Velatel Global Communications, Inc. and Another v. Chinacomm Ltd and Others
Read the full judgment text of HCA 1978/2011 on BabelCite. This High Court CFI judgment was delivered on 11 October 2018.
1. This action concerned dispute between foreign investors and domestic entities in Mainland China arising out of a joint venture (“ JV ”) project between Ps (see paragraph 2 below) and Ds (see paragraph 3(b) below) to develop/operate 3.5GHz spectrum wireless broadband access (“ WBA ”) services (“ 3.5GHz Services ”) in 29 major/first-tier cities (“ 29 Cities ”) in Mainland China (“ Project ”). Ps claimed the Project failed because of Ds’ repudiation/renunciation of the JV deal (including failure
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HCA 1978/2011 [2018] HKCFI 2288 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 1978 OF 2011 ________________________
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_______________ JUDGMENT _______________ I. INTRODUCTION 1.This action concerned dispute between foreign investors and domestic entities in Mainland China arising out of a joint venture (“JV”) project between Ps (see paragraph 2 below) and Ds (see paragraph 3(b) below) to develop/operate 3.5GHz spectrum wireless broadband access (“WBA”) services (“3.5GHz Services”) in 29 major/first-tier cities (“29 Cities”) in Mainland China (“Project”). Ps claimed the Project failed because of Ds’ repudiation/renunciation of the JV deal (including failure to have the Ministry of Industry and Information Technology (“MIIT”) renew/extend licences for operating 3.5GHz WBA network (“3.5GHz Licences”) in the 29 Cities), and sought to recover the monies they had invested in the Project. But Ds claimed that failure of the Project was due to Ps’ refusal to provide funding support, so Ps’ complaints were unfounded and their alleged loss self-induced. 2.The 1st plaintiff VelaTel Global Communications, Inc (“P1”)[1] was a US over-the-counter listed company (a) subject to SEC[2]-supervised corporate governance and (b) engaged in telecommunications business.[3] P1’s president was Colin Tay Yong Lee (“Tay”), and its chief executive officer was George Alvarez (“Alvarez”). For mega projects requiring significant capital (eg the Project), P1’s role was to secure investor funds from the US capital market (“Market”). But raising capital from hundreds of investors in the Market via SEC/lawyer-supervised escrow procedure was a lengthy/structured process that entailed locking investment funds from each investor in an escrow account subject to its own escrow closing requirements, and by releasing such funds only when all agreed conditions were met (“Escrow Procedure”). I find the Project’s domestic partners represented by Qiu Ping (“D6”) and Yuan Yi (“D7”) well knew P1’s fundraising role[4] even though P1 was not party to the formal transaction documents (see paragraph 18 below). The 2nd plaintiff Trussnet Capital Partners (HK) Ltd (“P2”) was a Hong Kong company wholly owned by Tay.[5] P2 was a special purpose vehicle (“SPV”) set up for entering into the TCPSSA (see paragraph 18(f) below). For convenience, P1 and P2 are collectively referred to as “Ps” in the Judgment below. 3.At all material times, Tay was the central figure and P1 was the central company in Ps’ camp (see paragraph 11 below):
4.The 1st defendant Chinacomm Ltd (“D1”) was a bare shell Cayman Islands company incorporated by D6, D7 and the 8th defendant CECT Chinacomm Communications Co Ltd (“D8”) as SPV to implement the Project.[6] D1’s shareholders were the 2nd defendant Thrive Century International Ltd (“D2”) (with D7 as its director) and the 3rd defendant Newtop Holdings Ltd (“D3”) (with D6 as its director), and D1’s directors were D6/D7. 5.D6/D7 set up a Hong Kong company, ie the 4th defendant Smart Channel Development Ltd (“D4”). In May 2007, D6/D7 transferred all their shares in D4 to D1, so D4 became D1’s wholly-owned subsidiary. D6/D7 were also the directors of D4, which was used as SPV to implement the Project. D4 was sole shareholder of Yunji Communications Technology (China) Co Ltd (“Yunji”) incorporated in April 2008 in Beijing under PRC law as a wholly-owned foreign invested enterprise (“WOFIE”). Yunji was also engaged in telecommunications business. 6.The 5th defendant Mong Sin (“D5”), a Hong Kong resident, was the sole shareholder of D2 and D3, and a nominee of D6, D7 and D8. D6 was D8’s president and director, 1 of 2 directors of D1 (see paragraph 4 above), sole director of D3 (see paragraph 4 above), 1 of 2 directors of D4 (see paragraph 5 above), and authorised by the 9th defendant CECT Chinacomm Shanghai Co Ltd (“D9”) to sign the GSSA. D7 was D8’s legal representative and director, 1 of 2 directors of D1 (see paragraph 4 above), sole director of D2 (see paragraph 4 above), and 1 of 2 directors of D4 (see paragraph 5 above). D6 and D7 were business partners. 7.D8 was a PRC state company incorporated in 2003 with headquarters in Beijing and registered capital of RMB2,000,000,000. Beijing Xintong Data Network Co Ltd (“Xintong”) held 44.6% shares of D8, and Beijing Tianyi Holdings Co Ltd (“Tianyi”) held 94.12% shares of Xintong. D6 was the president of Tianyi, Xintong and D8. D7 was the chairman of both Tianyi and Xintong, and legal representative of Xintong and D8. D8 provided WBA, data centre, internet access and other telecommunications services. D9 was a subsidiary of D8. D8 and Xintong respectively held 60% and 40% shares in D9. 8.The 10th defendant Feng Xiao Ming (“D10”) was a resident of Mainland China. He received tertiary education and worked at managerial level at “上海中和服信公司” before he joined D9 in 2006. He was D9’s legal representative, chairman and general manager, and D8’s vice-president and director. 9.From the above account, it was clear D6 was the central figure and D8 was the central company in Ds’ camp (see paragraph 11 below):
10.Several other companies also featured in the present action:
11.For convenience, in the Judgment below, “Ps’ camp” refers to Tay, Alvarez, Ps, Trussnet Delaware, Trusset Nevada, Gulfstream, Trussnet group and/or combination of 2 or more such individuals/entities as may be relevant, and “Ds’ camp” refers to any of Ds or combination of 2 or more such individuals/entities as may be relevant. 12.Ps commenced the present action against Ds on 18 November 2011. On the same day, DHCJ L Chan (as he then was) granted an ex parte Mareva injunction order against D1, D2, D3, D6 and D7 (“1st Injunction Order”) (continued by the Order of Yam J dated 24 November 2011). On 8 December 2011, DHCJ Lok (as he then was) granted another ex parte Mareva injunction against D10 (“2nd Injunction Order”) (continued by the Order of DHCJ Au-Yeung (as she then was) dated 15 December 2011). For convenience, the 1st and 2nd Injunction Orders are collectively referred to as “Injunction Orders” below. 13.The 1st Injunction Order froze the assets of D1, D4, D6 and D7 up to US$4,749,599 including monies in 3 bank accounts with Standard Chartered Bank (HK) Limited (“SCB”), ie xxx-xxxx-xxx7 and xxx-xxxx-xxx9 held by D1 (“Chinacomm Accounts 1 and 2”) and xxx-xxx-xxx5 held by D4 (“Smart Channel Account”) (collectively, “Accounts”). Ps claimed Chinacomm Account 1 and Smart Channel Account were to be operated by Tay and D6 as joint co-signatories (“Double Signatures Arrangement”), but D1 and D6/D7 wrongfully changed such arrangement, removed the bulk of the total sum of US$4,749,599 deposited in Chinacomm Account 1 (“US$4.75M Sum”) and transferred inter alia US$4,500,000 thereof (“US$4.5M Sum”) to D10’s bank account xxxxxxxx7 (“D10 Account”) with DBS Bank (Hong Kong) Limited in Hong Kong (“DBS”) (“US$4.5M Transfer”), which led to Ps’ application for the 2nd Injunction Order that froze D10’s assets up to US$4,500,000. 14.The 1st Injunction Order required D1, D6 and D7 to disclose inter alia information about the Accounts, and the 2nd Injunction Order required D10 to disclose the following information:
D10 made disclosure by his 1st affirmation filed on 5 January 2012 (“D10 1st Aff”) and 2nd affirmation filed on 27 February 2012 (“D10 2nd Aff”), but such affirmations did not address (b) above. 15.In the meantime, Ps applied for continuation of the Injunction Orders, and Ds applied for discharge of the same. Such applications came before DHCJ Au-Yeung (as she then was) on 19 July 2012. In her Decision handed down on 26 October 2012, the learned judge dismissed Ds’ application and continued the Injunction Orders (“Injunction Decision”). Mr Chan, counsel for Ps, drew my attention to the criticisms about Ds’ conduct in the Injunction Decision,[9] and further complained against Ds’ pre-trial conduct.[10] But these were interlocutory matters, so they would be referred to only if relevant to the evaluation of evidence adduced at trial. II. PARTIES’ RESPECTIVE CASE AND DISPUTED ISSUES 16.In 2007 Tay/D6 began negotiations over the Project, which culminated in agreement in 2008 whereby Ps’ camp was to acquire the option to subscribe up to 49% shares in D8 for US$196,000,000 to carry on 3.5GHz Business in the 29 Cities with Ds’ camp on JV basis with planned exit by eventual flotation of shares of the JV SPV on a stock exchange. For the Project, Ps’ camp was to provide inter alia technical contribution and investment financing, and Ds’ camp was to supply inter alia 3.5GHz Licences for the 29 Cities. The investment funds would flow from the offshore JV SPV (eventually D1) to its wholly-owned Hong Kong JV SPV (eventually D4) and then to the Hong Kong SPV’s wholly-owned WOFIE in Mainland China (eventually Yunji), and the returns/profits from the 3.5GHz Business (see paragraph 19 below) by D8 as holder of the 3.5GHz Licences for the 29 Cities would be transferred indirectly to the WOFIE (eventually Yunji) by exclusive agreements with D8 for construction, operation and maintenance of 3.5GHz WBA networks to provide 3.5GHz Services in the 29 Cities, and absorbed by Ps’ camp (49%) and Ds’ camp (51%) through D4/D1.[11] 17.In 2007, D8 held 2 3.5GHz Licences: (a) a 3.5GHz Licence for 5 cities in Mainland China (“5 Cities”) that would expire on 31 December 2008 (C/34-35, “5 Cities Licence”), and (b) a 3.5GHz Licence for 25 cities in Mainland China that would expire on 29 February 2008 (C/32-33, “25 Cities Licence”) (collectively, “29 Cities Licences”). Such licences overlapped by 1 city (Qingdao), so D8 held 2 3.5GHz Licences for the 29 Cities. 18.The initial Build-to-Suit Agreement dated 1 November 2007 between Trussnet Delaware and D8 set out broad terms of the Project (“BSA”). Subsequently, Ps’/Ds’ camps entered into various agreements that governed the Project and subscription of D1’s shares:
19.Although the formal transaction documents were structured as subscription and shareholders’ agreements, the JV deal was not merely for Ps’ camp to acquire option to subscribe D1’s 49% Shares in exchange for US$196,000,000. Rather, the essential “root” or very substance of the JV deal was that in return for Ds’ camp agreeing to transfer to the WOFIE (ie D1’s indirect subsidiary Yunji) the right to 49% of the revenue from operating 3.5GHz WBA business (“3.5GHz Business”) in the 29 Cities under D8’s 29 Cities Licences, Ps’ camp would secure investment financing to pay for equipment/services in designing, engineering, building and operating the WBA networks under D8’s 29 Cities Licences to provide 3.5GHz Services in the 29 Cities. This was reflected in preconditions, provisions and warranties in the formal transaction documents, and explained why MIIT’s renewal/extension of D8’s 29 Cities Licences for 5 years (“Licence Extension”) was vitally important. Plainly, bare acquisition of the 49% Shares in D1 as a bare shell SPV without valid 3.5GHz Licences to carry on 3.5GHz Business in the 29 Cities would have no commercial purpose, would defeat the JV Project/deal, and would not have justified the substantial acquisition/subscription price of US$196,000,000. 20.The TCPSSA was the relevant formal transaction document with the earlier agreements forming part of the factual background/matrix. Ps’ claim could be broadly categorised as follows:
In raising the aforesaid claims, Ps also alleged breach of the Double Signatures Arrangement vis-à-vis Chinacomm Account 1, and D1’s failure to enter the name of P2 (as Investor) in its register of members/shareholders upon Closing, to register the 49% Shares with the relevant Cayman Islands’ registry/authority and/or to provide documentary evidence of inter alia such filing and/or allotment/issue of such shares within 7 business days from Closing.[15] But Ps would not claim for (1) infringement of copyright and/or loss of profits, (2) account of usage of the First Payment (see paragraph 35(c) below) of US$5,000,000 (“US$5M Sum”), and (3) had no claims against D2, D3, D4[16] and D5. 21.Ps’ monetary claims against D1, D6, D7, D8 and D9 were for US$9,749,599 (ie the US$5M/US$4.75M Sums), and their claim against D10 was for US$4,500,000 (ie the US$4.5M Sum). Ps sought the following reliefs:
22.Tay gave evidence for Ps, and D10 gave evidence for Ds. D6, who was supposedly Ds’ main witness, did not attend trial to give evidence. Ds denied liability, but was unable to deploy the full ambit of their pleaded defence in the absence of D6’s factual evidence. Further, on 28 May 2014 Master S Kwang (as he then was) granted leave for Ds to discontinue their counterclaim against Ps. Mr Hui put Ds’ defence case as follows:
23.But Ds would not dispute the following:
24.Neither Ps nor Ds adduced evidence of PRC and/or Cayman Islands law. Mr Chan and Mr Hui agreed that if issues herein touched upon such foreign law, this court should apply Hong Kong law.[17] III. WITNESSES 25.In assessing witnesses’ credibility, I bear in mind not only their demeanour in court but also the intrinsic value of their evidence upon considering the totality of their evidence against the pleadings, chronology of events, documentary evidence and inferences based on inherent probabilities and/or undisputed facts.[18] 26.In my view, Tay was an honest/credible witness. His evidence was clear and measured, and sat well with important contemporaneous documents. He was ready to make concessions on certain matters where appropriate, but stood his ground when intensely questioned over the core of Ps’ case. He struck me as a straightforward and reliable witness. 27.The same could not be said of D10 whose evidence had to be approached with caution. His evidence was inherently evasive and closed. Cross-examination revealed prior serious inconsistency in his witness statement, affirmations and oral testimony, and my confidence in his evidence was undermined not just by alterations in his accounts but also by his unconvincing explanations. He was vague or confusing on certain things, and evasive and non-responsive on others. I find his evidence unsatisfactory, and except for matters I accept below, I reject his evidence on the core matters. IV. GENESIS OF THE PROJECT 28.In 2007 China started to deregularise the telecommunications industry. Whilst foreign vendors, operators and firms were eager to enter the Chinese market, they were only allowed to do so as minority JV partner of state companies engaged in such business.[19] Ps’ camp and their investors were interested in D8, ie a state company that held the 29 Cities Licences but lacked expertise, know-how and/or experience to build, manage and/or operate WBA networks of such magnitude. Ps’ camp felt they could assemble business partners[20] and technical teams[21] to design, build, utilise and operate profitable WBA networks for the 29 Cities with a view to eventual public exit by flotation of shares of the JV SPV in a stock market. But the vitality of such JV Project would depend on the domestic partners being able (a) to have connections/contacts to secure necessary regulatory umbrella for the 3.5GHz Licences for the 29 Cities, and (b) to prepare, demobilise and improvise D8’s Existing System (see paragraph 36(a) below) to receive the new WBA network/system for the 29 Cities to be built for the Project (“New System” that would include design, engineering and operational works). V. 29 CITIES LICENCES 29.In 2007, Tay/Alvarez were introduced to D6/D7, who told them D8 was looking for investors to extend its 3.5GHz Business. Tay/Alvarez were excited about such investment opportunity. During negotiations, D6 showed Tay/Alvarez the following 3.5GHz Licences:
The above showed MIIT permitted D8 to provide 3.5GHz Services in the 29 Cities from 28 February 2003 to 29 February 2008 (ie 5 years). As the 29 Cities Licences had validity period of 5 years, so both Ps’ camp and Ds’ camp understood/expected Licence Extension to be also for 5 years. 30.Tay learned from due diligence findings that D8 was in bad financial shape, so although the Old 5Cities Licence was issued in 2002, D8 did not have financial resources and technical capability to implement what was required under the 29 Cities Licences to carry on 3.5GHz Business in the 29 Cities. Tay came to know this himself when he visited D8’s corporate offices/facilities, and spoke with D8’s key management team. But D6/D7 assured Tay/Alvarez they had good personal connections with MIIT and D8 was historically connected to MIIT (eg its chief scientist and director Xie Linzhen (“Xie”) was a retired MIIT section chief), so Ds’ camp would have no problem in obtaining Licence Extension for the 29 Cities Licences.[22] 31.Negotiations proceeded on the basis Ps’ camp would provide network design capability and financial resources to build the New System whilst Ds’ camp would secure Licence Extension for the 29 Cities Licences without which the whole basis of the JV would be undermined. Tay/Alvarez took care to explore with D6/D7 possible business risks (eg likelihood of no Licence Extension for the 29 Cities Licences), but D6/D7 repeatedly assured them there should be no problem with Licence Extension (and referred to the renewed/extended 5 Cities Licence as illustration/support). 32.Eventually, Tay/Alvarez for Ps’ camp and D6/D7 for Ds’ camp agreed in principle to set up a JV Project for carrying on 3.5GHz Business in the 29 Cities. The initial framework understanding for such deal was set out in the BSA that reflected the matters in paragraphs 19, 28 and 31 above. VI. BSA DATED 1 NOVEMBER 2007 33.In my view, Ps’ camp relied on D6’s/D7’s representations in paragraph 30 above to cause Trussnet Delaware to enter into the BSA with D8 on 1 November 2007 whereby Trussnet Delaware would (a) design the New System and develop 3.5GHz Services for the 29 Cities, (b) provide technical services and arrange financing for the Project, and (c) be granted an option to acquire up to 49% “preferred shares” in D8. VII. TDFA DATED 15 FEBRUARY 2008 34.The parties went on to negotiate a more specific transaction agreement. Since a foreign operator could not have more than 49% shares in any domestic operator (see paragraph 28 above), and it would be a lengthy, unclear and complicated process to secure government approval for direct foreign investment in and share acquisition of such domestic operator,[23] PRC lawyers retained by D6/D8[24] advised the parties to adopt a “Sina” structure[25] recognised/used in Chinese telecommunications industry for the Project as summarised below, which reflected observations in paragraphs 19, 28 and 31 above and paragraph 35(a)-(b) below, and which went to the “root” and very substance of the Project and JV deal:
35.Ps’ camp involved their in-house lawyer Li Aibin (“Li”) and external lawyers Global Law to prepare the draft agreement for review by Ds’ camp and their external lawyers. On 15 February 2008, Trussnet Delaware and D8 signed the TDFA as addendum to the BSA for development the New System for 3.5GHz Services under the Project for the 29 Cities upon inter alia the following terms:
36.In 2008, after having signed the TDFA, Ps’ camp started to deploy staff to D8’s offices to work with D8 on preliminary preparation, demobilisation and improvisation works that were not revenue-generating (“Preparatory Works”), and to engage third party consultants (eg Nortel Networks (China) Limited (“Nortel”) – see footnote 27 above) to provide professional services for the Project. The Preparatory Works comprised 2 components:
Thus, whilst Ps’ team could start on their works, they could not finish until Ds’ team completed theirs. But D8 was quite passive over Ds’ Preparatory Works due to limited expertise/know-how, and they did not entirely allow Ps’ team to work with them or to understand how the First Payment (ie the US$5M Sum) was utilised. VIII. TNFA DATED 7 APRIL 2008 37.Due to internal business re-organisation, Trussnet Delaware’s shareholders decided to have Trussnet Nevada take over part of the business of Trussnet Delaware. On 7 April 2008, with agreement of all relevant parties, Trussnet Nevada and D8 signed the TNFA for Trussnet Nevada to substitute Trussnet Delaware with minor amendments to the agreement, so Trussnet Nevada had the option to acquire D1’s 49% Shares for US$196,000,000. 2 features of the TDFA/TNFA were of note:
IX. FIRST PAYMENT AND D4 38.The TDFA/TNFA (see paragraph 35(g) above) provided for Trussnet Delaware to pay D1 via Gulfstream the First Payment as part of the Acquisition Price by (a) an agreed route from Trussnet Delaware / Trussnet Nevada to D1, from D1 to D4, and then from D4 to the WOFIE (ie Yunji) (“1st Agreed Route”) (ie D8 was not part of the Agreed Route) for (b) an agreed, specified and dedicated (hence exclusive) purpose as part of capital injection for the WOFIE (ie Yunji) required under PRC law (“1st Agreed Purpose”). 39.Ps’ camp did not ask for payment of the First Payment into a separate account because D6/D7 claimed monies were needed fairly urgently for Ds’ Preparatory Works and/or works under the Disbursement Plan (see paragraph below), and because of the following considerations: (a) D6/D8 disclosed D8’s bank statements and audited financial statements, (b) D8 was a state company with duty to disclose financial statements/ accounts, and (c) Ps’ team would vet transaction documents/receipts for ultimate utilisation of such monies. Moreover, the bulk of the US$5M Sum was actually deposited in Chinacomm Account 2, which was newly opened albeit not a designated account. 40.In my view, Tay understood and D6/D7 agreed (and even assured Tay) Ps’/Ds’ teams would jointly work out items of needed works for ultimate use of the First Payment that was to be booked as part of the WOFIE’s capitalisation.[29] D8 provided a Disbursement Plan that outlined a list of works for ultimate utilisation of the First Payment (“Disbursement Plan”), including Beijing WBA network deployment and radio frequency occupation, which works D6/D8 claimed would facilitate Licence Extension, and D6/D8 further claimed Ds’ Preparatory Works would also require funds. Nevertheless, the First Payment still had to go via the 1st Agreed Route to be booked as part of capital injection for Yunji (ie the 1st Agreed Purpose) before Yunji could disburse monies for such works. On balance, I find D6 for D6/D8 gave verbal collateral warranty that the First Payment would go via the 1st Agreed Route for the 1st Agreed Purpose whereupon such monies could be used for Ds’ Preparatory Works and/or works specified in the Disbursement Plan (“Collateral Warranty”). 41.Pursuant to the TDFA/TNFA and relying on the Collateral Warranty, Trussnet Delaware / Trussnet Nevada paid the US$5M Sum as the First Payment in the following manner:
42.Ds’ camp was responsible for setting up the WOFIE, so Yunji was incorporated in Beijing on 8 April 2008 by D1, D6, D7 and D8 through D4. I disagree Ps’ camp was required to pay Yunji’s capitalisation first otherwise it business licence would not be issued. After all, the TFDA/TFNA required D8 to provide the WOFIE’s business licence before Trussnet Delaware was to pay the 2nd tranche of the Acquisition Price of US$141,000,000:[30]
X. AFTERMATH OF TDFA/TNFA (a) Double Signatures Arrangement 43.Despite Trussnet Delaware’s / Trussnet Nevada’s requests, D6, D7 and D8 failed to set up the Double Signatures Arrangement for the bank accounts of D1, D4 and/or Yunji.[31] The purpose of the Double Signatures Arrangement was to protect investments by P’s camp in the Project by having sufficient control over the Acquisition Price to be paid, ie to ensure such monies were booked for the 1st Agreed Purpose via the 1st Agreed Route, and ultimately used for works agreed by both parties. At first, Ps’ camp adopted a tolerant attitude when D6 claimed there were difficulties in implementing the Double Signatures Arrangement for the WOFIE (ie Yunji), and hoped things would work out. But as time went by and Ds’ camp still did not implement the Double Signatures Arrangement for D1, D4 and Yunji without justifiable reason, it became a point of conflict, which in my view reflected a permeating theme in the business relationship between Ps’ and Ds’ camps, ie Ds’ camp was passive in their contribution to the Project, but was anxious for Ps’ camp to pay monies and then to seize unilateral control/use of such monies. (b) 1st Agreed Route/Purpose and Disbursement Plan 44.I find D8 did not cause D1 to transfer and D1 did not transfer the US$5M Sum via D4 to Yunji (ie 1st Agreed Route) as part of capital injection for Yunji (ie 1st Agreed Purpose), and D6/D8 failed to comply with the Collateral Warranty. 45.The bank statements of the newly opened Chinacomm Account 2[32] showed that after the US$4M Sum was wired to such account, US$1,000,000, US$500,000 and US$2,000,000 were transferred to various third parties[33] (with no apparent connection with Yunji or the Project) on 3, 26 and 26 June 2008 respectively, leaving a balance of US$499,653.89 (“1st Balance”). There was nil balance in Chinacomm Account 2 before deposit of the US$4M Sum, and there were no further transactions before the aforesaid 3 withdrawals from the US$4M Sum, so there was no mixing of funds. 46.On 30 June 2008 there was an anonymous deposit of US$1,999,948.17 (presumably US$2,000,000 less bank changes), and on 2 July 2008 there were anonymous transfer withdrawals of US$2,000,000 and US$100 (presumably bank charges), leaving a balance of US$499,502.06 (“2nd Balance”). There were no other transactions before the 2nd Balance was substantially disbursed on 23 December 2008 (US$450,000) and 17 September 2009 (US$36,000) to third parties[34] (with no apparent connection with Yunji or the Project). 47.I have no doubt the withdrawal of US$2,000,000 on 2 July 2008 was from the deposit on 30 June 2008 and not from the US$4M Sum because (a) the amount of such withdrawal far exceeded the 1st Balance, and (b) Ds in paragraph 42 of the D&C averred that on 23 December 2008 US$450,000 out of the US$5M Sum was debited from Chinacomm Account 2 allegedly to repay D8’s alleged RMB fund providers (see paragraph 60 below), thus acknowledging the 2nd Balance (from which US$450,000 was debited) was derived from the US$4M Sum. Given such admission, there was no mixing of funds for withdrawal of US$450,000 from Chinacomm Account 2. Further, I infer/find the debit transactions from the US$4M Sum in Chinacomm Account 2 explained in paragraphs 45-46 above did not take the 1st Agreed Route and/or did not concern the 1st Agreed Purpose, works specified in the Disbursement Plan, Ds’ Preparatory Works and/or the Project. 48.In paragraph 30(b)(iv) of the Defence and Counterclaim (“D&C”), Ds alleged that to minimise loss resulting from forfeiture of partially injected capital of the WOFIE (ie Yunji) in case it “failed to capitalise and verify the whole of the registered capital within the specified timeframe”, D1 only paid US$2,000,000 out of the First Payment as Yunji’s registered capital whilst the balance of the First Payment was paid to D8 for expenses of the Project according to the Disbursement Plan. 49.There was no evidence to support such averments, which could only serve as admission that D8/D1 failed to cause the entire US$4M Sum to be used for the 1st Agreed Purpose via the 1st Agreed Route. Article 2b of the TDFA/TNFA (see paragraphs 35(h) above) provided the 2nd tranche of Acquisition Price (US$141,000,000) was not yet payable pending D8’s provision of the requisite/acceptable documents in Article 2b(i)-(viii), so Trussnet Delaware / Trussnet Nevada could not be blamed for not making further capital injection for Yunji and/or for any feared failure to capitalise/verify Yunji’s entire registered capital within specified timeframe. Nevertheless, the deadline for full capitalisation was postponed without forfeiture of Yunji’s business licence (see paragraph 144 below), so there was no justification for D8/D1 not to apply the entire US$5M Sum for the 1st Agreed Purpose, and I am not satisfied the US$4M Sum was disbursed for works specified in the Disbursement Plan and/or Ds’ Preparatory Works. 50.As for the US$1M Sum, there was no or no credible evidence it had been paid to Yunji via D4 (ie the 1st Agreed Route), booked as part of the capital injection for Yunji (ie the 1st Agreed Purpose) and/or disbursed for works specified in the Disbursement Plan, Ds’ Preparatory Works and/or other works for the Project. Given (a) paragraph 30(b)(iv) of the D&C (see paragraph 48 above), (b) debits from Chinacomm Account 2 to third parties unconnected with D4, Yunji and/or aforesaid works, and (c) lack of evidence as to utilisation of the US$1M Sum, I infer/find the US$1M Sum was not (i) transferred via the 1st Agreed Route for the 1st Agreed Purpose, (ii) disbursed for works specified in the Disbursement Plan and/or for Ds’ Preparatory Works, or (iii) spent on the Project. 51.Such non-compliance with the 1st Agreed Route/Purpose in respect of the US$5M Sum was in breach of the TDFA/TNFA, which did not give liberty to D1/D8 to directly utilise such monies. In my view, the 1st Agreed Route/Purpose made commercial sense. Since D4 and Yunji were D1’s direct/indirect subsidiaries, the investment funds from Ps’ camp should be properly routed from D1 via D4 to Yunji as the operational SPV for the Project, and properly booked as part of its capital injection (especially when its business licence imposed a deadline for such purpose, and part capitalisation was needed for postponing such deadline) before using the same for required/agreed works. (c) Information on works progress and use of US$5M Sum 52.After a while Ps’ camp checked on progress of Ds’ Preparatory Works, but became concerned when there was no progress report as to when Ps’ team could integrate their works with Ds’ Preparatory Works. Ps’ camp asked Ds’ camp for details and bills of quantities of work done, and breakdown as to use of the US$5M Sum. D6-D8 were not responsive until September 2009 when D8 gave a 1-page excel worksheet (“D8 Worksheet”) of broad items totalling RMB33,944,800 (about US$5,000,000)[35] without detailed particulars and/or supporting documents. I accept Tay’s evidence that (a) professional review of the D8 Worksheet by Ps’ team showed the value of listed works did not amount to US$5,000,000, and (b) D8 only did minimal/cosmetic works without properly identifying/listing access points of the Existing System and carrying out Ds’ Preparatory Works to facilitate design/integration of the New System. Tay / Ps’ team continued to press for details of work done for and utilisation of the US$5M Sum to no avail. Ps’ camp was unhappy about this, which explained why Ps later insisted on the Double Signatures Arrangement for the US$4.75M Sum. (d) 29 Cities Licences 53.D8 failed to obtain Licence Extension for the 25 Cities Licence when it expired on 29 February 2008. In paragraph 33 of the D&C, Ds averred D6 had on a number of occasions informed Tay D8 (i) needed funds to start/continue construction works in the licensed cities, and (ii) would lose the 3.5GHz Licences for those cities where construction works were not commenced. I disagree with such averment:
