Song Lian Zhong and Others v. Chan Sze Wan and Others

CACV 135 /2017

[2018] HKCA 685

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 135 OF 2017

(ON APPEAL FROM HCA NO 277 OF 2013)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the Court):

1.On 23 May 2017, Recorder Teresa Cheng, SC handed down judgment after a 14‑day trial. She found for the plaintiffs. This is the appeal of the 1^st, 3^rd and 4^th defendants. They seek to challenge the findings of primary fact made by the judge where the oral evidence played a significant part in determining the disputed issues.

Background

2.The dispute in this action and on appeal concerned the beneficial ownership of 46% of the shares in a company incorporated in the British Virgin Islands (“BVI”) known as China NTG Investments Ltd 中騰環保科技投資有限公司 (“CNTG BVI”).  The subsidiaries of this company are engaged in joint-venture with a state-owned enterprise, China National Petroleum Corporation (“CNPC”), for the supply of natural gas in certain provinces and localities in Mainland China (“the Project”).  As stated in the judgment at §33:

“The real issue turns on what arrangement was put in place between the plaintiffs and the defendants in relation to the Project and the shareholding and how that came about. Whether the defendants were given the shares for their attributes as pleaded or whether they were the registered shareholders holding on trust for Song [the 1^st plaintiff] so as to allow funds to be raised [for the Project] is effectively the real contention between the parties in Song’s case.”

(a) The parties and their shareholding

3.The 1^st plaintiff, Song Lian Zhong (“Song”), is a Mainland businessman.  The 2^nd plaintiff, Leung Sin Wai Samson (“Samson”), is a Hong Kong businessman.  The 3^rd plaintiff, Worldwide Executive Limited (“WEC”), is the company of Samson and holds the shares in the subject company on his behalf.

4.The 1^st defendant, Chan Sze Wan Eleanor (“Eleanor”), is a relative of the 2^nd and 3^rd defendants, Chan Chung Fai Edmond (“Edmond”) and Chan Kam Fai Adrian (“Adrian”).  Edmond and Adrian are brothers.  Edmond holds the shares that are the subject of this action on trust for Adrian.

5.The 4^th defendant, Tsui Wai Ling Carlye (“Carlye”), was married to the late Anthony Francis Martin Conway (“Conway”).  The 5^th defendant, Great River Corporation Ltd (“GRC”), is a company of Carlye and Conway and holds the shares that are the subject of this action on trust for Carlye.

6.At all material times, the registered shareholders of CNTG BVI and the shareholding of each are as follows:

Song: 612 shares out of a total of 1,200 issued shares (51%)

WEC: 36 shares (3%)

Eleanor: 276 shares (23%)

Edmond: 240 shares (20%)

GRC: 36 shares (3%)

7.Song claimed in this action that the shares registered in the names of Eleanor, Edmond and GRC, a total of 46% of the issued shares in CNTG BVI, are held on trust for him.

8.CNTG BVI holds the subsidiaries in the business of supplying natural gas in certain provinces and localities in the Mainland.  It does not have a bank account.

9.There is also a company incorporated in Hong Kong with the same name in Chinese as CNTG BVI and the English name is the same save for the word “Investment” as opposed to “Investments” in CNTG BVI.  This Hong Kong company (“CNTG HK”) holds the bank account and received the investments and made payments.  The registered shareholders and their shareholding in CNTG HK are the same as CNTG BVI.

(b) An account of salient events

10.It would be convenient to set out first the salient events in chronological sequence.  They are taken largely from the judgment.

11.Song was involved in telecom business in the Mainland through a company, Shenzhen Vokifone Tech Company Limited (“Shenzhen Vokifone”) in which he held a majority shareholding.  In 2008, when he was pursuing the listing of Shenzhen Vokifone, he was introduced to Raymond Chung, a former employee of PCCW, who then introduced him to his ex‑boss Conway, and to Carlye and Eleanor.  Through Eleanor and Carlye, Song was introduced to Edmond and Adrian.

12.Eleanor used to work in the public relations business or corporate communications.  After she left the public relations consultancy firm in 2004/2005, she spent her time mainly doing charity work in the Mainland.  She is the sole shareholder and director of a company called China Network Security Limited (“CNSL”), the investors behind it were Raymond Chung and Edmond.  Adrian, who worked as an insurance agent at the time, also helped in the operations of CNSL.  Carlye occupied the position of the chief executive officer of the Hong Kong Institute of Directors.

13.Through CNSL, Raymond Chung, Eleanor, Conway and Carlye had their first business relationship with Song’s telecom business.  On 5 May 2008, a Framework Co‑operation Agreement was signed between CNSL and Shenzhen Vokifone, followed by a Co‑operation Agreement between these two companies on 14 May 2008.  By these agreements, they agreed to establish a partnership in the product, technology and service of internet security.

