Chen Jinhui v. Wong Kam San and Others
Read the full judgment text of HCA 1524/2012 on BabelCite. This High Court CFI judgment was delivered on 19 March 2021.
1. The plaintiff (“Chen”) commenced this action to recover 80% of the shares in the 5 th defendant (“Hawkins”) said to be promised by the 1 st defendant (“Wong”). The shares used to be held by Wong through his corporate vehicles, the 2 nd defendant (“Line Power”) and the 3 rd defendant (“Trengei”), until they were transferred to the 4 th defendant (“Lead Success”). Upon Lead Success’s plea in the present action that the shares have been further transferred to the 6 th defendant (“Superfine”),
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HCA 1524/2012 [2021] HKCFI 710 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1524 OF 2012 ________________ BETWEEN
________________ Before: Deputy High Court Judge Leung in Court Dates of Hearing: 8-11, 14-18, 21-25, 28 January, 27-28 May 2019 Date of Judgment: 19 March 2021 _____________________________ TABLE OF CONTENTS _____________________________ C. CASE OF WONG, LINE POWER AND TRENGEI D. CASE OF LEAD SUCCESS AND SUPERFINE
M. WHETHER LEAD SUCCESS AND SUPERFINE TOOK FREE OF CHEN’S EQUITABLE INTEREST IN HAWKINS’ SHARES
N. KNOWING RECEIPT; UNCONSCIONABILITY ________________ JUDGMENT ________________ 1.The plaintiff (“Chen”) commenced this action to recover 80% of the shares in the 5th defendant (“Hawkins”) said to be promised by the 1st defendant (“Wong”). The shares used to be held by Wong through his corporate vehicles, the 2nd defendant (“Line Power”) and the 3rd defendant (“Trengei”), until they were transferred to the 4th defendant (“Lead Success”). Upon Lead Success’s plea in the present action that the shares have been further transferred to the 6th defendant (“Superfine”), the latter was last joined in this action. On the ground that Wong is mentally incapacitated from handling the litigation, his daughter was appointed as his guardian ad litem in 2013 to conduct his defence. 2.Mr Wong, SC, with Miss Yu and Miss Fan, appeared for Chen. Mr Lam, SC, with Mr Chow and Mr Lee, appeared for Wong, Line Power and Trengei. Mr Li with Mr Chow appeared for Lead Success, Hawkins and Superfine. 3.Chen is a Mainland resident, while Wong, also from the Mainland, is a resident in Hong Kong. The two came to know each other in about 1990. Chen was then branch manager of the Bank of China in Shunde province. In such capacity, Chen had been involved in business dealings with Wong, the most notable of which was one where Chen was instrumental in achieving for Wong certain foreign exchange dealing involving Swiss Francs 34 million. 4.In late 1995, Chen resigned from the bank and joined Wong’s group as deputy general manager and deputy director. The group comprised the Mainland company全順實業發展有限公司 in Shunde (“Shunde Quanshun”) and Hawkins in Hong Kong. How Chen came to join the group is in dispute. However, the terms of Chen’s engagement were recited by Wong in his letter to Madam Liu Yong (“Madam Liu”), his deputy, dated 13 November 1995 (“the 1995 Letter”). While his stated salary of RMB2,000 might seem modest, Chen was promised, as set out in the 1995 Letter, 20% interest in the shareholdings of the group, including Hawkins, without the need for his capital injection. The 1995 Letter set out the respective equity shareholdings of Wong, Madam Liu and Chen, namely, 60%, 20% and 20% respectively. Chen’s engagement took effect in January 1996. 5.Meanwhile, in early 1996, Wong was also embarking on a Sino-foreign joint venture business in the Mainland, namely 遼陽順鋒鋼鐵有限公司 (“Shunfeng”), which held iron ore mining rights in Liaoning. Wong used Hawkins as the foreign investing vehicle of the joint venture. He became the legal representative and chairman of Shunfeng. Madam Liu was the vice-chairman and general manager. Hawkins owned 80%, and thus majority interest, in Shunfeng while the remaining 20% were held by its Mainland counterparts in the venture. 6.Chen’s case is that since 1996, he has secured financing and personally lent to Wong at the latter’s requests for his purposes from time to time. Part of such finance went to the so-called 滾動融資or “rolling finance” practice of Wong, and part of the finance was said to be needed for paying for the expenses in connection with Shunfeng. At the end of 2002, the parties allegedly took stock of the indebtedness, and agreed for Wong to use company shareholdings to set off the loans and interest owed to Chen. This brought about the alleged meeting of Wong and Chen on 9 January 2003. 7.According to Chen, at the end of the meeting on 9 January 2003, he and Wong came to agreement in terms as set out in the handwritten letter of confirmation, which Wong also signed (“the 9/1/2003 Confirmation”). Essentially, it was agreed that Wong would cause the transfer of 20% of the shareholding of Shunfeng to Chen in settlement of the debt in the sum of RMB4,800,000. However, the circumstances changed right after the 9/1/2003 Confirmation because of the urgent request by Wong for another substantial loan. They therefore met again on the following day, 10 January 2003. 8.At the meeting on 10 January 2003, Wong and Chen are said to have revised the terms of their agreement, which were now set out in 3 key documents, namely: (i) a Chinese typewritten document under the title of 借欠款清單 (“the Debt Acknowledgement list”); (ii) a Chinese handwritten document under the title of 確認書 (“the 10/1/2003 Confirmation”); and (iii) a Chinese handwritten document under the title of 承諾書 (“Letter of Undertaking”). These documents are said to evidence the parties’ agreement that subject to the terms of Chen’s undertaking, the indebtedness set out in the Debt Acknowledgement List due from Wong and his companies to Chen were treated as Chen’s payment for the purchase of 80% of these companies (“the 2003 Agreement”). 9.The above documents dated 10 January 2003 are seriously disputed. There is however no dispute that Wong had at the same time utilised Hawkins’ shares for his financing purpose. He enlisted the support of Yeung Wing Keung (“Yeung”) and his company, Zhao Kai Investment Ltd (“Zhao Kai”), in raising funds from investors through the listing of Hawkins’ shares on the GEM Board of the Hong Kong Stock Exchange. For such purpose, Wong had caused the transfer of 75% of Hawkins’ shares to Yeung (1%) and Zhao Kai (74%) (on trust). 10.More than failure, the cooperation between Wong and Yeung, and the entrustment of shares in Hawkins to Yeung and Zhao Kai for such purpose, ended up in litigations and protracting dispute in following decade. In 2004, Wong first commenced action in Hong Kong (HCA 1653/2004) against Yeung and Zhao Kai to recover the 75% shares in Hawkins. On 11 April 2006, judgment was delivered in favour of Wong. As a result, Wong had Yeung and Zhao Kai transferred the 75% shares in Hawkins to his nominee, Line Power, while the remaining 25% remained with Trengei, a BVI company controlled by Wong. In 2005, Wong (and Trengei) commenced action in Hong Kong (HCA 2036/2005) for setting aside the issue of additional shares in Hawkins involving the sister of Yeung and a Sunny Growth Enterprises Group Limited (“Sunny Growth”) which Yeung controlled. On 11 April 2007, Wong obtained judgment nullifying the issue and allotment. 11.Yeung’s appeal in HCA 1653/2004 (CACV 166/2006) was dismissed on 31 January 2007. His appeal in HCA 2036/2005 (CACV 131/2007 and CACV 144/2007) was also dismissed on 9 May 2008. Leave to appeal to the final court was dismissed on 28 August 2008. However, in 2007, a Walford International Holdings Inc (“Walford”), in its capacity of creditor, petitioned for the winding up of Hawkins on the ground of failure and inability of the latter to comply with the former’s statutory demand (HCCW 215/2007). Yeung was behind Walford. On 21 August 2009, the petition was dismissed on the ground of substantial dispute in respect of the debt. 12.Since 2006-2007, Yeung (also through Sunny Growth) had also taken steps in the Mainland targeting the control of Shunfeng. Further legal proceedings were initiated in 2010, which entailed further proceedings in the Hong Kong court all the way up to 2013. 13.According to Chen, he was given to understand at the time of the 2003 Agreement that the transfer of shares promised had to take time as they were held up by the financing plan involving Yeung, and Wong would notify Chen. The need to regain control over Hawkins’ shares after the commencement of the dispute with Yeung, so Chen had been given to understand, also became the reason why the transfer of those shares had to be further held back in the subsequent years. 14.However, the picture was more complicated than that. According to Chen, unbeknownst to him, Wong had also entered into dealings with other parties from which he obtained substantial financing on the security of Hawkins’ shares since 2003. First, there was a quadri-partite Chinese agreement dated 14 September 2003 whereby a Mainland company 本溪火連寨鐵礦選礦廠 (“Huolianzhai”) agreed to lend RMB20 million to Shunfeng (“the Huolianzhai Loan Agreement”). An important term of that agreement was that in default of repayment, the debt would be satisfied by 50% of shares in Hawkins. The ultimate owner of Huolianzhai is Bao Zichen (“Bao”). 15.Then, following the judgment in HCA 1653/2004 for the return of the 75% Hawkins’ shares from Yeung and Zhao Kai to Wong (ie Line Power and Trengei) in 2006, Wong entered into a written agreement with Everest Development Group LLC (“Everest”) (“the 2006 Loan Agreement”). Everest agreed to extend a loan of HK$20 million for funding the legal costs of Wong’s ongoing litigations; and after the control over Shunfeng and Hawkins had been restored to Wong, a further loan of not less than HK$350 million to allegedly fund the operation of Shunfeng. Wong also agreed to hand over the control of Shunfeng to Everest’s designate. Everest signed the 2006 Loan Agreement by its authorized representative Yu Hai Yang (“Yu”). 16.On 29 August 2008, Wong (and Line Power and Trengei) and Madam Liu entered into agreement to transfer their respective 80% and 20% shares in Hawkins to Lead Success, of which Yu was the 99% shareholder (‘the 2008 S&P Agreement”). Yu allegedly made a declaration of trust of his shareholdings in favour of Superfine (which is a BVI company). The beneficial owner of Superfine is no other but Bao. 17.At one point, Yu was appointed to the top management of Shunfeng. However, in December 2010, Yu was arrested and detained in the Mainland. He was subsequently convicted of corruption and forgery charges in 2013. 18.On 2 April 2011, Wong (Line Power and Trengei) and Madam Liu entered into another agreement for the transfer of their 100% shares in Hawkins, this time to Superfine, and Superfine executed a share pledge in favour of Line Power and Trengei (“the 2011 S&P Agreement”). 19.Messrs C L Chow & Macksion Chan (“CLCMC”) have acted for Wong in the abovementioned litigations with Yeung. They also acted for Wong’s camp in the dealings with Hawkins’ shares with Yu/Bao’s camp. Two weeks after the 2011 S&P Agreement and its incidental documentations had been executed, on 18 April 2011, CLCMC issued a letter on behalf of Wong to Chen, referring to the 10/1/2003 Confirmation but denying any loan ever extended by Chen to Wong or agreement between them. 20.On 9 October 2011, Chen commenced legal proceedings in Shunde province in respect of the shares in Shunde Quanshun, naming Wong and Madam Liu as defendants. The proceedings were discontinued in April 2012. Four months later, on 24 August 2012, Chen commenced the present action in respect of Hawkins’ shares. As mentioned at the beginning, Chen came to know about the 2011 S&P Agreement upon receipt of the pleading of Lead Success. Hence the joining of Superfine as a defendant only in February 2013. 21.In 2013, Wong was said to be mentally incapable of understanding the issues in this litigation or giving instruction to his legal advisor due to dementia with progressive cognitive and memory decline since 2010. CLCMC provided the solicitor’s certificate to that effect, and the daughter of Wong was thus appointed as his guardian ad litem in this action in July 2013. 22.That said, in addition to the 2011 S&P Agreement, Wong was seen to have executed a series of documents concerning transfer of Hawkins’ shares to Superfine afterwards. They included a supplemental agreement dated 22 April 2013, a stakeholder agreement dated October 2013, a further supplemental agreement dated 30 September 2014 and a release of share charge dated 27 October 2014. It was after these post-action steps that Superfine claims to have fully paid the consideration for the transfer of Hawkins’ shares. 23.Chen is seeking to enforce the agreement by Wong to transfer 80% of Hawkins’ shares, which is evidenced by the 10/1/2003 Confirmation, the Debt Acknowledgement List and the Letter of Undertaking (“the 2003 Agreement”). 24.Against Wong, Chen claims for declaration that Wong held 80% shares in Hawkins on trust for him since the 2003 Agreement until their purported transfer to Lead Success on 12 September 2008; that Wong was in breach of such trust; and thus liable for damages, equitable compensation and/or account of profits. Against Line Power and Trengei, Chen claims for declaration that they held 75% and 5% respectively of Hawkins’ shares on trust for Chen until 12 September 2008. 25.Hawkins, the shares of which constitute the subject matter of this action, is named as a necessary defendant. Lead Success and Superfine, being the two successive transferees of the Hawkins’ shares, are the main targets of claim. Chen contends that the 2008 S&P Agreement and the 2011 S&P Agreement, whereby the Hawkins’ shares were transferred to Lead Success and then to Superfine were made without value and/or with notice of Chen’s equitable interest; and/or made with knowledge of breach of trust on the part of the transferors so that it became unconscionable for them to retain the shares to the extent of Chen’s interest (ie 80% in Hawkins’ shares). The basis of knowledge comes from the fact that Yu and Bao, and the transferee corporate vehicles, were at all material times of the same camp. 26.Against Lead Success, Chen claims for a declaration that it held 80% of Hawkins’ shares on trust for him from the time when the shares were transferred to it (12 September 2008) to the time when it transferred the same to Superfine (15 April 2011); or alternatively, an order that it accounts to him for the value of such shares. 27.Against Superfine, Chen claims for a declaration that it held 80% of Hawkins’ shares on trust for him from the time when the shares were transferred to it (15 April 2011), and an order that it transfers or procures to transfer such shares to him; or alternatively, an order that it accounts to him for the value of such shares. C. CASE OF WONG, LINE POWER AND TRENGEI 28.Line Power and Trengei were corporate vehicles owned and controlled by Wong at the time, and do not run any case independent from that of Wong. Wong denies the alleged loans by Chen to Wong. He also denies the existence of the 2003 Agreement. Wong denies having signed the 10/1/2003 Confirmation, and alleges that it was a forgery. He denies having signed the Debt Acknowledgment List or alternatively he did so without knowing or understanding its content. Therefore, Chen’s claim for equitable interest in Hawkins’ shares is denied. 29.Alternatively, if the alleged loans and the 2003 Agreement were established as a matter of fact, Wong contends that such indebtedness, being antecedent debt, did not constitute valid consideration for the agreement to transfer Hawkins’ shares to Chen. In closing, Mr Lam for Wong’s camp also argues that the 2003 Agreement failed for being incomplete (or uncertain). It is also contended that Chen’s claim is in any event time-barred or relief should be refused on the ground of laches. D. CASE OF LEAD SUCCESS AND SUPERFINE 30.The alleged interest of Chen in Hawkins’ shares pursuant to the 2003 Agreement is denied. In any event, both Lead Success and Superfine contend that in any event, they purchased the Hawkins’ shares bona fide for value without notice of Chen’s alleged interest. 31.Chen gave evidence. He also called the following witnesses:
32.Tian Junzhe (“Tian”), who was named as a witness for Chen, did not manage to testify, and his witness statement was thus expunged. 33.For Wong (Line Power and Trengei), the following witnesses were called:
34.Wong’s wife, Huang Lijing (“Wong’s Wife”), was named as a witness but was not called. Likewise, her witness statement was expunged. 35.For Lead Success and Superfine, the following witnesses were called:
36.Handwriting experts’ reports were adduced without their oral testimony. The paper and ink dating experts testified. 37.The circumstances in which Chen came to join Wong’s group of companies in 1995 are disputed. According to Madam Liu and Wong’s Daughter, Chen somehow got into trouble with his employing bank then and had to urge Wong for an alternative job. Such evidence, in my judgment, does not sit well with the objective view of the circumstances prevailing at the time. 38.To begin with, there was the undisputed history of success on the part of Chen while working for his former employing bank in securing for Wong the substantial foreign exchange deal involving hundreds of millions of Swiss Francs. According to her in court, Madam Liu also received reward from Wong as a result of such successful deal. The rather generous remuneration of Chen as set out in the 1995 Letter was a manifestation of how much Wong was prepared to offer to solicit his assistance. There was simply no hint of any negative view about the business reputation of Chen, as suggested by Madam Liu and Wong’s Daughter. 39.Madam Liu in her evidence in court did not disagree that Wong was then heavily involved in “rolling finance”, which aligned with Chen’s evidence. There was also the financing need in connection with the new Sino-foreign joint venture of Shunfeng. Such background provided all the more reason why Chen would be of value in arranging the necessary finance for those purposes. The evidence is that Chen became responsible for arranging finance to feed Wong’s needs while Madam Liu was responsible for the administrative side of Wong’s business and finance. 40.Apart from the terms which Wong wrote, the 1995 Letter contained at the end handwritten reply apparently by Madam Liu, expressing her no objection to the proposed allocation of shareholdings, including that to Chen. In court, Madam Liu seemed reluctant to admit that those were her writings and initial. However, no issue was properly, if at all, raised in respect of the authenticity of the document or such handwritten remarks. The letter actually contained other handwritten enquiry by Madam Liu about the renovation expenses of Shunde Quanshun. It is unlikely that those remarks were fabricated. In any event, the undisputed fact was that Madam Liu did hold and maintain her 20% shareholdings in Hawkins, which made her one of the transferors of Hawkins’ shares under the agreements with Lead Success and Superfine as mentioned above. 41.The major factual dispute is whether or not the 2003 Agreement existed. In determining this crucial factual issue, credibility of all the evidence of the parties must be assessed, including inherent probabilities which Mr Lam for Wong’s camp tends to emphasize. That said, Chen’s case is that the agreement is evidenced by documents actually signed by Wong on 10 January 2003. Proof that Wong signed the documents would be cogent evidence of his agreement to the terms set out in them. Mr Wong for Chen emphasizes that. G1. The meeting on 9 January 2003 and the 9/1/2003 Confirmation 42.According to Chen, the parties met in the evening of 9 January 2003 in Beijing. The 9/1/2003 Confirmation referred to the payments made by Chen for Wong and Shunfeng during the period between January 1996 and the end of 2002, which Wong acknowledged as Chen’s loans to him and the company. According to Chen, it was after his asking Wong about the settlement of the debt that Wong asked him to calculate the amount with a view to settling it by transfer of some of his companies’ shares. Both were aware that the indebtedness until then amounted to about RMB21 million. Chen then drafted the 9/1/2003 Confirmation, which Wong approved, signed and stamped it with Shunfeng’s company chop. 43.The 9/1/2003 Confirmation essentially says that Chen had settled various business expenses on behalf of Wong and Shenfung at Wong’s requests between January 1996 and December 2002. According to Chen, Wong requested not to include the biggest loan of US$2 million (or RMB16,560,000) for the time being so as not to arouse requisition by the Mainland counterparts of Shunfeng. That explained why the parties confined the arrangement to settling the debt of RMB4.8 million by way of transfer of ¼ of the 80% shareholdings of Shenfung held by Hawkins, ie 20% of Shunfeng. 44.Zheng accompanied Wong to meet with Chen that night, and was present at the meeting. He witnessed Wong signing a document and applying a chop on it. The document, according to Chen, was the 9/1/2003 Confirmation. No forgery is alleged in respect of this document. Further, Chen kept a handwritten work record in his time organiser (“the Work Record”). It contained entries relating to these events happened during the end of 2002 and 9 January 2003. Whilst the authenticity of part of the Work Record is challenged from the paper and ink dating perspective, the entries up to the date of the 9/1/2003 Confirmation are not so challenged. Hence their contemporaneous nature. G2. The alleged meeting on 10 January 2003 45.According to Chen, after the 9 January 2003 meeting, Wong called him in the small hours of the following day requesting him to assemble another substantial loan of RMB700,000 in short notice. Zheng witnessed Wong making such telephone calls when they were back to the hotel after the meeting the night before. Chen was given to understand that the urgent loan was required to enable the unfreezing of a loan of US$300 million held up in Heilongjiang in the Mainland, which was part of Wong’s “rolling finance” practice. Wong offered to settle all the indebtedness owed to Chen by transfer of more shares in his group. Chen acted accordingly and managed to secure such a loan on urgent basis. The parties then arranged to meet later in the same evening. 46.Zheng again accompanied Wong to attend the meeting. Whilst he sat at another table, he witnessed the signing of documents by Wong, and the handing over by Chen to Wong of an envelope. The envelope was passed to Zheng, who could see that it contained cash, which was believed to be the sum of RMB700,000 referred to above. This was how the three documents which are said to evidence the 2003 Agreement came to be signed. 47.The Work Record of Chen contained entry of his account of what happened on 10 January 2003. Not surprisingly, this marks the beginning page of the Work Record subject to challenge and scrutiny by the paper and ink dating experts. That said, there was already mention of the subject of RMB700,000 being needed on 9 January 2003. As mentioned, that part of the Work Record is not challenged from the paper and ink dating perspective. Further, the unfreezing of the US$300 million loan in Heilongjiang, for which that urgent loan of RMB700,000 was required, was in fact referred to in Wong’s own subsequent written instruction dated 14 March 2003. That document is not disputed either. 48.According to Chen, Wong also requested that their agreement should be kept as a matter between them. He also requested Chen to await his further notice for effecting the transfer of the shares promised under their agreement. 49.Of the 18 items of indebtedness summarized in Debt Acknowledgement List, the most significant one was that of US$2 million (RMB16,560,000) which Chen secured from his friend surnamed Lin in the USA. As mentioned above, according to Chen, this item was taken out for the purpose of the agreement evidenced by the 9/1/2003 Confirmation. The last one in the sum of RMB700,000 mentioned above, which Chen managed to secure from his friend Tian (mentioned as one of witnesses above), was dated 10 January 2003. The total amount of indebtedness under the list was RMB21,958,141. On its face, the list bears Wong’s signature and the company chop of Shunfeng. It provides that the parties had verified the list as accurate, and signed in acknowledgement of that. Wong does not admit having signed it or alternatively, if he did, he did it without knowledge about or consent to its content. 50.The 10/1/2003 Confirmation referred to the debt set out in the Debt Acknowledgement List. Essentially, Wong confirmed the above indebtedness due to Chen from him (and his three companies: Shunfeng, Shunde Quanshun and Hawkins), and they agreed to treat such loan and interest due to Chen as Chen’s payment for purchasing 80% of these companies. Chen would be entitled to enforce and to dispose of his entitlements under this confirmation at any time without time limitation. It on its face bears Wong’s signature and the company chop of Shunfeng. Wong says this document, including his signature, was a forgery. 51.The Letter of Undertaking made reference to the debt mentioned above and the 10/1/2003 Confirmation. Amongst others, Chen undertook to pay a total sum of RMB60 million to a number of designated persons and to use his best endeavour to redeem Wong’s Mainland property, Hua Qun Building, within 3 years after the transfer of the shares. Wong and Madam Liu were two of those designated persons. So was Wu, a witness called by Chen as mentioned above. There is no issue of authenticity of this document, as the entire document was admittedly written and signed by Chen only. 52.Chen put forward these documents, the authenticity of which is disputed by Wong. It is the burden of Chen to formally prove the documents. Mr Wong accepts that there should be credible evidence of sufficient weight that the document is on a balance of probabilities what it purports to be. The court will consider whether any evidence as to the provenance of the document has been adduced, and if it has, whether such evidence is on its face so unsatisfactory as to be incapable of belief even if not countered by any evidence to the contrary: see Redstone Mortgages Ltd v B Legal Ltd [2014] EWHC 3398. There seems to be no dispute as to this principle. 53.However, in disputing the authenticity of the 10/1/2003 Confirmation, Wong put forward a positive case of forgery in two senses: the signature was not his; but if it was, then it was there already pre-signed in blank by him and the content was added afterwards at a time unknown to him. Hence the cause for the handwriting expert evidence. 54.On the issue of forgery, there seems to be dispute as to the incidence of the burden of proof. Mr Lam submits that his client only has an evidential burden. I am prepared to accept that subject to two riders: First, Wong bears the burden of adducing evidence with cogency commensurate with the serious nature of the allegation of forgery. This applies to both expert evidence and evidence as to facts. Second, that the issue of forgery is raised in disputing the authenticity of a document does not therefore cast a burden on Chen to prove that the document is not forgery any more than that it is authentic on the balance of probabilities as mentioned above. 55.As to the approach, the Court of Final Appeal has explained that the court generally prefers the direct evidence from persons who actually saw and heard what happened, and this is especially so in the case of handwriting evidence. It is for the court to form his own judgment on the facts and expert evidence is there to assist: see Nina Kung (above) at §§15-20. In the present case, Chen and Zheng gave evidence in respect of how these documents came about. 56.Wong was taken to be unable to testify, but that does not mean a fair trial becomes impossible. The case of Hepburn v Royal Alexandra Hospital [2010] CSIH 71 at §42 cited by Mr Lam made that clear. Further, that the court should be cautious in drawing inference against Wong when he is unable to personally come to rebut (as submitted by Mr Lam by referring to Nina Kung v Wong Din Shin [2005] 8 HKCFAR 387; CACV 460/2002 (28 June 2004) at §§897-898) does not mean the court should hesitate in making findings of fact, even against him, if the evidence warrants. G5. The Debt Acknowledgement List 57.Regarding the Debt Acknowledgement List, there is no allegation about forgery of signature or content being filled in pre-signed paper in blank. The list was a typewritten document without letterhead. Wong simply made no admission or alternatively, if he has indeed signed it, he allegedly did that without knowledge or consent. On this basis, unlike the case of the 10/1/2003 Confirmation, handwriting expert evidence was also not engaged for the purpose of examining Wong’s signature on this document. 58.On behalf of Chen, it is suggested that the list proves Wong’s indebtedness towards Chen so that it is not open to Wong to disown, reopen or dispute the indebtedness. Mr Lam describes this as an overly simplistic approach. He asks this court to consider various other factors such as contemporaneous documents (and where and why they exist), their absence where one would expect it to have been created, inherent probabilities having regard to the historical context, oral testimony in support or contradiction as well as the pleading and assertions in witness statements. 59.Mr Lam’s submission above came from the observations of the Court of Appeal in Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 at §135. What drove the court there to make these observations was that the events about which the witness testified occurred many years ago, so that the accuracy of the memory of witness was to be approached with caution. That was where contemporaneous documentation assumed a special importance. In terms of principle, Mr Wong for Chen does not submit otherwise. In fact, it is clear from the outset of his closing submission that Mr Wong actually endorses the same principle. 60.In Esquire (Electronics) Ltd, the error of the trial judge found by the appellate court in that case was his approach in the assessment of the facts by placing far too much emphasis on character impression of the witness and too little on the voluminous probative contemporaneous documentation. What Mr Wong proposes this court to do is nothing close to committing such mistake. 61.Mr Wong acknowledges that the Debt Acknowledgement List per se may not be complete proof of the 2003 Agreement. However, it is cogent evidence in support of the existence, amounts and the reasons of the indebtedness as stated therein, the accuracy of which was acknowledged by the fact that the parties proceeded to sign it. On this basis, it is a binding admission by Wong of the underlying indebtedness. In principle, this cannot be faulted. That Wong claims no knowledge or consent, yet having signed the document, does not serve to vitiate the document as a binding document. The principle is not different from that explained in Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 at §§84-87. 