited (銀駿國際投資有限公司) | 1st Defendant | |
| Or Leung Chit (柯良節) | 2nd Defendant | |
| Or Sau Lai (柯秀麗) | 3rd Defendant | |
| China Construction Bank (Asia) Corporation Limited (中國建設銀行(亞洲)股份有限公司) | 4th Defendant (discontinued) | |
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Before: Hon Ng J in Court
Dates of Hearing: 23-26 & 29-30 November, 1-3, 6, 8-9 December 2021 and 4-5 January 2022
Date of Judgment: 8 September 2022
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J U D G M E N T
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Introduction
1. This is the trial of the Action.
2. The Plaintiff is a PRC resident and was 1 of the 5 management team members (“5 MTMs”) of Shenzhen Haoningda Electronic Meters Manufacturing Company Limited[1] (“HND”). He was also a former director and CEO[2] of HND. The other 4 MTMs were Su You (“Su”), Hu Ming Zhi (“Hu”), Xia Hai (“Xia”), and Wang Wei (“WW”) (collectively “4 MTMs”). These 4 MTMs are also PRC residents.
3. HND is a company which features prominently in this Action. It was incorporated in the PRC in November 1994 as a Sino-foreign joint venture company. Its principal business was at the material time the production of electrical instruments, electric meters and related system equipment. Its shares were listed on the Shenzhen Stock Exchange on 9 February 2010. Since incorporation, HND’s shareholding and directorship have changed from time to time. For ease of reference, a table showing HND’s directors and shareholders is attached hereto as Annexure 1[3].
4. It can be seen from Annexure 1 that:
(1) As at 6 November 1998, HND’s shareholders consisted of (i) as to 45%, 深圳中浩 (集團) 股份有限公司 (“Zhonghao”); (ii) as to 40%, Hon Kiu Machine Factory Limited (漢橋機器廠有限公司) (“Hon Kiu”); and (iii) as to 15%, 寧夏國營寧光電工廠 (“Ningxia”).
(2) As at 23 September 2002, HND’s shareholders consisted of (i) as to 85%, Hon Kiu, and (ii) as to 15%, Ningxia.
(3) By 22 September 2004, HND’s 2 shareholders were (i) as to 85%, Hon Kiu; and (ii) as to 15%, Shenzhen Rongan Electric Power Technology Company Limited深圳市榮安電力科技有限公司 (“SZ Rongan”) whose shareholders were at all material times the Plaintiff and the 4 MTMs.
(4) Upon the listing of HND on the Shenzhen Stock Exchange on 9 February 2010, 63.75% of its shares were held by Hon Kiu, 11.25% by SZ Rongan and 25% by the public.
5. According to the 2nd Defendant, he started investing in HND via his private company 香港瑞豐投資發展有限公司 (“Shui Fung”) in 1995. From Annexure 1, it can be seen that by 5 August 1998, Shui Fung was a 25% shareholder of HND and the 2nd Defendant was one of its 5 directors together with inter alia the Plaintiff.
6. Hon Kiu is also a company which features prominently in this Action. It was incorporated in Hong Kong in January 1995 and was at all material times used by its shareholders as a vehicle to invest in HND. Since incorporation, Hon Kiu’s shareholding and directorship have changed from time to time. For ease of reference, a table showing Hon Kiu’s directors and shareholders is attached hereto as Annexure 2[4].
7. It can be seen from Annexure 2 that:
(1) As at 3 January 2002, Hon Kiu’s shareholders were (i) as to 1 share, Cosmos Machinery International Limited 大同機械國際有限公司(“Cosmos”), a company incorporated in Hong Kong and a subsidiary of Cosmos Machinery Enterprises Limited 大同機械企業有限公司 (“CMEL”); (ii) as to 5,999 shares, Fair Friend (Hong Kong) Enterprise Co. Limited友嘉(香港)實業有限公司 (“Fair Friend”), also a subsidiary of CMEL; (iii) as to 2,000 shares, the 2nd Defendant and (iv) as to 2,000 shares the Plaintiff.
(2) As at 26 June 2008, Hon Kiu’s shareholders were (i) as to 4940 shares, Fair Friend; (ii) as to 1,760 shares, the 1st Defendant; (iii) as to 1,650 shares, the 2nd Defendant and (iv) as to 1,650 shares, the Plaintiff.
(3) As at 3 January 2014, Hon Kiu’s shareholders consisted of (i) as to 6,431 shares, 4 Beijing companies; (ii) as to 1,919 shares, the 1st Defendant; and (iii) as to 1,650 shares, the Plaintiff.
(4) By 3 September 2014, the 1st Defendant’s 1,919 shares were transferred to Virtue Mind Holdings Limited (“Virtue Mind”) pursuant to the Virtue Mind Agreement referred to below.
8. The 1st Defendant was incorporated in Hong Kong in May 2000.
(1) On or around 29 May 2000, its shareholders and directors were the Plaintiff and the 4 MTMs as well as the 3rd Defendant. The 3rd Defendant is the wife of the 2nd Defendant. Both the 2nd and 3rd Defendants are Hong Kong residents.
(2) By 27 June 2001, the Plaintiff and the 2nd Defendant each held 50% shareholding in the 1st Defendant and were its only directors.
(3) By 31 December 2004, the 2nd Defendant and CMS Holdings Limited (“CMS”) each held 50% shareholding in the 1st Defendant. Since CMS’s shares in the 1st Defendant were held on trust for the 2nd Defendant, the 2nd Defendant was the 100% beneficial owner of the 1st Defendant. The 1st Defendant’s 2 directors were the 2nd and 3rd Defendants. In effect, the 1st Defendant was controlled by the 2nd and 3rd Defendants.
(4) On 13 November 2012, CMS transferred its 50% shareholding to the 2nd Defendant who then became 100% shareholder of the 1st Defendant. The 2nd and 3rd Defendants remained its only 2 directors.
9. For ease of reference, a table showing the 1st Defendant’s directors and shareholders is attached hereto as Annexure 3[5].
10. Although the 3rd Defendant was and is a director of the 1st Defendant, it appears from the evidence that she only had a very limited, if at all, role to play in relation to the material events in this Action. She has filed a witness statement in this Action but eventually was not called as a witness at the trial.
11. As a result of HND’s listing on 9 February 2010, its shares became very valuable. To put the matter in its proper perspective, on 6 August 2014, the 1st Defendant entered into a Share Transfer Agreement with Virtue Mind pursuant to which the 1st Defendant agreed to sell to Virtue Mind its 1,919 shares of Hon Kiu at the price of RMB274,033,200 (“Virtue Mind Agreement”). At that time, Hon Kiu was a 63.75% shareholder of HND. According to the Plaintiff’s calculation, the sale of the 1st Defendant’s 1,919 shares in Hon Kiu effectively represented a sale of 9,786,900 shares in HND at RMB28 per share[6].
12. Virtue Mind paid the purchase price to the 1st Defendant by 2 instalments. The first instalment of RMB164,419,920 ie RMB274,033,200×60% was paid on 13 August 2014. The second instalment of HK$138,278,390 ie RMB274,033,200×40%÷0.7927 (the exchange rate) was paid on 3 September 2014. The Plaintiff claims the 1st Defendant received the sale proceeds as trustee on behalf of inter alia himself.
13. As summarised in the Plaintiff’s Closing submissions, this Action is principally about the Plaintiff’s claim to his alleged share of the sale proceeds under the Virtue Mind Agreement. Out of the sum of RMB164,419,920, the Plaintiff claims he is entitled to RMB54,055,411. Out of the sum of HK$138,278,390, after taking into account legal fees, stamp duty, miscellaneous fees etc, the Plaintiff claims to be entitled to HK$45,157,567.58.