14.Song intended to divert some of the businesses of Shenzhen Vokifone to Hong Kong with the ultimate purpose of listing in Hong Kong.  Eleanor offered to help in raising funds for starting up the businesses in Hong Kong.  In return, he agreed to remunerate her and her partners primarily by a commission of 3% of the funds they successfully raised.  He was told by Eleanor it would be easier to raise funds if Adrian, Edmond, Carlye and herself were registered as having an interest in the companies to be set up.  Song agreed to this arrangement provided he should be the majority shareholder.  This was described as the “Hong Kong Vokifone Arrangement” and included:

(a)     to establish a company for carrying out the Hong Kong Vokifone business;

(b)     to hold 49% interest in the said company on trust for Song whilst Song was to be registered as the shareholder of the remaining 51%;

(c) to look for investors to invest in the Hong Kong Vokifone businesses for a sum to be agreed by Song;

(d)     to transfer their 49% interest in the said company to the investor for the agreed investment;

(e) to receive a payment equal to 3% of the funds successfully raised[1].

15.From April 2009, several Hong Kong companies were set up to pursue the business (including Vokifone Holdings Ltd, Vokifone Media Ltd and Vokifone Telecom Group Ltd), but nothing much happened.

16.At around this time, Song had an opportunity to partner with CNPC in the Project, through CNPC’s subsidiary CNPC Kunlun Natural Gas Exploitation Company Limited (“CNPC Kunlun”).

17.On 22 September 2009, a BVI company was incorporated under the name of Super Kingdom Global Investments Limited.  Its name was changed to CNTG BVI in December 2009.  CNTG HK was incorporated on 12 November 2009.

18.The Project was embodied in a Framework Agreement dated 14 December 2009 entered into between CNPC Kunlun and a company of Song, Beijing Rongxin Diantong Technology Development Company Limited (“Beijing Rongxin”), for the supply of natural gas in 14 places in the Mainland.

19.Song secured RMB 6 million for the Project.  More funds had to be raised.  Eleanor learned of the Project and offered to raise funds for it.  Through the introduction of Carlye and Eleanor, Samson was involved in the Project.  He first paid RMB 30 million on 29 December 2009 in return for 0.5% of the shares of a company[2], which he was given to understand was the Project company.  Samson later obtained an interest free loan from a Japanese businessman Kemmori Yasumoto (“Yasumoto”), with whom he has a long-standing business relationship.  He paid an extra $45.7 million on 5 March 2010 and $68.5 million on 15 April 2010 and deposited these sums into an account as advised by Eleanor, that is the CNTG HK bank account.  In return for his total investment of RMB 130 million in the Project, Samson was given 3% shares in CNTG BVI.  No other investments had been secured by the defendants.  Nor did any of them invest in the Project by way of injection of capital.

20.A memorandum of understanding dated 5 March 2010 was signed by Eleanor, GRC and WEC setting out the 3% shareholding of WEC in CNTG BVI.  On 30 March 2010, a Subscription Agreement and a Shareholders Agreement for the shareholding of CNTG BVI were signed in the office of P C Woo & Co by all the registered shareholders.  Song was present on that occasion and signed both agreements.

21.On 5 May 2010, Beijing Ronxing signed an agreement[3] with an indirect wholly owned subsidiary of CNTG BVI in China known as China NTG Gansu Gas Limited (“CNTG Gansu Gas”), to transfer the rights of Beijing Ronxing under the Framework Agreement with CNPC Kunlun to CNTG Gansu Gas. And on the same day, CNTG Gansu Gas entered into an agreement[4] with CNPC Kunlun to form a joint venture company[5].

22.In early 2011, there was tension among Song, Eleanor and Adrian.  The two camps brought legal proceedings against each other in the Mainland, Hong Kong and the BVI.

23.In June 2011, the defendants’ camp caused CNTG BVI to pass a board resolution to remove Song from his office and as the legal representative of CNTG Gansu Gas.  Song brought proceedings in Hong Kong (HCMP 1823/2011) against CNTG HK, to compel it to call a general meeting to remove Eleanor, Adrian and Carlye as directors.  Samson made an affirmation for the defendants’ camp dated 11 October 2011.

24.On 31 July 2011, the defendants’ camp caused CNTG BVI to bring proceedings against Song in Hong Kong (HCA 1297/2011), seeking repayment of RMB 23 million (transferred to Song to set up a joint-venture company with CNPC Kunlun for supplying natural gas in Beijing) and $6.8 million (lent to Song to assist him to apply for investment visa in Hong Kong).  Song filed a defence on 2 November 2011.

25.In July 2011, Samson asked to inspect the financial statements and management accounts of CNTG HK.  He engaged a firm of certified public accountants to investigate and irregularities and unauthorized payments were identified.  According to the report of the accountants, by early 2012, the investment of RMB 130 million had been more or less disbursed.

26.In February 2012, Song and Samson made proper contact for the first time.  They then joined force against the defendants.  On 22 June 2012, they caused CNTG BVI to bring proceedings in the BVI against a number of defendants, including Eleanor, Adrian and Carlye, alleging breach of fiduciary duties and fraud (BVIHC (COM) 63 of 2012; “the BVI Action”).  The defendants’ camp made a counterclaim against Song and Samson in the BVI Action.

27.On 14 February 2013, Song, Samson and WEC issued the writ in the present action (HCA 277/2013).  The BVI Action was stayed by consent in October 2013.