62.In his closing, Mr Lam suggests possible common mistake in respect of this document. Suffice to say that there is no such plea. Assuming it were pleaded, it would have been inconsistent with the contention of Wong that he signed the list without knowledge about its content. His contention would have been that he signed it upon certain understanding about its nature or content, which turned out to be a mistake. Yet, the explicit statement in the list acknowledging that the parties confirmed the list to be accurate before they appended their signatures on it literally left no reasonable room for misunderstanding about its nature or content. 63.While it is suggested that the Debt Acknowledgement List signed by the parties constituting their binding admission of the underlying indebtedness, Chen indeed adduced evidence of those items of indebtedness. From Chen, detailed evidence in respect of the circumstances surrounding those loans to Wong was adduced. There were related entries in the part of the Work Record since 1996 that, as mentioned, are not challenged from the paper and ink dating perspective. Hence their nature as contemporaneous entries. Chen managed to produce most of the copies of the receipts or acknowledgements, and most of them were actually signed by Wong. The 10/1/2003 Confirmation recorded that at Wong’s request, Chen had already surrendered the originals of the receipts, invoices and acknowledgements to Wong. Zheng and Wu gave evidence in respect of their personal knowledge about some of those loans. In particular, Wu had personal knowledge about the loan in July 1997, which was borrowed by Wong to enable the bail of Wu from detention in the Mainland. Such incident was also mentioned in the Work Record. 64.Much was explained in the oral evidence of Chen, and Zheng and Wu as well, about the rolling finance practice of Wong. As to precisely how this operated, perhaps only Wong had the most personal knowledge. Chen was required to assemble deposit money to enable the generation of substantial loans amounting to some RMB100 millions from credit companies. This, as mentioned, explains why it is credible that Chen would be considered by Wong to be a potentially resourceful person to recruit back in 1995. Both the oral evidence of the witnesses and the documents suggest that Wong’s engagement in the rolling finance practice was recurrent and massive over the years. In her evidence in court, Madam Liu acknowledged that she had learned about such massive financing practice of Wong. Whilst she claimed no real knowledge about the working of such practice, the documents show that she had been engaged in documentation and correspondence with third parties in connection with such financing in at least April and May 2000. She explained that she had become numb to these figures, but the she must have been so involved at least at the direction of Wong. Both Chen and Madam Liu considered that Wong might have at one point gone overboard in engaging in such financing practice. 65.Apart from feeding the need of the “rolling financing” practice, the other businesses of Wong’s group also required funds. Madam Liu gave evidence that she had to mortgage her own property urgently in 2000 to enable Wong’s financing practice in the US. The financing was eventually unsuccessful and her property had to be sold. Madam Liu’s loan was never repaid. Shortage of fund was not uncommon at the company. At one point, her sons who had worked at Shunde Quanshun had their wages let into arrears. Madam Liu under cross examination retracted her complete denial of any loan from Chen or debt owed to Chen, including some of the specific items in the Debt Acknowledgement List. She did not have the necessary personal knowledge to found such denial. 66.The alleged undertaking of personal liability by Wong the indebtedness owed to Chen is questioned. In essence, it is pointed out that the indebtedness, even if proved, was owed by the companies of the group instead of Wong personally. References are made to the composite signature of Wong, ie that of Wong with the company chop of Shunfeng on the 10/1/2003 Confirmation and the Debt Acknowledgement List as well as the purposes of the loans. 67.Chen’s evidence suggests that insofar as he was concerned, he personally undertook liability towards third parties from whom he secured the funds to lend to Wong. The purposes of the loans were various. Some of them went to fund the deposit to enable Wong’s personal rolling finance practice while some served the purposes of the companies in the group. In other words, the composite signature per se cannot relates to all the loans. Further, there were receipts and written acknowledgements recording Wong’s undertaking of personal liability in respect of some of the items of debt in the Debt Acknowledgement List. The list, as mentioned, contained the explicit reference to Wong as the debtor, who signed in such capacity. That was also the basis on which Wong agreed to use his beneficial interest in the shareholdings of the companies to settle the indebtedness as evidenced by the 10/1/2003 Confirmation. The document literally made clear that the acknowledgement was made by not just the companies but Wong himself. G6. The 10/1/2003 Confirmation 68.Wong does not admit that it was his signature that appears on the 10/2/2003 Confirmation. He also asserts that he had in the course of business pre-signed papers or letterheads of Shunfeng in blank for administrative convenience. He is not sure whether the signature was a forgery or whether it was one of those pre-signed blank papers. 69.Handwriting expert evidence was thus adduced. Mr Robert Radley (“Radley”) and Ms Yang Chiew Yung (“Yang”) were engaged by Wong (and Line Power and Trengei) and Chen respectively. They produced their expert reports on 31 August 2016 and 12 October 2016 respectively. Their evidence was adduced without their being called to testify. 70.Insofar as the signature is concerned, both experts opined that the one appearing on the 10/1/2003 Confirmation was written by Wong, and it was highly unlikely that it was simulation. That squarely leaves Wong with the only explanation, namely that he could have pre-signed papers with letterhead in blank so that the content was added afterwards. 71.The alleged habit of Wong of pre-signing letterheads in blank was not particularized by pleading (including further and better particulars despite request by Chen) except for the alleged inability of Wong to recall. Madam Liu testified to such habit of Wong. However, her evidence, in view of her overall reliability as discussed below, cannot be taken as it is. Documents such as samples of past documents actually compiled by Wong’s pre-signed letterhead, which would have been better evidence, is lacking. Even assuming that Wong had such habit, that itself would not prove that the 10/1/2003 Confirmation was compiled from such pre-signed letterhead. The state of the evidence in this respect falls short of what happened in Lin Ren Xiang v Hui Kam Fong, HCA 1497/2015 (28 April 2017), which is cited by Mr Lam. 72.In terms of expert evidence, Radley opined that it was impossible to determine whether the signature on the 10/1/2003 Confirmation was applied to an existing text or, whether, as alleged by Wong, the text has possibly been written around the signature on blank sheet paper. Yang agreed. That does not assist Wong’s case. However, Radley continued to offer his opinion on the spacing between the text and the signature as well as the positioning of the signature in the document. That went beyond the expertise in the comparison of signatures (against samples) or assessment of the timing of writings (by the examination of ink or ink diffusion). As Yang observed, that might be a matter of habit of the writer or coincidence. Strictly, such additional observations, albeit an attempt to assist the court, are not expected from the handwriting experts. In any event, the observations of the experts are not sufficiently certain in affording a conclusion in this specific respect one way or the other. 73.It should be noted that unlike Wong’s signature, there is no allegation that the company chop of Shunfeng on the document was also pre-applied together with his signature in blank. However, on day 7 of the trial, and right before Mr Wong confirmed the conclusion of the factual evidence of his client’s case, application on behalf of Wong was made precisely for the purpose of alleging and adducing evidence of alleged pre-chopped letterheads of the companies. For that purpose, a new witness, namely the brother of Wong, was also proposed. Doing his best, Mr Lam tried to explain such move within fair limits. Emphasis was placed on the exercise of diligence once the alleged newly discovered evidence became available. That was certainly relevant but not be the correct emphasis in the circumstances. Given the background of the issue of forgery, and how the issue was raised and addressed by the necessary factual and expert evidence under legal advice, this court would require much persuasion before considering that the failure of even raising the issue of pre-stamping letterhead in blank until such juncture of the trial could be justified. Wong’s camp was far from being able to do that. 74.Further, Mr Wong confirmed that the intention to take out such an application was indicated to his side at 9 pm the night before. Chen simply did not have any fair opportunity of obtaining proper legal advice in respect of the need for specific discovery arising out of the intended further evidence and/or the need for consultation with expert. That any consequential steps expected of Chen’s side might entail the derailing of the trial in its middle also added to prejudice in the circumstances. 75.I had no hesitation in refusing the last minute application on behalf of Wong. Listening to the subsequent evidence of Madam Liu both in explanation of such attempt conceived during the trial and that in respect of the custody of the company chop at the material times only served to reinforce the propriety of such adjudication. Any allegation to the effect that Wong would invariably pre-chop letterhead in blank would have been difficult to accept. Amongst other things, Zhang confirmed the general significance of the appearance of the company chop on a document in the Mainland. One would question the necessity of such risky practice in conducting business. As far as the evidence of Chen and Wu in this respect differed from that of Madam Liu, I find the latter to be unimpressive at all, and prefer the former. 76.I should also mention that subsequent documents dated September 2005, which Chen claims to have received presumably from Wong in 2011, will be discussed below. It suffices at this juncture to note that those documents, if proved to have existed, actually contained Wong’s own admission of having signed the 10/1/2003 Confirmation. 77.Nothing should turn on the Letter of Undertaking, which was written and signed by Chen only. The only dispute is whether it came about together with the 10/1/2003 Confirmation and the Debt Acknowledgement List on 10 January 2003. 78.As mentioned, Chen produced his time organizer which contained his own handwritten account of the events between January 1996 and April 2003. As proof of the truth of its content, the Work Record is self-serving. It is more intended to demonstrate that what Chen asserted were not recent fabrications. The issue raised by Wong’s camp is whether the handwritten entries in the Work Record from 10 January 2003 to 24 April 2003 were contemporaneous or recent compilation. There is no such challenge in respect of the prior entries from 5 January 1996 to 9 January 2003. 79.The time organizer is the common kind with an inside ring-binder which allows loose leaf papers to be added and removed. It also contained the yearly calendars from 1995. Chen testified that he began to use it when he started working for Wong in 1996. Indeed, the introductory page written and dated 5 January 1996 referred to his recruitment and commencement of work for Wong. According to Chen, the entries in the Work Record were made fairly shortly, and not weeks or months, after the events. The contents are self-explanatory of Chen’s habit and style of writing. Apart from the recorded events, Chen also wrote down his feelings and thoughts about such experiences. Sometimes, he recited conversations with people in a direct speech form. Entries for a day could be detailed or brief. However, the descriptions of time, location and people were on the whole precise. Chen explained that the entries in the Work Record had become less frequent than before since 2004, when he focused more on his other restaurant and lubricant businesses that required him to travel more to various places. The entries during the relevant period indeed contained records of his experiences in connection with those other businesses. Since late April 2003, Chen had also started using his family computer for such purpose to the extent that he could share it with his two sons. Printout of the typewritten entries since then until April 2012 was also produced. 80.It is obvious that the entries in the Work Record for 10 January 2003 were made in blue ink as opposed to black ink used both before and after that date. According to Chen, he used a pen from the hotel in making such entries for 10 January 2003 after his old black ink fountain pen was broken by accident after the meeting with Wong on that day. He resumed using black ink after purchasing a new fountain pen on the following day. That the change of pens mentioned above happened on an admittedly important day for the purpose of this litigation and that Chen happened to recall how that happened no doubt raised query. However, it is interesting to note that the entries for 10 January 2003 did not exist on isolated page(s). Where the entries for that day in blue ink came to the end, the entries for the following day immediately followed on the same page in black ink. If the theme of challenge is that the entry for that date was put together by Chen much later as a plot to create false contemporaneous evidence, then one may wonder whether Chen would have been so random about the use of pen and executed the plot in such manner. 81.That the time organizer contained paper inserted on different occasions was also not disputed. Chen had admittedly done so over the years. The papers therefore consisted of the original spare packet that came with the time organizer when bought and additional packet purchased, according to Chen, in Beijing in around 2000-2001. It is the paper dating in respect of which the experts differed significantly. The paper in the time organizer was examined by Mr Riley Welch La Porte (“LaPorte”) and Mr Valery N Aginsky (“Aginsky”), the paper and ink dating experts engaged by Wong’s camp and Chen respectively. LaPorte produced his report on 4 October 2016 and Aginsky produced his on 19 November 2016. LaPorte produced a further report in reply on 6 January 2017. 82.The expert consultation started with LaPorte, who was instructed to consider if the entries between 10 January 2003 and 24 April 2003 (on so called “Paper B”) were written on the purported dates. The opinion of both experts was that the paper and ink used for the entries on Paper B indeed differed from those for the entries prior to 10 January 2003 (on so called “Paper A”) in terms of optical differences, wear and tear of the hole punches, as well as printing defects. The experts could not tell if the ink used for the writings on Paper B did not exist or was uncommon prior to January 2003. Therefore, these conclusions per se do not contradict Chen’s case in respect of use of different papers and different pens in the Work Record mentioned above. 