14. The Plaintiff’s claim is put on the basis of an oral trust agreed and created in June 2008 between the 1st Defendant and the Plaintiff as well as the 4 MTMs (“2nd Trust”). At paragraph 48 of the Amended Statement of Claim, the 2nd Trust is pleaded in the following terms:
“During the course of discussion of matters as pleaded in Paragraph 47 above, in around June 2008, the 2nd Defendant, for and on behalf of the 1st Defendant on one hand, and the Management Team Members on the other hand, entered into an oral agreement (‘2nd Trust’) that the 2nd Defendant would procure the 1st Defendant to receive and hold 1,760 shares of Hon Kiu on behalf of the Plaintiff, Hu, Su, Xia and WW in the ratio of 40%, 16.67%, 16.67%, 13.33% and 13.33% respectively with a view of a possible future sale instead of the 15% interest HND as agreed to in or around August 2002”. (emphasis added)
15. At paragraph 51.1 of the Amended Statement of Claim, it is pleaded that the 1st Defendant as trustee held the 1,760 Hon Kiu shares for the Plaintiff and the 4 MTMs.
16. Rather confusingly, the Plaintiff then pleaded at paragraph 52.2, under the same section “2nd Trust”, that:
“52. In support of his present claim, the Plaintiff shall at trial further rely on the following facts, inter alia, that:-
…
52.2 Five declarations of trust were executed by the 2nd Defendant in respect of the shares of the 1st Defendant, as pleaded in Paragraph 13 above. By executing the said five declarations of trusts, the 2nd Defendant and the Management Team Members commonly recognized that the 2nd Defendant held the 1,760 shares of Hon Kiu for the benefit of the Management Team Members through the 2nd Defendant’s control over the 1st Defendant by reason of his sole shareholding …” (emphasis added)
17. It would appear that the Plaintiff cannot make up his mind as to whether it was the 1st or the 2nd Defendant who held the 1,760 Hon Kiu shares on trust for the benefit of the 5 MTMs. Even more confusingly, at paragraph 79, it is pleaded that the 1st and 2nd Defendants are holding the 2 sums on behalf of the Plaintiff as constructive trustees.
18. As against the 2nd Defendant, the Plaintiff asserts two claims of different nature:
(1) Breach of fiduciary duties owed to the Plaintiff in respect of the 2 sums of RMB54,055,411 and HK$45,157,567.58.
(2) A claim regarding an express trust of 4,000 shares of the 1st Defendant held in favour of the Plaintiff. The claim is based on an undated declaration of trust allegedly signed by the 2nd Defendant in June 2008 (being one of the five declarations of trust referred to in paragraph 52.2 of the Amended Statement of Claim) acknowledging he was holding 4,000 shares of the 1st Defendant on trust for the Plaintiff (“DT Trust”).
19. The Plaintiff’s claim against the 3rd Defendant is for dishonest assistance of the breach of trust and fiduciary duties of the 1st and the 2nd Defendants.
20. In the prayer for relief, the Plaintiff claims inter alia for:
(1) a declaration that he is the beneficial owner of the 2 sums of RMB54,055,411 and HK$45,157,567.58 and that the 1st and 2nd Defendants are holding the sums on trust for him.
(2) a declaration that the 3rd Defendant is liable as constructive trustee for having dishonestly assisted in a breach of trust and/or fiduciary duties in respect of the said two sums.
(3) an order that the 1st, 2nd and 3rd Defendants do give a full account of the 2 sums and return all sums found due to the Plaintiff upon the taking of account.
(4) A declaration that the 2nd Defendant is holding 4,000 shares of the 1st Defendant on trust for the Plaintiff.
(5) An order that the 2nd Defendant do procure the registration of the Plaintiff’s name on the 1st Defendant’s share register in respect of 4,000 shares of the 1st Defendant.
21. Pausing here, both parties have adduced PRC legal expert evidence on (i) whether under PRC laws there exists a concept of trust, and (ii) what is the legal effect under PRC law if someone acts in breach of the provisions of PRC law as pleaded in paragraph 49A of the Re-Re-Re-Amended Defence by failing to disclose his alleged beneficial ownership under the 2nd Trust. Since the 2nd Trust and the DT Trust are about shares of Hong Kong companies, both Mr Tong SC and Mr Chan agreed during their oral closing submissions that PRC law is irrelevant to the present case and can be safely ignored.
The parties’ pleaded case and the issues
22. With respect to the pleader of the Amended Statement of Claim, given the Plaintiff’s principal claim for the 2 sums in question is simply based on the 2nd Trust, the facts pleaded in the Amended Statement of Claim are excessively complicated and, as described by Mr Tong SC in his oral opening, 99% of which only serve as background information.
23. In particular, the Plaintiff has pleaded a 1st Trust in respect of 15% interest in HND agreed between Hon Kiu and the Plaintiff on behalf of the 5 MTMs in August 2002 (“1st Trust”) as explained below, which was said to have been superseded by the 2nd Trust in June 2008. In essence, the Plaintiff relies on the 1st Trust to explain the creation of the 2nd Trust. Further, the Plaintiff alleges that the 5 MTMs became beneficially entitled to 1,760 shares of Hon Kiu because they had given up their 15% interest in HND when the 2nd Trust was created. In essence, the 1,760 shares were conveyed to the 1st Defendant other than as purchaser for value and by the presumption of resulting trust, it will be presumed that the 5 MTMs did not intend the 1st Defendant to take the 1,760 Hon Kiu shares beneficially.
24. The Plaintiff then pleaded a 3rd Trust, created in August 2013, pursuant to which 159 Hon Kiu shares were said to be held by the 1st Defendant on trust for 3 other individuals viz Wang Tao (“WT”), Cai Fang Hui (“Cai”), and Chu Hai Shan (“Chu”) (collectively “New MTMs”). The plea of the 3rd Trust is to explain the sale of 1,919 Hon Kiu shares by the 1st Defendant to Virtue Mind, out of which the Plaintiff and the 4 MTMs claim to be entitled to 1,760 shares under the 2nd Trust.
25. As a result of the way the Amended Statement of Claim is pleaded and the way the parties ran their case at the trial, there are a large number of factual disputes between the parties concerning their course of dealings for over a decade prior to the commencement of the present action. Mr Chan, for instance, spent over 60 pages of his Closing submissions just to deal with the so-called “Material facts in chronological order” when in fact most of them are of no or only peripheral relevance to the Plaintiff’s claims. The proper approach, in this court’s view, is to concentrate on those truly material issues so as to arrive at a just and comprehensible adjudication of the Plaintiff’s claims.
26. Striped to its bare essentials, the Plaintiff’s case as summarised in Mr Chan’s Closing appears to be as follows.
27. By agreement between Zhonghao and Hon Kiu dated 29 July 2002, Hon Kiu agreed to buy 9.98% interest in HND from Zhonghao. Further, on 28 August 2002, Hon Kiu was approved by the PRC authority to be entitled to purchase the remaining 35.02% interest in HND to which Zhonghao should have been entitled.
28. In or around August 2002, Hon Kiu and the 5 MTMs represented by the Plaintiff entered into an oral trust agreement ie the “1st Trust”). The 5 MTMs and Hon Kiu would respectively acquire 15% and 30% out of the whole 45% interest in HND from Zhonghao. Hon Kiu would hold the 5 MTMs’ 15% interest in HND on trust for the 1st Defendant which was nominated by the 5 MTMs to represent them in holding the same, such that the 5 MTMs would be the ultimate beneficial owners. It was further agreed among the 5 MTMs that they would share the 15% interest in accordance with a certain ratio ie the Plaintiff, Hu, Su, Xia and WW in the ratio of 40%, 16.67%, 16.67%, 13.33% and 13.33% (“MTM ratio”).
29. Since 23 September 2002, HND’s registered shareholders became Hon Kiu as to 85% (out of which 15% were beneficially owned by the 5 MTMs) and Ningxia as to 15%.