(c) The plaintiffs’ case

28.Song’s case was as follows:

“the defendants were to raise funds for the Project and they hold 49% of the shares in the Project company on behalf of Song so as to facilitate their fund raising activities. The business arrangement with the defendants in the Project was to be the same as that for the Vokifone business. In essence, Song contends he would keep 51% of the shares in the Project company. The defendants would hold 49% of the shares on trust for him. This 49% shareholding would then be transferred to investors in return for their investments. Song would pay the defendants 3% of the amount of the funds raised as remuneration for raising funds for the Project.”[6]

29.This was referred to as “the Agreed Arrangement”.

30.Song alleged these misrepresentations were made by the defendants:

“(a) Hong Kong Company Representation: the Project would be carried out under the CNTG HK and through the companies under it.

(b) 49% Representation: 49% of the shares would be transferred to Samson in return for his investment of RMB 130 million.

(c) Documentation Representation: Eleanor said the source of funds of Samson was from a Japanese partner and that she would arrange for documentation for the deal under the 49% Representation.

(d) Secret Holding Representation: Samson had asked the defendants to hold the balance of the 49% interest in the Project for him so that the Japanese partner would not know of the arrangement under the 49% Representation.”[7]

31.Song alleged that on the basis of the Agreed Arrangement and the representations made by the defendants, he signed the documents that set up the various companies and the Subscription Agreement dated 30 March 2010.  He claimed a declaration that he is the rightful owner of the defendants’ shares in CNTG BVI, an order requiring the defendants to transfer their shares to him, a declaration he is the rightful owner of any direct or indirect interests in the Project that the defendants are holding in CNTG BVI or the companies under it, an order requiring the defendants to transfer all such other interests to him, and damages to be assessed.

32.Samson alleged the defendants made these misrepresentations to him:

“(a) Senior Officials Representations: Song holds 51% interest and the defendants hold the balance of the interests in the Project for senior officials in Mainland China.

(b) Buyback Representation: The senior officials behind the Project would buy back 1.5% of Samson’s 3% interest at RMB 260 million in 2 years.”[8]

33.Samson alleged that on the basis of the misrepresentations to him, he invested RMB 130 million.  Samson and WEC claimed RMB 130 million or its equivalent in Hong Kong dollars, alternatively for damages to be assessed.

(d) The defendants’ case

34.The defendants denied the Agreed Arrangement and all allegations of misrepresentations.  Their case was as follows:

“They contend that the shares were given to them by reason of their personal attributes, connection and skills which was needed for the development of the Project. They were to source sufficient capital and to provide business, finance and technology expertise and connection and new technologies involving gas transmission. In particular, it is pleaded that Carlye had “governance expertise”, Eleanor had “superior technology and industry knowledge and contacts and connections”, Adrian had “strong financial background and connection” both internationally and within PRC. Eleanor contended that it was her involvement in a meeting with CNPC that secured the signing of the Framework Agreement between Beijing Rongxin and CNPC Kunlun.”[9]

“Carlye said she excelled in governance and Song respected her late husband and herself and Song called them “teachers” (“laoshi”) and so Song gave her those shares.”[10]

35.The defendants further pleaded that the 3% shares given to Samson in return for his investment was taken from Adrian’s 23% shareholding, and in return Song promised to compensate Adrian from other sources in due course.

The findings of fact and the judgment below

36.The judge emphasized that in assessing the evidence and to afford it appropriate weight, it is necessary to view the evidence in context.  She went on to say in §31 of the judgment:

“The evidence of the witnesses has to be assessed in the context of all the evidence and in particular whether it makes sense, and in this case, also commercial sense. The background of the witnesses is relevant in light of the defence pleaded. The post-event conduct of the people involved, whilst not pivotal, do shed light on the veracity of their recollection of the relevant events. In this particular case, the evidence of an independent witness who has no interest in the outcome of the decision is helpful given the diametrically opposite positions taken by the parties. Demeanour of the witnesses of course is also relevant to assess the weight of the witness evidence.”

37.To give the evidence context, the judge reviewed the evidence from the Shenzhen Vokifone business[11], which has been related above.

38.Eleanor was the main player in the communications with Song.  The judge did not accept Eleanor’s evidence that she had an important role and impact on bringing about the signing of the Framework Agreement.  She came across as a witness who is “untruthful and evasive”.  She has no previous experience in oil and gas, had no connections with CNPC prior to working with Song, no financial strength to influence the discussion or the decision, no experience in dealing with any foreign investors with foreign technology in sustainable energy.  Her ability, as found by the judge, was “at best conference organiser skills”[12].

39.The judge accepted the evidence adduced by the plaintiffs.  There was a board resolution passed by Beijing Rongxin dated 14 December 2009 signed by its executive director Ms Yuan Liqing (“Yuan”), the former employee of Song who held the shareholding in that company on his behalf. Paragraph 4 of the resolution read as follows:

“Approved that the business of Beijing Rongxin and transfer of the shares shall be temporarily carried out in accordance with the structure of Hong Kong Vokifone Holdings Limited and Hong Kong Vokifone Media Limited. As one of the conditions, 51% of the shares in China NTG Investment Limited shall be held by Mr Song Lian Zhong and 49% of the shares shall be temporarily held by Chan Sze Wan [Eleanor], Chan Chung Fai [Edmond], etc in trust. The 49% shares are used mainly for funds and investors. After successful finance by China NTG Investment Limited, 3% of the total investment amount shall be used as reward to direct participants, so as to establish a good team structure for the gas business of Hong Kong CNTG.”