54.Ds admitted Tay/Alvarez did raise query about the status of the 29 Cities Licences (see paragraph 56(b) of the D&C), and in my view, they would not have queried Ds’ camp about Licence Extension if it was dependent on further injection of funds which Ps’ camp did not pay. Rather, D6/D7 for themselves and D8 told Ps’ camp that delay in Licence Extension was due to MIIT’s internal administrative procedures, but renewed/extended licences would be issued soon. At that time Tay/Alvarez believed such explanation given D8’s past success in securing Licence Extension for the Old 5 Cities Licence, and D6’s assurance of good relationship with MIIT (with a retired MIIT official as D8’s board member – see paragraph 30 above), so Ps’ camp caused Gulfstream to enter into the GSSA with Ds. XI. GSSA DATED 23 MAY 2008 55.On 23 May 2008, pursuant to Article 1a of the TNFA, Gulfstream (as Investor) and D2 and D3 (as founders/shareholders of D1), D1 (as the company), D6 and D7 (as guarantors), and D8 and D9 (as warrantors) signed the GSSA that supplemented the TDFA/TNFA and provided Gulfstream with the right to subscribe D1’s 49% Shares at the Subscription Price of US$196,000,000. The essential terms of the GSSA were as follows:
56.On the same date as the GSSA and pursuant thereto, the parties entered into a set of exclusive service agreements and equipment leasing agreements whereby D8 contracted all services in relation to deployment/operation of its 3.5 GHz Business to the WOFIE (ie Yunji). XII. AFTERMATH OF GSSA 57.To raise sufficient funds for inter alia the Project and through a series of reverse mergers in May 2008, Trussnet Nevada’s shareholders took over P1 (then known as Mortlock Ventures Inc with name change to China Tel Group Inc in April 2008) whose stock was traded in the US over-the-counter market, and Trussnet Nevada became a wholly-owned subsidiary of P1 (see footnote 8 above). I find Tay told D6, and Ds’ camp knew,[42] investment funds for the Project had to be raised from the Market (see paragraph 2 above), and the reverse mergers enabled Ps’ camp to acquire P1 as listed corporate vehicle for canvassing/securing investment funds for inter alia the Project from investors via the Escrow Procedure. 58.P1 promoted the Project in the Market, and arranged for D6, D7 and D8’s other representatives to meet potential investors. I find P1 (by collaborating with D8 and working with financial/legal advisors) secured committed investment funds for the Project conditional upon assurance of Licence Extension for the 29 Cities Licences, which underlined the importance of Licence Extension to the whole JV/Project, and without which the balance of the Subscription Price was not payable:
59.Meanwhile, P1 through Trussnet Nevada / Gulfstream put more efforts into Ps’ Preparatory Works, including vendor selection,[43] equipment testing/purchase, site lease, network design, project management and engineering works. 60.Despite the matters in paragraph 58 above, D6-D8 pressed P1 to inject more funds/capital by claiming Yunji/D8 were running out of money and unable to pay overdue bills. In paragraph 42 of the D&C, Ds averred that after signing the GSSA D6 (for D8) from time to time asked Tay to honour his alleged promise to pay part of the Subscription Price to enable D8 to commence/continue construction works for the 3.5GHz WBA networks in the 29 Cities in order to keep/renew the 29 Cities Licences, and further averred that D8 obtained RMB funds/facilities in Mainland China to meet payments for equipment, overheads and operational costs for such construction works, and made repayments to such fund providers’ nominated agents in Hong Kong.[44] 61.But there was no evidence to support such alleged promise by Tay and/or such alleged RMB loans to D8 in 2008. In any event, I reject such contention. First, such contentions flied against the findings in paragraph 58 above which showed the 2nd tranche of the Subscription Price was not yet payable under the GSSA. Secondly, the alleged Loan (see paragraph 162(a) below) to D8 from 江蘇吳江中色紡織有限公司 (“Wu Jiang”) and/or Wu Jiang’s major shareholder Sun Xiaohua (“Sun”) (which allegation I reject in Part XXVIII below) was in mid-2011. Thirdly, given the experience of lack of enlightenment as to utilisation of the US$5M Sum, Ps’ camp would not have paid further funds to Ds’ camp (whether inside/outside the GSSA regime) without the Double Signatures Arrangement and/or without agreed written Business/Disbursement Plans[45] for utilisation of such monies. Fourthly, Ds’ camp apparently let the 2nd Balance from the US$4M Sum idle in Chinacomm Account 2 up to late December 2008, which did not sit well with Ds’ alleged critical need for monies to pay for alleged construction works. 62.I prefer Ps’ case that further funds under the GSSA were to be provided upon assurance of the existence, renewal and/or extension of the 29 Cities Licences, but there was no such assurance as yet (see paragraph 58 above). Ds’ camp also had to provide the Investor with evidence of Licence Extension of the 29 Cities Licences, which Warranty[46] should be true, accurate and not misleading at inter alia the Completion Date subject only to any exceptions expressly provided for under the GSSA (see Article 6.2 of the GSSA), but again such evidence was not forthcoming. Since the Completion Conditions had not been fulfilled, Ds’ camp could not look towards the 2nd tranche of the Subscription Price to pay for the alleged construction works. XIII. SUPPLEMENTARY AGREEMENT DATED 23 MAY 2008 63.On the same day of execution of the GSSA, a Supplementary Agreement was signed by Trussnet Nevada, D8, Xintong and Tianyi to set forth some issues/principles relating to indirect acquisition of interest in D8 by Trussnet Nevada not covered by the BSA, TDFA/TNFA and GSSA. Some key terms of the Supplementary Agreement were as follows:
64.Such transaction between Tianyi and Trussnet Nevada fell through due to (a) certain legal restrictions under PRC law, (b) lack of clarity as to the meaning of Article 1k, and (c) non-fulfilment of the Completion Conditions for Completion under the GSSA (for triggering payment of the acquisition price under the Supplementary Agreement) (see Part XII herein). Tianyi/Xintong also had not provided relevant documents/ information for Trussnet Nevada to carry out comprehensive legal/ financial due diligence on Xintong pursuant to Article 1h of the GSSA (see paragraph 63(d) above). XIV. REQUESTS BY PS’ AND DS’ CAMPS 65.The 25 Cities Licences expired by 1 March 2008 (ie before the GSSA) without Licence Extension and/or oral approval thereof by relevant MIIT officials, and the 5 Cities Licence was about to expire by end of 2008. Ps’ camp made clear to D6-D8 that valid 3.5GHz Licences for the 29 Cities was the whole basis of the deal. Even though (as I have found) Ds’ camp also knew (a) Ps’ camp had to raise investment funds from the Market to pay the Subscription Price, and (b) P1 had to be accountable to investors under the Escrow Procedure for release/use of such investment funds sourced from the Market, D6 kept pressing Tay to let Ds’ camp have some monies pending Licence Extension. In the meantime, Ps’ camp followed up with D6-D8 about the status of Licence Extension. 66.This was borne out by Tay’s email to D6 on 16 July 2008 (C/283-286) stating he arranged payment of the US$5M Sum “without security and guarantee but just on a word of trust with [D6]”, and going on to say as follows:
67.Such email highlighted the importance of Licence Extension for the 29 Cities Licences that went to the “root” of the JV deal, explained the substantial Subscription Price, and supported Tay’s explanations about the Escrow Procedure, P1’s involvement in raising capital from the Market[47] and need for the Double Signatures Arrangement.[48] In my view, the following made commercial sense and sat well with the GSSA: (a) third party investors imposed escrow closing condition of assurance of Licence Extension for the 29 Cities Licence under the Escrow Procedure for release of their investment funds to ensure vitality of the 3.5GHz Business in the 29 Cities, and (b) the Double Signatures Arrangement was to put in place for D1’s, D4’s and Yunji’s bank accounts for joint control over use of further payment of the Subscription Price. But since Ds’ camp failed to obtain MIIT’s oral approval of Licence Extension (particularly for the 25 Cities Licence that had expired), some previously committed investors withdrew their commitments or terminated signed investment agreements with P1.[49] Gulfstream therefore declined to make further payment of the Subscription Price to D1 before Completion,[50] and D1 and D6-D8 declined to appoint Gulfstream’s nominees as board directors and bank signatories of D1, D4 and the WOFIE (ie Yunji) (see Articles 4.4(a)(i) and (c)(i) of the GSSA and paragraph 55(h)(i)(1) and (h)(iii) above). 68.In paragraph 56(c) of the D&C, Ds admitted at one point D6/ D7 explained the Beijing Olympic Games (“Games”) affected the timing of Licence Extension for the 29 Cities Licences as MIIT’s key officials were deployed for the Games and other staff were less focused on licensing matters, but D6/D7 assured Ps’ camp Licence Extension was just a matter of time. At that time it sounded reasonable to Ps’ camp (who relayed such explanation to the investors) because almost everything had to give way to the Games. Ps’ camp chased D6-D8 after the Games concluded in September 2008, and was informed Licence Extension was postponed due to reorganisation of MIIT and promotion of Chinese 3G TD-SCDMA standard. 69.On 2 September 2008, Li (for Tay) emailed D6 (C/282) noting discrepancies in understanding over certain issues regarding financing/operation of the Project, agreeing to a meeting between D6/D7 and Tay/Alvarez in mid-September 2008, and proposing to outline topics for discussion beforehand. But up to September 2008 Ds’ camp had not arranged for Gulfstream’s representatives to meet with relevant MIIT officials in charge of issuance/extension of 3.5GHz Licences. 70.From September 2008 onwards, to facilitate due diligence and at P1’s request, D6-D8 had meetings with investors and representatives of Ps’ camp. During such meeting, D6 reiterated explanations in paragraph 68 above, and gave assurance that D8 would soon receive Licence Extension for the 29 Cities Licences. There was also a meeting with Xie who assured Ps’ camp D8 was capable of securing such Licence Extension. In view of Xie’s personal credit Ps’ camp believed D6-D8,[51] but in the end there was no Licence Extension for all the 29 Cities. XV. GSSA SUPPLEMENTARY AGREEMENT DATED 17 NOVEMBER 2008 71.On 17 November 2008, as agreed by the parties to the GSSA, Trussnet Nevada (Gulfstream’s holding company) signed a Supplementary Agreement with D8 to amend certain terms of the GSSA. Trussnet Nevada signed on behalf of Gulfstream whilst D8 signed on behalf of itself and other parties to the GSSA. 72.The Recitals to the GSSA Supplementary Agreement provided inter alia as follows:
73.The GSSA Supplementary Agreement adjusted the payment schedule of the Subscription Price specified in Article 3.2 of the GSSA. Article 3.2(b)-(c) of the GSSA was changed and new Article 3.2(d)-(e) was added to the GSSA as follows:
These provisions clearly showed the following were preconditions for further payment of the Subscription Price: (i) the Double Signatures Arrangement to be put in place for the bank account that would receive such monies (see (a)-(d) above), (ii) due renewal of the 29 Cities Licences (see (a) above) latest by end of December 2008 (see paragraph 75(b)(iii) below), (iii) delivery to Trussnet Nevada evidence of such Licence Extension and share certificate for the 49% Shares (see (a) above), and (iv) “all open issues between the Parties have been mutually agreed” (see (a) above) latest by the end of December 2008 (see paragraph 75(b)(iv) below). 74.For “open issues between the Parties” (see Article 1(b) of the GSSA Supplementary Agreement and paragraph 73(a) above), on 28 November 2008 Li (for Tay) emailed D6 and D6’s assistant Li Hongji (C/269) setting out a list of outstanding issues “as per the [GSSA]” (ie some non-fulfilled Completion Conditions) inter alia as follows:
75.Clauses 3-4 of the GSSA Supplementary Agreement provided as follows:
I note with interest (a) above envisaged Gulfstream’s parent company Trussnet Nevada would pay the balance of the Subscription Price under the GSSA as adjusted by the GSSA Supplementary Agreement, which reinforced my finding that all along Ds’ camp knew investment financing for the balance of the Subscription Price would have to be raised by P1 from investors in the Market. 76.In light of paragraphs 73 and 74(f) above, I disagree the effect of Article 4 of the GSSA Supplementary Agreement was for evidence of further payment of the Subscription Price to precede Licence Extension for the 29 Cities Licence on the alleged basis that the former was essential to the latter (see paragraph 53(a) of the D&C). Instead, the effect of Article 3.2(b) of the GSSA as adjusted by Article 1 of the GSSA Supplementary Agreement was that the preconditions in paragraph 73(i)-(iv) above should be fulfilled before further payment of the Subscription Price. Such further payment was not yet payable since (a) Ds admitted there was no Licence Extension for all the 29 Cities Licences, and (b) there was no evidence all the open issues had been resolved, and instead some open issues were still outstanding as at 23 March 2010 (see paragraph 133 below). 77.The email dated 28 November 2008 from Li (for Tay) to D6 and Li Hongji (see paragraph 74 above) stated “an escrow account has been opened under supervision of our investment bank and attorneys to which [a funder called Runcom Technologies Ltd (“Runcom”)] has transferred 50 million US dollars as part of share purchase price in exchange for ChinaTel stock”, which funds were designated for the Project and conditional upon (a) assurance of Licence Extension for the 29 Cities Licences and (b) exclusive purchase of Runcom’s equipment for deployment of 3.5GHz Services in the 29 Cities. Such email referred to a letter dated 26 November 2008 from Knight Capital Markets LLC (“Knight”)[56] to P1 (then known as China Tel Group Inc) confirming that a Funding Escrow Account had been opened and Runcom was prepared to complete wire transfer of US$50,000,000 to P1 upon (a)-(b) above. 78.On 28 November 2008, Li Hongji replied by email to Li, D6 and D6’s/D8’s PRC lawyer Li Chaoying Charles (see footnote 24 above) (C/268) seeking clarification as to whether Runcom merely opened the Funding Escrow Account or actually wired US$50,000,000 into such escrow account. In paragraph 53(b)-(c) of the D&C, Ds complained Knight’s letter was not addressed to any party of the GSSA or GSSA Supplementary Agreement[57] and was conditional upon matters in paragraph 77(a)-(b) above. But Tay contended Ps’ camp did provide sufficient proof of commitment/availability of investor funds of US$50,000,000 as per Article 4(a) of the GSSA Supplementary Agreement (see paragraph 75(b)(i) above), and it was unnecessary to show actual payment of such monies. Tay claimed (and I accept) in the end the funds were unable to come in because the conditions in paragraph 77(a)-(b) above did not come true. In any event, I cannot see how Ds’ aforesaid contentions would assist. Even if Trussnet Nevada / Gulfstream failed to satisfy Article 4(a) of the GSSA Supplementary Agreement (see paragraph 75(b)(i) above), D8 also failed to obtain Licence Extension of the 29 Cities Licences and the parties failed to reach consensus on all open issues by end of December 2008 (see Article 4(c)-(d) of the GSSA Supplementary Agreement and paragraph 75(b)(iii)-(iv) above). 79.In any event, it was common ground the GSSA Supplementary Agreement was null, void and of no legal effect. But the GSSA still had effect, so Gulfstream was not required to pay the 1st US$50,000,000 of the 2nd tranche of the Subscription Price until after Completion upon fulfilment of the Completion Conditions, 1 of which was a meeting with MIIT officials in charge of the issuance/extension of 3.5GHz Licences with oral approval by such officials of Licence Extension for the 29 Cities Licences (Schedule 3(j) of the GSSA and paragraph 55(d) above). But there was no such meeting and/or oral approval, which also remained as an outstanding “open” issue (see paragraph 74(f) above), so the Investor/Gulfstream need not make further payment of the Subscription Price as yet. I accept D6 nevertheless kept asking for funds, but Tay made clear to D1 and D6-D8 there would be no further funds without assurance of Licence Extension for the 29 Cities Licences. XVI. NEW 29 CITIES LICENCES 80.After the 5 Cities Licence expired on 1 January 2009, D8 did not have any valid 3.5GHz Licence for any of the 29 Cities. Ps’ camp correctly warned Ds’ camp the Project could not continue if D8 could not obtain valid 3.5GHz Licences for the 29 Cities. After all, the “root” of the JV deal between the parties was to carry on 3.5GHz Business in the 29 Cities to generate service fees that would be channelled indirectly to the JV parties.[58] In my view, Ps’ camp would not have agreed to make such substantial investment of US$196,000,000 if there were no Licence Extension for the 29 Cities Licences. I also accept at that time Ds’ camp gave Tay lots of assurance, brought Tay to see various officials (albeit not MIIT officials in charge of issuance/extension of 3.5GHz Licences), and convinced/assured Tay 3.5GHz Licences were only issued to state companies like D8. 81.I find that sometime in February 2009 D6/D7 presented to Tay an apparently new 3.5GHz Licence dated 12 February 2009 for the 29 Cities that appeared to have been granted to D8 for a term of 5 years (“New 29 Cities Licence”). Such purported licence appeared to have been signed/chopped by MIIT, and D6 (a) told Tay it was ready for but still pending official release so it was still MIIT’s internal document at that time, (b) borrowed it with help from his contact at MIIT to show Tay, and (c) asked Tay to keep it confidential pending official release to D8. But Tay insisted on having a copy, so Li Hongji gave him a photocopy (which Ps disclosed in the present action). Tay (who at that time did not yet harbour suspicion over D6’s/D7’s assertions about the New 29 Cities Licence) immediately told Ps’ camp such “good news”, and both Tay and P1’s board of directors were excited and encouraged. 82.I find on balance that it eventually transpired the New 29 Cities Licence was a false document not issued by MIIT. Even though Ps did not adduce any technical expert evidence, the falsity of the New 29 Cities Licence was evident from the following: (a) in December 2011 (ie after Ps commenced the present action) Ps’ camp sent a representative to MIIT to verify the authenticity of the New 29 Cities Licence and was told MIIT had never issued such purported licence, (b) the file reference number was erroneous, and (c) there were discrepancies/inconsistencies as to the font/style of the printed Chinese characters and letterhead/chop on the New 29 Cities Licence when compared with those on genuine 3.5GHz Licences. Tay suspected (and I accept) the purpose of the purported New 29 Cities Licence was to deceive Ps’ camp and investors. XVII. NEGOTIATIONS PRECEDING TCPSSA 83.As seen in Part XVIII below, Tay signed the TCPSSA for and on behalf of P2 on 16 February 2009 even though Ps were still unhappy over (a) Ds not having accounted for utilisation of the US$5M Sum and (b) the 29 Cities Licences had not been renewed/extended. Tay explained (and I accept) Ps’ camp committed to the TCPSSA because (i) Tay sighted the New 29 Cities Licence (without suspicion of its falsity at that time) and relied on / believed D6’s/D7’s representations that MIIT would soon issue such licence, (ii) during negotiations for the TCPSSA Ds gave Ps a comprehensive layout of the Existing System which suggested to Ps’ camp D8 was more serious in sharing confidential information, (iii) Ds appeared to be more upfront in seeking Ps’ help on outstanding Ds’ Preparatory Works,[59] and (iv) the matters discussed in paragraphs 84-85 below. 84.In the period before signing the TCPSSA, D6/D7 in various meetings asked Tay to include a sum of US$10,000,000 for each of them as their personal fees in the JV deal for their contribution to D8/Project. Tay told them P1 (and hence its subsidiaries) could not pay such fees due to disclosure/audit issue,[60] but Tay also knew Ps’ camp could not avoid meeting such request when D6/D7 told him such monies were needed to smooth the way for Licence Extension and future operations/works,[61] so Tay had to find a way to provision for D6’s/D7’s request. 85.Tay reviewed the whole Project and discussed with parts/ equipment vendors and labour contractors, and felt if the budget for the Project was controlled, tightened and revised, then D6’s/D7’s request could be provisioned in the course of implementing the Project so that (a) the overall Subscription Price would remain unchanged, and (b) D6’s/D7’s personal fees of US$20,000,000 would be defrayed out of the budget for the Project and channelled to them via the Project’s vendors/contractors rather than via P1 and/or its subsidiaries. 86.Thus, the TCPSSA was to the knowledge of Ds’ camp a package deal for (a) reviving/boosting investors’ confidence that the JV Project would go ahead,[62] and (b) enabling arrangements for acceding to D6’s/D7’s personal request for US$20,000,000. In my view, (a) above led to Article 3 of the GSSA Supplementary Agreement (see paragraph 75(a) above) which later became Article 4 of the TCPSSA Addendum and the 1st Note (see paragraphs 99(d) and 105 below), and (b) above caused the parties to abandon the GSSA and to enter into the TCPSSA and to change the Investor from Gulfstream being P1’s indirect subsidiary (see paragraph 10(c) above) to P2 being a Hong Kong company (i) owned by Tay with no apparent connection with D1 in terms of corporate structure, (ii) not subject to corporate governance and audit/disclosure requirements applicable to US listed company and subsidiaries, and (iii) established for the purpose of entering into the TCPSSA. I find this was why Ds readily agreed to have the TCPSSA replace the GSSA. 87.P2 was also able to offer other additional benefits that P1/ Gulfstream could not provide,[63] which included negotiating extended payment terms with subcontractors who were performing services under contract with Trussnet Delaware to allow those services to continue, and the ability to arrange a US$3,000,000 – US$5,000,000 operating loan for D8,[64] which ultimately became a US$29,000,000 operating loan that D8 obtained from Hana Bank (see paragraphs 101-102 below). 88.Separately, given the matters in paragraph 83(ii)-(iii) above, Ps’ camp thought if they had more control over Ds’ Preparatory Works, they could assist Ds with the outstanding works and make up progress.[65] Tay was also comforted by assurances given to him about Licence Extension for the 29 Cities Licences (see paragraph 83(i) above), and by the fact D6’s/D7’s own interest was at stake.[66] 89.For all the above reasons, Ps’ camp made a commercial decision to enter into the TCPSSA and to continue putting resources in the Project,[67] but that did not mean they would abandon the need for assurance of Licence Extension for the 29 Cities Licence. On the contrary, Ps’ camp was anxious to proceed with the JV deal the “root” of which was to carry on 3.5GHz Business by the New System at the 29 Cities pursuant to renewed/extended 29 Cities Licences. XVIII. TCPSSA DATED 16 FEBRUARY 2009 90.So in February 2009, Ps proposed to D6-D8 a substitute subscription and shareholders’ agreement upon terms similar to the GSSA. On 16 February 2009, by agreement of the parties to the GSSA, P2 signed such substituted agreement (ie the TCPSSA) with D1, D2, D3, D6, D7, D8 and D9. P2 assumed Gulfstream’s rights, title, interests and obligations as Investor under the GSSA. 91.P1 was not expressly named and did not sign the TCPSSA. There was some debate as to whether P2 signed the TCPSSA as agent and/or for the benefit of P1. In my view, this could be easily explained in the relevant factual matrix that I have outlined. The initial transaction structure was for the Investor (ie Gulfstream) to become the indirect subsidiary of P1 which was acquired as US listed fundraising vehicle for the Project to solicit investment funds in the Market (see paragraph 57 above). Hence, P1 would pay the balance of the Subscription Price from investment funds it sourced from the Market, and in return it would have control over Ps’ camp’s interests in the Project via Trussnet Nevada and Gulfstream being its wholly-owned direct/indirect subsidiaries. But Gulfstream and the GSSA were substituted by P2 and the TCPSSA. This came about because of inter alia the need to accommodate D6’s/D7’s request for personal fees (see paragraphs 84-88 above) and to avoid the long arm of SEC corporate governance and audit/disclosure requirements, which therefore required apparent disconnection in terms of corporate structure between P1 and P2. Nevertheless, P1’s fundraising role was unchanged, and to the knowledge of Ds’ camp it remained as fundraising vehicle for the JV deal/Project (with obligations to the investors under the Escrow Procedure) and ultimate payer of the Subscription Price. This was acknowledged in the TCPSSA which provided the Subscription Price shall be paid by the Investor “or its Associate Company”.[68] In such circumstances, P1 necessarily had interest in the JV deal/Project,[69] which explained why P1 and P2 entered the APA Set (see Part XXI and paragraph 111 below) to overcome the apparent corporate disconnection between P1 and P2, and to assure investors of P1’s interest in the JV deal/Project. 92.I start with the key terms of the TCPSSA which were by and large similar to those of the GSSA with a few exceptions:
93.Article 4.1 of the TCPSSA (see paragraph 92(d) above) was different from the equivalent provision in the GSSA in terms of Closing. Under the TCPSSA, if there was no agreement by the parties, Closing should take place upon the First Payment. But Ps’/Ds’ camps knew the US$5M Sum was paid in March/April 2008, so Closing would take place on a date to be agreed. The parties chose to close subscription of the 49% Shares upon execution of the TCPSSA, so they entered into the TCPSSA Addendum at the same time as the TCPSSA, and Article 1 thereof provided Closing shall take place on 16 February 2009 as mutually agreed by the parties (see paragraph 99(a) below). 94.For Article 4.2 of the TCPSSA (see paragraph 92(e) above), Tay agreed that even though the bulk of the Subscription Price had yet to be paid, the parties intended P2 would nonetheless become legal owner of the 49% Shares upon fulfilment of relevant conditions (see paragraph 104 below). But this must be understood in the context explained in paragraph 91 above. Ps’/Ds’ camps both knew P1’s function was to raise capital from the Market for payment of the balance of the Subscription Price,[77] and to invite/lock investment funds under the Escrow Procedure for such purpose. But delay in securing Licence Extension for the 29 Cities Licences made it difficult to maintain investor enthusiasm in the Project (see footnote 49 above), so P1 had to boost investor interest and accelerate the fundraising process. It was thought that by presenting P2 as becoming legal owner of the 49% Shares and P1 as being able to acquire such interest from P2 would be useful for convincing investors that the Project would go forward and for encouraging fund commitments. This, in my view, explained why Ps’/Ds’ camps entered into the TCPSSA Set and the P1/P2 entered into the APA Set (see paragraph 91 above and paragraph 111 below), which I shall deal with in greater detail below. 95.As regards the Subscription Price, Tay agreed Article 3.2(a) of the TCPSSA (in contrast to Article 3.2(b) of the TCPSSA) did not expressly mention “delivery to the Investor of the adequate evidence in relation to the valid extension of [the 29 Cities Licences] which are expired at the time of [the TCPSSA]” for the First Payment (Schedule 3(j) of the TCPSSA and paragraph 92(g) above). In my view, there was no such express reference because Article 3.2(a) specified the First Payment “shall be paid …… in accordance with relevant articles of the [TNFA] ……” The First Payment being the US$5M Sum was paid under the TDFA/TNFA for the 1st Agreed Purpose via the 1st Agreed Route, and D6/D8 gave the Collateral Warranty that such sum would eventually be used for works in the Disbursement Plan and/or for Ds’ Preparatory Works. So, by virtue of the terms of Article 3.2(a) of the TCPSSA which incorporated “relevant articles of the [TNFA]”, the 1st Agreed Purpose/Route was still applicable for the US$5M Sum. 96.Mr Hui reminded that by virtue of the entire agreement clause in Article 26 of the TCPSSA there could not be any other agreement, orally or in writing, stipulating any specific purpose for use of the US$5M Sum. But the above analysis showed Article 3.2(a) of the TCPSSA embraced the 1st Agreed Purpose/Route vis-à-vis the First Payment. In any event, Article 26 of the TCPSSA expressly provided the “entire agreement” was constituted by the TCPSSA and documents referred to and incorporated in it, and the relevant articles of the TNFA (eg Article 2a – see paragraph 35(g) above) was plainly incorporated by virtue of Article 3.2(a) of the TCPSSA. 97.As for the balance of the Subscription Price, the payment schedule was changed in the TCPSSA inter alia as follows:
98.In my view, the provision in Article 3.2(b)-(c) of the TCPSSA for payment “after the [29 Cities Licences] have been extended” showed such Licence Extension was a precondition to payment of the balance of the Subscription Price, but there was no such Licence Extension (particularly for the 17 Cities referred to in paragraph 122(d) below). But even if I am wrong and the reference in Articles 3.2(b)-(c) of the TCPSSA to Schedule 3(j) only required “adequate evidence” of such Licence Extension for the 29 Cities Licences, I am still not satisfied there was such “adequate evidence”. Despite D6’s bare assertions (which I reject) in his email dated 11 August 2009 (see paragraph 122(a) below) which (in my view) could not amount to such “adequate evidence”, the 12 Cities Licence (see paragraph 122 below) itself was not “adequate evidence” of Licence Extension for the 29 Cities Licences for there was nothing on its face to suggest Licence Extension for the 17 Cities was under consideration, likely, forthcoming or due to be issued. Indeed, the 12 Cities Licence did not mention the 17 Cities at all, and MIIT did not issue any Licence Extension for the 17 Cities. XIX. TCPSSA ADDENDUM DATED 16 FEBRUARY 2009 99.On the same day of the TCPSSA (ie 16 February 2009), P2 and D8 (on behalf of itself and other parties to the TCPSSA) signed the TCPSSA Addendum and agreed inter alia that:
100.Reading the TCPSSA and TCPSSA Addendum together, the Subscription Price for acquiring the 49% Shares was the same as provided in the GSSA, but the payment terms were improved in that (a) payments were conditioned upon assurance of Licence Extension of the 29 Cities Licences for the New System (Article 3.2(b)-(c) of the TCPSSA and paragraph 92(f)(i)-(ii) and also paragraph 99(b) above), and (b) if P2 was not able to meet the schedule set forth in the TCPSSA, the parties were required to reach a new payment schedule through amicable negotiations (Article 3 of the TCPSSA Addendum and paragraph 99(c) above).[78] 101.In my view, the “deployment of Beijing wireless broadband network” in Article 6 of the TCPSSA Addendum referred to works under the Disbursement Plan and D8 Worksheet (see paragraphs 40 and 52 and footnote 35 above) and the “Beijing City Government network” Tay referred to in his email to D6 dated 16 July 2008 (see paragraph 66 above), which works were improvisation works to the Existing System (not the construction of the New System) that Ds’ camp thought might be helpful in persuading MIIT to grant Licence Extension. In the same email, Tay explained why P1/Investor could not pay for the same from investor funds. Further, I have found the balance of the Subscription Price was not yet payable under the GSSA, which explained why the parties reached agreement on Article 6 of the TCPSSA Addendum (see paragraph 99(f) above) to arrange loans to fund such works outside the TCPSSA regime. 102.Consequently, Ps introduced interested lenders/investors to assist D8 in obtaining the desired loan, but such efforts came to nought as D8 did not accept their loan conditions.[79] Nevertheless, at D8’s request, P2 issued a certifying letter in/about May 2009 to support D8’s application for a credit line from Chinese banks. In April 2010, D8 informed Ps it received a RMB200,000,000 credit line from Hana Bank (see paragraph 87 above), but D8 did not provide details on utilisation of such credit line (eg whether it was deployed for the Beijing WBA network). There was some debate as to whether or not Ps played any role for the Hana Bank credit line that was secured via recommendation by Samsung Corporation (“Samsung”) upon understanding D8 would purchase equipment from Samsung.[80] On balance, I find it was through efforts by Ps’ camp in arranging meetings between D8 and Samsung and in helping D8 test Samsung’s equipment and review Samsung’s proposal that led Samsung to introduce D8 to Hana Bank.[81] This was reflected in the 10K Announcement of P1 for 31 December 2011 filed with the SEC on 16 April 2012 (C/501), and in the discussion in paragraphs 213-214 below. XX. SHARE CERTIFICATE AND SHARE PLEDGE 103.In paragraph 87 of the D&C, Ds averred that D1’s 49% Shares were allotted/issued in favour of P2, and claimed that since Ps paid the US$5M Sum and US$4.75 Sum (see Part XXVI below) totalling US$9,749,599 towards the Subscription Price (US$196,000,000), P2 became (a) the legal and beneficial owner of those shares out of the 49% Shares that corresponded to US$9,749,599 (121,875,000 D1’s shares), and (b) the pledgor of the remaining 2,328,125,000 shares out of the 49% Shares that were pledged to D8 pursuant to the 1st Note (see paragraph 105 below). So even on Ds’ case, by reason of the pledge of shares, P2 would not have beneficial interest in respect of the shares in (b) above. 104.In my view, the starting point was 16 February 2009 when the TCPSSA was signed and Closing took place. As envisaged under the TCPSSA, upon Closing, P2 shall become legal owner of the 49% Shares whereupon D1 shall (a) deliver share certificate for the 49% Shares to P2 and (b) enter the name of P2 into D1’s register of members/shareholders as holder of the 49% shares (see Article 4.2 of the TCPSSA and paragraph 92(e) above), and then (c) within 7 business days from Closing D1 was to file with the relevant companies registry(ies) or other authorities and provide to P2 documentary evidence relating to such filing in respect of allotment/issue of the 49% Shares (see Article 4.6 of the TCPSSA and paragraph 92(n) above). In my view, the TCPSSA envisaged transfer of legal ownership in the 49% Shares to P2 would require compliance with (a)-(b) above, and (c) above was to ensure completion of the registration record.[82] But to guarantee full payment of the balance of the Subscription Price which had not been paid and in line with Article 4 of the TCPSSA Addendum (see paragraph 99(d) above), the portion of the 49% Shares corresponding to the unpaid balance of the Subscription Price (“Portion Shares”) would be pledged back to D1, so the Portion Shares and share certificate would remain in D1’s physical possession. This explained why Article 4.2 of the TCPSSA (see paragraph 92(e) above) focused on legal ownership of the 49% Shares. 105.But what actually happened was that upon Closing on 16 February 2009, neither condition in paragraph 104(a)-(b) above was fulfilled. It was only on 23 February 2009 (ie 7 days after the scheduled date for Closing) that (a) D1 issued a share certificate naming P2 as holder of all the 49% Shares (“Share Certificate”) with no split between the Portion Shares and other shares, and (b) Tay (for P2) issued a legal note dated 23 February 2009 to D1, D2, D3 and D8[83] to pledge the Portion Shares to D1[84] (“1st Note”):[85]
106.Mr Hui submitted the TCPSSA was completed/closed on 23 February 2009 (although the TCPSSA expressly provided for Closing on 16 February 2009), and P2 was meant to have full benefit of the part of the 49% Shares which P2 had paid and/or would pay the relevant Subscription Price. It was also said that at all times Ps were satisfied with this (which Tay confirmed under cross-examination), and made no complaint at the time as to whether changes had been made in the Cayman Islands registry or D1’s register of members/shareholders. This contradicted Ds’ stance at the injunction proceedings when Ds asserted P2 was not a shareholder of D1 and hence did not have the right to claim proprietary interest in the money sitting in the frozen Accounts (see paragraph 76 of the Injunction Decision). 107.My short answer to this would be that transfer of legal title must be a matter of satisfying necessary legal requirements and would not turn on subjective views by Tay or others. There was no evidence D1 had complied with paragraph 104(b) above in respect of the 49% Shares. Further, although D1’s register of members/shareholders was necessarily in D1’s possession, Ds chose not to disclose such register despite Ps’ complaint of failure to enter P2’s name therein.[86] In the absence of evidence of Cayman Islands law, I note section 112(3) of the Companies Ordinance Cap 622 and the repealed section 28(2) of Companies (Winding Up and Miscellaneous Provisions) Ordinance Cap 32 provide for a person to become a member of a company when he so agrees and his name is entered in the company’s register of members, which was in line with Article 4.2 of the TCPSSA and Tay’s evidence (see paragraph 92(e) and footnote 82 above). Thus, mere delivery of the Share Certificate would not make P2 legal owner of the 49% Shares, and I find there was no legal transfer irrespective of the subjective views of Tay and/or others. Tay’s unconcern about such legal niceties at the time was easily understood, but it is necessary to first set out the APA Set (see paragraph 111 below) and 2nd Note (see paragraph 112 below) to put the matter in context. I pause to note the above contentions had not been raised with DHCJ Au-Yeung (as she then was) at the injunction proceedings, and she took the view there was arguable basis P2 became shareholder of D1 and owner of the 49% Shares (see paragraph 78 of the Injunction Decision). But this view was taken at an interlocutory stage without the benefit of full arguments at trial, and was not binding on this court. XXI. ASSET PURCHASE AGREEMENT, PROMISSORY NOTE AND PLEDGE AGREEMENT ALL DATED 9 MARCH 2009 108.On 9 March 2009, P2 sold its “Equity Interest” in D1’s shares under the TCPSSA to P1 for US$191,000,000 pursuant to an Asset Purchase Agreement (“APA”), a Promissory Note for P1’s payment of US$191,000,000 and interest (“PN”), and a Pledge Agreement for pledge of such “Equity Interest” to P2 as security for P1’s performance of obligations under the PN (“PA”). This was made the subject of an announcement in a Form 8-K dated 9 March 2009 filed with the SEC. 109.The Recitals of the APA were “deemed to be additional representations and warranties by [P2 as] the Seller” and provided inter alia as follows:
110.The following were inter alia essential terms of the APA:
111.Mr Hui placed strong emphasis on Recital D of the APA which, he submitted, demonstrated that P2 had acquired legal/beneficial ownership of the 49% Shares sold to P1, which was said to match Tay’s testimony. But one could not take a blinkered view of Recital D of the APA, which must be considered against all the Recitals in the context of (a) the TCPSSA, TCPSSA Addendum and 1st/2nd Notes (“TCPSSA Set”), (b) the APA, PN and PA (“APA Set”) and (c) the JV deal/Project as a whole. I will return to this below, but suffice to note here this was not D6’s earlier stance. In paragraph 81 of the Injunction Decision, DHCJ Au-Yeung (as she then was) noted that D6 alleged P2 had wrongly represented it was “the lawful record and beneficial owner of the 49% share in D1, free and clear of any and encumbrances whatsoever, and the sale would convey to P1 lawful, valid and indefeasible title”, which change of stance on the part of Ds’ camp raised concern. XXII. BORROWING SHARE CERTIFICATE 112.Tay on behalf of P2 issued a legal note dated 23 March 2009 to D8 and D1 (“2nd Note”) which stated as follows:
Tay explained P2 notionally received the Share Certificate (which did not split between the Portion Shares and balance of the 49% Shares), but all along such Share Certificate remained in the physical possession of Ds’ camp since (a) P2 had not paid the balance of the Subscription Price and (b) the Portion Shares were pledged back to D1 as security, so if P2 did not pay the balance of the Subscription Price as per the agreed schedule, D1 would be at liberty to sequest the Portion Shares and convert them back to D1 (see the 1st Note, and also paragraph 105 and footnote 85 above). XXIII. TCPSSA AND APA SETS 113.I have explained why the parties had to substitute Gulfstream and the GSSA with P2 and the TCPSSA (see Part XVII above). In my view, since (a) P1 was the investor-facing fundraising vehicle within Ps’ camp that wished to boost investor confidence by demonstrating (i) its interest in the Project (despite corporate disconnection with P2), (ii) its commitment to the Project that was seen as alive/ongoing, and (iii) its faith in D8 to secure Licence Extension for the 29 Cities Licences, but (b) there was corporate disconnection between P2 and P1 as P2 (unlike Gulfstream) was Tay’s company and not P1’s direct/indirect subsidiary, these matters had to be addressed in formulation of any marketing strategy to accelerate capital-raising from the Market. 114.But it was no easy task. Potential investors looked only to P1 and the track record of the Trussnet group to consider whether to invest in the Project, but there was corporate disconnection between P1 and P2 who was the Investor under the TCPSSA. Further, potential investors regarded valid 3.5GHz Licences for the 29 Cities as vitally important to the Project, but in reality the 29 Cities Licences expired with no Licence Extension. As explained above, delay in securing such Licence Extension made investors more cautious/conservative, which translated to a need to strategise the fundraising exercise. The marketing ploy adopted (and hence the scheme envisaged in the TCPSSA and APA Sets) was to present P2 (and then P1) as acquiring legal ownership of the 49% Shares (which would show (a) P1’s interest in the Project despite corporate disconnection with P2, and (b) P1’s commitment to the Project and faith in D8 securing Licence Extension). In my view, Ds’ camp was aware of such marketing strategy to encourage investment by investors and willingly entered into the TCPSSA Set, and shortly thereafter on back-to-back basis P1 and P2 entered into the APA Set that mirrored the TCPSSA Set. 115.Thus, provisions in the TCPSSA and APA dealing with ownership of the 49% Shares[87] were marketing strategy that had to be understood in the above context and that was brought about by D8’s delay in securing Licence Extension for the 29 Cities Licences and the need to accommodate D6’s/D7’s request for personal fees. In such context, there could not have been and there was no abandonment of the need for assurance of Licence Extension for the 29 Cities Licences and other contractual preconditions/provisions in the TCPSSA (as adjusted by the TCPSSA Addendum) for payment of the Subscription Price as Ds suggested. 116.Thus, despite Mr Hui’s reliance on Recital D of the APA (see paragraph 109(d) above), I find such provision did not reflect any alleged abandonment referred to in the above paragraph. Recitals A-C of the APA made clear Licence Extension for the 29 Cities Licences and the entitlement of the Project’s SPVs to revenue from 3.5GHz Services in the 29 Cities (which necessarily depended on such Licence Extension) remained vitally important. So the bargain under the JV deal pursuant to the TCPSSA was not bare acquisition of legal ownership of the 49% Shares, and instead the Project required 3.5GHz Business to be carried on at the 29 Cities on JV basis pursuant to renewed/extended 29 Cities Licence to earn revenue/fees from such business. Moreover, the fact the TCPSSA and APA Sets were marketing strategy adopted for accelerating fundraising was also borne out by the following:
117.But marketing strategy aside, the TCPSSA fairly contained countervailing provisions as a matter of precaution for Ds’ camp since P2 had not paid the balance of the Subscription Price. Such protection came in the form of letting D1 retain possession of the Share Certificate for all 49% Shares and having P2 pledge the Portion Shares back to P1 by the 1st Note (which was mirrored by PN/PA under the APA Set between P1 and P2). In such circumstances, I disagree with Ps’ averment in paragraph 48 of the R&DC that the APA merely dealt with equitable interests in respect of the “Equity Interest” referred therein. In my view, the share pledge under the 1st Note envisaged beneficial interest of the Portion Shares remained with D1 and not with P2. 118.On the face of the terms of the TCPSSA and APA Sets, the envisaged marketing strategy was to give legal ownership of the 49% Shares to P2/P1 and to retain beneficial ownership of the Portion Shares with D1/P2, which in practical terms would only give option to purchase the Portion Shares by paying the corresponding Subscription Price as per the payment schedule in the TCPSSA/APA as explained in the 10K Announcement of P1 for 31 December 2011 filed on 16 April 2012:
119.But Ds’ camp put the spanner in the arrangements envisaged in the TCPSSA and APA when they went beyond the protection afforded under the TCPSSA Set (see paragraph 117 above) by not entering P2’s name in D1’s register of members/shareholders. As a result and as explained in paragraph 107 above, P2 was not the legal owner of the 49% Shares nor beneficial owner of the Portion Shares because (a) the Portion Shares were pledged back to D1 under the 1st Note and (b) the balance of the Subscription Price was yet unpaid. But Tay / Ps’ camp appeared unconcerned because they were quite satisfied the arrangements envisaged in the TCPSSA/APA Sets and publicly announced in Form 8-K dated 9 March 2009 filed with the SEC[89] would boost investor confidence and enhance fundraising. Also, there were no practical worries (i) for Ps’ camp as the bulk of the Subscription Price was still unpaid and the Portion Shares had been pledged back to D1 and/or (ii) for Ds’ camp as they had the 1st/2nd Notes to hand and P2’s name had not been entered in D1’s register of members/shareholders. 120.In any event, Mr Hui’s reference to the APA Set would not take Ds’ case any further because with further delay in Licence Extension for the 29 Cities Licences, the maturity date of the PN was extended several times,[90] and eventually the APA was terminated by adopting a different structure, but even that was not effective (see Part XXIX below). 121.In paragraph 72 of the D&C, Ds complained that since P2 by the APA sold all legal/beneficial interest in D1’s 49% Shares acquired under the TCPSSA for good consideration of US$191,000,000 to P1, and Ds had not received any Deed of Adherence from P2, P2 was in breach of Article 30 of the TCPSSA (see paragraph 92(aa)-(ac) above). First, as explained above, P2 did not acquire legal/beneficial interest in all the 49% Shares. Secondly, Article 30 of the TCPSSA concerned rights/obligations under the TCPSSA but not transfer of shares in D1, so P2 was not in breach of such provision (see paragraph 49 of the R&DC). XXIV. 3.5GHZ LICENCE FOR 12 CITIES 122.In July 2009, D8 secured MIIT’s approval letter for a 3.5GHz Licence dated 17 July 2009 covering 12 out of the 29 Cities (“12 Cities”) for a term of 2 years (not 5 years) with expiry on 17 July 2011 (“12 Cities Licence”). On 11 August 2009, D6 emailed to notify Tay about the 12 Cities Licence and to claim as follows:
123.D8’s above assertions were not supported by MIIT’s oral/ written confirmation, and Ps were understandably disappointed with the 12 Cities Licence covering just the 12 Cities for a validity period of just 2 years. Tay complained to D6 it was commercially risky to make significant investment in construction of the New System for 3.5GHz Business at just 12 Cities for just 2 years, which changed the underlying premise for the Project that concerned 3.5GHz Business in the 29 Cities for 5 years. But D6-D8 reassured Ps’ camp and reiterated the explanation given in D6’s email dated 11 August 2009 (see paragraph 122 above).[91] With (a) D6’s/D7’s such assurances, (b) D6’s arrangement for Tay to visit MIIT (see paragraph 136(c) below) and (c) Tay’s personal effort to verify that no company (other than D8) had secured 3.5GHz Licence for the 12 Cities, Tay felt there was no competitor as yet, and was persuaded by representations from Ds’ camp that if certain improvisation/infrastructure works as requested by MIIT were done, then MIIT would gradually see its way to approve 3.5GHz Licences for D8 in respect of all 29 Cities.[92] 124.So Ps’ team continued with Ps’ Preparatory Works, and (given D6’s assertions set out in paragraph 122(b)-(d) above) developed a comprehensive business plan for deployment/operation of the 3.5GHz WBA network for the 12 Cities (but these works were on the Existing System rather than the New System). Despite such efforts, it later transpired no 3.5GHz Licence was issued to D8 for the 17 Cities, which showed D6’s assertions in his email dated 11 August 2009 were unreliable. XXV. FURTHER DEVELOPMENTS 125.In the meantime, Ps’ camp continued with fundraising pending Licence Extension for the 29 Cities Licence. On 24 August 2009, Li (for Tay) emailed D6 (C/280-281) by way of due diligence a summary of requests/matters raised by an investor Olotoa: (a) financial information of D1, (b) control on disbursement of funds, (c) TCPSSA Addendum and associated payments, (d) ownership certificates and receipts for the fibre optics network, and (e) ownership of D1’s subsidiaries. Ds’ camp did not resolve these matters, and D8 did not accept Olotoa’s request for fund control, so Olotoa decided to withdraw their investment commitment. This was borne out by Li’s email dated 9 January 2010 to D6 discussed in paragraph 127 below. 126.On 4 January 2010, D6 emailed Tay (C/279) to press for further injection of funds, alleging (a) Ps’ failure to make promised payment of US$3,000,000 by 31 March 2009, (b) Ps’ failure to make instalment payments of the Subscription Price under the TCPSSA upon Licence Extension for D8’s 3.5GHz Licences, (c) Ps’ failure to make capital injection for the WOFIE (ie Yunji) despite expiry of the deadline on 31 December 2009, and (d) Ps had not paid capital injection or fund payment at all. 127.On 9 January 2010, Li (for Tay) replied by email (C/278-279) to say since February 2008 Ps’ camp had made efforts to raise investment funds for the Project, but Ps’ camp lost many capital-raising opportunities and some committed investors cancelled their investment contracts due to delay in Licence Extension for the 29 Cities Licences. Li also complained that even though the transaction documents were premised on successful Licence Extension for the 29 Cities Licences,
In my view, Ps’ stance in such email was consistent with and supported my findings in Part XXIII above. 128.As for the alleged promise to pay US$3,000,000 by 31 March 2009 (see paragraph 126(a) above), Li’s email dated 9 January 2010 (a) noted in February 2009 D8 claimed the renewed/extended 29 Cities Licences would be issued soon as they were just waiting for the relevant MIIT official to affix the official chop, and (b) stated it was upon D8’s such assurance that Ps’ camp agreed to arrange payment of US$3,000,000 to D8 for “項目建設”, but as there was no Licence Extension for all the 29 Cities even up till July 2009, locked investment funds for such purpose had to be cancelled, which increased fundraising difficulties for Ps’ camp. I reiterate Article 6 of the TCPSSA Addendum (see paragraph 99(f) above) and paragraphs 87 and 101-102 above. As for alleged failure to pay the balance of the Subscription Price and capital injection for the WOFIE (ie Yunji) (see paragraph 126(b)-(d) above), I have found the balance of the Subscription Price was not yet payable (see paragraph 97-98 above), which was also reflected in Li’s email reply dated 9 January 2010 (see paragraph 127 above and paragraph 129 below). 129.Li’s email dated 9 January 2010 went on to say as follows:
130.As explained in paragraph 114 above and supported by Li’s email dated 9 January 2010 (see paragraphs 127 and 129 above), I have found the main fundraising difficulty for Ps’ camp was delay in Licence Extension for the 29 Cities Licences[93] rather than inability on their part to raise capital, and the longer Licence Extension was delayed the more nervous investors would become, so the more due diligence requirements they would impose to make sure what was presented to them was credible. So as time went by, even though Ps’ camp could bring in more investors, the committed/new investors would require more control over their investment funds and more due diligence on utilisation of such funds. 131.But despite being unhappy over absence (as yet) of Licence Extension for all the 29 Cities, in January 2010 Ps’ camp (in view of the allegations by Ds’ camp in paragraph 122(b)-(d) above) was nonetheless prepared to give D’s camp some funds subject to investor requirements. But the balance of the Subscription Price under the TCPSSA was not yet payable, so Tay made clear to D6/D7 such proposal was outside the TCPSSA regime and was made on the following conditions: (a) Ps’/Ds’ camps were to have joint control by placing such monies in bank accounts to be jointly operated by both parties (ie Double Signatures Arrangement), and (b) such monies would have to be returned to Ps’ camp if the agreed conditions for their use were not met. Given the history of the Project and the absence of Licence Extension for all the 29 Cities so far, I do not believe Ps’ camp would have allowed Ds’ camp free rein over any funds they brought in. 132.Thus, Li’s email dated 9 January 2010 advised D6 that notwithstanding increased difficulties in raising capital in the Market, Ps’ camp found a new investor (which Tay said was a small American investor who was willing to put up bridging funds of about US$2,000,000 – US$3,000,000), so Tay (who went to Hong Kong to make relevant arrangements) hoped to make some payment to Ds in mid-January 2010. I accept such investor initially requested for a separate account to place his investment funds, so he could (a) operate/control such account pursuant to the Double Signatures Arrangement (with 1 co-signatory nominated by each of Ps’ and Ds’ camps) so his funds would only be released for use by Ds’ camp upon Tay’s advice and/or (b) withdraw his funds from such account if Ds’ camp did not deliver on promised conditions. But D6 insisted on unilateral control over such funds[94] and did not make firm commitment on the investor’s conditions for release of investment funds (which raised concern for the investor). With tension between the investor’s wish for control and D6’s refusal to give up control, the funding deal eventually fell through, so no new funds were paid to Ds’ camp in mid-January 2010. But I cannot see how these negotiations outside the TCPSSA regime could amount to any breach/default by Ps’ camp, and they certainly would not suggest waiver of the precondition of assurance as to Licence Extension for the 29 Cities Licences. Indeed, it was insistence by Ds’ camp on such Licence Extension (such that the balance of the Subscription Price not yet payable) that took such negotiations outside the TCPSSA regime. 133.On 23 March 2010, Li sent email to Li Hongji (C/277-278) to follow up on the outstanding “open issues” (see paragraph 74 above), which concerned (a) verification of the legality of the 12 Cities Licence, (b) shareholding issues in relation to D9 and D8’s subsidiary in Guangzhou, (c) change of Yunji’s bank account to one requiring joint signatures before receipt of fund injection, (d) ownership of D8’s fibre optic lines network, (e) disclosure of tax invoices in relation to deployment of fibre optic lines, and (f) resolution of the issue of D8’s state ownership status. There was no evidence these “open issues” were resolved. 134.On 31 March 2010, D6 sent email to Tay (C/270) saying inter alia that:
Such email referred to 2 matters required for postponement of the deadline for Yunji’s full capitalisation to 30 April 2010, ie (a) “如我們能證明在香港有資金”, and (b) “4月份內能有1500萬美元資金到賬”. 135.Tay explained at that time Yi Zhuang / BDA (a high-tech industrial park in Beijing) authority was helping Yunji with business licence matters, and BDA would submit a package proposal to the relevant authorities on Yunji’s behalf if Yunji would set up its offices at the industrial park. The BDA authority worked on local requirements for setting up a WOFIE as a means to attract foreign investor/investment to the industrial park. Indeed, as early as in 2008, Tay’s email dated 16 July 2008 already referred to the “Yi Zhuang contract” (see paragraph 66 above). 136.I accept D6/D7 told Tay unless the deadline for capital injection in Yunji (ie the WOFIE) was postponed, its business licence could be revoked with negative consequences. The deadline for Yunji’s full capitalisation had been previously postponed,[95] but the postponed deadline was due to expire, so in early 2010 D6/D7 told Ps’ camp there was urgent need of funds otherwise Yunji’s business licence might be revoked. Although D8 had not secured Licence Extension for the 29 Cities Licences and despite the problems in relation to the Project thus far, Tay negotiated with D6 in good faith to find a way to provide some funds to again postpone such deadline so as to save the WOFIE (ie Yunji) and protect the Project because Ps’ camp:
137.For paragraph 134(a) above, Tay understood during negotiations with D6 that full capitalisation for Yunji could be postponed and Yunji’s business licence preserved if inter alia it could be shown there were funds in Hong Kong to a tune of US$4,750,000 dedicated for Yunji’s capital. So Tay agreed (albeit reluctantly) for Ps to pay the US$4.75 Sum to Chinacomm Account 1 even though (a) there was as yet no Licence Extension for the 29 Cities Licence, and (b) Ps were unhappy about lack of information as to Ds’ utilisation of the US$5M Sum. I will deal with the US$4.75M Sum in Part XXVI below. 138.For paragraph 134(b) above, although the balance of the Subscription Price was not yet payable, Tay confirmed Ps was prepared to inject US$15,000,000 to support the WOFIE subject to (a) Ps’/Ds’ camps reaching agreement on equipment vendor selection (since ultimately such monies would be used for equipment purchase after booking as part of Yunji’s capital injection), and (b) implementation of the Double Signatures Arrangement for Yunji’s bank account, which explained references to promised payment of US$15,000,000 in D6’s emails dated 31 March and 24 August 2010 (see paragraph below). But as neither precondition in (a)-(b) above was fulfilled, Ps were not obliged to pay such sum. 139.On 24 August 2010, D6 sent email to Tay (C/275) as follows:
140.Tay explained (and I accept) this email must be understood in the following context: (a) he had told D6 (who actually knew) assurance of Licence Extension for the 29 Cities Licence was essential to the JV deal/ Project, and (b) even though D6, Li Hongji and others from Ds’ camp routinely telephoned to ask him for monies he told D6 the balance of the Subscription Price would not be paid without assurance of Licence Extension for the 29 Cities Licence (see Article 3.2(b) and Schedule 3(j) of the TCPSSA and paragraphs 92(f)(i) and (g) above). 141.As I have explained, Ds’ camp could not complain about P1’s involvement since they knew it was the fundraising vehicle for the Project, and the TCPSSA provided for the balance of the Subscription Price to be paid by P2 or its “Associate Company”. In light of my findings, D6’s complaints in paragraph 139 above were unreasonable. I see no justifiable reason for D6’s allegation that publicity over the JV Project in respect of 3.5GHz Business in the 29 Cities “與事實嚴重不符” when this was the very essence of the TCPSSA (adjusted by the TCPSSA Addendum), and Ds’ camp knew the TCPSSA replaced the GSSA in order to inter alia boost investor confidence, facilitate fundraising and accommodate D6’s/D7’s request for personal fees. 142.As regards reference to “[P2]在2008年北京奧運期間在北京建設了wifi網絡，在北京、上海、深圳的wifi網絡共發展了40-50萬用戶”, Tay explained (and I accept) (a) this related to D8’s Existing System and not the New System, (b) D8 was supposed to improvise the Existing System (but lacked relevant know-how) to maximise its utilisation, (c) Ps’ camp brought in an American wifi vendor to work with Ps’ team to improvise the Existing System for D8, and (d) it was P’s camp’s initiative, experience, resourcefulness and contribution that enabled D8 offer 500,000 user capacity on its Existing System during the Games season to earn additional revenue that went to D8 and not Ps’ camp. I accept Ps’ camp understandably regarded such beneficial outcome to be the result of their efforts and therefore publicised their efforts/capabilities to investors, but D6 was miffed because Ps’ camp did not give due recognition to him and Ds’ camp by failing to issue the publicity statement jointly with them. More importantly, as Tay said, D6’s complaints (which I find unmeritorious) concerned the Existing System which was a separate issue from D6’s demand for monies for the Project, and the attempt to bring these 2 matters together created unnecessary confusion. 143.On 30 August 2010, Li (for Tay) emailed D6 to point out Ds’ camp failed to (a) set up joint signatory bank accounts for safe/effective use of funds that might be injected by Ps’ camp, (b) agree upon choice of equipment and (c) decide on strategy for 3.5GHz WBA network construction, which led to delay for fund injection as investors became concerned over such recalcitrance. 144.Further, D6’s email of 31 March 2010 requested injection of US$15,000,000 by 30 April 2010 and warned otherwise the WOFIE “將被注銷”, but I reiterate my findings in paragraph 138 above. I note the original deadline for capital injection into the WOFIE (ie Yunji) on 7 July 2008 (see paragraph 42(d) above) had been postponed several times, which was also borne out by D6’s email dated 4 January 2010 that referred to deadline for capital injection into the WOFIE (ie Yunji) by 31 December 2009 (see paragraph 126 (c) above). As seen in Part XXVI below, Ps’ camp paid the US$4.75M Sum in April 2010 to aid postponement of Yunji’s required capitalisation, and the aforesaid deadline was again postponed (see D6’s email dated 24 August 2010 in paragraph 139 above that referred to the then “最後注資期限” of 30 June 2010). In the circumstances, the WOFIE (ie Yunji) was preserved by various extensions of the deadline for capital injection (at least beyond 30 April 2010). XXVI. US$4.75 SUM 145.Ds’ pleadings alleged P2 waived all terms, conditions and warranties relating to Licence Extension of the 29 Cities Licences in the TCPSSA, including but not limited to Schedule 3(j) thereof:
Ds averred Ps’ camp only paid the US$4.75M Sum on divers dates between April and June 2010 as part payment of the Subscription Price and not as part of the promised sum of US$30,000,000, so Tay was not entitled to be joint signatory to Chinacomm Account 1 and Smart Channel Account, and Ds’ camp was entitled to cancel the Double Signatures Arrangement which D1 did in May 2011 by resolution of its board of directors. 146.But D6 did not attend court to give evidence, so there was no evidence to support the above allegations, including Tay’s alleged promises firstly to pay US$50,000,000 and later to pay US$30,000,000, and the alleged conditions for such purported promises to pay. I reiterate my findings in Part XXV above as to what happened in January to August 2010, and no email emanating from Li (for Tay) or D6 referred to any alleged promise made in early January 2010 to pay of US$30,000,000 or any earlier promise to pay US$50,000,000. 147.As I have explained, payment of the balance of the Subscription Price under the TCPSSA did not turn on issuance of the Share Certificate or payment of the US$4.75 Sum. In any event, I find it highly improbable Tay would have promised to pay US$30,000,000 given the terms of the TCPSSA, history of the Project so far, concerns by Ps’ camp / investors over assurance as to Licence Extension for the 29 Cities Licences and over control of funds to be paid, and D6’s email dated 31 March 2010 that addressed the matter of postponement of deadline for Yunji’s full capitalisation (see paragraph 134 above), which would defeat any suggestion that Tay’s alleged promise in April 2010 to pay US$30,000,000 amounted to waiver of all terms, conditions and warranties relating to Licence Extension for the 29 Cities Licences, including Article 3.2(b)-(c) and Schedule 3(j) in the TCPSSA. Such alleged waiver also did not sit well with the parties’ usual practice of altering terms of their signed transaction agreement by supplementary agreement or addendum. 148.I prefer Ps’ case that the US$4.75 Sum was not part of the Subscription Price, but a sum requested of Ps’ camp by D1 and D6-D8 to rescue the WOFIE (ie Yunji) (see paragraphs 134-137 above) subject to strict scrutiny by Ps’ camp pursuant to the Double Signatures Arrangement for the newly opened Chinacomm Account 1 and Smart Channel Account (see paragraphs 66-71 of the R&DC). Tay confirmed the US$4.75M Sum was not paid pursuant to any written agreement (see paragraphs 133-134 of his witness statement). I further find D6/D7 knew there was still need for assurance of Licence Extension for the 29 Cities Licence before payment of the balance of the Subscription Price, which precondition had not been abandoned. 149.I reiterate my findings in paragraph 136 above, and note Tay negotiated with D6 to find a way to save the WOFIE (ie Yunji) and to protect the Project by providing some funds with a view to postpone the deadline for Yunji’s full capital injection. Tay understood from D6 during such negotiations this could be achieved if it could be shown inter alia there were funds in Hong Kong to a tune of US$4,750,000 dedicated for Yunji’s capital. So Tay for Ps and D6/D7 for themselves and D1/D8 agreed (albeit reluctantly) for Ps to pay the US$4.75 Sum for such purpose even though (a) there was still no Licence Extension for the 29 Cities Licence as yet, and (b) Ps were unhappy about lack of information as to Ds’ utilisation of the US$5M Sum. But in view of the Samsung/Huawei incident discussed in paragraphs 213-214 below, Tay was concerned D6 - D8 might unilaterally select design/equipment supplier and unilaterally disburse the US$4.75 Sum, so Tay requested and it was agreed to have the Double Signatures Arrangement for the bank accounts that would receive such monies (which meant no withdrawals were to be made without consent by Tay for Ps’ camp), which monies would be routed via D1 to D4 and then to the WOFIE (ie Yunji) (“2nd Agreed Route”) to be booked as part of its capital injection (“2nd Agreed Purpose”) before utilisation for D8’s acquisition of additional equipment for works under the 12 Cities Licence (which ultimate use Ds’ camp thought would facilitate Licence Extension) the selection of which was to be jointly approved by Ps’/Ds’ camps.[96] 150.I find on balance D6/D7 (see paragraph 152 below for D7’s participation) for themselves and D1/D8 committed/agreed to the Double Signatures Arrangement (which would assure use of the US$4.75M Sum for the 2nd Agreed Purpose, failing which the monies would be returned to Ps) and the 2nd Agreed Route/Purpose, and it was pursuant to such agreed conditions that Tay (for Ps) agreed to pay the US$4.75M Sum. Tay/Li was assured by the Double Signatures Arrangement for the bank accounts that would receive such monies, which would allow Ps to retain tight control over use of such monies, and by the fact D1’s new bank account for such purpose was with a bank in Hong Kong.[97] 151.In this way, Ps made a commercial decision to fund D1 “ahead of deadline”, ie before the balance of the Subscription Price under the TCPSSA (as adjusted by the TCPSSA Addendum) was payable (see paragraph 45 of the Injunction Decision). After all, there was still no Licence Extension for the 29 Cities Licences and/or no adequate evidence thereof. In my view (and as Tay said), Ps’ payment of the US$4.75 Sum (subject to the Double Signatures Arrangement and dedicated for the 2nd Agreed Purpose via the 2nd Agreed Route) was outside the TCPSSA or written contractual regime, but if everything eventuated (eg Articles 3.2(b)-(c) of the TCPSSA and Subsequent Payment Conditions in Schedule 3 thereof were fulfilled), it would be taken into account as part of the Subscription Price.[98] This probably explained why there was no written agreement (even though Ps’/Ds’ camps were all along careful in reducing their agreements concerning subscription/shareholders matters and amendments thereof in writing). But this did not mean Ps no longer insisted on Licence Extension for the 29 Cities Licences. On the contrary, I find it was because Ps’ camp still insisted on such preconditions in Article 3.2(b)-(c) and the Subsequent Payment Conditions (including Schedule 3(j)) of the TCPSSA that they paid the US$4.75M Sum outside the contractual regime. 152.On 31 March 2010, D6 sent email to Tay (C/270-271) asking him to bring necessary documents for opening bank account for receipt of the US$4.75M Sum, and giving SCB’s contact details and name of the handling relationship manager, ie Jodie Lin (“Lin”). Tay took the precaution of carrying out personal due diligence by meeting Lin with D6/D7 and Li before opening the new bank accounts for D1 and D4, and asked Lin to explain the operation of the Double Signatures Arrangement. Tay/Li were assured these bank accounts would be operated as joint accounts, which Lin said should be quite safe. Tay/Li therefore believed Ps’/Ds’ camps would have joint control over such bank accounts, monies would not be released from such bank accounts without Tay’s express agreement/approval, and Tay would not be removed as co-signatory. 153.On 9 April 2010, D6 sent email to Tay (C/272) asking him to contact Lin for opening bank account. Tay recalled he signed specimen signature forms for SCB. On 21 April 2010, Lin sent email to Tay and D6 (C/249) to confirm Chinacomm Account 1 and Smart Channel Account were opened, “這兩個戶口都是按閣下要求新開的, 要兩個人同時簽字才可以付款 ……” SCB confirmed that since early April 2010 Tay was a co-signatory of Chinacomm Account 1,[99] so the original mandate was that both Tay and D6 were joint signatories.[100] On 21 April 2010, D6 sent email to Tay (C/273) saying the relevant bank accounts had been opened, and requesting Tay to make remittance. 154.The bank statements of Chinacomm Account 1 showed that on 26-27 and 30 April and 3, 6-7 and 11 May 2010 P2 remitted a total sum of US$1,999,951 into such bank account, and on 11, 18, 24 May and 10-11 and 21 June 2010 P1 remitted US$2,749,648 into such bank account, so the balance as at 21 June 2010 was US$4,749,599 (ie the US$4.75 Sum). 155.The monthly bank statements of Chinacomm Account 1 were sent to D1, but Lin also sent such statements to Tay who received them up until January 2011. They showed the US$4.75 Sum remained intact in such bank account even though it was intended to be for the 2nd Agreed Purpose via the 2nd Agreed Route. Tay explained this was because Ps’/Ds’ camp failed to agree on (a) the joint signatory arrangement for Yunji’s bank account that was supposed to receive the US$4.75M Sum for booking as part of capital injection for Yunji under the 2nd Agreed Purpose, and (b) equipment vendor selection (see paragraph 149 above). This also explained why despite P2’s earlier indication of provision of US$15,000,000, no more funds were injected after the US$4.75 Sum (see paragraph 138 above). Nevertheless, the WOFIE (ie Yunji) was “rescued” in the sense that the deadline of 30 April 2010 for capital injection was postponed (see paragraph 144 above). 156.On 12 January 2011, Lin sent email to Tay (C/255) to advise she would leave SCB on 18 January 2011. Tay was told the new relationship manager was Timmy Lam (“Lam”). Since January 2011 SCB no longer sent monthly bank statements to Tay, but given Lin’s previous assurances Tay believed the US$4.75M Sum would not be removed without his consent, so he was not bothered by non-receipt of the bank statements for a few months. In the meantime, Tay tried but failed to contact Lam, who either could not be reached or was not responsive. Then from June to August 2011 Tay travelled extensively in Latin America and other parts of the world on business, so he did not manage to chase up Lam. 157.The 12 Cities Licence expired in July 2011. By August 2011, Tay found out from D8 that such licence was not extended. Although Tay was prepared to give D8 2 months to sort this out, he felt uncomfortable and asked PRC lawyers to consider taking legal action. Tay also asked Ps’ chief financial officer to write to SCB for the monthly bank statements of Chinacomm Account 1. Tay finally reached Lam and asked about D1’s monthly bank statements, but Lam told him it was not convenient to reveal matters to him and he should ask lawyers to write to SCB. Tay consulted Li, and asked Ps’ solicitors to write to SCB. Correspondence between SCB and Ps’ solicitors in November 2011 revealed the Double Signatures Arrangement for Chinacomm Account 1 had been revoked and Tay was no longer an authorised co-signatory.[101] Tay was shocked because he never consented/authorised removal of his co-signatory mandate. It eventually transpired that by a purported resolution of D1’s board of directors (ie D6 and D7) dated 24 May 2011, it was resolved Chinacomm Account 1 would be operated by D6 solely.[102] Ds claimed (but I disagree) they cancelled the Double Signatures Arrangement because they decided to terminate business relationship with Ps’ camp. I discern no justifiable basis for Ds’ camp to terminate the TCPSSA (as adjusted by the TCPSSA Addendum), and in any event such alleged secret termination was not communicated to Ps’ camp, and Ds’ camp also kept silent on cancellation of the Double Signatures Arrangement until things unravelled after commencement of the present action. Indeed, Tay said Ps’ team continued to work at D8’s offices until some 6 months later in October 2011 (which was close to the time when Tay discovered the secret revocation of his co-signatory right for Chinacomm Account 1) D8 asked them to leave. 158.In my view, D1, D6 and D7 by unilaterally removing Tay as authorised co-signatory of Chinacomm Account 1 were in breach of the agreement/understanding set out in paragraph 149 above. D6/D7 were in control of D1’s board of directors, and plainly they cancelled the Double Signatures Arrangement behind Tay’s back to avoid joint control by Tay / Ps’ camp and to enable D6 to solely operate Chinacomm Account 1 to make transfer withdrawals for Ds’ own purpose rather than for the 2nd Agreed Purpose via the 2nd Agreed Route.[103] 159.As a result, Ps successfully applied for the 1st Injunction Order in November 2011, and learned from consequent disclosure of bank statements for the Accounts that there was no activity in Chinacomm Account 1 up to May 2011, but on 20 June 2011 there was transfer withdrawal of US$50,000 (“US$50,000 Withdrawal”) and on 21 June 2011 US$4,500,000 (ie the US$4.5M Sum) was transferred to the D10 Account (ie the US$4.5M Transfer) leaving a balance of US$199,577 in such account. Tay said (and I accept) such debit transactions effected without his knowledge/signature were treacherous misappropriation/dissipation by D1, D6 and D7 that was made in bad faith. Ps claimed the US$4.75M Sum that Ps deposited in Chinacomm Account 1 was subject to Quistclose trust, so the monies still belonged to Ps on failure of the agreed specific purpose of the trust (ie 2nd Agreed Purpose), and I will turn to such contention in Part XXXI below. But suffice to say here that even on Ds’ case that Ds’ camp decided to terminate business relationship with Ps’ camp without telling them (which I reject), D1, D6 and D7 had no right to thereafter effect the US$4.5M Transfer for alleged expenditure for the Project. XXVII. US$50,000 WITHDRAWAL 160.Ds initially claimed the US$50,000 Withdrawal was transferred to the nominee account of the PRC lawyers of Ds’ camp to settle outstanding fees, but the confirmation letter dated 30 March 2012 by Hankun Law Offices[104] claimed such payment was paid to them rather than any nominee account. Ps’ camp had no idea about the nature of the legal expenses allegedly incurred or the alleged work done by such PRC lawyers, and Tay had not approved such payment. In my view, D1, D6 and D7 obviously made the US$50,000 Withdrawal unilaterally after secret cancellation of the Double Signatures Arrangement for Chinacomm Account 1 in clear and material breach of agreement in relation to the Double Signatures Arrangement and 2nd Agreed Purpose/Route in paragraph 149 above. XXVIII. US$4.5M SUM 161.The bank statements in respect of the D10 Account showed deposit of the US$4.5M Sum on 21 June 2011, and on the following day (ie 22 June 2011) US$200,000, US$1,080,020.58, US$1,200,000 and US$2,000,020.57 were transferred out of such bank account, and a further sum of US$200,020.57 was transferred to become a 1-month fixed deposit of US$200,000 to mature on 22 July 2011. Upon maturity of such fixed deposit, it was credited back to the D10 Account and left to idle until 10 August 2011 when US$20,000 was withdrawn in cash and 22 November 2011 when US$190,032.08 was withdrawn as “Outward TT”, leaving a balance of US$10,015.08 in such bank account. Ps claimed the US$4.5M Transfer and these transfer withdrawals out of the D10 Account (collectively, “D10 Transfers”) were unauthorised/unjustified, and D10 was liable for dissipation of the US$4.5M Sum. 162.D10 explained the US$4.5M and D10 Transfers by claiming he acted as guarantor, surety and/or escrow agent for the lender(s) of a RMB loan to D8. In his witness statement filed on 17 February 2017 (“D10 Statement”), D10 claimed inter alia that:
163.Ds did not produce the Chinese deed of guarantee, but instead disclosed a Chinese “抵押協定” (“Surety Agreement”) dated 18 June 2011 between D1 as Party A and D10 as Party B. The Surety Agreement provided “乙方之委托人[whom D10 said was Wu Jiang and Sun]向[D8]提供借款, [Party A being D1]願為[D8]提供抵押擔保事宜達成協議如下”:
Interestingly, the lender was not named in the Surety Agreement, and there was no explanation in the Surety Agreement or otherwise why the Loan was needed for 1 month. 164.The D10 Statement went on to explain that on 21 June 2011 the US$4.5M Sum was remitted to D10’s personal D10 Account with DBS in Hong Kong, and then transferred to recipients nominated by Wu Jiang and Sun as repayment.[105] D10 elaborated as follows in the D10 Statement:
165.D10 knew the US$4.5M Sum deposited into the D10 Account on 21 July 2011 came from D1’s bank account, but claimed to be unaware Tay had been removed as co-signatory of such bank account. But on balance I reject D10’s such assertion, and find he lied to the court about his alleged lack of knowledge. D10 was quite prepared to tell untruths about the state of his knowledge. After all, D10 also claimed to be unaware of the 2nd Injunction Order, and further claimed to have no impression of being required to disclose information as to recipients of the D10 Transfers. He even suggested (a) “I recall we might not have already engaged lawyer on this” and (b) documents might have been sent to D6. D10 also alleged he was unaware of Ds’ application to discharge the Injunction Orders in 2012. But despite such efforts to distance himself from the injunction proceedings, D10 was constrained to accept he was legally represented for such proceedings, and was so represented when he signed the D10 1st/2nd Affs in early 2012. In fact, Notice to Act was filed by D10’s solicitors on his behalf on 15 December 2011. This severely undermined D10’s claim that “[all] along [he] was not aware of the [D10 Account] being frozen”. I also do not believe D10’s assertion that he knew he was a defendant, but left all other matters to be dealt with by D6 on his behalf. His solicitors did not such resort to such irresponsible attitude because (a) the D10 1st Aff expressly stated it was filed for making disclosure under the 2nd Injunction Order and the D10 2nd Aff expressly stated it was filed for opposing Ps’ application for further disclosure, and (b) the contents of both such affirmations had been interpreted to D10. I am unable to place any weight on D10’s alleged ignorance, which I find to be nothing more than a poor attempt to shy from his collusion with D6/D7 to dissipate the US$4.5M Sum. 166.Like Ps, I find the so-called Loan and surety arrangement suspicious/unbelievable, and further find D10 lied to the court about such transactions notwithstanding the Surety Agreement which I find to be sham to cover up misappropriation/dissipation of the US$4.5M Sum (see paragraphs 125-126 of the Amended Statement of Claim (“ASoC”)), which came from the US$4.75M Sum that ought not to have been removed from Chinacomm Account 1 without Tay’s co-signature/consent. On balance, I wholly reject Ds’ case in respect of the US$4.5M and D10 Transfers, and find D6, D7 and D10 were collusive cohorts in misappropriating/ dissipating the US$4.5 Sum by putting it out of Ps’ reach. It must not be forgotten that D6/D7 secretly cancelled the Double Signatures Arrangement for Chinacomm Account 1 so as to unilaterally effect the US$50,000 Withdrawal and US$4.5M Transfer, and (as seen below) D10 worked closely with D6 to open the D10 Account to receive the US$4.5M Sum, and to make the D10 Transfers as alleged “repayment” of the Loan, which contention I reject. 167.First, there was serious doubt about the alleged Loan as there was unreliable shift in D10’s evidence as to the identity of the lender. In the D10 1st Aff, D10 claimed he held the US$4.5M Sum as surety/ guarantor for the lender Wu Jiang who advanced to D8 the Loan of RMB30,000,000 by payment to the bank account of D9 (whose legal representative was D10) in Mainland China, which loan monies were later transferred to D8. D10 went on to say in the event D8 failed to repay the Loan to the lender, he undertook/guaranteed to repay US$4,500,000 to the lender (ie by the surety sum being the US$4.5M Sum). But in the D10 2nd Aff, D10 claimed it was at his request in June 2011 that Sun (who was Wu Jiang’s major shareholder) agreed to lend D8 the Loan of RMB30,000,000, and D10 was asked to be surety for the US$4.5 Sum received from D1’s bank account as security for repayment of the Loan, which surety sum was eventually paid to Sun’s nominees in Hong Kong. D10 also went on to say in the D10 2nd Aff that D8 had fully settled the Loan. 168.In short, the D10 Statement referred to Sun as lender and later to Wu Jiang and Sun as lenders of the Loan (see paragraph 164 above), the D10 1st Aff referred to Wu Jiang as the lender, and the D10 2nd Aff referred to Sun as the lender. D10 testified under cross-examination that both Wu Jiang and Sun were lenders, but even though (according to the D10 2nd Aff) the Loan was made at his request, he was unclear and/or could not recall the breakdown of the Loan by Sun and by Wu Jiang. D10 admitted he would have known had he checked the vouchers/receipts kept by D9, but he did not so check and Ds did not disclose those vouchers/receipts in the course of discovery in the present action. 169.When pressed as to why he did not mention Sun as co-lender in the D10 1st Aff, D10 sidestepped the question by saying he did not pay attention to the breakdown of the loan between Wu Jiang and Sun. When pressed further, D10 claimed Wu Jiang was the main lender and “they had used the name “孫小華” [ie Sun] once for paying out the amount, and that’s the arrangement of Wu Jiang”, so he thought he only needed to refer to Wu Jiang as the main/major lender. But not having looked at D9’s ledgers (which were not discovered/disclosed in the present action), D10 refused to say whether or not Wu Jiang (as main/major lender of just 2 lenders) paid more than half of the Loan, which begged the question why he described Wu Jiang as the main/major lender. When queried about this, D10 again sidestepped the question by saying the Loan took place a long time ago and even disagreed with common logic that a main/major lender of just 2 lenders would have lent more monies than the other lender. 170.Be that as it may, D10 having thus explained why he referred to Wu Jiang as lender in the D10 1st Aff (ie Wu Jiang was the main/major lender), he could not give any credible/reliable explanation why he referred to Sun as the lender in the D10 2nd Aff. At first, he tried to say he did not understand English used in the D10 2nd Aff, but was eventually constrained to agree the D10 1st/2nd Affs had been interpreted to him. When pressed again, D10 explained Sun as shareholder of Wu Jiang represented both himself and Wu Jiang. But if that were so, it begged the question why he referred to Wu Jiang and not Sun as lender in the D10 1st Aff. 171.Secondly, there was also serious doubt as to the amount of the alleged Loan. D10 agreed he paid more attention to the D10 Statement as it was in simplified Chinese being his native language. Such statement gave the amount of the Loan as RMB30,000,000, but D10 claimed under cross-examination that the Loan should be RMB32,000,000 odd although he could not remember the exact sum. D10 did not explain why he did not say so in the D10 Statement and/or in the D10 1st / 2nd Affs, or why he did not check the amount in D9’s bank statements since the Loan (according to the D10 Statement and Surety Agreement) was first remitted to D9’s bank account. More importantly, D10 had no explanation as to why he signed the Surety Agreement on 18 June 2011when it stated the Loan amount was RMB30,000,000 (see paragraph 163(a) above). 172.Thirdly, there were discrepancies as to routing of the Loan funds which seriously undermined D10’s veracity. According to paragraph 6 of the D10 Statement and the Surety Agreement, the Loan funds should be and were paid into D9’s bank account before transfer to D8 (see paragraphs 163(b) and 164 above). But D10 testified only part and not entirety of the Loan was allegedly remitted to D9’s bank account in Mainland China, and he even tried to suggest the D10 Statement “don’t mean all the money, all the 30 [ie the Loan] have to go through [D9]”. But this did not sit well with plain/objective reading of paragraph 6 of the D10 Statement, ie the Loan (defined in paragraph 4 therein to mean a loan of RMB30,000,000 by Sun) went to D9’s account first before transfer to D8, which was consistent with the Surety Agreement that provided “乙方之委託人” (who on D10’s case were Sun and Wu Jiang being lenders of the Loan) paid the Loan to D9 who would then transfer the Loan to D8. D10’s purported explanations otherwise were confusing/incredible, and flied against the 2 Remittance Slips that showed Sun and Wu Jiang directly remitted RMB5,000,000 and RMB10,000,000 respectively to D8 on 16 June 2011 (C/313). 173.In my view, D10 made such desperate attempt to shy away from his statement evidence that the Loan monies were first deposited in D9’s bank account because he knew such assertion was not borne out by the Remittance Slips. Although the D10 Statement claimed “公司會通常把這些貸款以借錢人的“往來帳戶”來描述[see “資金匯劃來賬憑證”]” to facilitate grant of interest-bearing Loan, 2 Remittance Slips showed Sun and Wu Jiang respectively remitted RMB5,000,000 and RMB10,000,000 to D8 on 16 June 2011 (C/313), and 2 other Remittance Slips showed D9 remitted RMB10,000,000 and RMB5,000,000 to D8 on 16 and 23 June 2011 (C/314). But there was no document[106] to show Sun and/or Wu Jiang remitted any part of the alleged Loan of RMB30,000,000 to D9 even though D10 testified that D9 had the relevant vouchers/receipts. In any event, 3 of the Remittance Slips were before the Surety Agreement dated 18 June 2011 and, more importantly, before commencement of the Loan period on 21 June 2011 (see paragraph 163(a) above). In the end, D10 confessed at trial he recently realised the contents of such Remittance Slips, so he testified not all Loan monies were remitted to D9’s bank account first. In my view, this was just poor attempt by Ds to use the inter-company Remittance Slips to make up their case of a Loan with deposit of loan monies in D9 first, but when the Remittance Slips failed to provide corroborative support, D10 tailored his evidence as he went along to shore up Ds’ crumbling case. 174.Fourthly, Ds claimed the alleged surety arrangement was to support D10’s guarantee that D8 would repay the Loan upon expiry of the 1-month Loan period, so if D8 repaid such Loan by 20 July 2011, the purpose for the US4.5M Transfer into the D10 Account (opened purposely for “存放該筆抵押資金”) would have been spent and the US$4.5M Sum would have to be returned to D1. At first, D10 agreed in such circumstances “4.5 million US would be sort of cancelled” which was consistent with the Surety Agreement (see paragraph 163(e) above). But since the D10 2nd Aff admitted the Loan was fully settled (see paragraph 167 above), D10 could not credibly/reliably explain why even on Ds’ case the US$4.5M Sum was not returned to D1, but instead was paid out to the order of Sun and Wu Jiang. This was of particular concern when D10 claimed “根據國內的借款的結構, 還錢的方法乃需要經過我[D10]而不是直接還給借錢人” (see paragraph 164 above). If settlement of the Loan was routed through D10, he must have known he had to return the US$4.5M Sum to D1. 175.When pressed, D10 claimed even if D8 repaid the Loan to the lenders, the US$4.5M Sum would still have to be paid over to D8 and not returned to D1 because (a) D8 borrowed the Loan in RMB and repaid in RMB so “there’s no need for this guarantee sum of 4.5 million US”, and (b) D10 only knew D6 and not D1 and it was D6 who was “the party who enter into the agreement with [him]”. I am unable to accept these contentions which I find to be poor/unreliable attempts to shy away from the obvious. For (a) above, even on Ds’ case, the very fact “抵押資金” was no longer needed upon repayment of the Loan would have required D10 to repay the same back to D1 as provided for in the Surety Agreement. Anyway, the assertion in (a) above did not sit well with the D10 Statement which claimed “[D8]從吳江[Wu Jiang]和孫[Sun]所收到的貸款是人民幣, 以及因為國內的外匯管制, 吳江[Wu Jiang]和孫[Sun]就因此想在香港收該借款的還款”, and no explanation was given as to why D10 at one point said the Loan was repaid in RMB and at another point said the lenders would receive repayment in US$. When pressed, D10 was constrained to concede that upon repayment of the Loan, the US$4.5M Sum should be returned to D1. For (b) above, D1 was Party A to the Surety Agreement, and D6 signed on behalf of D1, so D6 presumably represented D1. But interestingly D10’s evidence in (a)-(b) above gave clear insight into D10’s knowledge and role. He was plainly working with D6 and under his direction in dealing with the US$4.5M Sum and in effecting the D10 Transfers, which went a long way to show they were co-conspirators in misappropriating/dissipating the US$4.5M Sum, especially when I have rejected the Loan and surety arrangement. 176.The Surety Agreement provided that if D8 could not repay the Loan, then the US$4.5M Sum would be used to repay the lenders by making payment to their order (see paragraph 163(f) above). But since the D10 2nd Aff confirmed the Loan had been fully settled, this provision was irrelevant. Anyway, such provision was only applicable if D8 “未能按期歸還借款”. Here, the 1-month Loan period only expired on 20 July 2011, so repayment of the Loan was not due until then. D10 offered no credible/ reliable explanation as to why (a) US$200,000, US$1,080,020.58, US$1,2000,000 and US$2,000,020.57 were transferred from the D10 Account allegedly to recipients nominated by Wu Jiang and Sun on 22 June 2011 (ie the 2nd day of the Loan period and long before the due date for repayment), and (b) why US$200,020.57 was transferred for a 1-month fixed deposit until 22 July 2011 when the entire US$4.5M Sum ought to have been available for transfer to the order of the lender(s) should D8 fail to repay on 20 July 2011. 177.It was stranger still that D10 asserted in paragraph 9 of the D10 Statement that the D10 Transfers on 22 June 2011 were for repayment of the Loan. As explained above, the Loan was not due for repayment until expiry of 20 July 2011. Also, the Surety Agreement provided the Loan period was to commence on 21 June 2011 (see paragraph 163(a) above), but the alleged repayments were made on the following day (see paragraph 161 and 176 above). What was the point of having a loan for just a day? In my view, this clearly showed the alleged Loan and/or surety arrangement (including the Surety Agreement) were a sham to cover up dissipation of the US$4.5M Sum (which sum ought to have been locked in Chinacomm Account 1 by the Double Signatures Arrangement) outside Ps’ reach. Further, if the US$4.5M Sum was intended for repayment of the Loan, D10 also offered no credible/reliable reason why (a) US$200,000 out of the US$4.5M Sum was placed on a 1-month fixed deposit to mature on 22 July 2011 (ie after expiry of the Loan period) (see paragraph 176(b) above), and (b) later left to idle in the D10 Account until 10 August and 22 November 2011 (apart from the bare assertion in paragraph 179(c) below which I reject). 178.In desperation, D10 alleged for the 1st time under cross-examination that on the very day the US$4.5M Sum was deposited in the D10 Account (ie 21 June 2011), D6 told him D8 could not repay the Loan and had to use the US$4.5M Sum for repayment. But it still did not credibly explain the matters in paragraphs 176(a)-(b) and 177(a)-(b) above. As I have said, it would have been pointless to ask for the Loan only to make repayment on the following day that was long before expiry of the Loan period, and if such alleged repayment from the US$4.5M Sum was due to D8’s inability to repay, it begged the question why RMB5,000,000 of the alleged Loan monies was remitted to D8 on 23 June 2011 (see paragraph 173 above). 179.So again for the 1st time under cross-examination D10 claimed (a) the Loan period did not start on 21 June 2011 as the lenders had paid some (not all) of the Loan monies to D9 even before early June 2011, (b) D9’s finance department had records to show D9 paid out such Loan monies “bit by bit” to D8 from early June 2011 onwards although D10 only made the deed of guarantee and Surety Agreement on 18 June 2011, and (c) in June 2011 Wu Jiang only asked for certain D10 Transfers so about US$200,000 was placed in fixed deposit “at the request of the bank” and it was in November 2011 that Wu Jiang asked for transfer withdrawal of US$190,032.08 out of the D10 Account. I am unconvinced that the fixed deposit was “at the request of the bank”. After all, when the fixed deposit matured, it was left to idle at the D10 Account until August/Nocember 2011 with no objection by DBS. 180.In my view, these assertions were nothing more than bare assertions and poor attempts by D10 to tailor Ds’ case as he went along in face of contradictions between his statement/affirmation evidence and indisputable timing/amount of the D10 Transfers. Mr Chan asked me to note the Injunction Decision was critical of the alleged surety arrangement, and D10 not only did not clarify his position in the D10 Statement to set the record straight, he added to the confusion by giving contradictory accounts. There was no Remittance Slip to show transfer of any part of the Loan monies from Sun and/or Wu Jiang to D9, and Ds also did not disclose documents admittedly kept by D9’s finance department for alleged transfer of Loan monies from D9’s account to D8 in early June 2011. Further, the assertions in paragraph 179(a)-(b) above did not sit well with the D10 2nd Aff which claimed that Sun at D10’s request agreed to lend the Loan to D8 “in June 2011” (see paragraph 167 above). But irrespective of the commencement date of the Loan period, D10 did not question the expiry of the Loan period on 20 July 2011, so there was no reason/right to use the US$4.5M Sum to repay the Loan on 22 June 2011 as such right was only exercisable on 20 July 2011 when D8 “未能按期歸還借款” (my emphasis). In any event, D10 offered no credible/reliable account why his new explanation given in his oral testimony was not mentioned in the D10 Statement and D10 1st/2nd Affs. D10’s casual suggestion that there was “[no] reason behind it, but just because you [Mr Chan] ask me today so I work it out” was, in my view, quite unconvincing. This lent weight to my view that D10 was in fact acting in concert with D6 to put the US$4.5M Sum outside Ps’ reach. 181.Fifthly, D10 at first agreed D6 was aware of the Loan by the 2 lenders Sun and Wu Jiang (or “it’s not necessarily that he knew full well of Wu Jiang”) and also the Surety Agreement (which D6 signed on behalf of D1), but he later claimed D6 was unaware the Loan of RMB30,000,000 to D8 was granted by Sun and Wu Jiang because he (ie D10) was the one who arranged for the Loan. I find such assertions wholly unbelievable, and amounted to no more than a poor effort to excuse D6 from being involved with D10 in dealings concerning the alleged Loan and the US$4.5M Sum. Even on Ds’ case, D6 signed the Surety Agreement for D1 and he was “總裁” (president) of D8, so I do not believe D6 would have no idea who were the lender(s) of a substantial loan to D8. When pressed again, D10 agreed D6 must have been aware there were 2 lenders Wu Jiang and Sun, but it was D7 who might not have been aware of the loan and surety arrangements. On balance, I reject D10’s assertions which I find he made up as Ds’ case began to unravel, and I further find D6/D7 were knowing parties who acted in concert to effect the US$4.5M Transfer to put the US$4.5M Sum beyond Ps’ reach, and at the very least D6 (and very probably D7 too) acted in concert with D10 to receive the misappropriated US$4.5M Sum in a new bank account opened for such purpose (ie the D10 Account), and to effect the D10 Transfers to further dissipate such monies. Indeed, paragraph 112 of the Injunction Decision noted the sum of US$190,032.08 was withdrawn by D10 from the D10 Account “a day after the 1st Injunction Order was served on [D6]”. 182.Mr Hui submitted D10 adduced the documentary evidence (ie the Surety Agreement and Remittance Slips) to show the US$4.5M Transfer was pursuant to the RMB Loan taken out by D8 for the Project, and the D10 Transfers were made to recipients directed/designated by Wu Jiang and Sun for repaying the Loan. But in light of the above analysis, I find D10’s evidence inherently implausible and wholly unreliable, and he lied to the court about the alleged Loan/repayment and surety arrangement (including the Surety Agreement). I also note with interest Ds’ pleaded case on the US$4.5M Transfer was one of denial of conspiracy without any positive plea as to the Loan/repayment and surety arrangement (even though in paragraphs 125-127 of the ASoC Ps already pleaded the US$4.5M Transfer was misappropriation/dissipation of the US$4.5M Sum, the Surety Agreement was a sham, and there was a conspiracy the object of which was to misappropriate/dissipate the US$4.5M Sum). When considered in the wider context of D6’s/D7’s deliberate/wrongful act in secretly revoking the Double Signatures Arrangement for Chinacomm Account 1 to avoid joint control and then to unilaterally effect the US$4.5M Transfer for Ds’ camp’s own purpose despite the 2nd Agreed Purpose/Route, I have no hesitation in concluding even on Ds’ evidence alone that the Loan and surety arrangement (including the Surety Agreement) were concocted to cover up such wrongful conduct. 183.Mr Hui submitted Ps did not challenge and had no evidence to challenge the fact D8 did in fact receive the Loan of RMB30,000,000 in exchange for the US$4.5M Transfer to the D10 Account. In my view, it lied ill in the mouth of Ds’ camp to make such complaint when they failed to make discovery of relevant loan agreement, guarantee agreement and documents about the money trail when these matters were within their knowledge/possession despite Ps’ pleaded criticisms in the ASoC (see paragraph 182 above). In my view, Ds deliberately created an evidential black hole, but the evidence Ds did adduce sufficiently demonstrated its inherent contradiction/implausibility such that I disagree the alleged Loan was in exchange for the US$4.5M Transfer. 184.Taking into account Ds’ explanations and the circumstantial evidence, bearing in mind my finding that D6, D7 and D10 gave false impression of loan, guarantee and surety arrangements to cover up misappropriation/dissipation of the US$4/5M Sum, I have no hesitation in concluding the alleged Loan/repayment and surety arrangement (including the Surety Agreement) were typical sham transactions.[107] 185.Mr Hui submitted Ps did not adduce PRC expert evidence to support the argument that the Surety Agreement was a sham the object of which was to circumvent foreign exchange laws, and applying the default Hong Kong law position, the Surety Agreement was perfectly lawful since there was no foreign exchange control, so the transaction was neither illegal nor unlawful. This could be dealt with shortly. First, Ds could not be heard to say there was no foreign exchange control when D10’s own evidence was that “[D8]從吳江[Wu Jiang]和孫[Sun]所收到的貸款是人民幣, 以及因為國內的外匯管制, 吳江[Wu Jiang]和孫[Sun]就因此想在香港收該借款的還款” (see paragraph 164 above). Secondly, I have found D10 lied to the court and further found the Surety Agreement to be a sham transaction, so there was no need to go on to consider whether or not the surety arrangement infringed Chinese exchange control. 186.As Tay noted, consent from the Investor under the TCPSSA (ie P2) was required under Schedule 5(l), (s) and (z) before D1 could provide the US$4.5M Sum as “抵押資金” for a private loan to D8, and D10 was a connected party to D8/D9 so the Surety Agreement was not an arms’ length transaction in breach of Schedule 5(gg)-(hh) of the TCPSSA. So D1, D6 and D7, who well knew the US$4.5M Sum was subject to the Double Signatures Arrangement, must also have known such sum could not be unilaterally used as “抵押資金” for a private loan to D8 unconnected with the 2nd Agreed Purpose via the 2nd Agreed Route. In secretly revoking the Double Signatures Arrangement and unilaterally effecting the US$4.5M Transfer, D6/D7 must have acted in concert to misappropriate/dissipate the US$50,000 Withdrawal and US$4.5M Sum, and D6/D10 must have acted in concert to have the D10 Account opened to receive the US$4.5M Sum knowing it was monies that came from D1 but which D6, D7, D8 and D10 were not entitled, and further knowing dealings with the US$4.5M Sum were to put such monies further away from the rightful owner. 187.Mr Hui next complained Ps did not adduce evidence to prove the Loan monies received by D8 were not used in accordance with the alleged intention to purchase equipment and/or other alleged purposes, so Ps’ only complaint was just the US$4.5M Transfer to the D10 Account. In my view, there was no merit to such argument. Since I do not accept the alleged Loan of RMB30,000,000 and/or it was paid in exchange of the US$4.5M Transfer, there was no credible/reliable evidence that D8 received the Loan monies of RMB30,000,000. 188.Mr Hui also argued that as a matter of commercial/economic reality, there was no loss to Ds’ camp or to Ps’ investment occasioned by advancing the Loan of RMB30,000,000 to D8 and making “repayment” from the US$4.5M Sum that came from D1 since (a) D1 and D8 belonged to the same group of companies working together for the Project on the domestic side, and (b) should D8 be able to repay the Loan the Surety Agreement provided that US$4.5M Sum would have to be duly returned to D1. Again, I am unable to accept such contentions. First, I have rejected the alleged Loan/repayment as untruths, so there was no reliable/credible evidence D8 received Loan monies of US$30,000,000 even though some Remittance Slips showed some monies were transferred to D8. Secondly, the US$4.75M Sum was constrained by the Double Signatures Arrangement and dedicated for the 2nd Agreed Purpose via the 2nd Agreed Route before it could be utilised for D8’s acquisition of additional equipment the selection of which should be jointly approved by Ps’/Ds’ camps (see paragraph 149 above). But the wrongful cancellation of the Double Signatures Arrangement and the US$4.5M and D10 Transfers effected by D6, D7 and D10 caused the 2nd Agreed Purpose/Route and joint control of equipment acquisition to fail. It could not be said unilateral transfer of the US$4.5M Sum in Chinacomm Account 1 to the D10 Account and then to unknown recipients made no difference. Thirdly, I have dealt with the matter raised in (b) above in paragraphs 174-180 above, and find D10’s evidence in relation thereto unreliable. Fourthly, it was suggested the arrangement for RMB Loan to D8 in exchange for US$4.5M Transfer to D10 was commercially legitimate/sensible because, as a matter of commercial reality, US$ paid to D1 could not be used directly to pay for equipment purchase in the PRC. But I have found the US$4.75M Sum (inclusive of the US$4.5M Sum) was meant to be booked as capital injection (in US$) for the WOFIE (ie Yunji) in Mainland China, so there would not have been any problem for D6/Tay to jointly authorise transfer of such monies to Yunji for the 2nd Agreed Purpose via the 2nd Agreed Route had there been joint signatories arrangement for Yunji’s account that would receive such monies, and had there been agreement on selection of equipment vendors, Yunji could have defrayed the cost for agreed equipment purchase from such monies. 189.Mr Hui also submitted that even if the Surety Agreement contravened the TCPSSA, it would not make such agreement a sham and there was no loss “since D8 has indeed received the sum of RMB30m in the form of the loan which was later repaid”. But in view, such argument fell away as it was premised on the fallacy of there being genuine Loan/ repayment, which I have rejected. XXIX. ASSIGNMENT DATED 4 APRIL 2011 190.On 4 April 2011, P1 (formerly known as China Tel Group Inc) and P2 entered into an Assignment of Subscription Agreement and Cancellation of Promissory Note (“Assignment”). By the Assignment, the APA Set between P1 and P2 was cancelled, and P2 assigned to P1 all its rights under the TCPSSA and TCPSSA Addendum. The Assignment also provided that, to the extent consent for such assignment was required from D8 or any other party, P2 agreed to continue to act as agent for P1 as P1 would direct. 191.But as Tay admitted, even the Assignment was not affective. It fell foul of Article 30 of the TCPSSA (see paragraph 92(aa)-(cc) above), which required the assignee of rights/obligations under the TCPSSA to receive transfer of D1’s shares from the Investor (ie P2) and to execute a Deed of Adherence, failing which such assignment shall be ineffective. There was no evidence that any Deed of Adherence was signed (see also paragraphs 85-87 of the Injunction Decision). Consequently, after the Assignment was executed, P2 continued to act as the Investor under the TCPSSA, but at the directions of P1 in implementation of the TCPSSA. Tay said Ps’ team continued to work at D8’s offices until Ds’ camp asked them to leave in October 2011, which was around the time when Tay discovered he was removed as co-signatory for Chinacomm Account 1 (ie some 6 months after the fact in May 2011). XXX. BREACH OF CONTRACT 192.Mr Hui complained there was no separate doctrine of “fundamental breach” as pleaded in paragraph 102 of the ASoC. But it is trite such term is just a restatement of the principle that particular breach(es) may be such as to go to the root of the contract and entitle the other party to treat such breach(es) as a repudiation of the whole contract.[108] Mr Chan also referred to the principle of renunciation of contract when one party by words or conduct evinces an intention not to perform,[109] or expressly declare he is or unable to perform, his obligations under the contract in some essential respect.[110] 193.There must be an absolute refusal to perform. If one party evinces an intention not to perform or declares his inability to perform some, but not all, of his obligations, then the right of the other party to treat himself as discharged depends on whether the non-performance of those obligations will amount to a breach of a condition of contract or deprive him substantially the whole benefit which it was the intention of the parties that he should obtain from the obligations of the parties under the contract then remaining unperformed.[111] DHCJ To in Leung Yuk Lin trading as King’s Glory Education Centre & ors v Karson Oten Fan, Karno explained that the test is an objective one, and the court infers intention from the conduct of the party in default.[112] In drawing the necessary inference, the court must consider the conduct of the party in breach as a whole[113] and the actual circumstances of the case. Since repudiation or renunciation of a contract is a serious matter, conduct short of repudiatory breach, which is necessary to evince intention not to perform, must be an absolute refusal to perform, which intention is not to be inferred lightly.