30. In June 2004, SZ Rongan was incorporated. On 17 August 2004, Ningxia entered into a share transfer agreement with SZ Rongan whereby the 5 MTMs used SZ Rongan to receive the 15% shares in HND from Ningxia. Since 22 September 2004, the registered shareholders of HND were Hon Kiu as to 85% and SZ Rongan as to 15%.
31. In 2006, Fair Friend, the 5 MTMs and the 2nd Defendant planned to list HND on the Hong Kong Stock Exchange. It was orally agreed between Fair Friend, the 2nd Defendant, and the Plaintiff some time prior to 27 December 2006 that Corizon Consultants Limited (“Corizon”) would be used as the controlling shareholder of Hon Kiu. On 27 December 2006, Fair Friend, the 2nd Defendant and the Plaintiff transferred all their shares in Hon Kiu to Corizon, except for 1 share retained by Fair Friend.
32. On 5 March 2007, a written agreement (“WTCC Agreement”) was entered into among Hon Kiu, SZ Rongan, the Plaintiff and the New MTMs that in exchange of 5% interest in SZ Silver International Investment Company Limited (“SZ Silver”) held by each of the New MTMs, each of them would respectively be entitled to 0.8% interest in HND, ie 480,000 shares.
33. In mid-2007, the plan to list HND on the Hong Kong Stock Exchange was not pursued. Instead, the parties planned to list HND on the Shenzhen Stock Exchange. Since then, Fair Friend, the 5 MTMs and the 2nd Defendant had been discussing on the restructuring of Hon Kiu.
34. In around June 2008, it was agreed by the parties that Corizon would no longer be used to hold the shares in Hon Kiu but would transfer them back to Fair Friend, the 4 MTMs, the Plaintiff and the 2nd Defendant. For ease of calculation, the shares in Hon Kiu to be owned by Fair Friend, the 4 MTMs, the Plaintiff, and the 2nd Defendant would be rounded off to 49.4%, 17.6%, 16.5%, 16.5% respectively. It was further agreed that the 5 MTMs would forgo their 15% interest in HND held by Hon Kiu in exchange for the beneficial interest in 1,760 shares of Hon Kiu. For that purpose, Fair Friend, the Plaintiff and the 2nd Defendant would cause Corizon to transfer such 1,760 shares to the 5 MTMs or their trustee ie the 1st Defendant.
35. Also in around June 2008, the 1st Defendant, represented by the 2nd Defendant, and the 5 MTMs entered into an oral agreement ie the 2nd Trust, whereby the 2nd Defendant would procure the 1st Defendant to hold the 1,760 shares of Hon Kiu on behalf of the 5 MTMs, in accordance with the MTM ratio.
36. On 26 June 2008, Corizon transferred all its shares in Hon Kiu to Fair Friend, the 1st Defendant, the Plaintiff and the 2nd Defendant, such that they then became 49.4%, 17.6%, 16.5% and 16.5% shareholders of Hon Kiu respectively. Upon Corizon transferring the 1,760 Hon Kiu shares to the 1st Defendant, the 2nd Trust was formed and superseded the 1st Trust.
37. In around June 2008, the 2nd Defendant delivered 2 sets of 5 undated Declarations of Trust (“DTs”) and an Instrument of Transfer to the Plaintiff and WW. By the DTs, the 2nd Defendant declared that he was holding all the shares of the 1st Defendant on trust for the 5 MTMs, in line with the MTM Ratio ie 4,000 shares on trust for the Plaintiff.
38. On 18 January 2010, the authorized capital of HND was further increased by RMB20,000,000 for the purpose of listing. Hon Kiu and SZ Rongan’s shareholding in HND were respectively diluted to 63.75% and 11.25%. The share capital of the remaining 25% were to be raised from the public through listing.
39. On 9 February 2010, HND was listed on Shenzhen Stock Exchange.
40. On 2 August 2013, Fair Friend and the 2nd Defendant transferred 119 and 40 shares in Hon Kiu respectively to the 1st Defendant. The 1st Defendant held such 159 shares on trust for the benefit of the New MTMs, ie the 3rd Trust. The 5 MTMs and the New MTMs therefore had a combined beneficial interest in HND’s shares which were reflected by 1,919 shares (1,760 + 159) in Hon Kiu.
41. In June 2014, Virtue Mind approached the Plaintiff with a view to purchase the 1,919 shares of Hon Kiu held in the name of the 1st Defendant, which were equivalent to 9,786,900 shares in HND. The Plaintiff, for and on behalf of the 5 MTMs and the New MTMs, agreed to sell at the price of RMB274,033,200.
42. In around July or early August 2014, the Plaintiff, for and on behalf of the 5 MTMs and the New MTMs, instructed the 1st Defendant through the 2nd Defendant by phone to sell the 1,919 shares of Hon Kiu to Virtue Mind at the consideration of RMB274,033,200, to receive the sale proceeds and to pay them according to their respective shares of interest. The Plaintiff also by phone, emails and text messages to the 2nd Defendant gave further instructions as to the details of the proposed sale.
43. On 6 August 2014, the 2nd Defendant procured the 1st Defendant to enter into the Virtue Mind Agreement and eventually received the sale proceeds. The 1st Defendant had distributed the sums claimed by the 4 MTMs (as well as the New MTMs) but not the Plaintiff. The Plaintiff’s alleged entitlement to the sale proceeds are RMB54,055,411 plus HK$45,157,567.58. The 2nd Defendant was only prepared to pay half of what the Plaintiff wanted.
44. Pausing here, on the undisputed evidence, after receiving their share of the sale proceeds, the 4 MTMs had all signed receipts acknowledging the payments were special bonus to them for their contribution to HND. Even the Plaintiff himself had also signed a similar receipt, but for the sum he was allegedly entitled.
45. Putting it simply, the Defendants’ case is one of denial of the creation, existence and terms of the 1st Trust and the 2nd Trust and non-admission of the 3rd Trust. The Defendants also deny the DT Trust, whether in its own right or as an alternative form of the 2nd Trust. Since the Plaintiff is not suing on the 3rd Trust, it can be put aside for the present purpose. But as far as the 1st and 2nd Trusts as well as the DT Trust are concerned, there are factual disputes between the parties based principally on the differences of the testimony of the Plaintiff and the 2nd Defendant. In this regard, this court has carefully considered the manner in which they testified and assessed their credibility against the contemporaneous documentary evidence (or the absence of it) and the known and undisputed circumstances of this case. This court has in particular considered the inherent probabilities or otherwise of their case in order to resolve the material factual disputes between them.
46. As a general observation, this court has grave misgivings as to the manner in which the Plaintiff testified in court and has serious reservation about his credibility generally.
47. The Plaintiff gave this court a strong impression that he has a tendency to anticipate counsel’s questions and adjust his answers accordingly. For instance, on any view of the evidence, he was a highly successful business manager. His position in HND was CEO and he had occupied that position from 1995 to 2014. In the course of that period, he had steered HND towards the position when the company was fit for listing and, according to himself, had personally made more than tens of millions of Renminbi. Yet, right from the very beginning of his cross-examination, he insisted that he was just a technical expert in HND.[7] It seems to this court more likely than not that he expected he would be questioned on his role in the listing of HND, which he was on the next day.
48. During his cross-examination on Day 3, the Plaintiff, despite being the CEO of HND, denied he was the architect of the whole listing process. Instead, the Plaintiff said it was Hon Kiu, being the majority shareholder, who was leading the process. He was then reminded that by 2008, he, the 1st and the 2nd Defendants were in control of Hon Kiu by virtue of their combined shareholding[8] to which his answer was that the three of them were the majority shareholders of Hon Kiu in name only. The Plaintiff was then shown Annexure 2 which stated that on 26 June 2008, he, together with the 1st and the 2nd Defendants, were the majority shareholders of Hon Kiu, holding close to 51% of its shares. When this court asked the Plaintiff why he said the 3 of them were shareholders in name only, he blatantly denied having said that. Subsequently, he back-paddled and tried to explain what he meant by being majority shareholders in name only ie Fair Friend, with 49.4% shareholding, was the majority shareholder of Hon Kiu if the shareholdings of the 1st Defendant, the 2nd Defendant and him were not combined together. That answer seems to this court a classic example of making things up along the way.