40.There was also evidence from two independent witnesses, Herbert Charles Jahnke Jr (“Jahnke”) and Yasumoto, whose evidence corroborated the Agreed Arrangement set out in paragraph 4 of the board resolution prepared by Yuan.  Further, they testified that Carlye, Eleanor and Adrian told them the Project was backed by senior officials in the Mainland and that the defendants were acting as nominee shareholders only[13].

41.Jahnke gave clear and uncontroverted evidence that from his encounters with Adrian, Eleanor, Carlye and Edmond, none of them had any experience in the energy or natural gas business, and were incompetent or unfamiliar with the raising of funds.  The judge found his assessment of their ability fair and objective, and consistent with her finding based on the cross-examination of these defendants[14].

42.The judge found that giving 3% of Adrian’s shares to Samson upon full payment of the investment to be consistent with the Agreed Arrangement.  But Adrian’s assertion that Song would compensate him for giving up his 3% shareholding is “totally unsubstantiated by evidence and not believable anyway”[15].

43.The judge found Carlye’s evidence unclear about whether Song told her directly that the 3% shares were given to her for her governance experience as she alleged.  The “gift” arrangement was allegedly conveyed to Carlye by Eleanor, a witness the judge found “not credible at all”, and it “makes no commercial sense”.[16]

44.The judge found the Agreed Arrangement established, and the defendants were holding their shares on trust for Song.  She summed up her reasoning in this way:

“In the light of the lack of expertise and knowledge in the field of gas supply and the lack of fund raising experience, it is difficult to find that Song gifted the defendants with 49% shares for nothing. The evidence, namely the board resolution, the oral evidence of the independent witnesses and the other circumstantial evidence all indicate that the defendants represented themselves as holding the shares on trust rather than as beneficial owners themselves.”[17]

45.As for the Hong Kong Company Representation, the judge took into account Song had the experience of Hong Kong companies under the Shenzhen Vokifone business.  It is reasonable to find that he would expect the holding company for the Project to be set up in Hong Kong.  His understanding was evidenced in the board resolution of Beijing Rongxin.  The judge found the Hong Kong Company Representation established[18].

46.The judge held that the Senior Officials Representation was made to Samson and that led him to decide to invest in the Project and RBM 30 million was paid for 0.5% shareholding in the Project company[19].

47.The judge accepted the evidence of Song and Samson regarding the meeting in Beijing in January 2010 arranged by Eleanor.  The meeting was primarily for another business but Samson was led by Eleanor to believe that he was to be “interviewed” by the senior officials behind the Project on his suitability as an investor and Samson and Song abided by Eleanor’s instructions not to communicate with each other.  Eleanor later told Samson he had “passed” the “interview”.  The judge found that she made the Buyback Representation to him and this was reinforced by Yasumoto’s evidence[20]. It was held that Samson’s further investments of $45.7 million and $68.5 million bringing up the total to RMB 130 million was by reason of the Senior Officials Representation and the Buyback Representation[21].

48.The remaining misrepresentations were held not established.  On Song’s evidence, he was clearly aware that 3% shareholding was to be given to Samson for his RMB 130 million investment, so the allegation of the 49% Representation was dismissed[22]. As the Documentation Representation and the Secret Holding Representation were premised on the 49% Representation, these allegations were also dismissed[23].

49.On the basis of the Agreed Arrangement and the Hong Kong Company Representation, the judge held that the defendants held the original 49%, now 46% shareholding, on trust for Song and made the declarations and orders for transfer as sought by Song[24].

50.As for Samson’s claim, given that liability had been established in his favour, prima facie he should be entitled to damages.  However, no evidence was adduced as to the value of the 3% shareholding held by WEC or the value of the business.  There was no application for rescission of the agreement to invest.  As he would continue to hold the 3% shareholding, it would not be appropriate to order damages in the sum of RMB 130 million.  In light of his willingness to acquire 0.5% interest at RMB 30 million in the absence of the Buyback Representation, and in the absence of evidence to ascertain the value of the 3% shareholding, the judge dismissed Samson’s claim for damages to be assessed, noting that the monetary disputes regarding the use of the funds and the value of the business would be dealt with in the BVI Action and the BVI court is the proper forum for such quantification and valuation exercise to be done[25].

This appeal

51.Eleanor, Adrian and Carlye advanced a total of 10 grounds in their notice of appeal and supplementary notice.  They will be dealt with in groups and in the order as submitted by counsel.

52.We will first make these general observations.