[114] 194.By reason of the aforesaid findings, I reject Ds’ contention that Ps unreasonably and unjustifiably refused to cooperate and provide funding support to Ds’ camp (see paragraph 1 above). After all, I have found Ps’ camp did pay the US$5M Sum as the First Payment and also paid the US$4.75M Sum outside the TCPSSA regime “ahead of deadline”, ie before the balance of the Subscription Price was payable. I have further found Ps’ camp assisted Ds’ camp with Ds’ Preparatory Works and works under the Disbursement Plan, and also helped D8 to improvise the Existing System to let them earn additional revenue during the Games. Ps’ camp also introduced potential lenders when Ds’ camp required a loan, and facilitated the Hana Bank credit line by introducing Samsung and helping Ds’ camp work with Samsung. (a) 29 Cities Licences 195.Ps claimed that in breach of Schedule 3(j) and Clauses 1.3, 4.2 and 6.2 of Part 2, Schedule 4 of the TCPSSA, D1 (as the company), D6 and D7 (as guarantors) and D8 and D9 (as warrantors) failed to obtain Licence Extension for the 29 Cities Licences and/or even adequate evidence thereof. The 25 Cities and 5 Cities Licences expired on 28 February and 31 December 2008 respectively, and were not extended/ renewed. Notwithstanding the grant of the 12 Cities Licence since 17 July 2009 (which I have found did not amount to adequate evidence of valid Licence Extension for the 29 Cities Licences and which eventually expired in July 2011) and Ds’ assurances that 3.5GHz Licence for the 17 Cities would be awarded by stages (which in the end did not materialise), Ds eventually failed to obtain Licence Extension for the 29 Cities Licences in respect of the 29 Cities. As at the commencement of the present action, D8 did not hold any valid 3.5GHz Licence for any of the 29 Cities. 196.As explained above, as between Ps’ and Ds’ camps, Ps’ camp would provide network design capability and financial resources to build the New System whilst Ds’ camp would provide 3.5GHz Licences for the 29 Cities without which the whole basis of the JV would be entirely gone. Thus, Licence Extension for the 29 Cities Licences went to the very “root” of the JV Project and the TCPSSA (as adjusted by the TCPSSA Addendum). So, irrespective whether or not the 12 Cities Licence could be or was eventually extended/renewed, there was still material and repudiatory breach of the TCPSSA (as adjusted by the TCPSSA Addendum) due to failure to secure 3.5GHz Licences for all the 29 Cities (see paragraphs 102-103 of the ASoC), which was the essential basis for the Project and the reason for the significant value of the Subscription Price. This was borne out by the fact that each of TDFA/TNFA, GSSA and TCPSSA provided for Licence Extension for the 29 Cities Licences and/or adequate evidence thereof as precondition for further payment of Subscription Price. 197.Mr Hui argued Ps’ claim for breach of contract in relation to Licence Extension for the 29 Cities Licences was nothing more than alleging Schedule 3(j) and Clauses 1.3, 4.2 and 6.2 of Part 2, Schedule 4 of the TCPSSA were breached, and since these provisions related to the Subsequent Payment Conditions or warranties they were insufficient to support any alleged repudiation or renunciation of contract. It was also said that (a) breach of warranties would only ground a claim in damages and not termination of contract, (b) there was no precondition of adequate evidence of Licence Extension for the 29 Cities Licences (ie Schedule 3(j) of the TCPSSA) for payment of the US$5M Sum, and (c) even if such precondition applied to payment of the US$4.75M Sum it had been waived. 198.I accept there was no precondition of Licence Extension of the 29 Cities Licences for the First Payment under the TDFA/TNFA (see paragraph 35(g) and 38 above) even though the 25 Cities Licence had expired on 29 February 2008 (see paragraph 53 above). As for the US$4.75M Sum, although Mr Hui conceded it was subject to the precondition in Schedule 3(j) in the TCPSSA,[115] I have found there was no such precondition for payment of such sum for the 2nd Agreed Purpose outside the TPSSA regime (see paragraph 148 above). 199.There was therefore no need for me to go further to consider Mr Hui’s interesting argument that Article 3.2(b) of the TCPSSA (see paragraph 92(f)(i) above) only set deadlines for payment of the 2nd tranche of the Subscription Price and “did not say that, prior to such deadlines, Ps had no obligation to provide funding support to D8 to back up its renewal of the 29 Cities Licence” (or in other words, Article 3.2(b) “has not created a condition precedent as a matter of contractual interpretation”). 200.But for the sake of completeness, I also reject such argument. Apart from the obligation to pay the Subscription Price, there was no provision in the TCPSSA (as adjusted by the TCPSSA Addendum) that imposed a contractual obligation to provide funding support to D8 to back up Licence Extension for the 29 Cities Licences, and Mr Hui did not refer to any such provision. Schedule 3(j) of the TCPSSA was one of the Subsequent Payment Conditions which were described in Schedule 3 as a series of conditions precedent for the payment of the Subscription Price by the Investor after the First Payment. The significance of the Subsequent Payment Obligations was highlighted in Articles 4.3-4.4 which provided for refund of monies paid if such preconditions not fulfilled. It was also clear from Article 3.2(b) of the TCPSSA that if “the licenses of Chinacomm have [not] been extended in accordance with item (j) of Schedule 3 of [the TCPSSA]” the balance of the Subscription Price was not even payable. These provisions all suggested Licence Extension went to the very “root” of the TCPSSA. 201.Mr Hui submitted that the contention in paragraph 197 above was reinforced by the attempt by Ps’ camp to procure the agreement (in principle) of a new investor to pay in funds for D8 in mid-January 2010 before Licence Extension of the 29 Cities Licence. It was said that if Article 3.2(b) of the TCPSSA imposed the precondition of Licence Extension, this planned injection of funds in mid-January 2010 would not have been necessary as such precondition had not been satisfied. I disagree and I reiterate my findings in paragraphs 125-132 above. 202.Importantly, in focusing on payments already made by Ps (ie the US$5M and US$4.75M Sums) and the schedule of payments to be made for the balance of the Subscription Price without considering the TCPSSA (as adjusted by the TCPSSA Addendum) as a whole, Ds lost sight of the fundamental “root” of the JV deal, ie that Ps’ camp was to provide technical capability and financial contribution for building/deploying the New System for the 29 Cities whilst Ds’ camp was to procure/provide 3.5GHz Licences for the 29 Cities, so both JV parties would earn revenue from service fees of the 3.5GHz Business to be carried on in the 29 Cities with possible future listing of the JV SPV company. I have no doubt Ds’ camp’s admitted failure to secure Licence Extension for all of the 29 Cities Licence was clear/unequivocal conduct amounting to repudiation and/or renunciation of the TCPSSA (as adjusted by the TCPSSA Addendum). 203.Mr Hui next argued it was difficult to see how Ps could claim back the US$5M and US$4.75 Sums already paid by them after Closing pursuant to Articles 4.1-4.2 of the TCPSSA (see paragraph 92(d)-(e) above), and after P2 became full owner of D1’s 49% Shares that they had bargained for (or least part of such shares that corresponded to the US$5M and US$4.75 Sums out of the Subscription Price). It was said in the absence of express contractual remedies, it was difficult to see how Ps could claim the amount paid to Ds in respect of which shares had already been allotted to them. Mr Hui reminded that P1’s locus standi to sue vitally hinged on P2 having the legal/beneficial ownership of the 49% Shares to sell to P1 in the first place. 204.I have rejected the above contentions, and reiterate my findings in Parts XVII-XXIII above. Although it was envisaged in the TCPSSA P2 would become the legal owner of D1’s 49% Shares upon Closing by issuance of the Share Certificate and entry of P2’s name in D1’s register of members/shareholders (and Ps did not dispute the Share Certificate for the 49% Shares were issued), I have found there was no entry of P2’s name on D1’s register of members/shareholders, and hence P2 was not legal owner of those shares. Tay’s subjective views and lack of complaint prior to the present action would not alter the status of legal ownership of such shares, which must be a matter of law. I have also found at that time Ps’ camp (including Tay) and Ds’ camp were unconcerned with such legal niceties because as a result of D6’s/D7’s demand for their personal fees (such that P2 had to replace Gulfstream as Investor) and delay in Licence Extension for the 29 Cities Licence (which necessitated efforts to boost investor confidence and to demonstrate P2’s/P1’s stake in the Project to overcome the corporate disconnection between them), the TCPSSA and APA Sets were (to the knowledge of Ds’ camp) structured as marketing strategy to encourage investment financing by presenting to investors in the Market P1’s faith in the Project going forward. In such context, I am also unable to lay much store in Recitals D-E of the APA (see paragraph 109(d) above). In any event, the APA Set was subsequently cancelled by the Assignment (see paragraph 190 above). 205.I pause to note P1’s locus standi did not turn on the APA and/or legal/beneficial ownership of the 49% Shares in D1. Rather, P1’s locus standi turned on it being a party to the agreement in relation to the US$4.75M Sum outside the TCPSSA regime (see paragraph 149 above) and its payment of US$2,749,648 of the US4.75M Sum thereunder (see paragraphs 154 above and paragraphs 207-210 below), and the vitality or otherwise of the Assignment (but I have found the Assignment was not effective in view of Article 30 of the TCPSSA (see paragraph 191 above), so P2 rather than P1 was still the relevant party to the TCPSSA (as adjusted by the TCPSSA Addendum)). 206.Anyway, I am unable to see how it could be said Ps got what they bargained for. I have found P2 did not even secure legal ownership of the 49% Shares. More importantly, the bargain for P2 under the TCPSSA (as adjusted by the TCPSSA Addendum) was not mere acquisition of the 49% Shares of D1 as a bare shell SPV with no business/asset. What was envisaged for the Project under the TCPSSSA was for D1 as the off-shore JV SPV that would carry on 3.5GHz Business via D4 and Yunji by deploying the New System and providing 3.5GHz Services in the 29 Cities under the renewed/extended 29 Cities Licences to earn service fees for the benefit of the JV partners. In the absence of Licence Extension for the 29 Cities Licences, the whole “root” and/or underlying foundation of the bargain between the parties was undermined, and it would be wrong to say Ps got what they bargained for when they could not enjoy the benefits of such bargain in relation to the 29 Cities, and did not have legal ownership for the 49% Shares and/or beneficial interest in the Portion Shares. There was added concern when (as Tay said) D6/D7 also deliberately dissolved all entities under D1, ie they allowed D4 to be dissolved in Hong Kong and Yunji to be penalised/dissolved in Mainland China. In my view, there is no merit to such argument (see paragraph 228 below). (b) 1st and 2nd Agreed Purposes via 1st and 2nd Agreed Routes 207.Ps claimed it was a material/repudiatory breach of the TCPSSA (as adjusted by the TCPSSA Addendum) that D1, D6, D7, D8 and D9 failed to use the US$5M Sum for the 1st Agreed Purpose via the 1st Agreed Route (see paragraph 104 of the ASoC):
208.Mr Hui submitted Article 3.2(a) of the TCPSSA did not specify any agreed purpose or agreed route for the First Payment, so it could not be said there was breach of any provision in the TCPSSA, especially when the TCPSSA contained an entire agreement clause in Article 26. It was said Ps could not have claimed for breach of term, condition and/or warranty at all since the US$5M Sum was already paid before the TCPSSA and/or even the GSSA. I reject such argument and repeat my findings in Part IX and paragraphs 95-96 above. 209.In my view, the US$5M Sum was subject to the 1st Agreed Purpose/Route. So long as the US$5M Sum went to Yunji via the 1st Agreed Route to be booked for the 1st Agreed Purpose, Tay had no objection for such monies to be disbursed by Yunji for works under the Disbursement Plan and/or for Ds’ Preparatory Works under the Collateral Warranty, but this did not mean Ds’ camp could use the US$5M Sum in any way they wished so long it was for the Project. 210.Ps also alleged Ds’ camp failed to use the US$4.75M Sum for the 2nd Agreed Purpose via the 2nd Agreed Route, and I refer to my findings in Parts XXV-XXVIII above, which plainly showed there was material and repudiatory breach of the 2nd Agreed Purpose/Route and Double Signatures Arrangement as agreed between Tay for Ps and D6/D7 for themselves and D1/D8. By silent and unilateral removal of Tay as co-signatory of Chinacomm Account 1, it was clear D1/D8, D6 and D7 evinced an intention to resile from the agreement in paragraph 149 above. Such appropriation of monies intended for the Project for private use by Ds’ camp whether paid under the TCPSSA regime or otherwise, which Ds knew would go to the Subscription Price if everything (eg fulfilment of the Subsequent Payment Conditions including Schedule 3(j) of the TCPSSA) eventuated, must be clear indication of refusal to perform the TCPSSA. These findings also went a long way to demonstrate there was no waiver on the part of Ps as discussed below. (c) failure to obtain P’s consent for certain matters specified in Schedule 5 of the TCPSSA 211.Ps claimed that in breach of Articles 10.7, 10.8 and 10.12 of the TCPSSA (as adjusted by the TCPSSA Addendum), Ds failed to obtain P2’s prior approval when making major decisions in relation to the business operation of D1, D4, the WOFIE (ie Yunji) and D8 (see provisions in Schedule 5 of the TCPSSA – see paragraph 28 of the RD&C). 212.Ps averred and Tay claimed (a) since 2010 Ps were excluded from involvement in the Project by D8 and its subsidiaries and not treated as business partner of the JV on the principle of cooperation, (b) Ds did not seek P2’s prior approval on major decisions concerning the Project as specified in Schedule 5 of the TCPSSA (eg Ps were not consulted before making any decision for the business of D1, D4, D8, D9 and their subsidiaries),[116] and (c) D8 formed business partnership for 3.5GHz Business with other parties without Ps’ prior consent. But Mr Hui submitted that the particulars for such alleged breaches as in paragraph 105 of the ASoC were sparse except for the averment that D8 having awarded equipment supply contracts to Samsung and Huawei without Ps’ consent, but he argued this would not take Ps’ case substantially further as Ps’ loss for such alleged breach could not amount to the whole of the US$5M and US$4.75M Sums. 213.In relation to Ps’ complaint about D8’s unilateral selection of equipment supplier, Tay gave evidence that Ps’ team put in substantial manpower and intellectual property in designing the New System, and by 2010 D8 was in possession of all intellectual property Ps had developed for the Project including design diagrams and specifications. Ps’ camp introduced Samsung (a major player in respect of WBA networks) to D8. In March 2010, D8 started discussions with Samsung about technical equipment supply for 3.5GHz Services in Beijing. Tay expected to be involved in the discussion (see paragraph 138 above), but soon discovered Ps’ team was excluded. Since May 2010 D8 negotiated directly with Samsung on technical matters without involving Tay or Ps’ team, which Tay considered to be an act of bad faith. In my view, it was through efforts by Ps’ camp in introducing and working with Samsung that led to Hana credit line (see paragraphs 101-102 above). By June 2011, Tay was advised by an industry specialist Mr Luo[117] that D8 awarded technical equipment supply contracts to Samsung and Huawei without Tay’s knowledge/consent, which I find to be in breach of Articles 10.7, 10.8 and 10.12 and Schedule 5(r) of the TCPSSA (see paragraph 92(r), (s) and (u) above) since such capital expenditure would be way above US$10,000, hence D8 infringed P2’s rights to be consulted and to give consent as a party to the TCPSSA. 214.In my view, this was significant because the basis of the JV cooperation in respect of the Project was to build the New System to provide 3.5GHz Services for the 29 Cities. By unilaterally negotiating with equipment suppliers, D8 took unfair advantage of the intellectual property developed by Ps for D1 in relation to the Project, so D1, D6, D7, D8 and D9 in failing to obtain Ps’ prior consent for certain matters specified in Schedule 5 of the TCPSSA destroyed the basis of JV cooperation (especially when Articles 10.7-10.8 of the TCPSSA emphasised such JV cooperation by giving veto power to P2). Ps claimed (and I accept) this was material/repudiatory breach of the JV and TCPSSA as adjusted by the TCPSSA. (d) Waiver 215.In the circumstances, although there was no precondition of Licence Extension in request of the 29 Cities Licences for payment of the US$5M and US$4.75M Sums, such Licence Extension for all the 29 Cities was a core requirement that went to the very “root” of the bargain under the TCPSSA (as adjusted by the TCPSSA Addendum), and by failing to procure and/or provide such Licence Extension, by taking steps to defeat the 1st/2nd Agreed Purposes/Routes and by failing to cooperate over matters in Schedule 5 of the TCPSSA, D1, D6, D7, D8 and D9 were in repudiation/renunciation of the JV Project, the TCPSSA (as adjusted by the TCPSSA Addendum) and the agreement in paragraph 149 above, and D1, D6, D7, D8 and D9 were liable to pay the US$5M Sum to P2, and D1, D6, D7 and D8 were liable to pay the US$4.75M Sum to P1 and P2. 216.But Mr Hui argued Ds would rely on the doctrine of waiver to overcome failure by Ds’ camp to (a) obtain Licence Extension of the 29 Cities Licences, and (b) use the US$5M and US$4.75M Sums for the 1st/2nd Agreed Purposes via the 1st/2nd Agreed Routes, so Ps were not entitled to insist upon fulfilment of relevant contractual provisions in relation to the US$5M and US$4.75M Sums. Ds’ waiver argument rested on the contention that Ps agreed to pay and did pay the US$4.75M Sum to D1 well knowing the relevant contractual provisions had not been fulfilled. 217.There was little dispute as to the legal principles on waiver by conduct. If one party, by his conduct, leads another to believe that the strict rights under the contract will not be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on that strict legal rights when it would be inequitable for him to do so.[118] Detriment is a sufficient but not necessary element.[119] Mr Hui accepted the burden was on Ds to establish waiver. 218.I start with a pleading point. Mr Hui submitted the waiver defence had been sufficiently pleaded in paragraph 87(e)-(g) of the D&C which averred inter alia that (a) in/about early January 2010 Tay agreed to (but did not) pay US$30,000,000 by March 2010 as part payment of the Subscription Price for the 49% Shares, (b) in breach of this promise to pay US$30,000,000 in full Tay paid the US$4.75M Sum into Chinacomm Account 1 on divers dates in/about April to June 2010, and (c) Ds “further aver that by agreeing to pay US$30 million to [D1], [P2] has expressly waived all terms, conditions and warranties relating to the extension/ renewal of the 3.5GHz Licences in the TCPSSA, including but not limited to Schedule 3, Clause 3(j) thereof” (see paragraph 145 above). 219.I refer to my findings in paragraphs 146-147 above. I have found there was no evidence to support Ds’ averment that Tay allegedly promised to pay US$30,000,000 as part of the Subscription Price, and in any event I reject such contention. That being the case, the whole basis of the waiver argument as pleaded was undermined. Mr Hui tried to salvage the situation by saying there was no need for any evidence that the US$4.75M Sum was part of the US$30,000,000 promised by Tay “since in substance both are monies for the subscription price for the 49% shares in D1”. But this argument could not made out when I have rejected the alleged promise by Tay to pay US$30,000,000, and there was no or no credible evidence that I accept to show the US$4.75M Sum had anything to do with such alleged promise to pay US$30,000,000. Indeed, Ds averred otherwise in the D&C by asserting the US$4.75 Sum was part payment of the Subscription Price and not part of the promised sum of US$30,000,000 (see paragraph 145 above). The alleged waiver by “agreeing to pay US$30 million to [D1]” fell away, and the payment of US$4.75M Sum on its own fell outwith the ambit of the pleaded waiver. 220.But even if Ds were able to cross the pleadings hurdle (which I disagree), Mr Hui relied on the following to support the waiver contention: (a) Ps paid the US$4.75M Sum pursuant to the Double Signatures Arrangement when they well knew the matters in paragraph 216(a)-(b) above had not been fulfilled and despite rejection of previous funding requests by D6 and his assistant, and (b) Tay expected such payment would eventually be treated as part payment of the Subscription Price. It was also suggested P2’s commercial decision to proceed with the Project based on various comfort factors (eg Ds brought Tay to see MIIT officials) had no relevance to the waiver defence which was based on objective conduct rather than subjective belief/intention. 221.In my view, Ds’ contentions placed blinkered focus on payments of the US$5M and US$4.75M Sums rather than proper consideration of the very “root” of the bargain under the TCPSSA (as adjusted by the TCPSSA Addendum) explained above. I refer my findings in Part XXVI above which explained the US$4.75M Sum was to Ds’ knowledge intended for the 2nd Agreed Purpose via the 2nd Agreed Route (ie to rescue the WOFIE and to support some works under the 12 Cities Licence allegedly for the purpose of facilitating Licence Extension of the 29 Cities Licence), and whereby I concluded Ds knew there was never any abandonment of the requirement of Licence Extension for the 29 Cities Licence for the JV Project (and/or adequate evidence thereof before payment of the balance of the Subscription Price). The Double Signatures Arrangement agreed to by Ds was to ensure compliance with the 2nd Agreed Purpose via the 2nd Agreed Route. 222.Mr Hui argued P2’s payment of the US$4.75M Sum led Ds to believe the matters in paragraph 216(a)-(b) above would not be insisted upon, and “Ds relied upon that by causing D1 to allot the part of 49% shares in D1 to P2 that corresponds to such a payment, pursuant to the terms of the [1st Note]”, which was said to be clear evidence to show Ps had conducted their affairs on the basis of waiver otherwise Ps would have no obligation to pay and “Ds would have no obligation to allot and release part of the Pledge”. Mr Hui also reiterated that Ps were satisfied with D1’s allotment of shares to it and the closing of the TCPSSA, and had no complaint as to whether or not changes have been made in the Cayman Islands Registry or D1’s register of members. 223.However, the TCPSSA, TCPSSA Addendum and 1st/2nd Notes were made in February 2009, which was more than a year before payment of the US$4.75M Sum in April to June 2010. I am unable to see how payment of the US$4.75M Sum in 2010 could cause D1 to issue the Share Certificate and/or enter into the 1st Note in 2009. I reiterate my findings in Parts XVII-XXIII above in relation to the TCPSSA and APA Sets and the discussion in paragraph 221 above. Anyway, I have found the payment of US$4.75M Sum was outside the TCPSSA regime subject to the Double Signatures Arrangement and 2nd Agreed Purpose/Route, and would only be treated as Subscription Price if everything eventuated (see paragraph 151 above). Moreover, I am unable to see how payment of the US$4.75M Sum in 2010 could “by logical extension” amount to retrospective waiver of the requirement in paragraph 216(b) above for the US$5M Sum that was paid in 2008 and subject to the 1st Agreed Purpose/Route. 224.There was some suggestion in Ds’ pleadings that alternatively P2 waived Schedule 3(j) of the TCPSSA by its acceptance of the 12 Cities Licence in continuing with the Project. But I find Ps never accepted the 12 Cities Licence as substantial contractual performance of the TCPSSA or as abandonment of Licence Extension for the 29 Cities Licences (see paragraph 98 above). 225.In my view, Ds’ contentions placed blinkered focus on payments of the US$5M and US$4.75M Sums rather than proper consideration of the very “root” of the bargain under the TCPSSA (as adjusted by the TCPSSA Addendum) explained in paragraphs 19 and 28 above. I reject the defence of waiver. (e) Summary 226.With failure to secure 3.5GHz Licences for the 29 Cities, failure to seek consent from Ps on major capital expenditure of the Project, and unilateral change of the Double Signatures Arrangement, I accept there were material and repudiatory breaches by D1, D6, D7, D8 and D9 such that the whole bargain and basis of cooperation between the Ps’ and Ds’ camps for the Project had been undermined. 227.D1 was a JV SPV used by Ps and D6-D8 for the Project with no business operation or asset except for shares in D4, which was also a SPV to incorporate the WOFIE. Ps’ investments were not in the bare 49% Shares, but in the JV between Ps’ camp and Ds’ camp as explained in paragraphs 19 and 28 above, and business planning, financial forecast and project evaluation for the Project were all done on the basis of the 3.5GHz Business for the 29 Cities as a whole, which was why the 1st Agreed Purpose/Route was specified for the First Payment. But D1, D6, D7, D8 and D9 failed to obtain Licence Extension for the 29 Cities Licences within reasonable time or at all. 228.Ps’ solicitors later discovered Ds’ camp suffered D4 to be de-registered/dissolved on 22 October 2010, and Beijing Administration of Industry and Commerce imposed penalty on Yunji on 27 December 2010 for failure to participate in annual inspection and dissolved Yunji in October 2011 (see paragraph 206 above). 229.For all the above reasons, I find D1, D6, D7, D8 and D9 were in repudiatory breach of and evinced an intention not to be bound by the TCPSSA (as adjusted by the TCPSSA Addendum) and the agreement in paragraph 149 above. They were therefore liable to pay P1 and P2 reliance loss in relation to the US$5M Sum and US$4.75M Sum paid under the TCPSSA and the agreement in paragraph 149 above as explained in paragraph 136 above. XXXI. BREACH OF TRUST 230.The US$5M Sum was deposited into Chinacomm Account 2 and the account of Chinacomm’s/D8’s Beijing subsidiary pursuant to Article 2a of the TDFA/TNFA (see paragraph 35(g) above) exclusively for the 1st Agreed Purpose via the 1st Agreed Route with no discretion to deviate from such purpose/route. As for the US$4.75M Sum deposited into Chiancomm Account 1, there was the Double Signatures Arrangement coupled with the 2nd Agreed Purpose/Route as agreed between Ps and D6 for D1/D8. Ps therefore claimed the US$5M and US$4.75M Sums were in nature trust monies, and D1, D6 and D7 dissipated such monies in breach of trust by transferring the US$5M Sum to unknown recipients and not for the 1st Agreed Purpose/Route, and by secretly/unilaterally removing Tay’s co-signatory right for Chinacomm Account 1 and effecting the US$50,000 Withdrawal and US$4.75M Transfer from such bank account without Ps’ authorisation. Ps claimed D1, D6 and D7 were therefore liable for restitution and damages. Ds denied this and alleged there was no basis to support Ps’ case of breach of a Quistclose trust. 231.There was little dispute over the legal principles on Quistclose trust. A Quistclose trust may arise where one person A advances monies to another B on the understanding that B is not to have free disposal of the money and that it may only be applied for the purpose stated by A.