83.However, LaPorte added that there is strong evidence to indicate that Paper B was added into the time organizer and the entries for dates since 10 January 2003 several years later than 2003. Aginsky found that the examination supported that the entries on the pages since 10 January 2003 were indeed written on those dates. However, he was cautious not to reject the possibility that the entries might be written later than 2003. On this basis, he opined that it was not possible to conclude whether Paper B was written contemporaneously or added at a later date. 84.La Porte based his analysis heavily on the timing of the availability of the kind of paper comprising Paper B, which he described as highly UV fluorescent paper or modern paper. He opined that such paper was not commonly available prior to 2005. Hence no chance of their insertion and use in 2003. This is what Aginsky disagreed. 85.Visually, the appearance of bright fluorescent paper contains optical brightening agents (OBAs) typically causing the paper to glow when viewed under UV light. Examination of the brightness of the papers in the Work Record was conducted by both experts. In drawing his conclusion, LaPorte referred to a paper entitled “The Evolution of Tinting Dyes and Optical Brighteners in White Paper” by Mark D Crable (“the Crable Paper”), specifically its introductory paragraph which said that “the world of white papers changed tremendously in 2005… In that year, International Paper increased the TAPPI directional brightness from 84, on average, to 92”. International Paper was apparently a paper manufacturer in North America. To LaPorte, white paper with UV bright rating of 94 would be “modern paper” which was not commonly available prior to 2005. 86.To the extent that LaPorte suggested that the Crable Paper was the authority evidencing that white paper with the brightness quality, or what was described as “modern paper”, was not commonly available prior to 2005 until the development explained in that paper, I would be cautious about such opinion. 87.The Crable Paper was published by Greenville Colorants, a tinting dye supplier in the US, to illustrate the need for modification of the manufacturing components of white paper in North America in response to the influx of competing foreign papers into the market. The modifications referred to consisted of increased bleaching of the wood pulp (from which the fibre materials for making paper came), tinting dye package (for shading the paper) and greater use of OBAs. Crable discussed each of these components and their modifications in 2005. 88.Properly understood, the Crable Paper actually suggested the existence of white paper of such bright and white quality mentioned in the paper even prior to 2005. First, when explaining the tinting dye package, Crable actually referred to the existence of white paper with brightness and whiteness which had to be shaded down to 84 TAPPI directional brightness. Second, he recommended proper selection of tinting dyes – a change that would be in line with what papermakers in Europe, Asia and South American and other places had already achieved prior to 2005 and before North and Central America did. Third, according to the discussion of the component of OBAs, the manufacturers in North America had been using a major type of OBAs to achieve 92 TPPI directional brightness prior to 2005. This reinforces that white paper with such brightness quality did exist prior to 2005. What Crable went on to discuss was that the effectiveness of reliance on this single major type of OBAs depended on very good quality of the other component, the wood pulp, and that OBAs have been used in much greater quantities since 2005. 89.Further, the Crable Paper addresses the issue of TAPPI directional brightness. However, this is not the same as UV fluorescence. Aginsky explained that TAPPI directional brightness is measured with blue light, which is visible, whereas UV light is not visible. In the present case, none of the experts had measured TAPPI directional brightness, which was the measurement referred to in the Crable Paper. 90.Back to the brightness examination that the experts conducted. LaPorte adopted his own scale of 0-4 for categorizing the fluorescent brightness of the paper tested under UV light. In comparison with the tested paper, he used what was described as a “modern paper” which was said to possess TAPPI directional brightness of 94. He was pairing UV fluorescent brightness with TAPPI directional brightness. He concluded that Paper A and Paper B in the time organizer of Chen had fluorescent of category 1 and 4 respectively. He further concluded that white paper with (his) category 4 fluorescent brightness was not commonly available prior to 2005. Hence his conclusion that Paper B and the writing thereon were added after 2003 (or if he is right, 2005). 91.Aginsky’s examination of the UV fluorescent brightness of the papers in question differed from LaPorte’s examination in two significant respects. First, comparison between Paper B and samples of 92-brightness paper under UV light revealed that the former was of duller or paler fluorescent brightness. In other words, Paper B could not be of fluorescent brightness of 94 or the so-called category 4 brightness as LaPorte found. Second, the samples of 92-brightness paper used in the comparison consisted of Aginsky’s library collection of paper samples originated from different places, including Hong Kong, in 1996, 2000 and 2001. Aginsky also found that the major components of optical brightener of Paper B matched those of the optical brighteners present in the white paper samples used in the comparison. This proved the availability of paper with such brightness quality, including Paper B, in different parts of the world prior to 2003 (or 2005), contrary to what LaPorte suggested. 92.In further explaining why the yellowing of Paper B appeared to be more serious than the pre-2003 paper samples with 92-brightness, Aginsky at the same time rebutted LaPorte’s another conclusion. According to Aginsky, not all paper turns yellow with age. Yellowing depends on what fibres the paper is made of, the processing and purification steps, the additives and the residues left in it. Yellowing of paper is also caused by a number of factors, the main ones of which include the presence of acid from lignin in the pulp used in manufacturing the paper and the oxidation of lignin. For instance, the yellowing of Paper A and Paper B could indicate the presence of lignin, albeit to different extent. Aginsky further explained in court that if Paper B indeed belonged to LaPorte’s categorization of “modern paper” with such extremely high brightness, one would have expected the existence of the least lignin. Yet the obvious yellowing of the paper did not sit well with that. 93.In court, LaPorte referred to the relevance of price of the paper, and suggested that inexpensive highly fluorescent paper was not commonly available prior to 2003. However, the paper sample from 1996 that Aginsky used in the comparison with Paper B mentioned above came from Russian copy papers which were by no means expensive. Yet it still produced UV fluorescent brightness no less than Paper B. 94.In court, LaPorte also referred to the possibility of Paper A and Paper B being the product of the same manufacturer, and were therefore expected to have similar ageing characteristics. However, Aginsky quite fairly pointed out that the printing pattern looked similar and the printing company might even be the same. However, it cast no light on whether the paper was from the same manufacturer. Further, LaPorte himself tested the chemical composition of Paper A and Paper B, but the results were said to be inconclusive in showing differences. Aginsky opined that the chemical composition of Paper A and Paper B were different in that they had different appearance and florescence. That aside, the inconclusive test result on difference per se does not support a conclusion that they were the same. 95.There are other queries and even criticisms about Aginsky’s opinion. However, all the evidence considered, including those discussed above, I would go no further than preferring and accepting the analysis and conclusion of Aginsky. I appreciate Aginsky’s word of caution that whilst he opined that Paper B probably existed in January 2003 when the entries thereon were made on those dates as stated, he would not reject the possibility that the entries were made later than 2003. Considering the expert opinion expressed with such caution, I say that insofar as the contention that the part of the Work Record being questioned was not contemporaneous but put together much later than January 2003 by Chen to mislead the parties and the court is concerned, I do not find that it is actually substantiated. 96.As mentioned, the Work Record serves more the purpose of demonstrating that what Chen asserted were not recent fabrications. Chen admitted that the entries were post-event records, though made shortly after the events. According to Wong’s expert evidence, the entries being questioned were made years later (such as not earlier than 2005). In either case, the reliability of these post-event records as (his) true and accurate account of the events would have to be assessed against all the other evidence. It is really when the entries being questioned were made after the conception or even commencement of legal proceedings would the evidential value as to its contemporaneous nature and truth be categorised as nil. However, Wong’s expert evidence never purported to be so specific in respect of such timing. 97.As mentioned, Mr Lam places the inherent probability of Chen’s case in respect of the 2003 Agreement at the forefront of his analysis. It is of course relevant to consider whether it was inherently probable that Wong would enter into an agreement in terms of the 2003 Agreement. However, where documents said to record the terms of the agreement and signed by Wong are produced, which are denied on the ground of forgery, it is doubtful whether the signature and document are forgeries is a matter of inherent probability. Rather, it is because forgery is inherent improbable in the normal course of events that cogent evidence is necessary for establishing that. 98.The first-hand evidence, including that of Chen and Zheng, and the rather clear consensus of the handwriting experts show that Wong did sign those documents. The case of inserting content to pre-signed letterhead in blank is also not made out by the evidence of the witnesses. Proof of his having signed those documents is cogent proof of his agreement to their terms. In that case, dispute could still have been raised as to the basis on which he signed the documents or what the understanding of the parties was, notwithstanding the signing of the documents in those terms. Inherent probability of such case, if raised, would have been relevant. However, Wong never runs such a case. 99.Nevertheless, I would still consider the various arguments regarding the inherent probability of Wong entering into the 2003 Agreement, some of which were inherent in the discussion above and some below. 100.The 10/1/2003 Confirmation started by referring to Wong’s health and thought of retirement. Both are disputed as ever likely the concern of Wong at the time. Wong’s Daughter gave evidence in this respect. That Wong was still engaged in his business activities since then was also undisputed fact. However, Wu said he did observe that the “loss” of Hua Qun Building in the Mainland (which was also covered by the Letter of Undertaking) might have impact on Wong’s mood then. According to Chen, he just wrote down what was represented to him by Wong. The Work Record also contained entry about Wong’s mention of retirement in the course of their conversation at that time. 101.Whatever explanation there might be for that, there was in my judgment no reason why Chen would somehow care to perceive the relevance or need to fabricate such remarks in the document. The terms of the 2003 Agreement were primarily premised on the settlement of the indebtedness owed to Chen since 1996 rather than disposition in favour of Chen driven by Wong’s plan to retire. As mentioned, there will be discussion below in respect of the correspondence between Wong and Yu in 2005 in relation to the 10/1/2003 Confirmation, the authenticity of which is disputed. However, if proved, the letter from Wong to Yu then indeed contained his admission and explanation of why he made such representation to Chen at the time of signing the 10/1/2003 Confirmation. 102.All the defendants question the commercial wisdom behind the 2003 Agreement. In essence, it is argued that in settlement of the indebtedness owed to Chen, the promised transfer by Wong of his interest in the shareholdings of, amongst others, Hawkins would be too good for Chen to be true. 103.To begin with, the parties would have rested with the agreement evidenced by the 9/1/2003 Confirmation, which entailed the transfer of 20% of Shunfeng. It was really the urgent request for a further substantial loan by Wong that brought about revision and the consequential agreement evidenced by the 10/1/2003 Confirmation overnight. One should not lose sight of the pre-existing promise to Chen for 20% of the shares in, amongst others, Hawkins pursuant to the terms recited in the 1995 Letter whereby Chen was recruited. The parties must be aware of that when entering into the 2003 Agreement. Chen never claims that the 1995 agreement and the 2003 Agreement were cumulative insofar as the promised shareholdings were concerned. In the Work Record, Chen made entry about the parties’ understanding that the 80% Hawkins’ shares should already include the original 20% promised in 1995. Therefore, even assuming one embarks on comparing the amount of the indebtedness owed to Chen and the value of the shares promised by Wong in settlement of such indebtedness, the discrepancy was not to such an extent that no reasonable man with sound mind would have agreed to such terms. 104.Further, there was also the Letter of Undertaking whereby Chen would be obliged to tender a further sum of RMB60 million (subject to deduction of any further interest accruing on the existing and new indebtedness) and the redemption of the Hua Qun Building in 3 years. The query about the ability of Chen to honour his undertaking is not so obvious as to render the agreement inherently incredible. The history tells that Chen had his sources, albeit not his own means, to come up with substantial funding. Wong had relied on him for that. Chen also gave evidence as to business potential of Shunfeng, if operated under his control. He and Wu also testified as to the offer from third party to purchase Shunfeng at one point (in 2008), albeit rejected by Wong. Any of these alternatives would have enabled Chen to honour his undertaking. At least, for the parties to have such expectation at the time of the agreement cannot be said to be inherently improbable. 105.Whilst Chen’s case is that Wong requested him to keep their agreement between themselves, query is raised as to whether it was probable that Wong would be minded to keep that even from Madam Liu, who was the other 20% equity partner. As to that, Chen’s evidence was not actually that the two agreed to keep the agreement from Madam Liu. Chen thought quite to the contrary. Chen merely left it to Wong who represented that he would let her know. This was also what he entered in the Work Record as what happened. Madam Liu’s evidence in respect of how she came to know about the 2003 Agreement will be discussed below. 