49. Back to the question of whether the Plaintiff was responsible for the listing process of HND, he continued to evade the question by saying “I was related to it and I also agreed to it but my main duty was in the area of production and operation.” Having admitted that nobody else knew about HND more than him[9], the Plaintiff again tried to keep a distance from the listing process by saying Hon Kiu would be better than him to explain things to the relevant authorities. When this court asked the Plaintiff who within Hon Kiu were responsible for the listing of HND, he first avoided the question by saying Hon Kiu had 3 shareholders[10]. When this court asked again, the Plaintiff gave 3 names viz Tang To, Wong Yiu Ming and the 2nd Defendant, 3 of Hon Kiu’s directors.
50. Mr Tong SC submits that it is ludicrous that the Plaintiff as (i) the founder, CEO and one of the directors of HND in 2008, (ii) one of the directors and shareholders of Hon Kiu, and (iii) the sole director and largest shareholder of SZ Rongan, the minority shareholder of HND at the time, would be content to stay on the side line and did not take up responsibility for the listing of HND. There is force in that submission.
51. The Plaintiff was then asked a question whose answer to which was highly revealing. Mr Tong SC asked if the listing authorities wanted to know certain things and it was within the Plaintiff’s knowledge, would he be willing to supply them to the listing authorities. The Plaintiff’s answer was, irrelevantly, that the decision for the listing was made by all the shareholders jointly. When this court asked him whether he was able to answer a yes or no question by saying yes or no, the Plaintiff said no. The answer “no” can mean two things. Either it means no, he would not be willing to supply them to the listing authority, or no, he would not be able to answer the question by saying yes or no. Either meaning reflects poorly on the Plaintiff. But the second meaning is a clear demonstration of the Plaintiff’s evasiveness and his refusal to answer a direct question directly.
52. Lastly, on Day 5, the Plaintiff was cross-examined on the draft agreement between Virtue Mind and the 1st Defendant on the sale and purchase of the 1,919 Hon Kiu shares prepared by Virtue Mind’s Hong Kong lawyers. Recital C of the draft stated that the 1st Defendant was the legal and beneficial owner of the 1,919 Hon Kiu shares. When it was put to the Plaintiff that it meant Virtue Mind did not know he was a beneficial owner of the shares, the Plaintiff at first said Virtue Mind knew. The Plaintiff was then referred to the 1st Defendant’s warranty at annex 2 of the draft which stated that it owned the 1,919 Hon Kiu shares beneficially without disclosing the Plaintiff’s alleged beneficial interest in the Hon Kiu shares. The Plaintiff’s answer was changed to that the agreement did not involve the issue of trust, it had nothing to do with Virtue Mind and there was no need to disclose the 2nd Trust to Virtue Mind.
53. The above are just some examples of the way the Plaintiff testified in court. The transcript of the Plaintiff’s cross-examination will reveal other examples. All in all, for reasons known only to himself, the Plaintiff had failed to answer simple and direct questions directly. Instead, he either evaded the questions by giving a lengthy but irrelevant answer or he simply made a speech in line with his case, or he just gave contradictory answers.
54. In his Closing submissions at paragraph 80, Mr Tong SC submits that the Plaintiff gave an impression as an evasive, incredible and unreliable witness who made speeches about his own case which were not relevant to counsel’s questions despite repeated reminders from the Court. This court agrees with that submission.
55. As for the 2nd Defendant, Mr Chan criticises him in that his answers to this court were either evasive or vague and that he is not an honest witness. This court does not agree. As described by Mr Tong SC in his Closing submissions, he came across as a shy, soft-spoken, and easily confused person. That accords with this court’s impression of him as a witness. It is true that his memory of details of events and his familiarity with the voluminous documentation is far from perfect. But that can be explained by his age and that the material events dated back to more than a decade ago. This court finds him basically an honest witness.
Deliberation
Legal principles
56. There are three areas in which a private express trust must be sufficiently certain: (i) the settlor must intend to impose legally enforceable duties of trusteeship on the owner of the property, (ii) the subject matter of the trust must be certain and (iii) the objects or persons intended to have the benefit of the trust must be certain: Snell’s Equity (34th ed, 2020) at §22-012. The primary element in the trust is the asset that is to be its subject matter. If the subject matter of the trust is not identified clearly enough, then the purported declaration of trust is a nullity. If the settlor’ intention to create a trust over it is uncertain, then the person legally entitled to the asset holds it beneficially for himself and free of any trust: Snell’s Equity at §22-025.
57. There are two mains ways by which a settlor may constitute an express trust. He may either (i) convey the property to a trustee to hold for the beneficiaries or (ii) declare himself a trustee of it: Snell’s Equity at §22-043. Where the settlor is both legal and equitable owner of the property and intends to constitute the trust by conveyance to the trustee, an express trust is generally not constituted until conveyance of the legal ownership to the trustee is complete: Snell’s Equity at §22-044.
58. These trite principles are not disputed by Mr Chan. But he wishes to supplement the following:
(1) In Hong Kong, there is no requirement in law that declarations of trust must be in writing: Yung Shu Wu v Vivienne Sung Wu (2011) 14 HKCFAR 39 at [72].
(2) What is required to establish an oral declaration of trust is the clear intention to dispose of property so that someone else should acquire a beneficial interest: In re Kayford Ltd (In Liquidation) [1975] 1 WLR 279 at 281H; Paul v Constance [1977] 1 WLR 527 at 531G.
(3) An intention to hold property on trust for someone else can be inferred from conduct in absence of words: Levin v Ikuia [2011] 1 NZLR 678 at [43].
The 1st Trust of 15% interest in HND
59. Just to recap, it is pleaded in paragraphs 25 and 26 of the Amended Statement of Claim that in or around August 2002, Hon Kiu and the Plaintiff on behalf of the 5 MTMs, entered into an oral trust agreement whereby it was agreed that, inter alia:
(1) The 5 MTMs would acquire Zhonghao’s 15% shareholding in HND with the purchase price first paid by Hon Kiu and set off by share dividends payable to the 5 MTMs by HND in respect of the 15% so acquired.
(2) The 15% shareholding legally acquired by Hon Kiu from Zhonghao would be held by it on trust for the 1st Defendant who, with the consent of the 2nd Defendant, was nominated by the 5 MTMs to represent them in holding the same.
(3) The above represents a double trust arrangement.
(4) It was further agreed among the 5 MTMs that the 1st Defendant should be used to hold the 15% interest in HND on their behalf and that they would share the 15% interest in HND in the MTM ratio.
60. Rather surprisingly, there is no serious attempt in Mr Chan’s Closing submissions to analyse the creation and existence of the 1st Trust in terms of the 3 certainties.
61. Mr Tong SC submits that save for a written declaration of trust executed on 28 August 2002 by Hon Kiu whereby it declared itself as trustee to hold the 15% interest in HND on trust for the 1st Defendant, the remaining allegation of the Plaintiff regarding the 1st Trust, viz that the 1st Defendant in turn held the 15% interest on trust for the 5 MTMs, is not supported by evidence. In particular, Mr Tong SC submits that, on the evidence, there was inter alia no certainty of intention on the part of the 1st Defendant to declare itself as trustee for the 5 MTMs and hence no constitution of the 1st Trust. In fact, there is no plea that the 1st Defendant has so declared itself as trustee for the 5 MTMs - the pleaded allegation is that the 1st Defendant was nominated by the 5 MTMs to represent them in holding the 15%. In this regard, the following points are germane to the present discussion:
(1) There is no evidence of any oral or specific conduct constituting a declaration of trust by the 1st Defendant.
(2) There is no resolution of the 1st Defendant evidencing its intention to create a trust of the 15% HND interest in favour of the 5 MTMs.