53.As mentioned at the outset of this judgment, the defendants challenged the findings of primary fact reached by the judge following an assessment of the credibility of witnesses.  Mr Jeremy Cheung[26] submitted on behalf of the defendants that an appeal court should “only enter judgment in favour of the appellant, when it is satisfied that this is the correct outcome to the trial”.  We do not think that is the right way of putting things.  The approach of the appeal court in an appeal of this nature is well established.  It will interfere only when it is satisfied that the trial judge was plainly wrong in making the finding of fact.  It is not germane that the appeal court may reach a different conclusion, it is only when the trial judge has fallen in palpable errors of such nature which could give rise to grounds for intervention.  The error must be sufficiently material to undermine the conclusion of the trial judge.  Given the advantages enjoyed by the trial judge over the appeal court of seeing and hearing the witnesses, it is rare the appeal court could be satisfied that the trial judge has reached a wrong decision about the credibility of a witness.  See Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336, §§34 and 35; China Gold Finance Ltd v CIL Holdings Ltd & Ors, CACV 11/2015, 27 November 2015, §§11 to 24; ZJW v SY, CACV 10/2017, 1 December 2017, §§25 to 34. We do not think the dicta of Kirby J in Whisprun Pty Ltd v Dixon (2003) 77 ALJR 1598 at §[96] relied on by Mr Cheung (that the appeal court must reconcile the rule of restraint for intervention and the need to protect parties against clearly flawed primary decisions) suggested a different approach.

54.Mr Cheung sought to make some mileage that there was a nine‑month delay in delivering the judgment after a 14‑day trial.  He submitted that in light of this delay, a higher degree of scrutiny is required than the usual cases involving factual challenges.  He pointed to the omission to mention in the judgment that cogent evidence is required to establish fraud as indicative of the judge having overlooked that fraudulent misrepresentations were pleaded by the plaintiffs, and that the burden of proof rested on Song to adduce cogent evidence to prove fraud.  He contended that the omission was certainly attributable to the delay in the preparation of the judgment.

55.We do not think there is any substance in the above complaints.  In the context of a 14‑day trial, the nine‑month delay cannot be said to be so long that one can readily conclude the judge must have forgotten important evidence or submissions at the trial.  The judge had dealt with the issues raised adequately, and reviewed carefully and comprehensively the evidence adduced.  It is plain from the judgment that she was fully aware of the case of misrepresentation pleaded by the plaintiffs.  Emphasis was placed on the allegation that these were fraudulent misrepresentations in the defendants’ closing submission[27]. The judge had described in some detail the subterfuge of Eleanor as regards the meeting she arranged in Beijing in January 2010.  It is clearly not the plaintiffs’ case that the representations were made innocently or negligently.  It would be absurd to suggest that the judge had overlooked that the misrepresentations alleged were fraudulent.

56.As for the burden and standard of proof for a case of fraud, ADS v Brothers (2000) 3 HKCFAR 70 at 77J to 79D[28] was cited in the defendants’ closing submission[29] for the well‑known principle that whilst the standard of proof in civil cases is on the preponderance of probabilities, the more inherently improbable the act in question, the more compelling would be the evidence required to satisfy the court on a preponderance of probabilities.  It was further contended in the closing submission that “the burden of proof for [the plaintiffs] to prove in this case is not only the ordinary balance of probability but more than that”[30].  We understand from Mr John Litton, who appeared for the plaintiffs at trial and in this appeal[31], that this contention of the defendants’ trial counsel (not Mr Cheung) prompted a discussion with the judge as to what the appropriate standard of proof was.  We do not think the judge would have overlooked the well‑known principle on the cogency of the evidence required to establish fraud.

57.We reject Mr Cheung’s submission of errors in the judgment attributable to delay in preparing the judgment.  We see no grounds for believing that the judgment is unsafe on account of any demonstrable flaw attributable to delay.

58.We turn to consider the individual grounds of appeal.

Grounds 1, 4 and 5

59.These grounds are concerned with attacking the finding that the Agreed Arrangement was established and the veracity of the testimonies of Song and Yuan, in particular, Yuan’s evidence about the board resolution of Beijing Rongxin.

60.As regards Song’s evidence, it was contended that the judge failed to deal with irreconcilable differences advanced by Song in respect of the Hong Kong Company Representation in this action and his stance in other proceedings, namely, the BVI Action and HCA 1297/2011.  Mr Cheung submitted an important part of Song’s case in this action is his denial of knowledge of CNTG BVI.  Counsel pointed to the 2^nd affirmation of Song[32] filed on 15 July 2013 in the BVI Action in which Song deposed that the intention was for the Chan camp “to help [him] set up a company or companies in order to develop the Project” and “to that end [CNTG BVI] was incorporated in the BVI”.  In the BVI Action, Song and Samson had relied on the Shareholder Agreement of 30 March 2010, which was pleaded in some detail in the statement of claim in that action.

61.In the statement of claim of CNTG BVI filed in HCA 1297/2011 on 30 July 2011 (then under the control of the Chan camp), the shareholding structure of CNTG BVI was pleaded (which is identical to that pleaded in the defence of the Chan camp in the present action), and Song admitted in his defence filed on 2 November 2011 that CNTG HK has the same shareholding structure as CNTG BVI as averred by the Chan camp.  We were asked to note that no assertion of trust arrangement of any sort was pleaded in the defence of Song in HCA 1297/2011.

62.We do not think Mr Cheung’s criticisms of the judgment are valid.

63.When the 2^nd affirmation of Song in the BVI Action is read fairly and as a whole, there is no inconsistency or “irreconcilable differences” between his affirmation and the assertions he made in the present action.  He did depose in that affirmation that the Chan camp asked him to sign a number of documents “to establish what [he] believed to be … the HK Company” and he executed the documents “believing that by signing them [he] was establishing the HK Company but subsequently discovered that [he] had also signed documents establishing [CNTG BVI] … purely because of the representations made to [him] by [the Chan camp].”[33]  He also mentioned that “the Chans and [Carlye] were to hold the said 49% interest in [CNTG BVI] on trust for [him] until suitable investors were identified and the 49% interest transferred to them” and that the Agreed Arrangement “is evidenced in a board resolution of Beijing Rongxin”[34].