106.Query is also raised as to the understanding of the parties at the time of the 2003 Agreement about the position of Wong in honouring his promise to transfer 80% of Hawkins’ shares. Admittedly by then, the shares would be subject to the listing plan in Hong Kong under the navigation of Yeung. Had the listing plan turned out to be a success, Wong would not have been able to honour his promise to transfer the shares to Chen. Apart from testifying as to their projection about the prospect of success of such listing plan at the time, Chen, when questioned, added that he would have been prepared to accept alternative resolution with Wong such as monetary payment. Soon the listing plan and the trust in Yeung proved to be more than a failure for Wong. As mentioned, Chen and Wu referred to an episode in 2008 when there was apparently a potential offer from a third party to buy out Shunfeng. According to Chen, then he would also have been contented with (re)payment instead of transfer of shares, had that deal materialised. Such stance of Chen was not inconsistent with the intention of the parties to enter into a binding agreement or the certainty of the agreement at the time of the agreement. 107.A major theme of the scepticism about Chen’s case advanced by his opponents is the alleged passiveness of Chen and his apparently long wait since the 2003 Agreement until 2011 before he took action to enforce his interest. That, they say, is inherently improbable. In my judgment, the development since the time of the 2003 Agreement call for a realistic view of the circumstances of the parties. 108.There seems to be no dispute that Wong commanded the trust of Chen. This is manifested by the expressions of feelings of Chen in his entry on the introductory page of the Work Record in 1996. This is also manifested by how far Chen was prepared to go, including personal undertaking of loans from third parties, in order to secure the finance needed by Wong since then until 2003. Only that since 2003, Wong’s focal source of finance became Yu/Bao’s camp. 109.That Hawkins’ shares, and thus majority control of Shunfeng, became the subject matter of litigations between Wong and Yeung for years was a fact known to Chen. References to dealings between Wong and Yeung by January 2003 could also be found in the Work Record. As mentioned, Wong made clear when the parties entered into the 2003 Agreement that the shares were hooked up in the listing plan under Yeung. Chen trusted Wong, and agreed to await Wong’s further notice regarding transfer of the shares. That was the situation, which Chen knew he was in, right from the moment the 2003 Agreement was entered into. That said, it was not that Chen had never made enquiry with Wong on the progress. The Work Record contained his entries in respect of such enquiries on various dates since 2003. 110.The litigations between Wong and Yeung continued. Reference is made to a public announcement of the first instance success of the litigation against Yeung in HCA 1653/2004 by Liu Ming and Zhang in 2006. Chen did not deny he had learned about that. It is therefore queried why he did not seek to enforce his rights for the transfer of Hawkins’ shares then. However, such announcement was a notice to third parties of the injunctive relief granted by the Hong Kong court against Yeung. If anything, that served to prevent breach of the injunction on the part of Yeung and his associates. That in fact did not stall Yeung from continuing his contest with Wong. As mentioned, he appealed. In the following two years, Yeung also took steps in the Mainland with a view to seizing control over Shunfeng, which apparently caused Wong to put Yu in place to tackle. By 2008, the steps taken by Yeung (and through Sunny Growth) in the Mainland apparently brought about attention of the relevant authority to Shunfeng and Wong. The documents revealed that allegations were made about the siphoning of company funds of Shunfeng by Yu and Wong. Such harassment sufficed to cause Wong to be concerned and to decide to flee to Hong Kong. The circumstances did not cause Chen to doubt the representation by Wong to Chen that Wong still had to deal with Yeung and was yet to regain control over Shunfeng. 111.Chen was admittedly not involved in the above contest with Yeung. However, that Chen held an equity in Hawkins was a matter kept from the outside world as Wong requested since day one. Further, Chen was at all material times (and still is) a Mainland resident, and had only been posted to Shunde Quanshun. The circumstances calling for his involvement in connection with any of the litigations were lacking. Importantly, there had never been any indication, let alone request, for his involvement, considering that the matter was always under the sole instruction of Wong with the assistance of legal advisors CLCMC. In the meantime, according to him, Chen had to operate his other businesses, including restaurant and lubricant businesses, from which he earned his living and supported his family, including his sons. 112.The key feature of Chen’s case is that at no time did he realise the dealings between Wong and Chen’s opponents since 2003. The first one was the Huolianzhai Loan Agreement, whereby Wong pledged Hawkins’ shares to Huolianzhai notwithstanding the beneficial interest in the same promised to Chen under the 2003 Agreement. This is also reflected by Huolianzhai’s written request for clarification and Wong’s reply about the 2003 Agreement with Chen in September 2005. As mentioned, such 2005 correspondence are also said to be forgery, which will be discussed below. 113.Further, as mentioned above, there was this episode of a potential offer to buy out Shunfeng by a third party investor in 2008, which Wong eventually rejected. Chen and Wu testified to that, and the Work Record also contained entries relating to that. Chen’s evidence as to Wong’s explanation for such rejection aside, it is probably not difficult to know why Wong would reject such offer then. Wong probably had no choice, in view of his commitment with Huolianzhai in connection with Hawkins’ shares – a true reason that could not be revealed to Chen. Whilst Chen felt surprised, and at one point even angry, about the above episode, there was no question of breakdown of trust in Wong on the part of Chen. 114.The absence of breakdown of trust of Chen in Wong since the above episode in 2008 is also queried. However, since the same year, Wong is seen to have made substantial payments, amounting to about RMB300,000 to Chen every year. The payments were all evidenced by documents. This could not be explained by his remuneration package for working for Wong. Nor could it be Wong’s case that those were repayments by him or his companies, as Wong denies any loan whatsoever from Chen. On behalf of Chen, these payments are described as Wong’s acts of pacification. 115.According to Chen, he did break his silence about the 2003 Agreement to the outside world in 2009. He went to Liaoyang to visit Shunfeng where he managed to meet with Yu. He revealed to Yu his interest and showed him the 10/1/2003 Confirmation. Chen also met Zhang. He too revealed his interest, though, for reason, he only showed Zhang the 9/1/2003 Confirmation. There were entries in the Work Record about such episode. 116.According to Zhang and Madam Liu, they tended to dismiss Chen’s claim as something totally without basis at the time. In other words, they found the claim of Chen and his reference to the documentary proof shown to be dodgy. Madam Liu understood that Wong shared the same stance. Notwithstanding that, she claimed that the friendly relationship among Wong, Madam Liu and Chen was not compromised by such dishonest conduct of Chen. If Wong and Madam Liu indeed took that view of Chen, this would indeed sound unnatural. 117.That Chen maintained a friendly relationship with Wong and Madam Liu after his meeting with Yu and Zhang was undisputed fact. However, Chen gave a different account of why that was the case. According to him, upon learning from Yu that Wong had “sold” Hawkins to third party notwithstanding his interest under the 2003 Agreement, he did confront Wong about that. Wong is said to have deny what Chen learned from Yu, and represented to Chen that Wong only worked for him. Chen was re-assured by Wong of the 2003 Agreement. Further, Wong continued to pacify Chen in monetary terms by his yearly substantial payment mentioned above after that meeting. Again, the relevant entries in the Work Record contained an account of how Chen felt about that episode. 118.Chen’s suspicion escalated gradually. According to Chen, he came to learn from Wong about the conclusion of the litigation with Yeung in Hong Kong during his visit to Wong during Chinese new year in early 2011. Chen intended to revisit the subject of carrying the 2003 Agreement into effect. For that, he visited Madam Liu in Hong Kong in February 2011, when he was given to understand that she knew about his agreement with Wong. Chen revealed the documentary proof of the 2003 Agreement to her as well. The admittedly cordial relationship between Chen and Madam Liu was again manifested by the undisputed fact that she actually treated Chen to lodge at her home during his stay in Hong Kong. He accompanied her to see the doctor because she was unwell. She also accompanied him to see Wong regarding his claim. 119.All the evidence, including the interaction between Chen and Madam Liu between 2009 and February 2011, does not sit well with the alleged dismissal and negative view taken by Madam Liu of Chen back in 2009 on the ground that he attempted to extract beneficial interest in the group’s companies without any valid basis. 120.According to Chen, the discussion with Wong in person in February 2011 about the carrying into effect of the 2003 Agreement also did not end in acrimony between him and Wong or Madam Liu. To Chen, there was actual result. Wong is said to have represented to Chen that the latter might proceed to prepare for the transfer the shares in Shunde Quanshun in the Mainland first. As a result, Chen subsequently caused to be prepared the necessary draft documents for the transfer of such shares. According to Chen, he instructed Mainland lawyers to draft those documents. The drafts were then sent to Wong and Madam Liu in April 2011. There is no suggestion how Chen could have formulated such idea and taken such step, instead of any other, had it not been the representation of Wong in February 2011 as he explained. What was still unknown to Chen were not only the existence of the 2008 S&P Agreement but, even more importantly, also the preparation of the 2011 S&P Agreement which was set in train right after this meeting between Chen and Wong. 121.After Chen reiterated the subject of the 2003 Agreement face to face with Madam Liu and Wong in February 2011, Madam Liu admittedly forwarded a copy of the 10/1/2003 Confirmation to CLCMC. CLCMC, together with Zhang, were instrumental to the preparation of the 2011 S&P Agreement as well as the incidental documentations of transfer within the following two months. As mentioned, days after the execution of these documents, CLCMC (on behalf of Wong) issued the letter dated 18 April 2011 to Chen referring to the 10/1/2003 Confirmation and denying any loan whatsoever by Chen to Wong. In his evidence, and the Work Record, Chen described that as shocking. 122.On behalf of Chen, extreme scepticism is expressed about how the preparation of the 2011 S&P Agreement was paced within those two months with apparently one goal, namely to rush to complete the picture of disposition of the interest in Hawkins’ shares in favour of Yu/Bao’s camp as third party purchaser before confronting Chen in the open in respect of his alleged prior equitable interest. However, query is raised on behalf of Wong’s camp as to why Chen had never put his claim in writing before April 2011, and why Chen never stated his case in writing in response to the letter from CLCMC dated 18 April 2011. It is suggested that Chen did not do what a reasonable man in his circumstances would have done. 123.In view of the events and Chen’s state of mind and knowledge about his position vis-à-vis Wong up to February 2011 mentioned above, I doubt whether any reasonable man in Chen’s position would have considered it to be necessary to put his claim in writing. It appears that the conduct of submitting to Wong and Madam Liu the draft transfer documentations in respect of the shares in Shunde Quanshun in early April 2011 spoke more loudly than any mere written assertion of interest. 124.There was admittedly no written response to the letter from CLCMC dated 18 April 2011. Chen’s explanation aside, the fact was that he did act within reasonable time after CLCMC’s letter. According to Chen, he unexpectedly received by mail to his home address on 18 July 2011 what appeared to be the correspondence between Yu and Wong back in September 2005. By then, there was the Huolianzhai Loan Agreement entered into in 2003. In the letter dated 6 September 2005 apparently from Yu on behalf of Huolianzhai to Wong (“the 6/9/2005 Letter”), Yu referred to the copies of the 10/1/2003 Confirmation and the Letter of Undertaking forwarded to him by Kok Chuen (“Kok”) of Huolianzhai a couple of days before. Yu expressed concern about the co-existence of the 10/1/2003 Confirmation and the Huolianzhai Loan Agreement in 2003 (whereby Huolianzhai obtained the security over 50% of Hawkins shares) when the repayment by Shunfeng was about to become due (14 September 2005). Yu demanded an explanation from Wong. 125.Then there was a reply to the 6/9/2005 Letter apparently from Wong to Yu and Kok on 8 September 2005 (“the 8/9/2005 Letter”), the essential content of this letter is set out below:
126.Yu denies having written the 6/9/2005 Letter or seen it until it was revealed by Chen for the purpose of litigation. Wong also denies having prepared and sent out the 8/9/2005 Letter in reply. This was somehow contradicted by the evidence of Zheng, who claims to have handled the sending out of the 8/9/2005 Letter. According to him, he received telephone calls from Yu and Kok asking for Wong. He remembered sending documents by fax to them then because of a special event on that day. 127.Insofar as the 6/9/2005 Letter is said to be a forgery, Yu’s camp did not adduce any expert evidence. The evidence in explanation, including that in respect of his change of writing and signature style over time, is more self-serving than credible. Zhang was not in a position to enhance that in any authoritative sense. What should be noted is that even on Yu’s own evidence, he could have more than one signature styles at a given period of time. As to the signature on the 8/9/2005 Letter, Radley, the handwriting expert engaged on behalf of Wong, opined that like the 10/1/2003 Confirmation, there was very strong evidence to support that the signature on that letter was also appended by Wong. Yang, the handwriting expert engaged on behalf of Chen, agreed. 128.What came rather unexpected was the discovery by Radley of the handwriting impression on the 8/9/2005 Letter received by Chen. Those appeared to be the impression left by the handwritten instruction of Wong for documents to be mailed to Chen at his home address together with Wong’s signature and the date of 30 June 2011. That such handwritings and signature in the impression belonged to Wong suggests that he wrote those instructions and signed on the paper right above the 8/9/2005 Letter and thus leaving the impression on the latter. It should also be noted that when Chen stated his case in respect of the receipt of copies of these letters on 18 July 2011, he could not possibly foresee such discovery some two years later by the handwriting experts. The balance of probabilities tilts towards the authenticity of the two letters as well as the instruction of Wong for the sending out of those letters to Chen on 30 June 2011. 