[120] Thus A’s beneficial interest in the money will remain unless and until the money is applied in accordance with the purpose stated by A.[121] The key question is whether the parties intended the money to be at the free disposal of the recipient. A’s freedom to dispose of the money is necessarily excluded by an arrangement that the money should be used exclusively for the stated purpose.[122] A’s subjective intentions are irrelevant. If he enters into arrangements which have the effect of creating such trust, it is not necessary that he should appreciate that they do so; it is sufficient that he intends to enter into them.[123] 232.The rationale for equity’s intervention in such circumstances is that it is unconscionable for a man to obtain money on terms as to its application and then disregard the terms on which he received it. Such conduct goes beyond mere breach of contract for the duty is fiduciary in character, so Quistclose trust may exist despite the absence of any contract at all between the parties.[124] The concept of Quistclose trust has been applied to a non-loan situation in Typhoon 8 Research Ltd v Seapower Resources International Ltd & anor.[125] There will be breach of the Quistclose trust where the money is applied for purposes other than the stated specific/exclusive purpose. (a) US$5M Sum 233.Mr Hui submitted there was no Quistclose trust and hence no breach of trust in relation to the US$5M Sum. It was said there was no provision for any specific purpose restricting the usage of the US$5M Sum in the TCPSSA (which was a comprehensive agreement prepared by internal and external lawyers) except that it shall be paid as “part payment and part satisfaction of the Subscription Price” in Article 3.2(a), and there could not be any other agreement, orally or in writing, stipulating any specific purpose of the use of the US$5M Sum given the entire agreement clause in Article 26 of the TCPSSA.[126] It was said that at best the purpose of the US$5M Sum was for subscription of the 49% Shares, which purpose had been fulfilled (and not failed) by allotment of such shares to P2 (see paragraphs 89-91 of the D&C). 234.I disagree and refer to my findings in paragraphs 95-96 above. Article 3.2(a) of the TCPSSA expressly referred to the TNFA by providing that the First Payment “shall be paid as part payment or part satisfaction of the Subscription Price in accordance with the relevant articles of the [TNFA]”, and Article 2a of the TNFA provided that the First Payment was to be paid as part of the Acquisition Price by 2 cash payments to D1 and then to D4 into the WOFIE as part of the capital injection required under PRC law (ie the 1st Agreed Purpose via the 1st Agreed Route). Clearly, although the US$5M Sum was paid as part of the Acquisition Price / Subscription Price for acquisition of the 49% Shares, there was an exclusive, specific and dedicated purpose that restricted usage of the US$5M Sum. There was therefore no need for Ps to go outside the contractual regime under TCPSSA. 235.In my view, Mr Hui’s suggestion that Ps made different, inconsistent and/or contradictory references to the purpose of the US$5M Sum reflected misunderstanding of Ps’ case. The 1st Agreed Purpose (ie the US$5M Sum was to be paid to the WOFIE as part of its capital injection required under the PRC law) was the specific and dedicated purpose of such monies. This was understandable since Yunji’s business licence specified a deadline of 7 July 2008 for capital injection (although such deadline was subsequently postponed several times). But once having booked such monies as part of the WOFIE’s (ie Yunji’s) capital injection in fulfilment of the 1st Agreed Purpose, such monies would be available for use by the WOFIE (ie Yunji), ie for works pursuant to the Disbursement Plan and for Ds’ Preparatory Works subject of the Collateral Warranty. Mr Hui’s suggestion that disbursing the US$5M Sum for works in relation to the Project outside the TCPSSA was merely unilateral understanding that was too uncertain and non-specific to make out a Quistclose trust flied against the very specific 1st Agreed Purpose. I am satisfied there was a sufficiently specific purpose as agreed between the parties to support a Quistclose trust over the US$5M Sum. 236.Mr Hui then argued there could not be any Quistclose trust since there was no certainty of subject matter. He submitted it must be shown the monies are paid on such terms or in such circumstances that it is made objectively clear the money transferred should not be part of the general assets of the recipient, but should be used exclusively for the specified purpose. To put it in another way, it must be shown the money is not at the free disposal of the recipient.[127] But even though keeping the money in a separate account pending application in accordance with the purpose will demonstrate such money is not at the free disposal of the recipient,[128] it does not appear to be an absolute requirement for Lewin on Trusts states that:[129]
237.Mr Hui submitted that since Tay did not ask for the US$5M Sum to be placed in a separate account for the reasons set out in paragraph 39 above and money was a fungible asset, it would have been mixed with existing and/or subsequent funds after deposit in the recipient bank account leaving no certainty of subject matter to ground or support a Quistclose trust. 238.In respect of the US$4M Sum, there was no mixing of funds as explained in paragraphs 45-47 above. It was clear (a) the entire sum of US$3,999,803.26 deposited in newly opened Chinacomm Account 2 (ie the US$4M Sum) which had nil opening balance and (b) the 1st Balance after some transfer withdrawals in June 2008 were subject to a Quistclose trust with no mixing of funds. Even though there was further deposit of US$1,999,948.17 into such bank account on 30 June 2008, I have explained in paragraphs 46-47 above why there was no mixing of funds in respect of the 2nd Balance, the transfer withdrawal of US$450,000, and the ultimate remaining balance in such bank account. As for the US$1M Sum paid into the bank account of D8’s Beijing subsidiary, there was no evidence of any mixing of funds since Ds did not disclose the relevant bank statements to show such account was in use for other transactions and/or there were other funds in such bank account. Thus, on failure of the 1st Agreed Purpose, P2 had beneficial/proprietary interest in the remaining balance in Chinacomm Account 2, which monies belonged to P2. 239.More importantly, there were other indicators that the US$5M Sum was to be kept separate and applied for the 1st Agreed Purpose and not to be treated as D1’s general assets for deployment as it wished for the Project or otherwise. At the time of payment, there was time pressure for capital injection for the WOFIE (ie Yunji) known to both Ps’/Ds’ camps. In fact, Ds’ camp well knew the US$5M Sum was intended to be for such specific purpose and not as Ds’ general assets. I refer to paragraph 48 above and note Ds’ plea that in order to minimise loss resulting from forfeiture of partially injected capital of Yunji (ie the WOFIE) in case Yunji “failed to capitalise and verify the whole of the registered capital within the specified timeframe” D1 only paid US$2,000,000 out of the First Payment to Yunji as its registered capital whilst the balance of the First Payment was paid to D8 to meet expenses of the Project according to the Disbursement Plan. This showed clearly that even on Ds’ case they knew the US$5M Sum was for the specific purpose of partial capital injection into the WOFIE, but it was just alleged fear of forfeiture that held them back from putting the whole US$5M Sum into the WOFIE (which at best would amount to misapplication of funds in breach of the specific and exclusive purpose). In my view, there is no merit to the argument that there was no certainty of subject matter. 240.Ds put Ps to proof of failure of the 1st Agreed Purpose. Mr Hui in his written opening submissions suggested no sufficient/ adequate evidence was adduced by Ps to support their bare assertion that the 1st Agreed Purpose had failed. It was said since Yunji had a registered capital of US$99,000,000, Ps failed to adduce documentary evidence to prove the US$5M Sum had not been injected into Yunji as capital. But in my view, even taking on board Mr Hui’s reminder that cogent evidence was required to satisfy a civil tribunal that a person had been fraudulent or behaved in some other reprehensible manner,[130] this could be dealt with quite shortly. The fact Yunji’s registered capital was US$99,000,000 was neither here nor there since (a) Yunji’s business licence itself made clear it had not been paid up (see paragraph 42(d) above) and (b) there were various postponements of the deadline for full capital injection (see paragraph 144 above). It lied ill in Ds’ mouth to complain there was no documentary evidence to prove the US$5M Sum had not been injected into Yunji as part of its capital when D1, D4 and Yunji were part of Ds’ camp and only Ds’ camp had access to their bank accounts, bank statements, ledgers and financial documents, but Ds had chosen not to make discovery of these documents despite their pertinence in light of Mr Hui’s submissions. 241.More importantly, on Ds’ own pleaded case (even though I have found there was no factual evidence to support the same), Ds admitted that at least US$3,000,000 of the US$5M Sum was not injected into Yunji for the 1st Agreed Purpose (see paragraph 48 above). In my view, the whole tenor of the evidence before this court was that all along Ds’ camp tried to get monies from Ps but failed to perform their part of the bargain, and they were not above “reprehensible conduct” in order to get their hands on such monies.[131] I infer/find the US$5M Sum had not been applied for the 1st Agreed Purpose, which led to subsequent pressure to organise funds to rescue Yunji from cancellation of its business licence and to postpone the deadline for capital injection. In my view, D1 and its directors D6 and D7 were in breach of the Quistclose trust in relation to US$5M Sum. (b) US$4.75M Sum 242.Ds also denied there was any Quistclose trust (as there was no agreed specific purpose) and hence no breach thereof in respect of the US$4.75M Sum, and suggested the Double Signatures Arrangement for Chinacomm Account 2 was therefore irrelevant. 243.Mr Hui argued that under the TCPSSA, if there was a specific purpose (which was denied), it could only be for the Subscription Price for the 49% Shares as set out in Article 3.2(b) of the TCPSSA. In that case, Mr Hui contended his arguments in relation to the US$5M Sum would apply mutatis mutandis. But as I have found the US$4.75M Sum was paid outside the TCPSSA regime although if everything eventuated (as explained in paragraph 151 above) it would have been treated as part of the Subscription Price. 244.But Mr Hui argued that even outside the TCPSSA regime Tay’s evidence failed to pinpoint whether or not the stated specific purpose was for “equipment purchase”, “capital injection into Yunji” or “maintaining the licences”. Mr Hui submitted these uncertain concepts could not support any Quistclose trust, and the fact Tay mentioned all 3 matters reinforced Ds’ view that there was no agreed purpose specific enough to give rise to a Quistclose trust. It was said properly analysed Tay’s evidence was no more than saying the US$4.75M Sum was for general purpose of pursuing the Project or, to put it in another way, for D1’s general cash flow. 245.However, I reject such contention and refer to my findings in paragraphs 148-151 above. The fact the US$4.75M Sum was to be deposited in Chinacomm Account 1 that was newly opened with agreed Double Signatures Arrangement for receiving such sum lent weight to Ps’ contention that such monies would be locked for the 2nd Agreed Purpose with Tay having the right to veto any other use by refusing to co-sign transfer withdrawal from such account. This arrangement was put in place given Ps’ camp’s experience of opaque non-response by Ds’ camp over queries as to utilisation of the US$5M Sum. In my view, such special arrangements spoke of an agreed specific and exclusive purpose for the US$4.75M Sum. It must also be remembered that the US$4.75M Sum was paid at pressure/request by Ds’ camp inter alia to postpone the deadline for full capital injection to rescue the WOFIE when Ps’ camp was unwilling to make payment under the TCPSSA regime since the 2nd tranche of the Subscription Price was not yet payable pending fulfilment of the Subsequent Payment Conditions of the TCPSSA including Schedule 3(j). The Double Signatures Arrangement was also in place for D4’s bank account (ie Smart Channel Account), and it was expected such arrangement would be put in place for Yunji’s bank account that would eventually receive the US$4.75M Sum via the 2nd Agreed Route for the 2nd Agreed Purpose (see paragraph 155 above). In my view, it was Ds’ recalcitrance over inter alia the Double Signatures Arrangement for Yunji’s bank account that held up application of the US$4.75M Sum for such specific/dedicated purpose. I have also found it was understood/agreed that the US$4.75M Sum would be refunded if the 2nd Agreed Purpose failed and the parties were unable to reach agreement on its disbursement (see paragraph 150 above). I have no hesitation in concluding there was sufficiently specific and exclusive purpose for the US$4.75M Sum to give rise to a Quistclose trust, and Ps had proprietary/beneficial interest in such trust monies. The fact that after satisfying the 2nd Agreed Purpose the US$4.75M Sum could be disbursed for acquisition of additional equipment for works for the 12 Cities as explained in paragraph 149 above did not detract from sufficiency and exclusivity of the 2nd Agreed Purpose. 246.Mr Hui next argued the US$4.5M Transfer did not defeat any or any alleged specific purpose for there was no sufficient and adequate evidence such transfer amounted to any asset dissipation that was contrary to any specific purpose. I refer to my findings in Parts XXVI-XXVIII above and reject such contentions. I have also rejected D10’s account of the alleged Loan for D8 and the surety arrangement for such alleged Loan. 247.Further, in light of my rejection of D10’s evidence as to the alleged Loan and Surety Agreement, and my further finding that they were mere sham in Part XXVIII above, it was plain the 2nd Agreed Purpose failed because the US$4.75M Sum was not applied for the 2nd Agreed Purpose but was misappropriated by D1, D6, D7 and D10 for their own purposes unconnected with Yunji’s capitalisation and/or the Project. (c) Summary 248.I therefore find the US$5M and US$4.75 Sums were subject to Quistclose trust, and the remaining monies in Chinacomm Account 1 and 2 were in nature trust monies and liable to be returned to Ps. Further, D1, D6 and D7 as trustees were liable to P2 for breach of trust for the US$5M Sum and US$4.75M Sum, and liable to P1 for breach of trust for the US$4.75 Sum. XXXII. CONSPIRACY TO INJURE 249.Ps’ case was that D6, D7 and D10 conspired together by unlawful means to injure Ps by the US$4.5M Transfer to the D10 Account. The D10 Transfers added insult to injury by putting the US$4.5M Sum even further beyond Ps’ reach. 250.The essence of the tort of conspiracy to injure by unlawful means is injury to the claimant as a result of unlawful act or acts where 2 or more people have combined to cause the injury to a third party.[132] It was said that for such conspiracy, it is incumbent on the plaintiff to prove (a) the nature of the agreement, (b) the unlawful means alleged, (c) each of the unlawful acts relied on, (d) the fact that each act was carried out pursuant to the conspiracy, and (e) the relevant state of mind of the alleged conspirator.[133] 251.Insofar as the element of combination was concerned, a party to a conspiracy need not understand the legal effect of it, but he must know the facts on the basis of which it is unlawful. The absence of overt acts or an uncommunicated intention to join a conspiracy may show that there has not been an effective combination. Clerk & Lindsell on Torts went on to say:[134]
252.In short, it is not necessary for every overt act to be done by every conspirator, but the conspirators must be sufficiently aware of the relevant circumstances and share the same common purpose at the time when they acted in concert pursuant to the conspiracy, and the relevant overt act(s) must be done pursuant to the conspiracy, scheme or combination. Acting in concert requires combination or agreement, but not necessarily an express agreement. It is sufficient if 2 or more persons deliberately combine with a common intention whether expressly or tacitly to achieve a common end. 253.It is also useful to refer to parts of the extracted passage from Kuwait Oil Tanker Co SAK v Al Bader[135] cited by DHCJ Au-Yeung (as she then was) in Pak Win Investment Ltd (in compulsory liquidation) v Chung Yuet Sheung, Lorraine & ors as follows:[136]
254.As regards the element of “intention”, the mental element is merely an intention to injure.[137] In many contexts it will be necessary in order to prove intention to ask the court to infer the relevant intention from the primary facts, “and in the case of most conspiracies to injure by tortious means it will be clear from the acts of the conspirators that they must have intended to injure the claimant. In the case of a conspiracy to defraud by wholesale misappropriation it would be absurd to argue that the conspirators did not intend just that”.[138] (a) Unlawful means 255.There was no dispute over the existence of the US$4.5M Transfer from Chinacomm Account 1 to the D10 Account. I have found this was done by D6’s/D7’s deliberate/secret revocation of Tay’s co-signatory mandate for Chinacomm Account 1 by purported board resolution in breach of the agreed Double Signatures Arrangement to misappropriate the sum of US$50,000 and the US$4.5M Sum in breach of the 2nd Agreed Purpose/Route. I have also found there was breach of trust on the part of inter alia D1, D6 and D7, and further found the alleged Loan and surety arrangement (including the Surety Agreement) were a sham. Mr Hui submitted Ps made no complaint as to breach of the TCPSSA by D10 and other Ds, but I note it was not Ps’ case there was breach of the TCPSSA by D10 and other Ds by the US$4.5M Transfer out of the US$4.75M Sum (that Ps paid outside the TCPSSA regime). Indeed, I am unable to see how Ps could complain about the US$4.5M Transfer (when it was only discovered as a result of court-ordered disclosure by Ds in the course of the present litigation) except to plead in paragraphs 125-127 of the ASoC that the surety arrangement for the Loan was a sham, and that D6, D7 and D10 conspired to misappropriate the US$4.5 Sum. In light of my findings, the US$4.5M Transfer was plainly an unlawful means, and there was no merit to such argument. (b) Combination 256.D10 was D9’s legal representative, and D8 was 60% shareholder in D9. D1, D6 and D7 were in breach of Quistclose trust in respect of the US$5M and US$4.75M Sums, and in breach of the Double Signatures Arrangement for Chinacomm Account 1. Ps claimed it could be inferred D6, D7 and D10 conspired to effect the $50,000 Withdrawal and US$4.5M Transfer with deposit of the US$4.5M Sum into the D10 Account being D10’s personal account which (to the knowledge of Ds’ camp) was for their own benefit but Ps did not authorise:
257.In light of the above, and the fact D6/D7 asked (a) Tay (for Ps) for the US$4.75M Sum to rescue the WOFIE by postponing the deadline for full capital injection, (b) knew and agreed to the Double Signatures Arrangement for Chinacomm Account 1 and Smart Channel Account as well as the 2nd Agreed Purpose/Route, and (c) signed the purported board resolution of D1 to facilitate secret revocation of the Double Signatures Arrangement and unilateral US$4.5M Transfer behind Tay’s back, I have no hesitation in concluding D6/D7 conspired to injure Ps by misappropriating and dissipating the US$4.5 Sum from Chinacomm Account 1 to the D10 Account outside Ps’ reach. 258.But Mr Hui submitted there was no effective combination to support any claim in conspiracy against D10. First, it was said there was no documentary evidence suggesting D6, D7 and D10 had conspired together to dissipate the US4.5M Sum. But as explained in paragraphs 251-254 above, the essence of conspiracy is concealment, so direct documentary evidence of the combination is unlikely and in any event not necessary. Secondly, it was said D10’s receipt of the US$4.5M Sum did not justify any adverse inference that D10 was party to any conspiracy. But taking into account (a) the overt acts by D10 to present a positive case of the Loan and surety arrangement (including the Surety Agreement), which arrangements I have found to be a sham to cover up the dissipation of monies which D10 well knew came from D1 but neither he, D6, D7, D8, Wu Jiang nor Sun were entitled, and (b) D10 working closely with D6 and at D6’s directions (see paragraphs 166, 175 and 181-182 above) to receive US$4.5M Sum in the D10 Account newly opened for such purpose, to effect the D10 Transfers, and to participate in sham arrangements involving of D8 and D9 (of which D6, D7 and D10 were part of the senior management), there was ample evidence for coming to the irresistible inference that D10 combined/agreed with D6 (and probably D7 too) in a common design to dissipate the US$4.5M Sum. This was bolstered by the fact D10 knew or could have found out about the recipients of the D10 Transfers and should have disclosed them under the 2nd Injunction Order, but he chose to shy away by asserting he was not aware of the injunction proceedings, which allegations I have rejected as lies. All of these matters added weight to the inference that D10 knew the US$4.5M Sum was misappropriated funds and he combined/agreed with D6 (and probably D7 too) to dissipate them with intent to injure the rightful owners of such monies, and cover up the same with story of sham arrangements. 259.Mr Hui complained about sparsity of particulars as to knowledge in Ps’ pleadings, but I see nothing in such complaint for Ps did plead the overt acts including the sham transaction which they relied for inferring the combination/agreement, and there was no positive plea in response about the Loan and surety arrangement in the D&C. It is accepted in this kind of tort, it is usually quite impossible to establish when and where the initial agreement was made, and the existence of the agreement can only be inferred from overt acts. But what was clear here was that D10 knew what was going on (ie dissipation of funds away from D1 and the rightful owners) and he actively participated in such unlawful activity in concert with D6 (and probably D7 too). 260.It was also suggested Ps failed to put to D10 that he knew (a) the articles in the TCPSSA for payment of the Subscription Price, (b) the Double Signatures Arrangement, (c) the US$4.75M Sum was trust money subject to the 1st Agreed Purpose/Route, and (d) the US$4.5M Sum came from the US$4.75M Sum and hence was trust monies, so the pleaded particulars could not support the conspiracy claim against D10. But conspirators do not have to join the conspiracy at the same time. It was sufficient that D10 knew (as I have found) the US$4.5M Sum was misappropriated monies to which he, D6, D7, Wu Jiang, Sun and/or D8 were not entitled, and D10 and D6 combined/agreed to dissipate and/or further dissipate the same to bring it outside the reach of the rightful owners. There was no need for D10 to know in detail about the operation of the trust account (ie Chinacomm Account 1). 261.I also bear in mind D6/D7 intentionally deregistered D4 and the WOFIE by failing to file annual return for D4 and letting Yunji’s business licence fail (see paragraphs 206 and 228 above). In my view, Ps had established all the elements of conspiracy to injure by unlawful means, and D6, D7 and D10 are liable for damages in the sum of US$4,500,000. XXXIII. UNJUST ENRICHMENT 262.Ps claimed the US$4.75M Sum belonged to them and the secret US$4.5M Transfer amounted to misappropriation of such funds, and hence D10 in receiving the US$4.5M Sum from D1 was unjustly enriched. 263.In Shanghai Tonji Science & Technology Industrial Co Ltd v Casil Clearing Oil,[139] the approach to a claim for unjust enrichment was to ask the following questions: (a) was the defendant enriched? (b) was the enrichment at the plaintiff’s expense? (c) was the enrichment unjust? (d) are any the defences available? 264.Plainly, D10 was enriched by receipt of the US$4.5M Sum, and such enrichment was unjust as I have found the Loan and surety arrangement to be a sham, and both the US$4.5M and D10 Transfers were acts to dissipate such monies which D6, D7 and D10 knew they and D8 were not entitled. In view of the 2nd Agreed Purpose/Route and the Double Signatures Arrangement, and breach of trust by D1, D6 and D7 in relation to the US$4.75M Sum as I have found, D10’s enrichment must have been at the expense of Ps. XXXIV. CONCLUSION 265.In the circumstances, I grant the following orders:
266.Ps submitted a draft order for the court’s consideration under cover of the letter by Ps’ solicitors dated 4 May 2017. I am unable to grant the order in paragraph 8 of the draft order since it was not prayed for in the ASoC, and the utility of such order to be made quite a number of years after the event had not been explored at trial. 267.I also grant a costs order nisi that subject to the 1st and 2nd Costs Issues in Parts XXXV and XXXVI below, D1, D6, D7, D8, D9 and D10 do joint and severally pay the costs of and occasioned by P1 and P2 in respect of their claim in this action (including all costs reserved, if any) to be taxed if not agreed. Mr Chan particularly raised the issue of costs of 2 bundles of documents prepared by Ds for the purpose of the trial, but in the end such bundles were not used. However, in light of my costs order nisi, there is no need to separately deal with Ps’ costs in respect of perusal/consideration of such documents as they would be part and parcel of the costs of Ps’ claim in this action. 268.I also grant a costs order nisi that there be no order as to costs as between P1 and P2 on one hand and D2, D3, D4 and D5 on the other hand in respect of Ps’ claim against D2, D3, D4 and D5 in this action. Although I have dismissed Ps’ such claim in paragraph 265(j) above, that was for the purpose of finality. I note D2, D3, D4 and D5 were parties to the TCPSSA, and my findings above reflected that Ds’ camp acted reprehensibly vis-à-vis Ps. In any event, I do not consider there would be significant costs incurred by D2, D3, D4 and D5 in the overall defence against Ps’ claim which failed. I therefore consider a fair order for costs would be to make no order. XXXV. 1ST COST ISSUE 269.By the order of Master S Kwang dated 28 May 2014, leave was granted for Ds to discontinue their counterclaim against Ps with costs reserved to be argued before the trial judge. Thus, the issue of reserved costs was in respect of costs of and occasioned the abandoned counterclaim (“1st Costs Issue”). In light of my findings in favour of Ps in respect of their claim which must impact on the vitality of their mirrored allegations in the counterclaim, and given that Ds made a deliberate decision to abandon the counterclaim in the course of their security for costs application which failed, there is no reason why costs should not follow event. I therefore grant an order that Ds do pay Ps’ costs of and occasioned by (a) Ds’ application for leave to discontinue the counterclaim against Ps and (b) Ds’ counterclaim, including all costs reserved, if any, to be taxed if not agreed. XXXVI. 2ND COST ISSUE 270.The present action was scheduled for trial on 10 May 2016 to be heard by Au-Yeung J. On the 1st day of trial, Au-Yeung J adjourned the trial, and the present action came before this court for trial on 27 March 2017. At the pre-trial review on 26 February 2016, DHCJ Au-Yeung (as she then was) ordered that costs of such pre-trial review be reserved (“2nd Costs Issue”). Mr Hui fairly accepted it would be difficult for Ds to resist such costs as the costs for that wasted hearing arose out of matters raised by Ds. I therefore order Ds to pay Ps costs of and occasioned by the pre-trial review on 26 February 2016 to be taxed if not agreed.
