Beijing Hantong Yuzhi Convention Centre Ltd v. Lao Yuan Yi
Read the full judgment text of HCA 1208/2010 on BabelCite. This High Court CFI judgment was delivered on 11 May 2018.
1. In this action the plaintiff, Beijing Hantong Yuzhi Convention Centre Limited (北京瀚通譽智會議展覽中心有限責任公司), seeks a declaration that the defendant, Mr Lao Yuan Yi [1] (勞元一), holds 50% shareholding in Praiseup Limited (幹喜有限公司 [2] ) (“Praiseup”) on trust for the plaintiff together with other consequential relief.
Cited by 14 cases · Cites 6 cases
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HCA 1208/2010 [2018] HKCFI 1030 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1208 OF 2010 ________________________
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________________________ JUDGMENT ________________________ 1.In this action the plaintiff, Beijing Hantong Yuzhi Convention Centre Limited (北京瀚通譽智會議展覽中心有限責任公司), seeks a declaration that the defendant, Mr Lao Yuan Yi [1](勞元一), holds 50% shareholding in Praiseup Limited (幹喜有限公司[2]) (“Praiseup”) on trust for the plaintiff together with other consequential relief. 2.The plaintiff makes the claim on behalf China Venture Tech International Investment Corporation Shanghai (上海中創國際投資公司) (“SIS”) which, the plaintiff contends, is the beneficiary of 50% shareholdingin Praiseup. This was the basis upon which To J determined the preliminary issue of whether plaintiff has locus standi to sue in this action, as recorded in §§19 and 74 of the Judgment dated 7 July 2014. This is confirmed by Mr Nelson Miu (appearing with Ms Ann Lui) in his opening submissions. 3.The parties agree that the following issues require determination of the court at trial:
Background Facts 4.Save where otherwise indicated, the following facts are not in dispute. 5.China Venture Tech Investment Corp (中國新技術創業投資公司) (“VTI China”) was a state-owned financial enterprise established in 1986 by and accountable to the Ministry of Science and Technology and Ministry of Finance of the PRC. Owing to mismanagement and breaches of rules and regulations, the People’s Bank of China (“People’s Bank”), with the consent of the State Council (國務院), passed a resolution on 22 June 1998 to close down VTI China and a winding-up committee (“Committee”) was established to manage its liquidation. 6.SIS was established on 18 March 1993 as a wholly owned subsidiary of VTI China. The defendant was one of the vice presidents of VTI China and the legal representative (法定代表人) and general manager of SIS. The defendant was responsible for managing SIS as well as the representative office of VTI China in Shanghai. 7.Praiseup is a company incorporated in Hong Kong and was used by Chau Ngai Ming Alex (鄒毅明) (“Alex Chau”) to enter into a provisional agreement dated 19 April 1994 to purchase a commercial property known as Rooms A, B, C, 13/F, Guanglu Huangpu Centre (港陸黃浦中心) in Shanghai (“Property”) at the price of HK$15,848,944. The price was required to be paid by 11 instalments as follows:
8.The first five instalments equivalent to 25% of the Price (HK$3,962,235) were paid by Alex Chau. 9.The defendant became a shareholder and director of Praiseup with effect from 19 April 1994, holding one of its two issued shares. The defendant says in his oral evidence that the documents effecting the transfer and appointment were signed by him much later but back-dated to 19 April 1994, to reflect the agreement he reached with Alex Chau that the transfer and appointment should take effect from 19 April 1994. Although Mr Miu attempts to cast doubt on the defendant’s evidence in this regard, I do not think that the challenge is well founded as it is clear from the stamped copy of the instrument of transfer that it was only stamped on 9 December 1994 while the notification on appointment of director was only filed at the Companies Registry on 9 November 1994. 10.On 2 January 1996, the defendant and Alex Chau signed a shareholding confirmation (股權確認書) (“1st Confirmation”) which stated as follows:
11.By a fax dated 1 July 1996 to the defendant (“1/7/96 Fax”), Alex Chau stated that:
12.On 24 July 1996, the purchase of the Property was completed without any mortgage loan provided by the bank. According to the documents appended to a “Schedule A”, the total cost for acquiring the Property was HK$17,449,698.38. 13.At first, the Property was left vacant. In November 1996, Alex Chau on behalf of Praiseup authorised 王勇 (“Mr Wang”) of VTI China to handle all matters relating to the leasing of the Property. It appears from some of the handwritten memos that Mr Wang also handled the administration matters such as the expenditures incurred by the Property and collecting the financial contributions from Alex Chau and SIS/VTI China. 14.Following VTI China’s liquidation on 22 June 1998, the People’s Bank ordered, inter alia, VTI China’s wholly owned enterprises to continue their business but VTI China’s investments (投資) in and loans (貸款) to those subsidiaries should be disposed of by the Committee. 15.On or about 26 October 1999, an officer Mr Huang Wei De (黃為德) was sent by the Committee to take over all the management of SIS. Since then, the defendant has ceased to have any involvement or responsibility in SIS, although he remained registered as its legal representative. 16.On 6 September 2001, the defendant signed qua director of Praiseup another shareholding confirmation (股權確認書) (“2nd Confirmation”) in these terms:
17.The 2nd Confirmation was not signed by anyone on behalf of VTI China’s Shanghai representative office, which was the named counter- party. 18.On 31 December 2001, the Committee appointed China Huarong Asset Management Corporation (中國華融資產管理公司) (“Huarong”), one of four specialist asset management corporations set up by the State Council, to deal with the affairs relating to the winding up of VTI China. 19.By an agreement dated 28 February 2006 [3], the Committee agreed to sell the residual assets with an aggregate book value of RMB 5,020,358,326.84 then owned by VTI China to Huarong (“Huarong Agreement”). The residual assets listed in the schedule to that Agreement included VTI China’s investments (投資) in SIS in the amount of RMB 24,854,936.55 and account receivables (應收賬款) from SIS in the amounts of RMB 1,000,000 and RMB 18,055,039.61. 20.By an agreement dated 23 October 2007, Huarong agreed to sell certain assets of VTI China located in Jiangsu and Shanghai to the plaintiff (“Hantong Agreement”). The Hantong Agreement was signed by 李新圭 (“Mr Li”) who was (and still is) the legal representative of the plaintiff. 21.The assets sold to the plaintiff were described in the schedule to the Hantong Agreement in this way:
22.On 20 November 2007, Huarong published an asset transfer notice (資產轉讓公告) in a newspaper stating that it had transferred the assets described in the schedule to Hantong Agreement to the plaintiff. There was an error in the amount of the total book value of the assets listed which was rectified in a subsequent notice published on 20 May 2009. 23.The plaintiff through its former solicitors issued a letter dated 15 September 2009 to the defendant requiring him to transfer the one share he held in Praiseup to the plaintiff and provide copies of the audited financial statements of Praiseup from 1 April 2007 within 7 days. There is a dispute as to whether the letter was received by the defendant. 24.On 3 October 2009, the Pudong District Branch of Shanghai Industry & Commerce Administrative Management Bureau (上海市工商行政管理局浦東分局) (“Bureau”) suspended (吊銷) the business licenceof SIS. However, SIS’s registration as a legal person has not been revoked(未注銷). It remains a suspended but unrevoked (吊銷未注銷) entity. 25.On 10 August 2010, the plaintiff commenced this action claiming, inter alia, a declaration that the defendant is holding 50% shareholding in Praiseup on trust for the plaintiff. The defendant filed his defence on 18 October 2010. On 14 December 2011, the defendant amended his defence to include a plea that even if (which is denied) SIS had interest in any shareholding of Praiseup, the plaintiff could have no locus standi and no legal bases to claim against him. 26.This was followed by the defendant’s application to strike out the statement of claim (“SOC”) or, alternatively, an order that the plaintiff’s locus standi be tried as a preliminary issue. On 1 February 2013, Au- Yeung J ordered the issue of locus standi be tried as a preliminary issue which took place on 25 – 26 November 2013. 27.In the judgment dated 7 July 2014, To J held (at §74) that the plaintiff as beneficial owner of the 100% equity in SIS has capacity to participate in litigation on behalf of SIS in its own right or as a person responsible for its liquidation and, as such, has locus standi to make the claim against the defendant. The judgment was affirmed by the Court of Appeal in its judgment of 24 August 2015. The Appeal Committee dismissed the defendant’s application for leave to appeal on 23 May 2016. Pleaded Cases 28.The plaintiff’s pleaded case is one of express trust. The trust over the 50% shareholding (or one share) in Praiseup arose out of the following materials facts pleaded in §§3 – 6 of the SOC:
29.The other matters pleaded in §§7 – 11 of the SOC relate to the purchase of the Property by Praiseup, the winding up of VTI China, the Huarong Agreement and the Hantong Agreement which are not controversial. In §12 of the SOC, it is pleaded that “By reason of the aforesaid, the Defendant has therefore been holding the said 50% shareholding in Praiseup on trust for the benefit of the Plaintiff since 23rd October 2007.” 30.In §13 of the SOC, it is alleged that the defendant acted “in breach of his duty as trustee to the Plaintiff and/or duty as officer in charge to [sic] [SIS]” by refusing to comply with plaintiff’s demand made on 15 September 2009 for transfer of the 50% shareholding in Praiseup and provision of its audited financial statements. At trial, the plaintiff only pursues the alleged breach of duty of the defendant qua trustee to the plaintiff but not the alleged breach of duty qua officer of VTI China and SIS. This makes sense as the duties pleaded in §2 of the SOC are the duties owed to VTI China and SIS, but the alleged breach of duty pleaded in §13 of the SOC has nothing to do with the defendant’s duties as officer of VTI China and SIS. 31.The defendant sought further and better particulars on the “investment plan of VTI China” and the “resolution” pleaded in §§3 and 5 of the SOC but were met with the same answers that the requests relate to “matter of evidence only” and that the defendant “is and was in a better position of knowing the actual details of the allegation”. 32.In light of the plaintiff’s answers, insofar as the plaintiff’s pleaded claim on the creation of the alleged trust is concerned, it is confined to the material facts pleaded in §§3 – 6 of the SOC. 33.I should add that in his opening and closing submissions, Mr Miu seeks to characterise the plaintiff’s case as one of a bare trust. As I understand it, he submits that SIS would be the beneficial owner of 50% shareholding in Praiseup irrespective of whether it made any financial contribution towards the cost of acquiring the Property. If and to the extentthat the defendant has made any financial contributions towards the Property, that is a matter of equitable accounting between shareholders when the Property is sold and does not affect shareholding, citing Re Li Yuet Mei, HCB 3304/2008, unreported, 7 December 2016, §13. The submission must be rejected as the plaintiff has never pleaded such a case in the SOC. 34.The defendant denies that there was a trust as alleged by the plaintiff or that he has acted in breach of his duties, whether as trustee or officer of SIS. 35.The defendant’s case, as pleaded in §8 of the Re-Amended Defence (“RAD”), may be summarised as follows:
36.The defendant also relies on the equitable defence of laches the particulars of which are set out in his voluntary particulars dated 5 December 2017 as follows:
Approach to Evidence 37.Where, as here, the events in question took place many years before the trial, the contemporaneous documentation is of special importance. Also of particular use where a trial is long removed from the time of the events in question are conflicts within the evidence, inherent probabilities, and a study of how matters were originally pleaded and asserted in witness statements (Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, §7 per Rogers VP and §135 per Stock JA (as he then was)). 38.This approach applies with particular force in the present case, which concerns an alleged trust said to have been created 24 years ago. Amongst the entities and persons involved, VTI China was put in liquidation 20 years ago while SIS was suspended in October 2009. The defendant ceased to have any involvement in SIS in October 1999 and the personnel dealing with the administration of the Property, Mr Wang, died. The only factual witness who gives evidence on behalf of the plaintiff, Mr Zhang Liping (張立平) (“Mr Zhang”), has no contemporaneous knowledge of any of the events relating to the dispute, as he only joined the plaintiff as its in-house counsel in 2008. 39.There is no dispute that the general principle governing burden of proof in civil cases, as stated in Phipson on Evidence, 19th ed, §6-06, applies:
40.I turn to the 3 Issues. Issue 1: Whether there was a trust in respect of 50% shareholding in Praiseup as alleged by the plaintiff 41.Mr Miu submits that the starting point is that the defendant was, as of January 1996, holding the one share in Praiseup on trust for SIS, as confirmed by the 1st Confirmation and admitted by the defendant in his RAD. The burden is on the defendant to prove that there was a subsequent agreement that the beneficial interest of SIS should be reduced from 50% to 18.53% and that he is entitled to the defence of laches. 42.I do not think that the defendant has admitted that he held the one share on trust for SIS. As stated in §35(3) – (4) above, the defendant’s pleaded case is that he held the 50% shareholding in Praiseup on behalf of SIS on the bases of the Arrangement and the Joint Venture. 43.Mr Bernard Man SC (leading Mr James Man) appearing for the defendant, submits that the starting point is that the defendant is the legal and beneficial owner of the 50% shareholding he held in Praiseup. It is for the plaintiff to prove its version of events to justify the displacement of the beneficial interest from the legal title in the way it alleges (Re Lee Yuet Mei, at §9). If the plaintiff does not discharge its burden of proof, the claim should be dismissed. It does not matter whether the defendant’s version of events is proved, as the trial judge is not compelled to choose between two rival contentions where the evidence is unsatisfactory (The Popi M [1985] 1 WLR 948 at 955F – 965F per Lord Brandon; Cyberland (China) Ltd v Zhang Wei Bing, HCCL 3/2014, unreported, 10 November 2015 at §96 per Chow J). 44.I agree with Mr Man that the burden is on the plaintiff to prove that the beneficial interest of the 50% shareholding held by the defendant in Praiseup belongs to the plaintiff. If the plaintiff fails to discharge this burden, the claim must be dismissed. 45.Mr Man submits that where, as here, the plaintiff’s claim is based on an express trust, it must satisfy the “3 certainties” namely, certainty of words evincing an intention to create a trust, certainty of subject matter and certainty of object. On certainty of words, Sir James Bacon VC stated in Heartley v Nicholson (1874–75) LR 19 Eq 233 at 242 thus:
46.The court should construe the substance and effect of the expression used by the settlor against the background of the relevant circumstances (Snell’s Equity, 33rd ed, §22-013). 47.Mr Miu does not dispute these principles. 48.On the plaintiff’s pleaded case, the trust arose out of the act “resolved” as pleaded in §5 of the SOC. However, the plaintiff’s case on the creation of the trust has never been made clear and in fact keeps shifting during the trial in that:
49.In my view, the plaintiff has failed to discharge the burden of proving its case that a trust was created over the 50% shareholding in Praiseup as alleged in §§3 – 6 of the SOC. 50.First, the Praiseup Resolutions did not constitute a declaration of trust. Nor did they have the effect of creating the alleged trust. 51.Second, the plaintiff’s reliance on the mental decision made by the defendant is misplaced. The evidence of the defendant is that he decided to hold 50% shareholding on behalf of SIS on the bases of the Arrangement and the Joint Venture the combined effect is that the interest of SIS in Praiseup would be proportionate to the financial contributions it made towards the cost of acquiring the Property up to 50%. 52.The evidence of the defendant is consistent with the evidence of Mr Feng Jun (馮軍) (“Mr Feng”) [6], the former legal consultant engaged by SIS. Mr Feng says that to his understanding, the arrangement between SIS and Alex Chau was that SIS would bear 50% of the cost of acquiring the Property in exchange for 50% shareholding in Praiseup and 50% interest in the Property. 53.The above evidence of the defendant and of Mr Feng is not challenged at trial. There is thus no evidence in support of the plaintiff’s contention that the mental decision of the defendant created the trust as alleged in §§3 – 6 of the SOC. 54.Third, the plaintiff relies heavily on the 1st Confirmation which Mr Miu submits, constituted an admission by the defendant that he held the one share in Praiseup on trust for SIS. 55.The 1st Confirmation (set out in §10 above) was described as a confirmation by the board of directors of Praiseup and was signed by the defendant and Alex Chau as such directors. In §2, it was stated that the defendant held the 50% shareholding and the directorship in Praiseup on behalf of SIS. It is the unchallenged evidence of the defendant that:
56.The evidence of the defendant is consistent with the demand made by Alex Chau in the 1/7/96 Fax requiring “中創” to pay the last instalment and the “unsettled balance” representing 50% of the cost of acquiring the Property. 57.As it is not the plaintiff’s case that the 1st Confirmation constituted a declaration of trust, it is not necessary to consider whether the words used in the 1st Confirmation satisfy the “3 certainties” for creating a trust enforceable by SIS. 58.Fourth, the plaintiff relies on three documents as evidence in support of the plaintiff’s pleaded case that a trust had been created over the 50% shareholding in Praiseup. Mr Miu submits that “the 3 certainties were satisfied: D was to hold the 1 share as bare trustee for [SIS]”. 59.The first document is the handwritten instruction given by the defendant to Mr Wang on 24 August 1996 which were in these terms:
60.The next document is the handwritten note from Mr Wang dated 26 November 1996 in which he stated as follows:
61.The last document is Mr Feng’s fax to Alex Chau dated 18 March 1997 in which he said:
62.I am unable to accept the plaintiff’s contention that these three documents support its case on the creation of the trust as pleaded in §§3 – 6 of the SOC:
63.By the time these three documents were prepared, the purchase of the Property had already been completed without any mortgage loan having been obtained by Praiseup. I accept the defendant’s evidence that bythe time he gave the handwritten instruction to Mr Wang on 24 August 1996, he was still hoping that SIS would pay back the amount of acquisition cost he had paid towards the Property. 64.There is a dispute as to who paid the HK$6,127,293.34 (“Final Payment”) required to be paid in the 1/7/96 Fax. 65.I find that on a balance of probabilities, the Final Payment was paid by the defendant for the following reasons. 66.In the audited accounts of Praiseup for the year ended 31 March 1997 (“1997 Audited Accounts”) disclosed by the plaintiff, the value of the “investment properties” was stated at HK$17,389,686 while the amounts due to directors were HK$17,482,625. No other loan was recorded. This confirms that the cost of acquiring the Property was met by the loans provided by the directors, rather than by any banks or third parties. 67.The possibility that the Final Payment was made by SIS can be ruled out. All the documents discussed in §§11 – 16 above point to the same fact that VTI China had advanced the Loans to SIS which, in turn, were treated as SIS’s contributions towards the cost of acquiring the Property. The same amount (HK$3,234,375.91) was mentioned in the Hantong Agreement as well as the transfer notice issued by Huarong dated 20 November 2007. 68.There is no suggestion that Alex Chau paid the Final Payment. Indeed, any such suggestion would be untenable as by 18 March 1997 when Mr Feng requested Alex Chau to provide the audited financial statements of Praiseup, he still referred to the contents of the 1st Confirmation and described the defendant held the 50% shareholding in Praiseup on behalf of SIS. Had Alex Chau paid more than 50% of the costs of acquiring the Property 9 months ago, one would have expected him to require an adjustment to his shareholding in Praiseup to reflect his financial contribution in excess of 50% which he never did. 69.The defendant says that the Final Payment was paid by him as VTI China would not grant further loans to SIS and Alex Chau had not been able to obtain any mortgage loan on terms acceptable to Praiseup. As the property market in Shanghai had started to become sluggish and there might not be a positive return on the investment in the Property, the defendant thought that it was only right for him to take over from SIS the outstanding contribution obligation in order to minimise the loss to SIS. He arranged his companies in the US to settle the Final Payment. The defendant explains that he has not been able to produce any primary documents in support of the payment, as he found out that his former accountant in the US had passed away 10 years ago and the other relevant records were destroyed during the “911” incident in 2001. 70.It is the unchallenged evidence of the defendant that in 1997, he acted as a personal guarantor of International Enterprises Investment Company Limited (萬國創業投資有限公司) (“IEI”), an indirect subsidiary in which VTI China had 50% interest, in respect of a bank loan of HK$70 million. After IEI had defaulted in repayment, the defendant extended personal loans to pay certain principal and interest to the bank on behalf of IEI. The defendant produces 5 loan agreements to show that between June and November 1997, he advanced loans in the aggregate amount of HK$59,757,425.05 to IEI. The defendant says that these agreements show that he had the financial means to pay the Final Payment. Although the plaintiff files a notice of non-admission to challenge their authenticity, Mr Miu does not put to the defendant that these loans were not extended at the time stated or that the agreements were forged in any way. 71.The defendant’s evidence that he paid the Final Payment is consistent with the following undisputed fact, and I accept his evidence:
72.For the above reasons, I am not satisfied that the plaintiff has discharged the burden of proving its pleaded case that a trust was created on 19 April 1994 over the defendant’s 50% shareholding in Praiseup as alleged by the plaintiff. 73.In light of my conclusion on Issue 1, it is strictly speaking not necessary to make any finding on whether the defendant has proved his pleaded case on the bases upon which he held the 50% shareholding in Praiseup. 74.Nevertheless, having considered all the evidence, I should state my findings on the defendant’s case. 75.Mr Miu submits that the defendant’s evidence is not contemporaneous evidence, and his evidence on the understanding and the bases upon which he held the 50% shareholding in Praiseup are “his subjective evidence or purported oral agreements with others” and, as such, are “self-serving statements of intention, which remain inadmissible”, relying on Shephard v Cartwright [1953] 1 Ch 728 at 758, per Denning LJ. I am unable to accept the submission. 76.The defendant gives evidence on what happened in the past. It is for the court to decide whether his evidence is credible or should be given any weight. It is neither helpful nor appropriate to characterise the defendant’s evidence as not “contemporaneous”. In any event, as Mr Miu accepts, the “modern approach” of the court in dealing with subsequent actsand declarations is that described in Leung Wing Yi Asther v Kwok Yu Wah(2015) 18 HKCFAR 605 at §§55 – 56, per Stock NPJ:
77.I accept the defendant’s evidence that sometime after 19 April 1994, he decided to hold the 50% shareholding in Praiseup on behalf SIS on the bases of the Arrangement and the Joint Venture. The defendant’s case is consistent with all the contemporaneous documents including the 1st Confirmation, the three documents relied upon by the plaintiff and the fact, as I so find, that it was the defendant who paid the Final Payment. 78.Most importantly, as will be seen further below, the contemporaneous documents show that the subject matters of the defendant’s shareholding in Praiseup, the Loans and the assets and liabilities of SIS had been reviewed by the Committee, the special audit commissioned by the Committee and Huarong and none of them regarded SIS to have any interest, whether 50% or 18.53%, in Praiseup. Issue 2: If there was a trust as alleged by the plaintiff, whether there was any subsequent agreement to reduce SIS’s beneficial interest from 50% to 18.53% 79.I consider this issue on the basis that, contrary to my conclusion on Issue 1, the plaintiff has discharged the burden of proving that there was a trust as pleaded in §§3 – 6 of the SOC. 80.It is the unchallenged evidence of the defendant that the acquisition of the Property became unnecessary after SIS had found a new office in Shanghai at a lower rental than its previous office at Portman. 81.The defendant says that sometime in 1997, Mr Zhou informed him that VTI China would not provide any further loan to finance SIS’s acquisition of the Property. As the defendant had already made the Final Payment, he agreed with Mr Zhou that SIS would only be entitled to 18.53% shareholding in Praiseup, being SIS’s share of the financial contribution to the cost of acquiring the Property (i.e. the 1997 Agreement). The defendant regarded the 1997 Agreement as crystallising the division of interest between himself and SIS over the 50% shareholding he held in Praiseup. 82.I note that there is an inconsistency in the defendant’s case as to when the 1997 Agreement was made in that:
83.Given that over 15 years have elapsed between the 1997 Agreement and the defendant’s witness statement, I do not regard the inconsistency in his recollection of the precise time he made the 1997 Agreement to be a matter which casts doubt on the credibility of his evidence in this aspect. 84.The defendant’s evidence on the 1997 Agreement is corroborated by (1) the 2nd Confirmation, which shows that there was an antecedent agreement finalising the interest between the defendant and SIS in the 50% shareholding in Praiseup; and (2) the unchallenged evidence of Mr Feng that he was told by the defendant, and may be Mr Zhou, that the original arrangement whereby the defendant held 50% shareholding in Praiseup on behalf of SIS had been varied so that the defendant only held 18.53% shareholding on behalf of SIS. If and insofar as necessary I find that Mr Zhou did make the 1997 Agreement with the defendant. 85.The plaintiff takes issue on the authority of Mr Zhou to make decision on behalf of VTI China on the basis that VTI China was a state-owned entity and, as such, the decision must be made in accordance with the provisions governing all state-owned entities. The defendant disagrees and explains that VTI China was not bound by such provisions as it was specifically created by the State Council to pursue investments and businesses in new technology without being subject to the provisions governing state-owned entities. Neither party has adduced the relevant provisions or expert evidence at trial to make good their point. 86.In my view, whether the 1997 Agreement was made with Mr Zhou does not affect the position. If, as I so find, the defendant held the 50% shareholding in Praiseup on the bases of the Arrangement and the Joint Venture, the fact that SIS only paid the Sums, which represented 18.53% of the cost of acquiring the Property, means that SIS only ever acquired 18.53% in Praiseup. 87.It is not clear from Mr Miu’s submissions as to whether the plaintiff disputes the authority of the defendant to make the 1997 Agreement on behalf of SIS. I do not think that it is open to the plaintiff to contend that the defendant had no authority to enter into the 1997 Agreement on behalf of SIS, having itself relied on the decision made by the defendant in 1994 on behalf of SIS as the basis of making the claim against the defendant (see §48(2) above). 88.I turn to the 2001 Agreement. 89.It is common ground that in October 1999, the affairs of SIS was taken over by the Committee. Since then, the defendant ceased to haveany involvement in SIS other than attending interviews with the Committeeand assisting its investigation from time to time. As neither party has called anyone involved in the work of the Committee to testify at trial, the court has to consider the contemporaneous documents against the evidence of thedefendant and Mr Zhang when making findings on what happened after the Committee had taken over the management of VTI China and SIS insofar as they relate to the Property and Praiseup. 90.Mr Zhang says in his oral evidence that after the plaintiff had acquired SIS under the Hantong Agreement, he went to an office previously used by SIS at 中創大廈on Nanjing West Road, Shanghai and found documents belonging to SIS. Amongst the documents, he found a set of 30 documents bound together with an index described as “港陸黃浦資產 卷內文件目錄” (collectively "Documents”). The Documents included, inter alia, the sale and purchase contracts of the Property, the three documents relied upon by the plaintiff, the 1/7/96 Fax, the 1stConfirmation,the Praiseup Resolutions and the 2ndConfirmation. The defendant says that during the time he managed SIS, its office was located at No 689 Huaihai Zonglu, and he has no idea why the documents of SIS were kept at 中創大廈. There is no inconsistency in the evidence of Mr Zhang and that of the defendant, which is explicable by the fact that after the Committee had taken over the management of SIS, it caused the documents of SIS to be transferred to and kept at中創大廈. 91.It can be seen from the manner in which the Documents were arranged and described in the index that they had been undergone a process of collation, review and arrangement, and the process took place sometime after September 2001 as the 2nd Confirmation was included in the Documents. Further:
92.The defendant says that as SIS never repaid the Loans to VTI China, they remained outstanding when VTI China was put into liquidation. On or about 6 September 2001, at the request of the Committee, the defendant agreed qua legal representative of SIS to set off the Loans by transferring its 18.53% shareholding in Praiseup to VTI China (i.e. the 2001 Agreement). The Committee then prepared the 2nd Confirmation to reflect the 2001 Agreement and asked him to sign in his capacity as director of Praiseup. The defendant signed the 2nd Confirmation on or about 6 September 2001 and returned it to the Committee for counter-signing, but he never saw the 2nd Confirmation again until the plaintiff disclosed it in its list of documents filed on 2 February 2011. 93.It seems to me that unless there is a proper basis to impugn the 2nd Confirmation, it is a compelling evidence in support of the 2001 Agreement. 94.The plaintiff appears to dispute the 2nd Confirmation on the bases that (1) it was only signed by the defendant and, therefore, “cannot have any legal effect”; (2) the contracting party was not the Committee, which it is said “always used its own name in issuing circular or entering into contracts”, citing 4 examples; and (3) the defendant is unable to state the name of the person(s) in the Committee whom he allegedly dealt with at the time. 95.In my view, the plaintiff’s challenge on the 2nd Confirmation is not well founded and must be rejected. 96.First, as stated in §90 above, the 2nd Confirmation was found alongside with other documents relating to the Property from the documents belonging to SIS. There is no basis for the plaintiff to suggest that the Committee was aware of all the other documents bound together as the Documents but not the 2nd Confirmation. There is no evidence to suggest that the Committee has ever disputed the contents or validity of the 2ndConfirmation. 97.Second, in the audit report entitled “關於上海中創國際投資服務公司董事勞元一任期經濟責任審計報告” dated 4 December 2003issued by independent certified accountants engaged by the Committee and Huarong (“Audit Report”), it was stated, inter alia, that:
98.The above contents of the Audit Report show that the affairs and assets of SIS had been subjected to an extensive review and audit by independent accountants who reported to the Committee and Huarong. It is reasonable to infer that during the process, the accountants would have had access to all the information and documents relating to the Loans and the corresponding interest in the shareholding in Praiseup (including the Documents, which belonged to SIS) as they were able to list out and describein great details the assets and liabilities of SIS, their status and whereabouts.The fact that the accountants did not describe the Sums as an asset of SIS or the Loans as liability of SIS is only explicable by the fact that prior to the Audit Report, an agreement had already been reached which had the effect of eliminating both the Sums and the Loans as SIS’s asset and liability respectively. This is consistent with the defendant’s evidence that by the time the Audit Report was issued, he had already made the 2001 Agreement with the Committee whereby the Loans were set-off against the 18.53% shareholding in Praiseup held by the defendant on behalf of SIS. 99.Third, in light of the fact that Huarong had since May 2002 taken over all the management of SIS and, subsequently acquired all the assets of VTI China (including 100% equity in SIS), it is reasonable to infer that Huarong would have been aware of the existence of the Documents including the 2nd Confirmation. Yet, there is no evidence to suggest that Huarong has ever disputed the validity of the 2nd Confirmation. 100.Fourth, the fact that Huarong considered it appropriate to enter into the Hantong Agreement to sell VTI China’s assets which comprised of (1) all the equity in SIS, (2) the accounts receivable owed by SIS to VTI China and (3) the interest in the Property to the extent of the Sums show thatHuarong must have been aware of and accepted that the interest in the Property was an asset of VTI China, rather than that of SIS. This is only explicable by the fact that Huarong was aware of the existence of the 2001 Agreement and the fact that it was binding upon VTI China and SIS, as without the 2001 Agreement, Huraong would have to sell the Loans owed by SIS as an asset of VTI China, and would not have listed the interest in the Property to the extent of the Sums as an asset of VTI China. 101.Fifth, although the counter-party named in the 2nd Confirmation was VTI China’s Shanghai representative office rather than the Committee, it does not affect the validity of the 2nd Confirmation, as there is no dispute that VTI China’s Shanghai representative office had since at least 1999 been under the management and control of the Committee. I do not think that the plaintiff can simply rely on the 4 documents made in the name of the Committee and contends that the Committee would not have entered into any agreement in the name of VTI China’s representative office. 102.Lastly, I do not think that the defendant’s inability to recall the name of the person(s) from the Committee whom he dealt with when entering into the 2001 Agreement and signing the 2nd Confirmation is sufficient to cast doubt on the credibility of his evidence, bearing in mind that the events took place more than 16 years ago. It is understandable that the defendant is not able to recall the details of the personnel other than the fact that there were several people in the Committee involved in the matters. 103.For these reasons, I find that even if there was a trust as alleged by the plaintiff, SIS’s interest in Praiseup was reduced to 18.53% under the 1997 Agreement and the same interest was transferred to VTI China as repayment of the Loans under the 2001 Agreement. Since then, the 18.53% interest in Praiseup has become an asset of VTI China. 104.As the plaintiff’s claim is made on behalf of SIS (but not VTI China) and for the entire 50% shareholding in Praiseup, it must fail for this additional reason. Issue 3: Whether the equitable doctrine of laches applies in the circumstances of the plaintiff’s claim 105.Mr Man submits that under the equitable doctrine of laches, the court would determine whether it is “practically unjust” to award relief, and this turns on the circumstances of each case. In Lindsay Petroleum Co v Hurd(1874) LR 5 PC 221, Sir Barnes Peacock explained the doctrine at 239 – 240:
106.In Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, Lord Blackburn elaborated on the nature of the acts done during the period of delay at 1279 in this way:
107.It has been acknowledged that loss of evidence caused by the delay, especially loss of viva voce evidence which could have been given by key witnesses, amounts to significant prejudice against the defendant. In Watt v Assets Co [1905] AC 317, Earl of Halsbury LC said at 333:
108.Mr Miu does not dispute the above principles. As I understand it, Mr Miu contends that the defence of laches is not available to the defendant for the following reasons:
109.I deal with these contentions in the same order described in §108 above. 110.First, the submission that recovery of trust property is not covered by any limitation period and therefore by analogy laches would notapply, is misconceived. As Mr Man submits, laches is an equitable defenceand not founded on any express statutory provision. Indeed, the passage in Snell’s Equity (§7-063) cited by Mr Miu states that the defence of laches can apply even if no statutory period of limitation applies to the claim. The same point was made in Re Loftus [2007] 1 WLR 591 at §§40 – 41, per Chadwick LJ. 111.Second, the suggestion that detrimental reliance is an essential ingredient of laches is not supported by the passage in Fisher v Brooker [2009] 1 WLR 1764 relied upon by Mr Miu. Lord Neuberger (at §64) said this:
112.Third, Mr Miu’s contention that laches is a personal disqualification and the delay and inaction of the predecessors is irrelevant to the plaintiff’s claim is not supported by Nwakobi v Nzekwu, where Viscount Radcliffe (at 1024) described the principle in this way:
113.As is clear from the above passage, in considering the defence of laches, the court has to consider not only the delay or inaction on the part of the plaintiff but that of its predecessors. 114.Mr Man submits that the plaintiff is not suing as a successor in title but asserting a cause of action of SIS. As such, the cases on whether laches can bar the cause of action asserted by a successor in title do not assist. I agree. It is thus necessary to consider the action or inaction during the period when SIS was under the management and control of the Committee and Huarong, that is, from 22 June 1998 to 23 October 2007. 115.Mr Man submits that the period of delay is substantial. The writ was issued on 10 August 2010. On the plaintiff’s pleaded case in paras 4A and 5B of the Reply, the claim could have been asserted by the predecessors, namely the Committee and Huarong from 22 June 1998 and 28 February 2006 (date of Huraong Agreement) respectively. The plaintiffitself could have made the claim from 23 October 2007 (date of the Hantong Agreement). 116.So far as the delay or inaction on the part of the Committee and Huarong, there is no answer from the plaintiff. The fact that neither the Committee nor Huarong has taken any step to assert the claim during the entire period from 22 June 1998 to 23 October 2007 shows that the Committee and Huarong did not regard SIS to have any basis to make a claim against the defendant. 117.Fourth, given that the plaintiff is asserting a cause of action of SIS, it would be wrong for the court to just look at the delay or inaction (or the absence thereof) on the part of the plaintiff and ignore the delay or inaction of the Committee and Huarong. In any event, I do not accept that the plaintiff could not have asserted the cause of action until 2009 (when Mr Zhang found the 2nd Confirmation) as it is the plaintiff’s own case that upon purchasing all the equity in SIS under the Hantong Agreement, it acquired SIS’s right to make claim the shareholding in Praiseup. See the Judgment of To J §§71, 72 and 74. 118.Mr Man submits that no breach of trust is required before a beneficiary of a trust can ask for the return of the trust property. As a matter of fact, prior to commencing this action, the defendant has never been asked to render any account for the profits and benefits derived from the alleged trust property. Moreover, by signing the 2nd Confirmation and returning it to the Committee, the defendant unequivocally indicated his position that he would not accept that VTI China or SIS had interest in the entire 50% shareholding held by the defendant in Praiseup, and the Committee could have made a claim against the defendant after 6 September 2001. Mr Miu has not advanced any submissions in response. I agree with Mr Man’s submissions. 119.Fifth, Mr Man submits that the prejudice suffered by the defendant is as follows:
120.The evidence of the defendant set out in sub-paragraphs (1) to (4) of the preceding paragraph has not really been challenged by Mr Miu. Indeed, his submission is that if the court finds that the defendant did pay the balance of the acquisition cost of the Property, the alleged prejudice falls away. 121.As stated in §§69 – 71 above, I accept the defendant’s evidence as to why he has not been able to provide documents to prove that he had paid the Final Payment. This in my view is the prejudice suffered by the defendant as a result of the delay or inaction on the part of the Committee, Huarong and the plaintiff in pursuing the claim. I do not thinkthere is any substance in the plaintiff’s complaint about lack of particulars oflaches, as the defendant has in his voluntary particulars filed on 5 December 2017 provided the requisite particulars on his plea of laches. 122.In light of the substantial delay on the part of the Committee in making the claim against the defendant which it could have made shortly after 22 June 1998 or at the latest, by 6 September 2001, I consider that it would be unjust to give any remedy to the plaintiff even if, contrary to my findings on Issues 1 and 2, SIS was the beneficial owner of 50% shareholding in Praiseup. 