(3) There is not even evidence that the 1st Defendant had agreed to accept the nomination.
62. In support of the Plaintiff’s case on the 1st Trust, Mr Chan prays in aid HND’s minutes of a board meeting held on 21 May 2004 in which Zhao Yuangui (“Zhao”) then secretary of HND’s board of directors, proposed a resolution that 15% of HND’s profits after April 2002 be distributed to the 5 MTMs and that the resolution was passed with the support of inter alia the 2nd Defendant. Upon a closer look at the wording of the resolution and the minutes, Zhao was referring to “股利” whatever Zhao might mean by that term. Mr Tong SC’s submission is that had it been intended for HND dividends to be distributed to the 5 MTMs as shareholders, it would have been expressly stated. It seems to this court that Mr Tong SC does have a point. Hence, what was stated in the 21 May 2004 board minutes is consistent with the Defendants’ case that the distribution of HND’s profits to the 5 MTMs was by way of bonus only. At the very least, the 21 May 2004 board minutes was ambiguous and does not really support the Plaintiff’s case of the 1st Trust in the way suggested by Mr Chan.
63. At the end of the day, all that remains is the bare assertion of the Plaintiff in his pleadings and his witness statement.
64. The 1st Trust was said to be created orally. In contrast, by 4 written declarations of trust dated 20 May 2001, Cosmos, Fair Friend, the 2nd Defendant and the Plaintiff declared they were holding shares in Hon Kiu on trust for Corizon. This shows that the parties in question, especially the Plaintiff, were not unfamiliar with the use of written declarations of trust to demonstrate their intention of creating a trust.
65. Further, by the written declaration of trust executed on 28 August 2002 by Hon Kiu, it declared that it was holding the 15% interest in HND on trust for the 1st Defendant. This declaration of trust is part 1 of the “double trust arrangement” alleged by the Plaintiff.
66. If the Plaintiff’s case that the 1st Defendant had agreed and intended to become trustee of the 15% interest in HND for the 5 MTMs is true, one wonders what was so difficult for the 5 MTMs to procure the 1st Defendant to execute a similar declaration of trust in August 2002 so as to make it beyond doubt that there was a double trust arrangement whereby the 1st Defendant was in turn holding the 15% interest in HND on trust for the 5 MTMs? Instead of there being a declaration of trust of the 15% by Hon Kiu in favour of the 1st Defendant[11], why would there not be a declaration of trust by Hon Kiu directly in favour of SZ Silver[12] or any other company set up by the Plaintiff and owned by the 5 MTMs ?
67. Alternatively, instead of devising a convoluted “double trust arrangement”, why did the 5 MTMs not opt for a more straightforward way to hold the 15% interest in HND? Examples given in Mr Tong SC’s Closing Submissions include inter alia:
(1) Vesting the 15% interest in SZ Silver or any other company set up by the Plaintiff and owned by the 5 MTMs, in the same way that the 15% of HND acquired by the 5 MTMs from Ningxia were transferred to SZ Rongan in August 2004.
(2) Vesting a number of Hon Kiu shares equivalent to 15% HND interest in the 5 MTMs directly. There is no evidence that PRC natural persons could not hold shares in a Sino-foreign equity joint venture indirectly via a Hong Kong company, albeit there is some suggestion that the joint venture laws of the PRC did not allow a PRC natural person to be a direct shareholder of a Sino-foreign equity joint venture.
68. Mr Tong SC submits and this court agrees that the double trust arrangement made little commercial sense.
69. Mr Tong SC also submits that if the 1st Trust existed, the Plaintiff would not have so easily relinquished his 50% shareholding and directorship in the 1st Defendant in December 2004. After the Plaintiff’s withdrawal from the 1st Defendant, the 2nd Defendant became 100% beneficial shareholder and he and his wife became the only directors of the 1st Defendant. The Plaintiff’s one sentence explanation in his witness statement for his complete withdrawal is that he had decided not to invest any further in the maifanite business of the 1st Defendant in Inner Mongolia. In this court’s view, if the Plaintiff had truly believed he had beneficial interest in HND by reason of the 1st Trust, the inherent probabilities are that he would have remained at least as a shareholder and/or director of the 1st Defendant if only to keep an eye on his beneficial interest.
70. Lastly, Mr Tong SC submits that if the 1st Trust existed, it would have been disclosed in the questions and answers relating to the issuance and listing of HND dated 2007 (“Listing Q&A”) and the listing prospectus of HND dated 16 October 2009 signed by inter alia the Plaintiff. But it was not. (Nor was the 2nd Trust mentioned there.) Instead, some other trust arrangements in relation to Hon Kiu’s shares were mentioned in them. In particular, the listing prospectus was a meticulous and heavily vetted document, both by the directors and senior management of HND as well as the sponsor, lawyers and accountants. Hence, the omission to mention the 1st Trust (or the 2nd Trust) in relation to the 5 MTMs’ 15% interest cannot simply be brushed aside as mere inadvertence. Rather, it casts serious doubt on the veracity of the Plaintiff’s testimony on the alleged existence of the 1st Trust (or the 2nd Trust).
71. For all the above reasons, this court rejects the Plaintiff’s testimony as wholly incredible and is not satisfied that the Plaintiff has established factually or legally the existence of the 1st Trust.
The 2nd Trust of 1,760 Hon Kiu shares and the DT Trust
72. On the Plaintiff’s case, the 1st Trust lays the foundation of the 2nd Trust. Under the 2nd Trust, which is pleaded as an express trust, the trustee was apparently the 1st Defendant, the subject matter of the trust was the 1,760 shares of Hon Kiu and the beneficiaries were the 5 MTMs, each of them having beneficial interest in the 1,760 shares in accordance with the MTM Ratio. Further, by forgoing the 15% interest in HND so as to enable the 2nd Trust to supersede the 1st Trust, the Plaintiff also claims a presumption of resulting trust.
73. Since this court has rejected the Plaintiff’s evidence that the 1st Trust existed, it would be illogical to accept the Plaintiff’s case regarding the creation of the 2nd Trust since the one is supposed to explain and support the creation of the other. As Mr Chan rightly accepts in his second speaking notes, if the 1st Trust factually did not exist, it might well be said the 2nd Trust did not exist too. That is putting things rather mildly.
74. In addition, without the 1st Trust, there cannot be a presumption of resulting trust.
75. Just to recap, as summarised in Mr Chan’s Closing submissions, the circumstances under which the 2nd Trust was created are as follows:
“42. In 2006, Fair Friend, MTM and D2 planned to list HND on Hong Kong Stock Exchange. It was orally agreed between Fair Friend, D2, and P some time prior to 27 December 2006 that Corizon (BVI company) would be used in becoming the controlling shareholder of Hon Kiu [B1/1/223/51]. On 27 December 2006, Fair Friend, D2 and P transferred all their shares in Hon Kiu to Corizon (except for 1 share retained by Fair Friend) ...
45. In mid-2007, the plan to list HND on the Hong Kong Stock Exchange was not pursued. Instead, the parties planned to list HND on Shenzhen Stock Exchange. Since then, Fair Friend, MTM and D2 had been discussing on the restructuring of shareholdings in Hon Kiu …
46. Sometime prior to the end of June 2008, it was orally agreed by Fair Friend, P, D2 and MTM … that:-
46.1. Corizon would not be further used in holding the shares in Hon Kiu.
46.2. For better protection of MTM’s interest, there would be a change of form regarding their 15% interest in HND held by Hon Kiu.
46.3. Hon Kiu would become the registered shareholder in the said 15% interest in HND, and MTM would become shareholders of Hon Kiu, holding such 15% interest indirectly through Hon Kiu. Each of Fair Friend, P and D2 would cause Corizon to transfer some shares of Hon Kiu to the MTM. The remaining shares of Hon Kiu in HND (i.e. the 70%) would be transferred back to Fair Friend, P and D2 from Corizon.