64.As for the criticism that Song made no reference to the trust arrangement in his defence in HCA 1297/2011 or in the statement of claim in the BVI Action[35], this is wholly unwarranted. Neither HCA 1297/2011 nor the BVI Action was concerned with the beneficial ownership of the 46% shareholding in CNTG BVI held by the defendants.  It is simply unnecessary for Song to state in the pleadings in HCA 1297/2011 or the BVI Action matters that were irrelevant to the issues germane in those other proceedings.

65.The complaint that the judge did not deal with this complaint specifically, which is of no merit anyway, is hardly a viable ground of appeal. It is well established that there is no duty on a judge, in giving reasons in the judgment, to deal with every argument presented by counsel.  The judge is only required to identify issues the resolution of which is vital to his conclusion and explain the manner in which those issues are resolved (English v Emery [2002] 1 WLR 2409 at §§17 and 19).  We do not think the judge was at fault in not dealing with a submission of the defendants that was not critical to her decision and is of no merit anyway.  The suggestion that the defendants did not have a fair trial is simply without basis.

66.Turning to the challenge to the judge’s acceptance of Yuan’s evidence on the Beijing Rongxin board resolution, Mr Cheung’s submission was on the following lines.  He contended that the resolution was back‑dated, or forged, or both, which is the defendants’ stance at trial that this document was “created ex post facto, first not on 14 December 2009 … but that it was created after the disputes between the parties have arisen”[36]. He pointed to the fact it was not identified in the plaintiffs’ pleadings, and was first disclosed in their 1^st list of documents in August 2014.  The judge did not mention this was a self-serving document.  If this document is such a pivotal piece of evidence corroborative of the Agreed Arrangement, it is puzzling why it was not referred to in previous proceedings between the parties[37]. He asserted that the immigration record of Eleanor (which showed no movement from the immigration control points in Hong Kong from 30 November 2009 to 13 January 2010) rebutted Yuan’s evidence that Yuan gave the board resolution to Eleanor in December 2009.  He submitted (erroneously[38]) that the judge was wrong in stating it was not put to Yuan in cross-examination this document was not “prepared in December 2009”[39].

67.Mr Cheung further submitted that the judge was wrong to consider Yuan “has no interest” in the matter[40], as Yuan still holds the shareholding in Beijing Rongxin on trust for Song.  He also challenged her evidence by querying why she gave Eleanor a copy of the resolution given it was a document of Beijing Rongxin, and why she did not ask Eleanor to endorse or signify her agreement with the contents by signing on a copy.  He contended that the judge had failed to have regard to the inherent likelihood or unlikelihood of an event happening or the apparent logic of events in deciding to accept Yuan’s evidence.

68.The judge had considered Yuan’s evidence in some detail in the judgment[41], as the board resolution is an important piece of evidence that may corroborate Song’s case.  The judge was clearly alive to the immigration record[42] and the cross-examination of Yuan as to when the document was prepared and when she gave a copy to Eleanor[43].  She accepted Yuan’s evidence that a copy was given to Eleanor, and even if it were not, it is still contemporaneous documentary corroborative evidence consistent with Song’s case.  She found Yuan “an honest and truthful witness, doing her best to assist the court in a matter she has no interest”.

69.Similar submissions were made by the defendants’ trial counsel in the closing submissions[44]. We could discern no palpable error in the judge’s assessment of the credibility of Yuan’s testimony.  The judge was correct in regarding her as having no interest in the matter as a former employee of Song and merely a nominee shareholder of his shareholding in Beijing Rongxin.  Repeating submissions already advanced and considered by the trial judge in the hope of persuading the appeal court to come to a different view is a misuse of the appellate process (China Gold Finance Ltd, §14).

70.There is no substance in the arguments of Mr Cheung for grounds 1, 4 and 5.

Grounds 2 and 3

71.These grounds attack the finding that it is devoid of commercial sense for Song to gift the defendants with 49% shares for nothing.

72.Mr Cheung argued that in the “embryonic stage” of the Project, the companies set up were not of substance and Song was “in dire need” to look for investors.  It is “not fanciful” for him to gift the 49% shareholding to the defendants when they were “so capable” in raising funds for the Project.  He pointed to the fact that the defendants “successfully convinced” Samson to make a commitment of investing RMB 130 million in March 2010.

73.As we have summarized the earlier, the judge had thoroughly considered the defendants’ case regarding the contribution they alleged to be capable of making and rejected their evidence as fully explained in the judgment.  It can hardly be said that the conclusion she reached in §65 of the judgment is plainly wrong.  There is no basis to interfere with her finding that the Agreed Arrangement is established.  We agree with Mr Litton the defendants’ reliance on the fact that Samson was persuaded to invest RMB 130 million to prove their ability to raise funds is perverse.  Samson was only persuaded to invest a substantial sum because of the Senior Officials Representation and the Buyback Representations, which were misrepresentations.