Mr Edward Chan, instructed by Lawrence K Y Lo & Co, for the 1st and 2nd plaintiffs Mr John Hui, instructed by Lam & Co, for the 1st to 10th defendants [1] P1 was formerly known as Mortlock Ventures Inc from its incorporation on 19 September 2005 until 8 April 2008 when it changed its name to China Tel Group Inc, and on 25 July 2011 it further changed to its present name to better define its telecommunications business [2] ie Stock Exchange Commission [3] P1 (a) provided telecommunication services by acquiring spectrum rights through acquisition or JV relationships, (b) provided capital, engineering, architectural and construction services relating to build-out of WBA telecommunication networks, (c) operated such networks by offering services to subscribers, and (d) provided services in designing/building infrastructures and arranging financing for projects [4] see paragraphs 57-58, 66-67, 91, 94 and 141 below, and Part XXIII below [5] Tay was also the authorised representative of P2’s corporate director Trussnet Capital Partners (Cayman) Ltd [6] D1 adopted D8’s business address in Beijing, Mainland China [7] Trussnet Delaware’s business was in design, development, operation and maintenance of wireless communications facilities globally [8] Trusnett Nevada had no operation prior to the series of reverse mergers in May 2008 whereby (a) its shareholders took over Mortlock Ventures Inc (now known as P1) whose stock was traded in the US over-the-counter market, and (b) it became a wholly-owned subsidiary of China Tel Group Inc (now known as P1) (see paragraph 57 below) [9] eg the learned judge was particularly critical of the US$4.5M Transfer from Chinacomm Account 1 to D10 Account, concealment of such transfer, and poor explanation proffered for such conduct [10] eg (a) Ds failed to give proper disclosure as ordered, (b) Ds eventually abandoned their appeal against the Injunction Decision, (c) Ds’ 2 applications for security for costs before Master S Kwang (as he then was) and their appeal to A Chow J all failed, and (d) Ds abandoned their substantial counterclaim [11] such JV structure was to (a) get around legal restrictions against foreign investments in telecommunications operators in Mainland China (see paragraphs 28 and 34 below), (b) facilitate sourcing investment funds from the Market, and (c) enable eventual listing of the JV SPV on a stock exchange [12] see paragraphs 102-103 of the Amended Statement of Claim (“ASoC”), Schedule 3(j) of TCPSSA, and Clauses 1.3, 4.2 and 6.2 of Part 2, Schedule 4 of TCPSSA (see paragraph 92(g) and (q) below) [13] see paragraph 104 of the ASoC [14] see paragraph 105 of the ASoC and Articles 10.7, 10.8 and 10.12 of the TCPSSA (see paragraph 92(r)-(t) below) [15] see Articles 4.2 and 4.6 of the TCPSSA, and paragraph 92(e) and (n) below [16] D4 was dissolved on 22 October 2010 [17] see Dicey, Morris and Collins on The Conflict of Laws 14th ed (2006) para 9-025 at pp 268-269 [18] see Star Glory Investment Ltd v Kai Tua (HK) Technology Ltd & ors HCA3523/2002, Chung J (unreported, 13 August 2005) para 12 (see also Four Seas Fishballs Co Ltd v Yeung Hung Sin & anor HCA4159/2003, Chung J (unreported, 25 August 2006) para 20, Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, 494, Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD, 524 and Hui Cheung Fai & anor v Daiwa Development Limited & ors HCA1734/2009, DHCJ Eugene Fung J (unreported, 8 April 2014) paras 76 - 83) [19] since, according to Tay, telecommunications remained a sensitive state security area in Mainland China [20] eg equipment suppliers and parts vendors [21] ie from projects ran by Ps’ camp in United States and Latin America [22] but as seen below D6/D7 exaggerated their/D8’s ties with MIIT, and in the end there was no Licence Extension for the 29 Cities Licences in respect of all the 29 Cities [23] Tay explained it was quite unprecedented for a foreign company to take a direct stake in a domestic telecommunications operator [24] Charles Li Chaoying of Beijing Hankun Law Office [25] the foreign investor and domestic operator would form an offshore JV company to enter into contractual arrangements with the domestic operator through its wholly-owned indirect PRC subsidiary, so investments/profits would flow in the manner set out in paragraph 19 above [26] ie company incorporated or to be incorporated under PRC law and owned directly or indirectly by Trussnet Delaware [27] Article 1e of the TDFA provided inter alia the Trussnet WOFIE would have priority to purchase from Nortel Networks (China) Limited (“Nortel”) (or other manufacturers which products were recognised by Nortel) necessary equipment required by D8 for construction/operation of 3.5GHz networks after Trussnet Delaware received the documents listed in Article 2b and signed lease agreements with the WOFIE by which Trussnet Delaware would lease such equipment (expenditure of which shall not exceed US$50,000,000) to the WOFIE, and such equipment would be transferred to the WOFIE at US$1 when D1 was to be listed in a stock exchange, and Article 1f of the TDFA provided the WOFIE would sub-lease such equipment to D8, and the WOFIE and D8 shall enter into sub-lease agreements by which D8 shall pay rental to the WOFIE [28] Tay learned during negotiations that D7 was a high-ranking military officer which explained why D8 had access to underground fibre optic networks of the Existing System that were laid by the military [29] see Article 2b(i) of the TDFA/TNFA in paragraph 35(h)(i) above which envisaged the Disbursement Plan would be agreed between the parties and included in the Investment Agreement for acquisition of D1’s 49% Shares [30] see Article 2b(iv) of the TDFA/TNFA and paragraph 35(h)(iv) above [31] see Articles 1b and 2b(iii) of the TDFA/TNFA in paragraphs 35(c) and (h)(iii) above [32] account balance as at 3 October 2011 was US$13,437.48 [33] ie “Huge Power ENT”, “Li Li Yuan” and “Hua Xia Bank H” [34] ie “Xu Hongxia” and anonymous transferee [35] ie RMB31,057,300 for “Beijing network deployment” and RMB2,887,500 for “frequency occupancy cost” [36] defined in the GSSA to mean “a foreign invested enterprise wholly owned by the Investor to be established in the PRC” [37] defined in the GSSA as 19 April 2008, the date on which the First Payment was made in full by Gulfstream (as investor) to D1 (as the company) [38] defined in the GSSA as D8, D9, D2 and D3 (as founders) and D6 and D7 (as guarantors) [39] defined in the GSSA to refer to the warranties given pursuant to Article 6 and in Schedule 4 [40] eg incurring any capital expenditure that would exceed US$10,000 (Clause (r)), and factoring any of its debts (other than by facilities in place at the date of the GSSA), borrowing monies or accepting credit (other than normal trade credit) (Clause (w)) [41] eg the TNFA, Exclusive Service and Equipment Leasing Agreements between D8 and the WOFIE, and Exclusive Service and Equipment Leasing Agreements between WOFIE and the Investor WOFIE [42] which was also evident from the substantial amount of the Subscription Price and the involvement of D6-D8 in promoting the Project to investors (see paragraph 58 below) [43] paragraph 21 of the Reply and Defence to Counterclaim averred that Ps’ camp sent staff to headquarters of the vendors such as Samsung, Nortel, Huawei, ZTE, Redline etc in Korea, United States and Singapore, and arranged for D6 to meet such vendors in Mainland China, Korea and Taiwan [44] Ps denied such averments in paragraph 22 of their Reply and Defence to Counterclaim [45] Article 11.2 of the GSSA provided that “[D1] shall apply the proceeds of the subscription by the Investor for [49% Shares] in the furtherance of the Business Plan, the Disbursement Plan and the budgets adopted pursuant to the terms of [the GSSA]”, and Schedule 3(m)-(n) of the GSSA provided it was part of the Completion Conditions that such Business/Disbursement Plans in agreed forms were delivered to the Investor, but there was no evidence such Business/Disbursement Plans in agreed form were available [46] see Clauses 1.3, 4.2 and 6.2 of Part 2, Schedule 4 of the GSSA and paragraph 55(m)(i)-(iii) above [47] Tay said on 10 August 2008 Alvarez wrote to inform D6 of the company restructure (see paragraph 57 above) so as to better able to raise capital [48] see Article 4.4(a)(xi) and (c)(i) of the GSSA and paragraph 55(h)(i)(2) and (h)(iii) above [49] Tay said on 10 August 2008 Alvarez wrote to D6 noting “[D8] had not obtained the renewals of the 3.5GHz licence required by the financial institutions in order to close the US$200 million fund raise and acquire the 49% of [D1]”, which led to market concern that Ps’ camp might not be able to close the JV deal such that it was imperative to resolve “the issue with regard to licenses and Basic telecom services permits, ownership and disclosure problems within [D8] and [D1]” [50] Tay testified that at that time there was no particular reason not to proceed to Completion except Ds’ camp had yet to obtain assurance of Licence Extension and to complete Ds’ Preparatory Works (but see paragraph 69 below) [51] even though Xie had retired from MIIT and there was no evidence to suggest he was in charge of issuance/extension of 3.5GHz Licences before retirement [52] probably Trussnet Nevada being the parent company of Gulfstream [53] Tay explained this referred to documents needed to complete legal due diligence, eg Fibre Ownership Certificate issued to D8 that evidenced D8’s ownership of the fibre optics assets with book value of over RMB1.8 billion in D8’s financial statements [54] Tay explained this referred to documents needed to complete financial due diligence, eg tax invoices for D8’s fibre optics assets [55] see footnote 52 above [56] Ps’ financial advisor / investment banker, and also Runcom’s investment banker [57] I cannot accept such argument as I have found in paragraph 57 above that Ds’ camp knew all along the purpose of corporate restructuring (including reverse mergers) was to render Gulfstream (Trussnet Nevada’s subsidiary) an indirect subsidiary of P1, which US listed company was responsible for raising funds for the Project from investors in the Market, and which, in my view, explained why Li Honji in his email dated 28 November 2008 did not raise query about P1’s capacity [58] it was also agreed the business of D1 and its subsidiaries shall consist of telecommunications and information technology services, including inter alia provision of professional services in relation to operation/maintenance of 3.5GHz WBA networks in Mainland China (Article 5.1 of the GSSA), and such business shall be conducted on sound commercial profit-making principles so as to generate maximum achievable profits available for distribution to the parties (Article 5.3 of the GSSA) [59] when previously Ds’ team would rebuff Ps’ team by saying they would find someone to attend to the required works, and then either did not do so or the work done did not meet the standards set by Ps’ camp for the New System [60] P1 as a US listed company was subject to audit/disclosure requirements and was prohibited from giving personal inducements (see also explanation given in Tay’s email dated 16 July 2008 as to P1’s need to make disclosure for any agreement signed – see paragraph 66 above) [61] Tay understood that if such payment was not arranged they would have a hard time operating/managing the New System even with Licence Extension [62] ie by showing Ps’ camp locked the JV deal/Project by acquiring D1’s 49% Shares pursuant to the TCPSSA, which step would allow Ps’ camp and their investment team to accelerate the fund-raising process in the Market [63] see 10K Announcement of P1 for 31 December 2011 filed with the SEC on 16 April 2012 (C/502) [64] for deployment of Beijing WBA network (see Article 6 of the TCPSSA Addendum and paragraph 99(f) below) [65] such works posed less technical challenge than Ps’ Preparatory Works being WBA network design for the New System [66] D6’s/D7’s personal fees of US$20,000,000 depended upon implementation of the Project, which in turn depended upon assurance of Licence Extension for the 29 Cities Licences, so it raised P’s camp’s hopes of such Licence Extension [67] Ps eventually paid to Ds’ camp the US$4.75M Sum, which funds were subject to Ps’ control by the Double Signatures Arrangement [68] see Article 3.2 of the TCPSSA and paragraph 92(f) below [69] as clearly borne out in Tay’s email to D6 dated 16 July 2008 (see paragraph 66 above), and the fact D8’s representatives (including D6) assisted P1’s fundraising efforts by attending roadshows to promote the Project to potential investors (see paragraph 58 above) [70] defined in the TCPSSA as closing of the subscription of the 49% Shares in accordance with Article 4 [71] defined in the TCPSSA to refer to D8, D9, D2 and D3 (as founders) and D6 and D7 (as guarantors) [72] defined in the TCPSSA as the date on which the Subsequent Payment Conditions had been all fulfilled or waived by the Investor [73] defined in the TCPSSA as the 29 Cities set out in Schedule 8 [74] defined in the TCPSSA as D2 and D3 (as founders) and P2 (as Investor) [75] defined in the TCPSSA as D1 (as the company) and each and any of the Subsidiaries (ie subsidiaries of D1 from time to time including D4) for the time being, and “Group Companies” shall be construed accordingly [76] ie the TDFA/TNFA, Exclusive Service and Equipment Leasing Agreements between D8 and the WOFIE, and Exclusive Service and Equipment Leasing Agreements between the WOFIE and the Investor WOFIE (ie a foreign invested enterprise wholly owned by the Investor to be established in Mainland China) [77] see Article 3.2(a) of the TCPSSA and paragraph 92(f) above that provided the Subscription Price was to be paid by the Investor “or its Associate Company” [78] see 10K Announcement of P1 for 31 December 2011 filed with the SEC on 16 April 2012 (C/502) [79] eg lender requirements as to control over use of the loan funds [80] see paragraph 64-65 of the D&C, but Ds did not adduce evidence to support such averments [81] see paragraphs 44-45 of the R&DC [82] Tay also testified D1’s authorised representative had to sign and enter P2’s name in D1’s register of members/shareholders, and then D1 had to lodge such register with the Hong Kong agent who would only accept such register from D1 and who would forward the same to the Cayman Islands’ companies authority for registration and update of the records of shareholders [83] Ps pleaded in paragraph 47 of the R&DC that even though the 1st Note was addressed to D1, D2, D3 and D8, only D1 could derive benefit from the 1st Note since the Portion Shares were pledged to D1 [84] part of the 49% Shares that had been paid for were not pledged [85] in short, (a) P2 pledged the 49% Shares except those that corresponded to the US$5M Sum (but the Portion Shares would decrease proportionately with any additional sum paid for subscribing further shares out of the 49% Shares), (b) P2 would not make other disposal of the pledged shares until release of part of such shares that corresponded to further payment of the Subscription Price (except for transfer to a third party upon written notice to D1 and with execution of an agreement among P2, D8 and the transferee), and (c) until release of such shares as provided in (b) above D1 could withdraw part of the pledged shares that corresponded to outstanding balance of the Subscription Price in case P2 failed to comply with the payment schedule set forth in the TCPSSA [86] also notwithstanding Ps’ request made after the 1st Injunction Order for disclosure of D1’s certificate of incumbency (which could only be issued at D1’s request to show its most up-to-date record), D1, D6 and D7 did not comply with such request [87] ie P2 was to become legal owner of the 49% Shares pursuant to the terms in Article 4.2 of the TCPSSA (see paragraph 92(e) above) upon Closing, and P1 was to acquire such “Equity Interest” pursuant to the terms in Article 2.1 of the APA (see paragraph 110(a) above) upon Closing [88] P2 had physical custody of the Share Certificate because it was borrowed from D1 pursuant to the 2nd Note [89] probably similar to P1’s Form 10-K (C/494-658) and Form 10-Q (C/421-491) [90] “Through a series of amendments dated March 5, March 16, April 9 and May 9, 2010, respectively, the maturity date of [PN] has been extended until December 31, 2011, the interest has been increased from 8% to 10% per annum, [P1] agreed to pay certain extension fees and [P2] secured the option to accept payment of accrued interest and extension fees in the form of [P1’s shares]. Pursuant to the May 9, 2010 amendment to [PN], [P2] became entitled to accept any or all of the interest or extension fees incurred pursuant to [PN] in the form of [P1’s shares] …… [P2] elected to receive [P1’s shares] for the difference between the total amount due under [PN], including accrued interest and extension fees through May 8, 2010, and the original $191 million principal balance of [PN]. On June 10, 2010, [P1] issued 58,867,119 Shares to [P2] for the payment of $24,488,723 of interest and extension fees owed to [P2] pursuant to [PN], as amended. These [P1’s shares] were delivered in satisfaction of the amounts [P1] owed to [P2] at the time of the Share issuance. Through the period ended December 31, 2010, in addition to issuance of Shares to [P2], [P1] also paid [P2] $10,900,000 towards accrued interest and extension fees. In addition, [P1] paid [P2] $2,750,000 towards reduction of the principal balance of [PN]” (see 10K Announcement of P1 for 1 December 2011 filed on 16 April 2012) [91] see also Li’s email to D6 dated 9 January 2010 in paragraph 127-129 below [92] ie Licence Extension for the 12 Cities Licence to 5 years, and 3.5GHz Licence for the remaining 17 Cities for 5 years [93] which was (a) a key/material delivery milestone under agreed conditions imposed by investors for closing investment transactions to release investment funds under the Escrow Procedure, and (b) outside control by Ps’ camp but conveyed to D6 [94] allegedly because D6 was “responsible personally to the higher ups”, which suggestion made Tay/investor quite uncomfortable [95] the original deadline in Yunji’s business licence was 7 July 2008, and such deadline had since been postponed on various occasions (see paragraph 144 above) [96] this is in line with observations in Tay’s email dated 16 July 2008 that apart from the US$5M Sum Ps’ camp would not pay out for equipment “before the funds are approved for release” (see paragraph 66 above) [97] Tay had confidence in Hong Kong’s banking system and rule of law, and believed if Ds’ camp failed to perform their agreed obligations Ps would be able to have the remaining monies returned to them [98] I note Mr Hui also suggested the Double Signatures Arrangement was an alternative (rather than additional) means of protection apart from the TCPSSA contractual regime [99] see letter by SCB to Ps’ solicitors dated 10 November 2011 (C/258) [100] see letter from Ds’ solicitors to Ps’ solicitors dated 14 February 2012 [101] see letter by SCB to Ps’ solicitors dated 10 November 2011 (C/258) [102] see letter from Ds’ solicitors to Ps’ solicitors dated 14 February 2012 with copy board resolution as aforesaid, and SCB’s letter dated 7 June 2011 acknowledging amendment of instructions on signatories for such account (C/265-267) [103] in finding there was such material/repudiatory breach outside the TCPSSA regime, I need not go further to speculate whether or not D6/D7 must have known even before 17 July 2011 (expiry of the 12 Cities Licence) D8 would not have been able to secure Licence Extension so they removed Tay’s co-signatory authority in anticipation that Ps might ask for return of their investments, but there was force in Tay’s suspicion as Ds deliberately and for no other plausible reason kept Ps in the dark about cancellation of the Double Signatures Arrangement which was revealed only after commencement of the present action [104] such confirmation letter was provided by Ds’ solicitors on 5 April 2012 [105] D10 testified he could no longer remember their names but recalled some of them were individuals [106] eg D9’s account ledgers, D9’s bank statements, relevant remittance slips and/or acknowledgment of receipts by D9 [107] see Hui Cheung Fai & anor v Daiwa Development Limited & ors HCA1734/2009, DHCJ Eugene Fung SC (unreported, 8 April 2014) paras 71-72 citing Snook v London and West Riding Investments Ltd [1967] 2 QB 786 [108] see Chitty on Contracts 32nd ed Vol 1 para 24-042 at p 1766 [109] ie whether the action(s) of the party in default are such as to lead a reasonable person to conclude he no longer intends to be bound by the provisions of the contract, eg the party in default intends to fulfil the contract only in a manner substantially inconsistent with his obligations, or refuses to perform the contract unless the other party complies with certain conditions not required by its terms (see Chitty on Contracts 32nd ed Vol 1 para 24-018 at pp 1750-1751) [110] see Chao Keh Lung v Don Xia [2004] 2 HKLRD 11, 16-18 and Leung Yuk Lin trading as King’s Glory Education Centre & ors v Karson Oten Fan, Karno HCA900&945/2006, DHCJ To (unreported, 15 July 2009) para 256 [111] see Chitty on Contracts 32nd ed Vol 1 para 24-018 at pp 1750-1751 [112] HCA900&945/2006, DHCJ To (unreported, 15 July 2009) para 257 [113] Leung Yuk Lin trading as King’s Glory Education Centre & ors at paras 257 and 259, and The Mersey Steel and Iron Co (Limited) v Naylor, Benzon & Co (1884) 9 App Cas 434 (HL), 438-439 [114] Leung Yuk Lin trading as King’s Glory Education Centre & ors at para 259 [115] but Mr Hui in paragraph 19 of his written closing submissions suggested Schedule 3(j) of the TCPSSA was irrelevant to the US$4.75M already paid by Ps [116] such as D8 awarding equipment supply contracts to Samsung and Huawei, and D8 making significant borrowings and loans without P2’s consent [117] which Tay found credible as Mr Luo was a representative of ZTE being a supplier designated by Ps and D8 [118] see W J Alan & Co Ltd v El Nasir Export and Import Co [1972] 2 QB 189, 213 cited in Dixie Enginering Company Limited v Vernaltex Company Limited trading as Wing Wo Engineering Company CACV343-344/2002 (unreported, 11 February 2003) paras 48-49, and Chitty on Contracts 32nd ed Vol 1 para 22-040 – 22-042 [119] see Persimmon Homes (South Coast) Limited v Hall Aggregates (South Coast) Limited & anor [2009] EWCA Civ 1108 para 52, and Armia Ltd v Daejan Developments Ltd 1979 SC (HL) 56, 69 [120] see Snell’s Equity 33rd ed para 25-033 at pp 688-689 [121] see Lewin on Trusts 19th ed para 8-051 at pp 336-337 [122] see Lewin on Trusts 19th ed para 8-048 at p 334 [123] see Fu Kong Inc v Hua Yun Da Group Ltd [2004] 3 HKLRD 87, 97 citing Twinsectra Ltd v Yardley & ors [2002] 2 AC 164, 184-193 [124] see Fu Kong Inc at pp 97-98 citing Twinsectra Ltd at pp 184-193 [125] [2002] 2 HKLRD 660 [126] see McMeel, The Construction of Contracts: Interpretation, Implication and Rectification 1st ed para 24.02, Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 611, and Chitty on Contracts 32nd ed Vol 1 para 13-017 at pp 1022-1023 [127] see Lewin on Trusts 19th ed para 8-061 at p 343 [128] see Lewin on Trusts 19th ed para 8-061 at p 343 [129] 19th ed para 8-065 at p 344 [130] see Secretary of State for the Home Department v Rehman [2003] 1 AC 153, 194 [131] eg secret revocation of the agreed Double Signatures Arrangement for Chinacomm Account 1 so as to effect the US$50,000 Withdrawal and US$4.5M Transfer to misappropriate monies from such bank account [132] see Clerk & Lindsell on Torts 12th ed para 24-98 at p 1765 [133] see De Krassel v Chu Vincent [2010] 2 HKLRD 937, 944-945 [134] 12th ed para 24-97 at pp 1764-1765 [135] [2000] 2 All ER (Comm) 271 [136] HCA419/2011, DHCJ Au-Yeung (as she then was) (unreported, 9 February 2012) para 15 [137] see Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537, 541 and Clerk & Lindsell on Torts 22nd ed paras 4-99 – 24-100 at pp 1739-1740 [138] see Kuwait Oil Tanker Co SAK at p 315f-g cited by DHCJ Au-Yeung (as she then was) in Pak Win Investment Ltd (in compulsory liquidation) at para 15 [139] [2004] 2 HKLRD 548, 570 [140] ie the US$5M Sum and US$4.75M Sum [141] ie the US$4.75M Sum | 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