47. It was further agreed between MTM on one hand, and Fair Friend, P and D2 on the other hand … that:-
47.1. For easier calculation, the share of interest in Hon Kiu to be owned by Fair Friend, MTM, P, and D2 would be rounded off to 49.4%, 17.6%, 16.5%, 16.5% respectively.
47.2. The MTM would forgo the 15% interest in HND held by Hon Kiu, in exchange for legal and beneficial interest in 1,760 shares of Hon Kiu from Fair Friend, P and D2, and such 1,760 shares would be transferred to MTM, their trustee, nominee or fiduciary agent. Fair Friend, P and D2 would not claim the right to 1,060, 350 and 350 shares of Hon Kiu held by Corizon. Instead, they would cause Corizon to transfer 1,760 shares of Hon Kiu to MTM, their trustee, nominee or fiduciary agent.
47.3. Fair Friend, P and D2 would cause Corizon to transfer 4,939, 1,650, 1,650 shares of Hon Kiu to Fair Friend, P and D2 respectively.
48. In around June 2008, D2 (for and on behalf of D1) and MTM entered into an oral agreement … i.e the 2nd Trust, that D2 would procure D1 to receive and hold 1,760 shares of Hon Kiu on behalf of MTM, in accordance with the MTM’s ratio. …
49. On 26 June 2008, Corizon transferred all its shares in Hon Kiu to Fair Friend, D1, P and D2, such that they then became 49.4%, 16.5%[sic][13], 16.5% and 17.6%[sic][14] shareholders of Hon Kiu respectively …”
76. In terms of certainty of subject matter and objects, Mr Chan submits that the 1,760 Hon Kiu shares were the subject matter and the 5 MTMs were the objects.
77. As far as certainty of subject matter is concerned, Mr Chan submits that when the 2nd Trust was established, the parties clearly knew that the trust property would be these 1,760 shares, for there was an express agreement that the 5 MTMs would forgo their beneficial interest in the 15% HND shares under the 1st Trust, and in exchange they ought to be entitled to the equivalent number of Hon Kiu’s shares. This submission is thus premised on the existence of the 1st Trust which this court has already rejected. Mr Chan’s submission on certainty of subject matter must equally be rejected.
78. As far as certainty of objects is concerned, Mr Tong SC submits that there is no reliable and objective evidence to prove the Plaintiff’s bare allegation that the 5 MTMs were the intended beneficiaries of the alleged 2nd Trust. In so far as the Plaintiff prays in aid of the 1st Trust to argue that the MTMs must naturally be the intended beneficiaries, again this argument fails to get off the ground given this court’s rejection of the 1st Trust.
79. As for certainty of intention, Mr Chan’s submission runs as follows.
“Certainty of intention:
121.1. Before the establishment of the 2nd Trust, the 1st Trust already existed, and the MTM were entitled to 15% shares of HND. Hon Kiu, which was a holding company, held the said 15% shares of HND under the 1st Trust.
121.2. All shares of Hon Kiu (except 1 share retained by Fair Friend) were transferred to Corizon for HND’s listing purposes, but it was decided subsequently Corizon should not be further used to hold Hon Kiu’s shares.
121.3. When Corizon was to be put out of the picture, the parties (Fair Friend, P, D2, and the rest of the MTM) decided that there should be a restructuring of Hon Kiu. For better protection of the MTM’s interest, Hon Kiu no longer would be the trustee. Instead of having direct beneficial interest in HND’s 15% shares, the MTM would have direct beneficial interest in Hon Kiu’s shares, which could reflect the equivalent value of such HND shares.
121.4. So when Corizon was removed (and had to transfer its holding of Hon Kiu’s shares to somewhere), under the 2nd Trust, Corizon made the transfer of 1,760 shares of Hon Kiu to D1.
121.5. The only reason why D1 received such 1,760 shares was because the MTM agreed and intended so. By entering into the agreement with D1 (through D2), the MTM intended for D1 to become the trust [sic] and to be under a duty to hold such shares for the benefit of the MTM. Had there not been the 2nd Trust, the 1,760 shares of Hon Kiu would have to be transferred back to the MTM, or their trustee, nominee or fiduciary agent.
121.6. Indeed, D2 said that he would engage a Hong Kong lawyer to prepare written trust documents ...” (emphasis added)
80. It can be seen from the above that there is no suggestion that when Corizon transferred the 1,760 Hon Kiu shares to the 1st Defendant, Corizon intended the 1st Defendant to be a trustee of the shares for the 5 MTMs. Nor is there a suggestion that the 1st Defendant, after receiving the shares, had declared itself as trustee for the 5 MTMs. The only intention relied upon is the intention of the 5 MTMs, as the supposed beneficiaries, for the 1st Defendant to become the trustee of the shares. This is clearly not good enough as a matter of law. As Mr Tong SC submits, similar to the alleged 1st Trust, the Plaintiff has not adduced any written declaration of trust by the 1st Defendant nor any resolution of the 1st Defendant to create a trust of the 1,760 Hon Kiu shares in favour of the 5 MTMs. What is left is just the bare assertion of the Plaintiff.
81. Further, the Plaintiff’s primary case is that the 2nd Trust was created orally. This is so despite many trust arrangements involving Hon Kiu shares, HND shares and the 1st Defendant shares which were put into writing and/or properly executed in written instruments when the Plaintiff and the 2nd Defendant were involved as directors and/or shareholders of the relevant companies. This shows the Plaintiff was not unfamiliar with the use of written declarations of trust in order to create a trust. Yet, the Plaintiff and the 4 MTMs opted to rely on an oral trust.
82. In this court’s view, the Plaintiff’s case on the 2nd Trust raises more questions than it answers. For instance:
(1) Why was it for the better protection of the 5 MTMs’ interest that Hon Kiu should no longer be the trustee of the 15% interest in HND?
(2) Why could the 15% interest in HND not be vested simply in the name of SZ Rongan or SZ Silver or any other companies set up by the Plaintiff and owned by the 5 MTMs?
(3) What was the advantage to the 5 MTMs in having an indirect beneficial interest in Hon Kiu shares instead of an indirect beneficial interest in HND shares?
(4) Why did the 5 MTMs choose the 1st Defendant (which was wholly owned by the 2nd Defendant) to be the trustee of the Hon Kiu shares?
(5) Why were the 1,760 shares in Hon Kiu not vested simply in the name of the 5 MTMs directly or indirectly in the name of SZ Rongan or SZ Silver or any other companies set up by the Plaintiff and owned by the 5 MTMs?
83. Mr Chan’s submission on the 2nd Trust also conveniently ignores what he has pleaded in paragraph 52.2 of the Amended Statement of Claim to the effect that by executing the five undated DTs said to be delivered by the 2nd Defendant to the Plaintiff and WW in around June 2008, the 2nd Defendant and the 5 MTMs commonly recognized that the 2nd Defendant held the 1,760 shares of Hon Kiu for the benefit of the 5 MTMs.[15]
84. The five undated DTs supposedly bore the 2nd Defendant’s signatures acknowledging he was holding 4,000, 1,667, 1,667, 1,333 and 1,333 of the 1st Defendant’s shares on trust for the Plaintiff and the 4 MTMs. In court, the 2nd Defendant said that the signatures on the five undated DTs looked very similar to his signatures but he had no recollection of signing them. In this court’s view, given the above and given Mr Tong SC’s indication in court that he no longer disputed the authenticity of the 2nd Defendant’s signature, there is no question that the five undated DTs were signed by the 2nd Defendant.