74.We reject grounds 2 and 3.

Ground 6

75.This is primarily to attack the finding in favour of Samson that the Senior Officials Representation and the Buyback Representations were made to him.

76.Mr Cheung said it should be noted that Samson had changed sides.  In support of the Chan camp, he had made an affirmation in HCMP 1823/2011, in which he mentioned inter alia the shareholdings in CNTG BVI and CNTH HK, the purpose and function of these two entities, that the shareholders considered themselves as “partners” in operating the group of companies, that he had met and discussed with Song and the Chan camp in Beijing in January 2010 the shareholding structure, composition and management, and that the parties formalized their relationship by executing the Subscription Agreement and the Shareholders Agreement on 30 March 2010.  In Samson’s supplemental witness statement in this action[45], he claimed he was misled by the Chan camp when he made the earlier affirmation.

77.Mr Cheung submitted that in finding in Samson’s favour that misrepresentations were made to him, the judge failed to have regard to the motive of Samson, in that he made a “wholesale retraction” of his earlier affirmation in HCMP 1823/2011.  He contended that Samson’s change of tack must be due to Song’s promise to give him the defendants’ shares if Song should recover them in this action.  He argued this should affect greatly the cogency and integrity of Samson’s evidence.  He alleged that Samson in agreeing with Song to support the litigation against the Chan camp by paying expenses up to a maximum of US$2 million[46], this amounted to a champertous arrangement and, given the close relationship between Samson and Yasumoto, he alleged that Yasumoto must have a “vested interest” in the outcome of this action, which the judge failed to take into account.

78.Mr Cheung’s contentions are untenable.  The judge had clearly taken into account Samson’s affirmation in HCMP 1823/2011 and the minutes of meetings created ex post facto which Samson signed[47] in assessing his credibility and in making the findings in the plaintiffs’ favour.  At outset of the judgment, the judge mentioned specifically “the post-event conduct of the people involved, whilst not pivotal, do shed light on the veracity of their recollection of the relevant events”[48].  Much was made of Samson’s inconsistent affirmation in the defendants’ closing submission[49].  The judge had fully dealt with this affirmation and the minutes of meetings and concluded that “it does cast doubt on the reliability of Samson’s evidence but all in all apart from this, Samson’s evidence and that of the independent witnesses do support the case of the plaintiffs as found above.”[50]

79.As for the allegations on Samson’s motive for change of tack, this is not substantiated by evidence and is very much a matter of surmise on the part of counsel.  We do not even know if this suggestion was canvassed with Samson in cross-examination[51]. No weight could possibly be attached to this suggestion.

80.We agree with Mr Litton the new allegations of champerty are plainly specious and wrong.  For an arrangement to be champertous, this involves a bargain between a litigating party and another person who has no interest in the subject in dispute, and sharing in the proceeds of the litigation if there is recovery.  Samson could not be said to have no interest in the subject in dispute.  The allegation concerning Yasumoto’s involvement in any champertous arrangement is pure surmise.

81.Mr Cheung referred to the judgment of Lord Brandon of Oakbrook in Rhesa Shipping Co S A v Edmunds (The Popi M) [1985] 1 WLR 948 at 955H to 956D, and submitted that the “viable course open to the court is, before it can despatch a disputed issue, by resorting to the burden of proof.”  We fail to see how the extract in the judgment of Lord Brandon would assist his argument. Unlike the unusual fact situation in The Popi M, the judge had no difficulty in resolving the issues in dispute having made the primary findings of fact.  There is no need to resort to the burden of proof in this situation.

82.There is no basis at all for this court to interfere with the finding that the Senior Officials Representation and the Buyback Representation were established.

Ground 7

83.This is concerned with the costs order in favour of Samson and WEC, and is premised on the failure on their part to establish loss or damage notwithstanding liability is established.  Mr Cheung submitted that the judge should not have awarded costs to Samson and WEC as they cannot be regarded as truly successful in this litigation and the appropriate order should be no order as to costs.

84.Mr Cheung stressed that the rule that costs should follow the event is not absolute.  And where nominal damages are awarded, a party may not be regarded as the successful party for the purpose of the rule that costs should follow the event, citing Elpe International (Far East) Ltd v Hewlett Packard Hong Kong Ltd, CACV 58/1993, 30 July 1993, in which Bokhary JA (as he then was) said in the decision on costs:

“So the courts do not proceed on the basis that a party who recovers anything, even if only nominal damages, is prima facie entitled to costs provided he is not confronted by a payment into court of as much or more than what he has recovered. Rather, the courts, looking at the realities, ask themselves the question, “who really won?” And the matter then proceeds on the general rule which Lord Justice Nourse stated in these terms as the second of the four principles which he identified in his judgment in Re Elgindata (No 2) [1993] 1 All ER 232 at 237f: costs “should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made.” ”

85.The judge ordered the defendants to pay the costs of all the plaintiffs on the basis that costs should follow the event[52]. This came immediately after her decision to dismiss the relief sought by Samson for damages to be assessed, noting that the monetary disputes regarding the use of funds and the value of the business are dealt with in the BVI Action and the BVI court is the proper forum for such quantification and valuation exercise to be done[53]. It is unlikely that the judge would have overlooked the fact that she had dismissed the claim for damages in awarding costs to Samson and WEC.