129.The above episode gave rise to another query, namely why Wong would decide to do so in mid-2011. The theory put forward on Chen’s behalf was that Wong might either be conscience struck or intend to borrow Chen’s intervention to exert pressure on Yu/Bao’s camp in view of the lack of improvement in their delinquency in payment even after the 2011 S&P Agreement. Mr Lam questions such theory as convoluted, as Wong could not actually predict Chen’s reaction. Mr Lam also argues that such theory would be ineffective, as any success in such intervention by Chen could only lead to eventual recourse by Yu/Bao’s camp against Wong. The theory put forward on Yu/Bao’s camp was that the September 2005 correspondence might even be collaboration between Wong and Chen against them, which Chen and Wong’s camp deny. 130.In my judgment, whilst the query is reasonable, the expectation that Chen should bear the burden of explaining Wong’s conduct is not. When the evidence gives rise to serious belief that Wong indeed directed such 2005 correspondence to be sent to Chen in 2011 but without prior or subsequent communication with Chen regarding them, any explanation that Chen might try to give for such conduct of Wong would be no better than speculation. However, inability to explain such conduct of Wong could not fairly be held against Chen. 131.The 6/9/2005 Letter and the 8/9/2005 Letter came in the form of requisition and reply, and therefore proof of the latter should establish the existence of the former. For Chen’s purpose, they suffice to reinforce the basis for concluding that Wong did sign the 10/1/2003 Confirmation, and hence the existence of the 2003 Agreement. In these circumstances, it would appear that by mid-2011, when both Chen and Yu/Bao’s camp brought to light their competing claims for Hawkins’ shares pursuant to Wong’s respective commitments to them, the difficulty of Wong in extricating himself had become increasingly apparent. Wong had chosen to prefer Yu/Bao’s camp to Chen, a course which he had consistently adopted throughout the years. Judging from the evidence of Chen and Madam Liu about Wong’s character, as manifested by his financing practice, I would not be surprised by such approach of Wong. By then, as Madam Liu and Zhang observed, Wong had also become unhappy about the failure of Yu/Bao’s camp to make payment in accordance with the 2008 S&P Agreement. 132.Taking a realistic view of how things developed over the years since the 2003 Agreement, including those discussed above, I accept the submission on behalf of Chen that how he had approached the enforcement of his interest under the 2003 Agreement could be fairly explained and understood in the circumstances. I do not find that to be incompatible with what a reasonable man in his circumstances would have done as suggested. 133.Chen’s evidence was not impeccable. However, in terms of inherent probabilities, what the witnesses said and counsel for Chen’s opponents submitted about Chen’s evidence do not appeal to me as should be preferred. On the contrary, amongst others, Madam Liu is not reliable and, for more than a fair share of the time, evasive in her evidence in court. It is dangerous to rely on the evidence of Yu, who sufficiently demonstrated himself to be incredibly dismissive and argumentative in his evidence. 134.The case of Chen’s opponents is that he cooked up a completely unfounded claim and its entire basis, fabricated documentary evidence of not only the terms of the parties’ agreement but also repeatedly the other circumstantial documentary evidence. Considering what it would have taken for someone to be able to do so, I am not convinced that Chen did that. 135.I am satisfied that the background of indebtedness of Wong owed to Chen which gave rise to the Debt Acknowledgement List was factually true. Not only has Chen managed to establish on a balance of probabilities the indebtedness as a matter of fact, but he has also established that Wong did sign the Debt Acknowledgement List to admit the indebtedness on 10 January 2003. I am also satisfied that Wong did sign the 10/1/2003 Confirmation on that day, and I reject the contention that it came about by way of addition of the text to what Wong has pre-signed (or pre-chopped with the company stamp) in blank as alleged. As the Letter of Undertaking came about as part of the package on the same occasion, I too find that this document came to be signed together with the other two documents on 10 January 2003. It follows that the 2003 Agreement is proved. 136.Wong (and Line Power and Trengei) contends that the 2003 Agreement, even if established, is not legally binding and enforceable for the lack of good consideration. The debt, as recorded in the Debt Acknowledgement List, constituted past consideration for his agreement to transfer the 80% Hawkins’ shares. As such, the agreement did not give rise to equitable interest in the shares in favour of Chen. Mr Lam argues that Chen made nothing more than denial of this contention as to past consideration. He also argues that Chen’s reliance on his promise to excuse Wong from liability to repay the loans was but asserted without pleading, and at the same time inconsistent with the rest of his pleading and evidence. He cites Huen Wai Kei v Choy Kwong Wa Christopher [2014] 4 HKLRD 782 in support. 137.First the pleading point. Mr Lam submits that for any party who intends to rely on forbearance to sue as the consideration for an agreement, he must plead and prove material facts showing, first, an express or implied request made by the debtor not to sue; and second, actual forbearance to sue in reliance on such request. If it was implied request, he must plead and prove the material facts relied on in support of the inference of such implied request. Mr Lam refers to the Chitty on Contracts (33rd ed) at §§4-060 and 4-061 and Yu Tak Hing Land Agency Ltd v Leung Wing Yin [1986] HKC 574 at 582C-H. 138.Properly read, what the above authorities cited by Mr Lam explained is this:
139.The principle is never that insofar as forbearance to sue for an existing debt is relied on as consideration for the debtor’s promise is concerned, there must be pleading of the debtor’s request for such forbearance which the creditor agrees and acts on that. 140.In the present case, the case of Chen is a mutual agreement between the parties after negotiation in respect of the satisfaction of an existing debt by transfer of shares. Chen has pleaded a positive case of the parties’ agreement to treat the loans and interest owed to Chen as his payment for the purchase price for 80% of Hawkins’ shares held by Wong. From the pleading perspective, the causal connection between the forbearance, if one puts it that way, and Wong’s promise to transfer the shares is sufficiently clear. The lack of further averment by Chen in reply to Wong’s defence, such as saying that the past debt was treated as discharged, is not a pleading defect. Nor is the lack of pleading in terms of express or implied request by Wong for forbearance. The situation is just unlike that in Huen Wai Kei and Commodity Broking Co Ltd v Meehan [1985] IR 12 cited by Mr Lam. 141.In Ng Yuk Mui v Shiu Tsun Wai Vincent [2011] 5 HKLRD 707 (which is a case cited by Mr Li for Yu/Bao’s camp for another purpose which will be discussed below), the plaintiff transferred a property to D1 to hold on trust. D1 incurred heavy debts. D2, his wife, repaid the debt by money she put together including her brother’s loan to her. D1 subsequently assigned the property to D2 for consideration equivalent to the amount of money put together by D2 comprising money from her own source and her brother to repay his debt. One of the issues was whether D2 provided value for the assignment of the property to her. The appellate court acknowledged that D2 did not use the word set-off or satisfaction, but the evidence was clear that the parties acted on the basis that with the assignment of the property to D2, D1 would cease to have liability to repay D2 or her brother. 142.By the same token, pleading (and evidence) of the mutual agreement between the debtor and the creditor that the immediately repayable debt would be treated as the creditor’s payment for the purchase of the property from the debtor provides sufficiently proper pleading basis for the issue of consideration in terms of set-off and satisfaction. 143.Then the substance. It is about the substance of the contention in respect of consideration that a marker should be put here. The concept and requirement of value or consideration are relevant in the present case in more than one context. In respect of the claim against Wong’s camp, the issue of value or consideration arises in connection with the making of a binding contract, ie the 2003 Agreement, between the parties. In respect of the claim against Yu/Bao’s camp, the issue of value or consideration arises in connection with the defence of bona fide purchaser for value without notice in equity (or so called equity’s darling). What is required of the value or consideration in the two contexts are somewhat different. 144.Mr Wong refers to Lewis (above) at §41-118 and Megarry and Wade (above) at §8-008, where the old case of Thorndike v Hunt (1859) 3 De G&J 563 was cited as the authority for the proposition that satisfaction of an existing debt is good consideration for a binding promise. In that case, one of the questions was whether the transfer of a fund to the court by the trustees was supported by consideration. The appellate court answered the question in the affirmative. There was a debt due from the trustees, who were called upon to pay. If it had not been paid, the trustee would have been liable to execution. 145.In Ng Yuk Mui (above), the appellate court held that there was value from D2 for the transfer of the property, as the parties acted on the basis that with the transfer of property, D1 would have no liability to repay D2 or her brother. The court expressly held that satisfaction of the existing debt owed by D1 to D2 was not past consideration for the transfer (see §41). I would add that in terms of what Mr Lam also submits, there was a causal link between the contractual promise and how the parties behaved insofar as the debt was concerned in that case. 146.Mr Lam does not really disagree with the above decisions. However, he submits that the “value” in those cases was discussed in the context of the defence of bona fide purchaser for value without notice, and therefore do not stand as authorities in the context of whether such value is quid pro quo for there to be a binding contract. The key difference that he highlights is that in the context of the so-called “equity’s darling” defence, the consideration must be executed. In case of payment of money, such money must be fully paid (before notice). In case of satisfaction of an existing debt, it would have to be actual satisfaction or discharge of the debt (before notice) so as to constitute the “value” recognised in such context. 147.Mr Wong also refers to Takahashi v Cheng Zhen Shu (2011) 14 HKCFAR 558 at §§37-38, where the final court (referring to Robert Goff J in Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd) said if money is paid to discharge, and does discharge a debt owed to the payee by the payer or by a third party by whom he is authorized to discharge the debt, the payment is for good consideration. Mr Lam does not disagree, but submits that the “consideration” in that case was discussed in the context of whether the payee can be said to be unjustly enriched by the payment when that was received in discharge of an existing debt. Again, he submits that this does not stand as authority in support of Chen’s contention which is in the context of consideration in support of a binding contract. 148.Mr Lam is right in his understanding of the context of the cases of Thordike and Takahashi. Insofar as Thorndike is concerned, not only is Mr Wong not disagreeing, but he also considers that Mr Lam’s understanding aligns with his, regarding the significance of executed consideration from Yu/Bao’s camp to Wong’s camp prior to their notice of the prior equitable interest of Chen before they may take advantage of the “equity’s darling” defence. However, that the context of these cases not being one solely concerning value or consideration in support of a binding contract does not therefore render them irrelevant or inapplicable to such situation. 149.Whilst their contexts entail additional consideration, the cases did confirm that satisfaction of an existing debt affords good consideration (or quid pro quo) for there to be a binding contract. Take for instance the context similar to that in Thorndike, a purchaser having entered into a binding agreement with the vendor of a property came to have notice of a prior equitable interest in the property before making full payment to the vendor pursuant to the agreement (ie no executed consideration). That the purchaser may not take free of the prior equitable interest does not render the agreement between him as the purchaser and the vendor non-binding. 150.Imagine these scenarios. First, the debtor owes the creditor a sum due in one month, and the debtor later promises to transfer his property to the creditor in the event of default in repayment. One would say that the debtor is not bound by his promise as the antecedent debt is past consideration and is not good for supporting the additional security. This appears to be the situation in the case of Huen Wai Kei (above) cited by Mr Lam. Second, the debtor’s debt is immediately repayable, and the debtor gives a similar promise to transfer his property to the creditor in the event of default in repayment. The conclusion remains that the debtor is not bound by his promise unless there is in fact promise by the creditor to allow time for repayment or effectively forbearance to sue. Mr Lam accepts that in principle, citing Chitty on Contracts (33rd ed) at §4-032. However, the present case is neither of these scenarios. 151.It does not appear that Mr Lam is arguing that an existing debt is satisfied or discharged only upon the actual transfer of the debtor’s property to the creditor, and hence no executed consideration or good consideration prior to that. Otherwise, there could hardly be good consideration in support of an immediately binding agreement to repay a debt in kind such as by way of transfer of the debtor’s other property to the creditor. However, even assuming that the concept of executed consideration applies, the circumstances of the present case suggest that the consideration from Chen for the 2003 Agreement was executed. 152.Reference is made to the evidence of the pre-contractual discussion between Wong and Chen back in November 2002. However, the fact, as found, was that they eventually came to terms of the 2003 Agreement as recorded in the 10/1/2003 Confirmation (and the Debt Acknowledgement List and Letter of Undertaking). The agreement to treat the existing debt owed to Chen as his payment for the shares was immediate satisfaction of an existing debt in kind. Upon the agreement, there ceased to be any issue of outstanding debt owed to Chen but only the promise to transfer the 80% Hawkins’ shares. Chen may seek to enforce his right as purchaser of the shares but not to recover the debt as a debtor. That Chen testified that he might be prepared to accept alternative resolution (as mentioned above) if it turned out that the shares transfer promised could not be effected, does not affect the binding effect of the terms as agreed. 153.The executed nature of the consideration from Chen is also apparent from the other terms of their agreement as recorded in the 10/1/2003 Confirmation. It provided for the rights of Chen after the signing of the 10/1/2003 Confirmation and before the actual transfer of the shares. Amongst others, only interest accruing and new loans after the agreement would be set off against the amount payable by Chen pursuant to the Letter of Undertaking. At the request of Wong, Chen also surrendered the originals of the receipts and acknowledgements concerning the debt to Wong. It also provided that Chen would be entitled to enforce and dispose of his rights under the agreement as recorded in the 10/1/2003 Confirmation. The rights that Chen was given by the agreement to exercise were no longer referable to the debt. The evidence shows that Chen did not act otherwise than on this basis thereafter. He did not demand for repayment but transfer of the shares. 