123.If and insofar as is necessary, I find that the defendant has beenprejudiced by the delay and inaction on the part of the Committee, Huarongand the plaintiff in making the claim. In addition to lost of documents and loss of witnesses who would otherwise be available to give evidence in this action, I consider the position of the defendant has changed substantially during the period from 22 June 1998 to 10 August 2010 in that (1) he changed from being the person in charge of the management of SIS to someone who has no knowledge of, or any involvement in dealing with, SIS’s affairs, assets and liabilities; and (2) during the whole period, the defendant’s work has been subjected to an extensive review and the findings of the Audit Report confirmed that his 50% shareholding in Praiseup was not an asset of SIS and, as such, he was entitled to treat himself as the legal and beneficial owner of 31.47% shareholding in Praiseup, and held 18.53% on behalf of VTI China. 124.For the above reasons, I hold that the plaintiff’s claim is barred by laches. It follows that the plaintiff also fails on Issue 3. Lack of valid statement of truth 125.Mr Man submits that Mr Zhang made a false declaration in certifying that he had translated to Mr Li the contents of the SOC. In Mr Zhang’s evidence, he says he cannot read English and has not translated the contents of the SOC to Mr Li. Mr Zhang says he only provided a Chinese written summary of the SOC prepared by the plaintiff’s solicitors to Mr Li. In view of Mr Zhang’s false declaration, the statements of truth signed by Mr Li under the purported translation of Mr Zhang in respect of the Reply, the Amended Reply and the Re-re-Amended Reply would also be invalid. Mr Man submits that the court should strike out the SOC, as the requirement of a valid statement of truth is more than a technicality, as stated by Rogers VP in Tong Kin Hing v Autron Mauritius Corp [2010] 1 HKLRD 77 at §19. 126.Mr Miu submits that Mr Zhang’s declaration was a “slip” on the part of the plaintiff’s former solicitors, and Mr Zhang’s declaration is not a statement of truth. 127.In my view, although the declaration made by Mr Zhang is not correct, it is not a statement of truth which is what Rogers VP observed is a serious and important requirement. I accept Mr Zhang’s evidence that he had provided a Chinese summary of the contents of the SOC in Chinese prepared by the plaintiff’s former solicitors to Mr Li, and Mr Li signed the SOC on the basis of such summary. I do not think that the court should exercise its power under Order 41A, rule 6 of the Rules of the High Court to strike out the SOC or the Re-re-Amended Reply in these circumstances. Conclusion and Relief 128.Mr Miu submits that even if the plaintiff fails on all issues, the plaintiff should still be entitled to a declaration that the plaintiff is entitled to 18.53% interest in Praiseup and the consequential directions on account of profit. This is despite the fact that “there is no express pleading for such relief” as “there is no reason why a court of equity should not grant such a declaration (or such declaration as it deems fit and just) under the heading of ‘Further and other reliefs’”. 129.On the other hand, Mr Man submits that there is no plea by the plaintiff for any relief on the basis that the beneficial interest to the extent of 18.53% lies with VTI China, and the court should not make any order in respect of the plaintiff’s claim. As to the suggestion that the court can grant a declaration belatedly suggested by Mr Miu under the prayer for “Further and other relief”, Mr Man refers the court to the passage in Hong Kong Civil Procedure 2018, para 18/15/4, where the editor stated that the court will not grant a declaration under a prayer for “further or other relief” which is inconsistent with the specific relief that is expressly claimed. I agree. In any event, given that the plaintiff has never pleaded any alternative claim on behalf of VTI China nor has it pleaded any claim for 18.53% interest in Praiseup, it is simply not open to the plaintiff to ask the court to grant the relief suggested by Mr Miu in his closing submissions. 130.I dismiss the plaintiff’s claim. 131.As for costs, I make a costs order nisi that the costs of and occasioned by the action including all costs reserved be paid by the plaintiff to the defendant with certificate for two counsel, to be taxed if not agreed.
Mr Nelson Miu and Ms Ann Lui, instructed by P H Chin & Company, for the plaintiff Mr Bernard Man SC and Mr James Man, instructed by T H Koo & Associates, for the defendant [1] The English translation of the name of the defendant is incorrect. According to the defendant, his name in English is “Lo Yuen Yat” [2] This is the Chinese name of Praiseup stated in its Memorandum of Association. However, in some of the documents disclosed by the parties, the relevant personnel referred to the Chinese name of Praiseup as “香港乾喜有限公司” [3] The copy of the Huarong Agreement in the bundle is incomplete and the schedule has been redacted [4] This appears to be a typo as the Committee was only appointed on 22 June 1998 [5] Which has been referred to as “the legal burden”, “the probative burden”, “the ultimate burden”, “the burden of proof on the pleadings” or “the risk of non-persuasion”: Phipson on Evidence, 17th ed, para 6-02 [6] A witness called by the defendant [7] There is a suggestion put by Mr Miu to Mr Feng during cross-examination that this “香港中置” was a subsidiary of VTI China whereupon Mr Feng says that he only knew that this company was under VTI China. The issue has not been put to the defendant during his cross-examination. No submission has been made by the plaintiff in closing. [8] China Assets employed Alex Chau at the time. [9] [1955] AC 431, 445 [10] Tribe v Tribe [1996] Ch 107, 129 (Millett LJ), as he then was. See also Lavelle v Lavelle [2004] 2 FCR 418, at [17] – [19] and Snell’s Equity (33rd ed, 2015) para 25-103 [11] Lavelle v Lavelle, [19] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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