86.Samson has succeeded in establishing liability against the defendants after a 14‑day trial.  The judge considered he has a legitimate complaint against the defendants about the use of the RMB 130 million he invested in the Project.  She concluded “the way the defendants were managing the finances is, to say the least, troubling”[54]. The judge declined to award damages not because there could be no loss and damage arising from the misrepresentations made to Samson, but because it is not possible to assess such loss and damage owing to the absence of evidence to ascertain the value of the 3% shareholding.  She noted that the monetary disputes would be resolved in the BVI Action.  There is justification to regard Samson and WEC as successful parties in this litigation to apply the general rule that costs should follow the event.

87.Costs is very much a matter for the discretion of the trial judge who is the best person to exercise this discretion and the appeal court would be very circumspect in interfering with it (Poon Ching Man v Lam Hoi Pun [2016] 3 HKLRD 815 at §34).  We are not persuaded there is valid basis for intervention here.

Additional grounds in the supplemental notice of appeal

88.Three grounds were raised in the supplemental notice.

89.The first ground raised the argument that the judge was wrong to take into account the Hong Kong Vokifone Arrangement in assessing the veracity of the Agreed Arrangement because the Hong Kong Vokifone Arrangement was not pleaded in the statement of claim.  Mr Cheung submitted this contravened the principle that allegations of fraud must be pleaded “distinctly and with the utmost particularity”, citing ADS v Wheelock Marden [1994] 2 HKC 264 at 270D.

90.We do not think there is any substance in this contention.  There is no complaint that the Agreed Arrangement was not pleaded “distinctly and with the utmost particularity” in the statement of claim.  The Hong Kong Vokifone Arrangement is evidence in support of the Agreed Arrangement in that a parallel may be drawn between the two.  There is no contravention of the rules of pleading or any relevant principle in not pleading the supporting evidence.  Besides, the Hong Kong Vokifone Arrangement was fully set out in Song’s witness statement dated 28 October 2014, in which he also stated that the transfer of the Project to CNTG HK under the Agreed Arrangement was “in much the same way as the Hong Kong Vokifone Arrangement”[55]. Eleanor mentioned the shareholding of CNSL in Vokifone Telecom Group Ltd in her witness statement[56]. There is no suggestion that the defendants were caught by surprise or prejudiced by the evidence given by the plaintiffs in relation to the Hong Kong Vokifone Arrangement.

91.The second additional ground made two complaints.  The first is that the judge failed to have any or any sufficient regard to the dismissal of the allegations relating to the 49% Representation, the Documentation Representation and the Secret Holding Representation when she held that the Hong Kong Company Representation was established.  The submission that the judge failed to have regard to the requirement that the evidence must be cogent to establish fraudulent representation was repeated.  The second complaint was that the judge erred in holding that Song had discharged the heavy burden of proof in relation to the plea of non est factum concerning the agreements of 30 March 2010 executed by him.

92.We agree with Mr Litton the plea of non est factum is a red herring.  Non est factum would appeared to have been raised by the defendants[57], not by the plaintiffs.  Song did not seek to set aside the agreements he executed on 30 March 2010 on the ground of non est factum.  The real issue, as characterized by the judge, is whether there was a prior agreement (the Agreed Arrangement) that the shares issued to the defendants were to be held in trust for Song.

93.As for the dismissal of the allegations concerning three other representations, there is nothing in this point.  The judge was perfectly entitled to accept part of the evidence of a witness.  There is nothing to suggest she had overlooked anything of importance in making the finding of fact that the Hong Kong Company Representation was made out.

94.The third and last additional ground contended that the judge failed to deal with two important points raised by the defendants.  The first was that in HCA 1297/2011, Song made an admission he retained a 51% majority shareholding of the holding company.  The second matter was that in the BVI Action, there was no mention of the Agreed Arrangement or the Beijing Rongxin board resolution.

95.This ground is wholly without merit.  The admission of Song in other proceedings that he retained a 51% majority shareholding as the registered shareholder is a matter of little moment to the real issue in this action, which is the beneficial ownership of the shares held by the defendants.  Likewise, the BVI Action is not concerned with the issues raised in the present action.  The fact that in the statement of claim in the BVI Action no mention was made of matters irrelevant to that action is simply immaterial.  Further, as mentioned earlier, Song did refer to the trust arrangement of the defendants’ shares in his 2^nd affirmation in the BVI Action.

Conclusion

96.None of the grounds of appeal raised by the 1^st, 3^rd and 4^th defendants are of merit.  We dismiss their appeal.  We have heard counsel on costs.  There is no dispute that costs of the appeal should follow the event.  We order these defendants to pay the costs of the 1^st to 3^rd plaintiffs, with a certificate for two counsel.

Mr Jeremy M F Cheung, Mr Harrison C H Cheung and Miss Angel H  Y Wong, instructed by Lui & Law, for the 1^st, 3^rd and 4^th Defendants (1^st – 3^rd Appellants)

Mr John Litton and Mr Tony Chow, instructed by C  L Chow & Macksion Chan, for the 1^st – 3^rd Plaintiffs (1^st – 3^rd Respondents)