85. According to the Plaintiff at paragraph 60 of his first witness statement, it was about at the end of June 2008 in Shenzhen that the 2nd Defendant brought two original sets of documents (one set of 6 copies, totaling 12 copies of documents, each consisting of the five undated DTs and 1 copy of the Instrument of Transfer) and gave them to him and WW. After receiving the documents, WW kept the 2 sets of documents and informed the other members of the MTMs. Importantly, the Plaintiff went on to say in that paragraph:
“… Reading from the said 5 sets of Trust Declarations and the 1 copy of the Transfer Document, it can be known that Or Leung Chit and the Management Team Members had reached consensus that Or Leung Chit as the sole registered shareholder of and through Silver International held the 1,760 shares of Hon Kiu for and on behalf of the Management Team Members.” (emphasis added)
86. The Instrument of Transfer was supposed to effect the transfer of CMS’s 5,000 shares in the 1st Defendant[16] to the 2nd Defendant. It was incomplete in all sorts of way. It was undated, not witnessed and did not state the consideration for the transfer, even if it be HK$1. Importantly, it was not even signed by CMS.
87. Prompted by paragraph 52.2, Mr Tong SC submits that the Plaintiff’s Amended Statement of Claim is confusing and inconsistent in relation to the identity of the trustee of the 2nd Trust. This is because, under the same section heading of the “2nd Trust”, the Plaintiff had pleaded that the 2nd Trust consisted of the 1st Defendant holding 1,760 Hon Kiu shares on behalf of the 5 MTMs and then he immediately pleaded the five undated DTs by which the 2nd Defendant was said to be the trustee of the 1,760 shares of Hon Kiu for the benefit of the 5 MTMs.
88. Further, the whole arrangement of the 2nd Trust makes little commercial sense. At that time, the 1st Defendant was wholly owned by the 2nd Defendant beneficially and controlled by the 2nd and the 3rd Defendants as directors. Why would the 5 MTMs intend the 1st Defendant (or the 2nd Defendant for that matter) to be the trustee under the 2nd Trust when they had plenty of safer options? And even if for reasons of their own, the 5 MTMs preferred to have the 1st Defendant (or the 2nd Defendant for that matter) as trustee, why did they not insist on the 1st or 2nd Defendant to execute a written declaration of trust in respect of the 1,760 Hon Kiu shares but instead be contented with the 5 undated DTs in respect of the 1st Defendant’s shares?
89. Mr Chan’s explanation in his Closing submissions is that the 5 undated DTs are relevant in showing that the Plaintiff’s account of facts must be true and thereby demonstrating that the 2nd Trust existed. Had there not been an agreement for the 1st Defendant to receive the 1,760 Hon Kiu shares for the benefit of the 5 MTMs, the 2nd Defendant would not have executed the five undated DTs. That explanation is a complete non sequitur. Further, it is submitted that the five undated DTs could serve as better protection of the 5 MTMs’ interest. No reason was given as to why that was or even might be the case.
90. At the time, the 5,000 shares in the 1st Defendant were held on trust by CMS for the 2nd Defendant, so that an instrument of transfer of those 5,000 shares from CMS to the 2nd Defendant was prepared for execution first before the five undated DTs in respect of shares in the 1st Defendant were executed.
91. If the Plaintiff considered the five undated DTs could serve as better protection of the 5 MTM’s interest, what the Plaintiff should and would have done is to (i) properly complete the Instrument of Transfer first so as to vest CMS’s 5,000 shares of the 1st Defendant in the 2nd Defendant and then (ii) properly complete the five undated DTs by (a) asking the 2nd Defendant to sign in the proper place instead of in the space reserved for a witness and (b) having the five undated DTs properly dated, witnessed and stamped. Nothing of that sort was done. This is so even though the Plaintiff admitted in cross-examination that he knew the five undated DTs were undated when he first received them. The question is why not? The Plaintiff’s answer, curiously, was that he did not date the five undated DTs out of trust in the 2nd Defendant. That answer is also a complete non sequitur. The Plaintiff also admitted in cross-examination that he knew CMS had not signed on the Instrument of Transfer but he still did nothing about it. Instead, according to the Plaintiff, after he had received the documents from WW, he just put them inside a safe and forgot about them until he did not receive his alleged entitlement to the sale proceeds from the Virtue Mind Agreement.
92. The Plaintiff’s behavior does cast serious doubt on the credibility of his case about the 2nd Trust and the DT Trust.
93. As far as the DT Trust is concerned, at the end of the day, all that the Plaintiff can show to this court are the five undated DTs signed by the 2nd Defendant as witness.
94. Mr Chan argues that to constitute a signature, it does not matter in what part of the instrument it is to be found. In Caton v Caton (1867) LR 2 HL 127 at 142, it was stated by Lord Westbury that:
“ … The cardinal question in this case is the inquiry whether the document pleaded as a memorandum of agreement is sufficiently signed to satisfy the provisions of the Statute of Frauds. It has been very correctly said that that statute requires a signing and not a subscribing. Hence it has been deduced, and I think correctly, that if the signature be in itself a sufficient signature, it matters not in what part of the instrument it is to be found.”
95. With respect, Mr Chan is asking the wrong question. The question in the present case is not whether the 2nd Defendant’s signature on the five undated DTs constituted a signature. The question is whether by signing in the space reserved for a witness as opposed to a settlor, the 2nd Defendant had demonstrated a clear intention to create a trust of the 1st Defendant’s shares in favour of the 5 MTMs.
96. As Mr Tong SC submits in his Closing, the Plaintiff has taken the above quotation out of context. The headnote of Caton v Caton made it clear that:
“ Though it is not necessary that the signature of a party should (within the Statute of Frauds) be placed in any particular part of a written instrument, it is necessary that it should be so introduced as to govern or authenticate every material and operative part of the instrument. …” (emphasis added)
97. That headnote was based on what Lord Westbury said in pp 142-143 of the Judgment, immediately following the above quotation.
98. More recently, in Good Challenger Navegante SA v Metalexportimport SA (The “Good Challenger”) [2004] 1 Lloyd’s Rep 67 at [22], it was observed that:
“ As a matter of general principle, in my view a document is signed by the maker of it when his name or mark is attached to it in a manner which indicates, objectively, his approval of the contents. How this is done will depend upon the nature and format of the document. Thus in the case of a formal contract which prints the names of the parties and leaves a space under each name for the parties to write their names, the document will not have been signed by a party until he writes his name in the space provided. …” (emphasis added)
99. In this court’s view, the 2nd Defendant’s signature on the five undated DTs cannot be regarded as governing or authenticating every material and operative part of the documents or as indicating his approval of the contents. It follows that the 2nd Defendant’s signature cannot be regarded as demonstrating a clear intention on his part to create a trust of 1st Defendant’s shares in favour of the 5 MTMs. Putting it in another way, there is no certainty of intention to create the DT Trust, as claimed by the Plaintiff. For this reason, the DT Trust must fail.
100. Lastly, the Plaintiff’s conduct at the time of the sale of the Hon Kiu shares to Virtue Mind in 2014 was inconsistent with him having any beneficial interest in Hon Kiu shares (under the 2nd Trust) or shares in the 1st Defendant (under the DT Trust).
101. Regarding the latter, on 1 August 2014, WW sent an email to the Plaintiff enclosing a draft Virtue Mind Agreement prepared by Virtue Mind’s lawyers in Hong Kong. In the email, WW said Virtue Mind’s lawyers needed to know inter alia the identity of the ultimate beneficial owners of the 1st Defendant. The Plaintiff said he did not provide the information to Virtue Mind because the 2nd Defendant eventually did not adopt the draft Virtue Mind Agreement prepared by Virtue Mind’s lawyers. Again, this is a complete non sequitur. Whether or not the 2nd Defendant adopted Virtue Mind’s draft, there was no reason why the Plaintiff did not answer Virtue Mind’s question as to who were the ultimate beneficial owners of the 1st Defendant. According to the Plaintiff’s case, the simple answer was that under the DT Trust, the 5 MTMs were the beneficial owners of all the shares in the 1st Defendant.
102. Further, according to the Plaintiff’s case, all 5 MTMs knew they were the beneficial owner of shares in the 1st Defendant. If so, why did WW need to forward Virtue Mind’s request to the Plaintiff when she could have provided the information to Virtue Mind directly? In this regard, it should be noted that in WW’s witness statement, she had not corroborated the Plaintiff’s case on the DT Trust in respect of shares in the 1st Defendant.