154.As Mr Lam acknowledges, each case depends on its own facts. The case of Commodity Broking Co Ltd v Meehan [1985] IR 12, cited by him as an instance, involved a director’s unilateral promise to pay his company’s debt in the absence of any request by the director for the plaintiff not to sue the company, and thus any causal link between the director’s promise and the plaintiff’s refraining from suing the company. It is just distinguishable from the present one. 155.All matters considered, I do not find that the 2003 Agreement failed for the lack of valid consideration from Chen. 156.The issue of incomplete agreement between Chen and Wong is also raised for the purpose of testing the inherent probability of Chen’s case. It is not a pleaded issue. Nor was it raised in the opening of the present case. Mr Lam raised this for the first time in his closing submission. He argues that the 2003 Agreement, even if found, was incomplete as there was no agreement on what if Wong’s beneficial shareholdings in Hawkins or Shunfeng changed as a result of the then listing or financing plans. 157.Not surprisingly, Chen complains about surprise by the taking of this point in this manner. As far as the pleading point is concerned, Mr Lam argues that the issue of incomplete agreement is a law point which is not required to be pleaded. Reliance is placed on Tsang Wing Man v Chung On Lung, CACV 129/2015 (4 October 2016). The appellate court in Tsang Wing Man started by pointing out that pleadings serve to set out the factual issues between the parties. In that case, the pleading already made clear the facts that negotiation and the sale and purchase agreement between the parties were silent on a key term, namely the completion date, which was unascertainable with any certainty. The legal issue of enforceability, which the court was called upon to consider when adjudicating the right of the plaintiff to specific performance of the agreement, inevitably arose as a result of the consequence of the facts actually pleaded. 158.The situation that, according to Mr Lam, is said to give rise to the uncertainty of the parties’ agreement in the present case is not quite the same as that in Tsang Wing Man. Mr Lam has to base his argument on facts that were not already pleaded. He bases his argument on the evidence adduced during the trial. However, nothing directed the minds of the parties, Chen specifically, to the issue before evidence. The complaint of Chen is not unjustified. 159.Pleading point aside, the 2003 Agreement is said to be incomplete not because the parties failed to agree on an essential term. Nor is it said to be uncertain because the agreement was made to take effect subject to an uncertainty. Mr Lam relies on World Food Fair Ltd v Hong Kong Island Development Ltd (2006) 9 HKCFA 735 at §35 for the proposition that whether the parties intended to enter into a concluded contract is a matter to be looked at objectively at the time when the contract was made. Whilst this must be accepted as a matter of principle, it should be noted that World Food Fair Ltd involved as a matter of fact the failure of the parties to reach any written or final agreement on the essential terms of a lease such as the commencement of the term or rent free period or option to renew. 160.Mr Lam also relies on Rafsanjan Pistachio Producers Co-operative v Kauffmans Limited, QBD (19 December 1997) for the proposition that post-contractual conduct of the parties is admissible as evidence in respect of the existence of a binding agreement, but not the construction of the agreement. Again, this must be accepted as a matter of principle. However, it should be noted that Rafsanjan Pistachio involved as a matter of fact a purported agreement under which the price was left to be agreed before each delivery of goods. The terms as recorded in the 10/1/2003 Confirmation did not suggest such defect. What Mr Lam is referring to is the evidence of Chen that he would be prepared to re-negotiate with Wong, if the listing plan of Hawkins’ shares (through Yeung) went ahead (and thus Wong could not regain them) contrary to the parties’ expectation or if Wong somehow decided to sell the shares to another party. I do not agree that Chen’s evidence in respect of what course he might be prepared to consider taking subsequent to the conclusion of the agreement could be turned round as factors affecting the completeness or certainty of the agreement. 161.Unlike the decided cases relied on by Mr Lam, there is no suggestion that such possible alternative course that Chen said he might consider taking were matters of mutual contemplation, let alone consensus, of the parties attaining to their legal rights at the time when the agreement was concluded. Unlike the situation such as that in Tsang Wing Man, there was no issue of validity or completeness of the agreement. Any inability of Wong to transfer the 80% Hawkins’ shares would be prima facie breach of agreement. Whether or not Chen would in that event consider any recourse other than enforcing his legal rights under the 2003 Agreement would be quite another matter (for him alone). 162.I do not agree that the contention that 2003 Agreement failed for being incomplete, even if entertained, should succeed. 163.Uncertainty of the terms is also raised. The transfer promised by Wong was said to cover 80% of each of Shunfeng, Hawkins and Shunde Quanshun. However, since Hawkins owns 80% of Shunfeng, 80% of Hawkins would only entitle Chen to 64% of Shunfeng. This is also raised as a feature of inherent improbability of Chen’s case. 164.There is no specific plea in defence that the 2003 Agreement, if proved, would fail for uncertainty on this or any other basis. Further, the court is not supposed to strike down an agreement unless the uncertainty is real beyond resolve. In the present case, this is not merely a matter of construction of a written contract, where extrinsic evidence has limited relevance. This was one oral agreement evidenced in writing. Chen admitted the oversight about the precision in this respect on the part of him and Wong at the time. However, there was no uncertainty about that between them, particularly when, according to Chen, Wong represented during their meeting in February 2011 that the transfer to be effected should really be that of the shares in the Mainland company of Shunde Quanshun and the Hong Kong company of Hawkins. As mentioned, Chen acted accordingly afterwards. Mr Wong for Chen accepts that insofar as Hong Kong company is concerned, it would be discharge of Wong’s obligation under the 2003 Agreement by the transfer of 80% shareholdings in Hawkins. This is the key basis of Chen’s claim in the present action, about which no party has raised uncertainty until submissions. 165.I do not find that the alleged uncertainty raises any issue of inherent probability of intention to enter into a binding agreement or of enforceability either. 166.Wong (and Line Power and Trengei) contends that Chen’s claim is any event time-barred. K1. Accrual of cause of action 167.There is no dispute that upon conclusion of the 2003 Agreement, Wong became trustee in that he held Hawkins’ shares on (constructive) trust to the extent of Chen’s agreed entitlement pending their actual transfer pursuant to the agreement: see Mortgage Business plc v O’Shaughessy [2014] 3 WLR 1163 at 1179-1180; Cenac & Ors v Schafer (St Lucia) [2016] UKPC 25 at §14. There is no dispute that in case of breach of agreement or trust, the cause of action for breach arose upon breach: see Lewin (above) at §44-034. Mr Lam points out that since Chen’s case is that Wong has failed to transfer Hawkins’ shares to him ever since the conclusion of the 2003 Agreement, the breach occurred more than 6 years before the commencement of the present action in 2012. 168.I do not agree. As discussed above, it was the parties’ mutual understanding at the time when the 2003 Agreement was entered into that Hawkins’ shares were the subject matter of the listing plan and the related litigation between Wong and Yeung. The litigation between Wong and Yeung over the control over Hawkins’ shares was not concluded at the first instance until April 2006 and on appeal in January 2007. Indeed, Chen had sought that the transfer to be realized since 2004. However, there was no suggestion that Chen had actually ever made time of the essence by any ultimatum for the transfer of the shares, which, if not met, would be treated by him as breach, during the interim. The actual conduct on the part of Wong thereafter, which amounted to disposition of Hawkins’ shares (albeit unknown to Chen) was the entering into of the 2008 S&P Agreement. 169.In the circumstances, the breach on the part of Wong took place when he entered into the 2008 S&P Agreement at the earliest. The explicit response to Chen’s demand first came by way of letter from CLCMC dated 18 April 2011 denying Chen’s claim. Either way, the action commenced in 2012 is within the 6-year time limit. Mr Lam’s reference to Chen’s rights to enforce the 2003 Agreement at any time after the agreement was entered into does not align with the objective view of the circumstances for the purpose of ascertaining the accrual of the right of action for breach on the part of Wong. K2. Section 20 of the Limitation Ordinance 170.Insofar as the claim is based on recovery of trust property (or proceeds thereof) is concerned, section 20 of the Limitation Ordinance, Cap 347 (“LO”) provides that:
171.Section 20(2) provides for the general position, which is expressly subject to subsection (1). Tempted as Chen may be by the circumstances of the case, he has refrained from actually pleading and taking upon himself the heavy burden of establishing fraud. What remains is the applicability of section 20(1)(b), regarding which there is indeed dispute between the parties. 172.Insofar as Hawkins’ shares (to the extent of 80%) were trust properties are concerned, there is no question of them being in the possession of Wong or converted to his use when the present action was commenced. There is no dispute that Chen is in principle entitled to a proprietary claim on the proceeds of disposition of Hawkins’ shares by Wong to Yu/Bao’s camp: see Luxe Holdings Ltd v Midland Resources Holding Ltd [2010] EWHC 1908 (Ch) at §§31-34; 44; Lewin at §10-009; Underhill and Hayton, Law of Trusts and Trustees (19th ed) at §31.24. 173.I do not agree with Mr Lam that Chen has no pleading basis for claiming effectively proceeds of the disposition of the shares in breach of trust. Apart from declaratory relief, Chen has pleaded his claim for damages and/or equitable compensation to be assessed, and/or account of profits against Wong. Indeed, Chen queries the alleged full payment of the consideration by Yu/Bao’s camp to Wong pursuant to the 2008 S&P Agreement and the 2011 S&P Agreement, particularly prior to Yu/Bao’s camp’s notice of Chen’s prior equitable interest in the shares. However, that does not deprive Chen of the alternative basis of his claim, as at the commencement of this action, against Wong to the extent that such consideration (according to Wong) was proved to have been received by Wong: see Sun Tian Gang v Changchun High & New Technology Industries Development Parent Co [2018] 5 HKLRD 485 at §§18-29. It should also be noted that the bulk of proceeds said to be received by Wong’s camp was made subsequent to the commencement of action. K3. Contract out of limitation 174.Chen places reliance on the term of the 2003 Agreement as recorded in the 10/1/2003 Confirmation that entitled him to claim, enforce and dispose of his rights under the agreement at any time. They effectively contracted out of the application of any limitation period to Chen’s right of claim, Chen contends. 175.Mr Lam refers to Chitty on Contracts at §28-109, which says that any agreement not to plead to statute is valid if supported by consideration and will be given effect to by the court. However, he argues that the above term affording Chen the right to enforce and dispose of the rights under the agreement at any time was not supported by separate consideration. I do not agree. This was but part of the terms of the 2003 Agreement, which, as found, was supported by good consideration. The notion of separate consideration for any term of a non-severable agreement has no sound legal basis. 176.Mr Lam argues that the 2003 Agreement, as a matter of construction, contained no such agreement. This argument is two-fold. The first aspect of his argument is that no express reference was made to the LO. This argument is not an impressive one. In my judgment, so long as the parties agreed to a term that guaranteed the right of action without time limitation, any contrary provisions, known or otherwise, must be taken to have been contracted out. This is a matter of express contractual intention, which, if clear in the circumstances, must prevail unless the law forbids. This must also be the sensible view, in view of the homemade nature of the agreement by parties including one who is essentially a Mainlander. It is the effect of what the parties expressly agreed. That they probably did not even know the limitation period under Hong Kong law is irrelevant. 177.The second aspect of Mr Lam’ argument is that the reference to the right of Chen to enforce and dispose of his rights under the agreement related to Hawkins’ shares only, and did not cover any other right or relief that he may become entitled to as a matter of law. I do not find the argument to be impressive either. The rights referred to were of course related to the transfer of Hawkins’ shares, which could be specifically enforced. However, it defies the reasonable understanding of the contracting parties to suggest that they cared to specifically agree to contract out of any time limitation for the enforcement of Chen’s rights but somehow with the intention of confining that to a specific remedy whereas his right to other remedy, cumulative or alternative, for infringement of the same rights arising out of precisely the same facts would be subject to different treatment. 178.Lastly, Mr Lam argues that the agreement in any event does not bind Line Power and Trengei, as they were not parties. In other words, the limitation defence is still open for them to run. In my judgment, such argument fails to recognize that these corporate vehicles were for all intents and purposes nominees of Wong at all material times. They never possess right or defence independent from that of Wong in the present case. 179.Wong alleges laches on the part of Wong in taking legal action, which renders it unjust for the court to order remedy against him in favour of Chen. The length of the delay and the nature of the acts done during the interval might affect either party, and cause a balance of justice or injustice to take one course or the other, so far as it relates to remedy: see Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 239-240; Snell’s Equity (33rd ed) at §5-011. 180.The fact was that Wong himself was not in a position to deal with Hawkins’ shares until after the litigation with Yeung in respect of the control over those shares had been adjudicated upon by the court. As mentioned, the adjudication in the first instance came in April 2006 and the appeal from that was disposed of in January 2007. However, what happened right after that was that Wong went behind Chen’s back to dispose of the shares to Yu/Bao’s camp in 2008, notwithstanding the pre-existing equitable interest of Chen. The scheme of the matter was such as to defeat Chen’s equitable interest in the shares. Chen had been kept in the dark. It therefore lies ill in the mouth of Wong to suggest that equity should protect him from Chen’s claim as a result of the alleged delay on the part of Chen in pursuing against him at any time prior to 2008. 