103. As for the beneficial interest in Hon Kiu shares under the 2nd Trust, while the Plaintiff insisted in cross-examination that Virtue Mind knew that the 5 MTMs were the beneficial owners of the 1,760 Hon Kiu shares which were to be sold by the 1st Defendant to Virtue Mind:
(1) Recital C of the draft Virtue Mind Agreement prepared by Virtue Mind’s lawyers, which the Plaintiff had a copy, stated that the 1st Defendant was the legal and beneficial owner of the Hon Kiu shares.
(2) The table of indirect shareholdings in HND (目標公司各股東間接持有的該上市公司股份權益情況) at section C of Enclosure 1 of the draft did not mention any indirect beneficial interest of the 5 MTMs in HND through their beneficial ownership of Hon Kiu shares.
(3) Enclosure 2 of the draft further stated that the 1st Defendant had the right to sell and transfer all the legal and beneficial interest in the Hon Kiu shares, without mentioning the beneficial interest of the 5 MTMs or their consent to the sale.
104. Mr Tong SC submits that all these draft sale terms indicated that the 1st Defendant was not just the legal owner but also the beneficial owner of the Hon Kiu shares which were to be sold to Virtue Mind. Contrary to the Plaintiff’s insistence in cross-examination, it shows that Virtue Mind was not aware of the alleged 2nd Trust. This begs the question why the Plaintiff did not inform Virtue Mind about the MTMs’ alleged beneficial interest in the Hon Kiu shares or why he decided to simply forward the draft to the 2nd Defendant on 2 August 2014 without first amending it. There is force in Mr Tong SC’s submissions.
105. To conclude, for all the above reasons, this court is not satisfied that the Plaintiff has established factually or legally the existence of the 2nd Trust or the DT Trust. Nor is this court satisfied with the Plaintiff’s case on the presumption of resulting trust or the so-called constructive trust which, according to Mr Chan’s Closing Submissions, is premised on the 1st Defendant having assumed the role of a trustee or fiduciary by receiving the 1,760 Hon Kiu shares for the benefit of the 5 MTMs. On the evidence before this court, that is simply not proven.
106. In reaching these conclusions, this court is mindful of the fact that HND’s profits had been distributed to the 5 MTMs over the years, especially for the years 2011 to 2013, and the actual distribution to the 4 MTMs (or the intended distribution to the Plaintiff) of the proceeds from the sale of 1,919 Hon Kiu shares to Virtue Mind in 2014. This court is also mindful of the related documentation relied upon by Mr Chan including inter alia (i) a table of distribution of HND’s bonus to “shareholders” up to 31 December 2002 which appeared to designate the 1st Defendant/SZ Silver as a shareholder (ii) a “股權收入明細表” said to have been sent to the 2nd Defendant for distribution of the sale proceeds of 1,919 Hon Kiu shares to Virtue Mind. Mr Chan submits that the distribution of “bonus” is in fact distribution of “beneficial entitlement” to the 5 MTMs.
107. Mr Tong SC submits that all the tables relating to distribution of profits of HND relied upon by the Plaintiff can be explained on the basis that they only concerned the calculation and distribution of bonuses and not legal recognition of the 5 MTMs’ alleged shareholder rights. This court agrees. Since the Plaintiff has failed to prove his case about the 1st or 2nd Trust, the only viable explanation is that these distributions were bonuses payable to the 5 MTMs as opposed to dividends to which the 5 MTMs were legally entitled. Furthermore, the receipts signed by the 5 MTMs, including the Plaintiff, all recognised that the distribution of the sale proceeds to them were bonuses.
108. Why the 2nd Defendant was so generous to the 5 MTMs over the years is not something this court can conclude from the available evidence. One may think that such generosity is hard to accept as a matter of common sense. But it may be that the distributions to the 5 MTMs were not simply out of the 2nd Defendant’s sheer generosity. It may also be that the bonuses were discretionary in nature but the amount was arrived at as a result of some consensus or understanding between the 2nd Defendant and the 5 MTMs which the Plaintiff does not rely upon in this case - his claim in this case is proprietary and not contractual. Having said all these, this court is acutely aware that it should not speculate and it will not do so. At the end of the day, the Plaintiff has failed to prove his case on trust and that is the end of the matter.
Claims against the 2nd Defendant
109. In so far as the claim is based on the alleged DT Trust, the claim must be rejected as this court is not satisfied that the Plaintiff has established the existence of the DT Trust.
110. In so far as breach of fiduciary duties is concerned, Mr Chan’s argument can be found at paragraph 151 of his Closing submissions as follow:
“151. While D1 was the trustee in the 2nd Trust, in the course of discussion of the 2nd Trust, D2 represented to the MTM that, inter alia, D1 was his alter ego, D1 was under his sole control, and D1 did not carry on any actual business … D1 has undertaken to act for or on behalf of the MTM in relation to those 1,760 shares of Hon Kiu by his control of D2, placed himself into a position of a fiduciary, and created a relationship of trust and confidence. …”
111. That submission is incomprehensible. But in any event, since this court is not satisfied on the evidence with the existence of the 2nd Trust as a matter of fact, the underlying premises of the claim for breach of fiduciary duties are not proven and the claim must fail. Further, the so-called claim in constructive trust also fails since it is based on the 2nd Defendant’s alleged breach of fiduciary duties owed to the Plaintiff.
Claim against the 3rd Defendant - dishonest assistance
112. As mentioned at the beginning of this Judgment, the claim against the 3rd Defendant is dishonest assistance of the breach of trust and fiduciary duties of the 1st and the 2nd Defendants. Since this court has found no 1st or 2nd Trust and thus no breach of trust and no breach of fiduciary duties on the part of the 1st and the 2nd Defendants, the claim against the 3rd Defendant for dishonest assistance must also fail.
Disposition and costs order nisi
113. In the premises, the Plaintiff’s claims in this Action wholly fail and shall be dismissed.
114. There shall be an Order nisi that costs of the Action be to the 1st to 3rd Defendants, to be taxed if not agreed, and paid by the Plaintiff forthwith, certificate for 3 counsel.
| (Peter Ng) | |
| Judge of the Court of First Instance | |
| High Court |
Mr Kenneth C L Chan, Mr Herbert Leung and Mr Joshua Choy, instructed by Kelvin Cheung & Co, for the Plaintiff
Mr Ronny Tong, SC, Mr Lawrence Cheung and Ms Teresa Leung, instructed by Patrick Mak & Tse, for the 1st, 2nd and 3rd Defendants
[1] On 28 June 2007, its name was changed to Shenzhen Haoningda Meters Company Limited.
[2] 總經理in Chinese.
[3] Prepared by the Defendants based on public records the contents of which are not disputed by the Plaintiff.
[4] Prepared by the Defendants based on public records the contents of which are not disputed by the Plaintiff.
[5] Prepared by the Defendants based on public records the contents of which are not disputed by the Plaintiff.
[6] Para 66 Amended Statement of Claim.
[7] Day 2 cross-examination.
[8] The Plaintiff was also a director of Hon Kiu.
[9] The Plaintiff later backtracked by saying he meant his knowledge was on the technical side of it, the production and the operation only.
[10] Which is of course wrong. By June 2008, Hon Kiu had 4 shareholders: Fair Friend, the Plaintiff, the 1st and the 2nd Defendants.
[11] In 2002, the Plaintiff was only a 50% shareholder/director of the 1st Defendant.
[12] A company set up by the Plaintiff in 2000, as admitted by him in cross-examination, and of which the Plaintiff was its director and its majority shareholder.
[13] It should be 17.6%.
[14] It should be 16.5%.
[15] Similar allegation was made by the Plaintiff in his first witness statement at para 60.
[16] Which had always been held on trust by CMS for the 2nd Defendant.