181.Insofar as the physical and mental condition of Wong are concerned, the argument focuses on his becoming incapacitated from giving evidence and thus the impossibility of a fair trial. In principle, prejudice in terms of compromising the opportunity of a fair trial as a result of delay of the plaintiff has been recognized: see for instance Beijing Hantong Yuzhi Convention Centre Ltd v Lao Yuan Yi [2018] HKCFI 1030 at §107; Man Yuet Fong & Ors v Man Kam Cheung Richard [2019] HKCFI 89 at §47. How the equity principles are applied must depend on the circumstances of each case. 182.The fact was that Wong suffered stroke in 2005, and the psychiatrist’s evidence was that his mental state has deteriorated since 2010. It is however interesting to note that the instances of disposition of the shares by Wong, as all documented, came about after Wong’s stroke (in 2005) and when his condition was said to start deteriorating (in 2011). The defendants, including Wong himself, are now seeking to uphold the validity of all those dealings. One wonders how Wong may at the same time claim that Chen’s alleged delay since 2008 has left him in a position without a fair trial because of his physical and mental condition. It is more interesting to note from the evidence during the trial that the precise timing of Wong’s mental condition reaching the incapacitating stage might not be too far before the commencement of the present action. That left a window between 2008 and 2012. It is hard to put the blame on Chen objectively. Insofar as the complaint about loss of documents and accounts for the defence is concerned, it was never the case of Wong as to the facts. 183.In my judgment, the broad principles of equity are not fairly expected to be deployed in this manner for the benefit of Wong in the circumstances. Wong simply did not come to court with clean hands. M. WHETHER LEAD SUCCESS AND SUPERFINE TOOK FREE OF CHEN’S EQUITABLE INTEREST IN HAWKINS’ SHARES 184.On the basis that Chen became entitled to equitable interest in Hawkins’ shares to the extent of 80%, Lead Success and Superfine contend that they took free of Chen’s equitable interest because they were bona fide purchasers of the legal interest in the shares without notice of Chen’s equitable interest. M1. Bona fide purchaser for value without notice 185.As to notice, this may arise under different circumstances (see Papadimitrious v Credit Agricole Corporation and Investment Bank [2015] 1 WLR 4265 at §§14-20):
186.Bona fide refers to good faith, which is independent from the element of notice: see BBMB Finance (Hong Kong) Ltd & Ors v Osman & Ors [1995] 2 HKC 692 at 696. However, it is difficult to image a case in which the purchaser does not have notice and yet is not acting in good faith: see Ng Luk Mui v Shiu Tsun Wai Vincent [2011] 5 HKLRD 707 at §35. 187.Much is said about whether Chen is effectively contending that the disposition to Lead Success was a sham transaction or even a specie of fraud. However, as mentioned, one just needs to approach the dispute in accordance with the parties’ actual pleaded case. What Chen contends is that the disposition, notwithstanding his equitable interest in 80% of Hawkins’s shares as a result of the 2003 Agreement, was made to defeat his interest. Chen continues to argue that Lead Success was not able to achieve that for its not being “equity’s darling” in the circumstances of the case. I see no need to labour on the nature of the disposition as a sham as apparently the understanding of Wong’s camp. Chen has refrained from actually put forward a case of fraud, which for his purpose in the present action is also unnecessary. 188.The burden of proving the elements of the notion of bona fide purchaser for value without notice rests on the transferee: see Chan Chun Chung v PBM (Hong Kong) Ltd [2005] 1 HKLRD 565 at §14; Lewin at §§41-117 to 118. 189.In September 2003, there was the Huolianzhai Loan Agreement for a loan of RMB20 million with 50% of Hawkins’ shares as security for repayment in case of default on 14 September 2005. Wong caused that to be made, notwithstanding the 2003 Agreement. At one point, Madam Liu denied her part in this loan agreement, but was flatly contradicted by her signatures on the agreement and the board resolution of Shunfeng dated 6 September 2003 approving such loan. 190.According to Zhang, who was at one time a director of Lead Success, Yu was the representative of Huolianzhai. This also explains why Yu would write to Wong in 2005 concerning the 10/1/2003 Confirmation as discussed above. It is also said that Wong gave instruction for a copy of the certificate of incorporation of Hawkins to be forwarded to Yu on or about 18 September 2005. According to Chen, such copy was found amongst the leftover documents from Shunfeng’s old office, which were provided by Zheng to him in 2009. That was apparently a copy received by fax, on which such instruction to have it forwarded to Yu was written and signed by Wong. Whilst the authenticity of the document is disputed, there was no real issue of forgery of the handwriting and signature on the document. 191.In court, it was Yu’s evidence that Bao had sought his assistance by 2005. After the litigation between Wong and Yeung had commenced concerning the regaining of control over Hawkins in 2004, concern about the position of Wong as a result of such litigation and his loss of control of Shunfeng’s iron ore caused Bao to ask Yu to make inquiries. 192.All evidence considered, including that discussed above, I am convinced that Wong and Yu knew each other at least by 2005, and I reject Yu’s evidence and, to the extent it was to corroborate Yu in this respect, the evidence of Madam Liu and Zhang, that Wong and Yu came to know each other only later. I say at least by 2005 because there is evidence suggesting that Yu was, amongst others, the legal representative of 沈芳園生態農業有限責任公司 in Beijing (“Beijing SFY”), of which Shunfeng was the sole investor, in 2003. This is disputed by Yu/Bao’s camp. This prompted Yu/Bao’s camp to seek to adduce documentary evidence when the trial commenced. Zhang also gave evidence in this respect. Suffice for me to say that such evidence, to the extent that it could be tested during the trial, is far from clear. That said, for Chen’s purpose in this action, there is no real need to establish this Beijing SFY issue as a matter of fact as he does not need to push the timeline that Wong and Yu came to know each other earlier than September 2005 as found above. 193.The correspondence between Yu and Wong in September 2005 discussed above is self-evident of its significance both in terms of Yu’s notice about the equitable interest of Chen in Hawkins’ shares on the basis of the terms set out in the 10/1/2003 Confirmation as well as the backdrop for understanding the subsequent steps taken by these parties in connection with the transfer of Hawkins’ shares. 194.The 2006 Loan Agreement, which again involved Hawkins’ shares, came about right after the delivery of the first instance judgment in HCA 1653/2004 in Wong’s favour. Everest, the lender, was admittedly the nominee of Bao, and Yu signed on its behalf. In the subsequent 2008 S&P Agreement, Everest was recited as being Yu’s company. That Mr Wong would describe that as evidence of attempt to keep Bao out of the record is objectively correct. In the same year, attempt was made to make Yu the general manager of Shunfeng. The relevant resolution was passed in a meeting without Chen’s presence. According to Chen, he gave his proxy at the request of Wong without knowing such proposed resolution. Attempt was also made to make Yu the legal representative of Shunfeng. However, all those did not work. Finally, in January 2007, Yu was appointed as the general manager of Shunfeng, and Chen was removed as a director. Wong’s case is that this was arranged to fence off the harassment created by Yeung in the Mainland. Chen was not present at that meeting. Chen, according to him, again gave his proxy. 195.Whilst Huolianzhai had once initiated legal proceedings in the Liaoning court to enforce the Huolianzhai Loan Agreement against Shunfeng in 2006, and managed to obtain property freezing order against Shunfeng and Hawkins to the extent of the debt, it is said to have excused Shunfeng from liability to repay the debt on terms. This was also how the 2008 S&P Agreement came about. As mentioned, Yu signed the 2008 S&P Agreement on behalf of the transferee, Lead Success, which was apparently a shelf company acquired by Zhang for Yu. Yu was the 99% shareholder and its director. The transfer of Hawkins’ shares to Lead Success was subsequently documented on 12 September 2008. However, on the same day, Yu is said to have executed a declaration of trust in respect of Hawkins’ shares in favour of Superfine, the BVI company. As mentioned, Superfine was beneficially owned by Bao. 196.As mentioned above, Chen went to Shunfeng and met with Yu and Zhang in September 2009. Chen set his mind on pursuing his entitlement under the 2003 Agreement. Given the history up to these meetings as mentioned above, there was no reason why Yu would have expected any change on the part of Chen. Indeed, according to Chen, when he tried to show Yu the 20/1/2003 Confirmation via his notebook computer, Yu’s response was that he knew what Chen was talking about. As found above, Yu did know by September 2005. In court, Yu also said that Chen mentioned the debt of RMB20 million odd owed by Wong, which could only be referable to the 2003 Agreement. He then had Zhang to follow up and meet with Chen. 197.According to Zhang, Chen only showed him the 9/1/2003 Confirmation during their meeting. This, Chen confirmed, was the fact. Chen explained such course with reference to his concern about the impending investigation by the authority into the affairs of Wong and Shunfeng initiated by Yeung in Liaoning. For that, Wong undisputedly had already fled to Hong Kong. According to Chen, he feared showing the 10/1/2003 Confirmation, which might just suggest his entitlement to the majority interest in Shunfeng. According to Chen, people from the authority did visit his hotel room the night after the meeting with Zhang, which confirmed his concern. The typewritten part of the Work Record (ie outside the time organiser), Chen had recorded his account of his meeting with Yu and Zhang then. 198.Insofar as the dispute as to whether or not Chen and Yu discussed Chen’s entitlement under the 10/1/2003 Confirmation is concerned, one perhaps need not labour on the probability of Chen’s above explanation. This is because Yu’s own evidence mentioned above suggests that the two could only be discussing that at their meeting even before the meeting between Chen and Zhang. The very fact that Yu heard Chen mentioned the RMB20 million odd debt owed by Wong to him, as mentioned, could be referable to the 10/1/2003 Confirmation instead of the 9/1/2003 Confirmation. 199.The evidence in respect of the events up to this point of time suggests that Yu came to be aware of Chen’s claim of interest on the basis of the terms of the 10/1/2003 Confirmation by late 2005, ie before the 2008 S&P Agreement. M4. Admitted notice by March 2011 200.In December 2010, Yu was arrested by the Liaoning authority, and has since been detained. The 2011 S&P Agreement then came about. Reference was made to the purchase of Hawkins’ shares pursuant to the 2008 S&P Agreement by Lead Success as trustee for Superfine. Now, Superfine instructed Lead Success to transfer Hawkins’ shares to it. Somehow the vendor was not Lead Success but Wong’s camp. 201.Chen’s pursuit for the transfer of 80% of Hawkins’ shares continued. As mentioned, he came to meet Madam Liu and Wong in Hong Kong in February 2011. According to Chen, he took Wong’s answer, which suggested that they should proceed to transfer the shares in Shunde Quanshun first. However, time passed without follow up action. According to Madam Liu in court, Yu/Bao’s camp should also know about Chen’s request for the transfer of Hawkins’s shares in around that time. 202.On 7 April 2011, Chen sent under cover of his letter recording the meetings with Wong and Liu in February 2011 a draft shareholders’ resolution and a draft transfer agreement in respect of the shares of Shunde Quanshun pre-signed by Chen. As mentioned, I am not impressed that these were recently created documents for the purpose of litigation. Their existence, I find, supports the truth of what was stated in Chen’s letter enclosing these drafts, including what were discussed during the meeting with Wong and Liu and how he came to put forwards these draft conveyances. 203.What Chen did not realise then was the existence of the 2008 S&P Agreement and the 2011 S&P Agreement, the latter being entered into just 5 days before his letter to Wong mentioned in the preceding paragraph. As mentioned, Superfine was a BVI company, which served as the nominee of Bao. Referring to Lead Success entering into the 2008 S&P Agreement as trustee for Superfine, Superfine now instructed Lead Success to transfer Hawkins’ shares to it. 204.Then came CLCMC’s letter to Chen dated 18 April 2011 denying any loan at all from Chen or his claim. The letter made no suggestion that they were replying to any particular prior letter or written demand from Chen. CLCMC simply referred to the instruction of Wong and the 10/1/2003 Confirmation. They took the initiative to state their stance in writing right after the execution of the 2011 S&P Agreement. 205.As mentioned, Chen took legal action against Shunde Quanshun in the Liaoning court 3 months later. Wong and Madam Liu were joined as defendants. According to Chen, he discontinued the proceedings for practical reasons. First, Shunde Quanshun has in fact ceased operation and its licence revoked since March 2011. Second, the dispute in respect of authenticity of the key documents, as in the present action, could not be resolved due to the lack of handwriting samples of Wong for forensic examination and conclusive finding. He took the view that he could find stronger evidence. 206.Chen contends that Lead Success and Superfine must have notice of Chen’s equitable interest in Hawkin’s shares pursuant to the 2003 Agreement when the 2008 S&P Agreement and the 2011 S&P Agreement were entered into. Mr Li accepts that his clients had notice of Chen’s equitable interest by March 2011 prior to the 2011 S&P Agreement but not before. I find that Lead Success and Superfine must have such notice through Yu of Lead Success, and Lead Success being the nominee of Superfine, which represent the interest of Bao as the ultimate interest holder of these corporate vehicles and eventually Hawkin’s shares. Such notice existed by September 2005 at the earliest and communicated by Chen in person to Yu and Zhang in 2009. By March 2011, the entire Yu/Bao’s camp admittedly had notice of Chen’s claim of interest. Together with Wong’s camp, they proceeded to enter into the 2011 S&P Agreement with such notice. I see no other possible conclusion in the circumstances of this case. 207.It is interesting to note that the transfer to Lead Success and Superfine was reminiscent of the scheme mentioned by Wong in the 6/9/2005 Letter, which, as said to be the advice of CLCMC, was believed to able to defeat any claim the Chen might launch for recovering the shares in Hawkins. M5. Notice before full payment 208.Chen further contends that notwithstanding the actual conveyance of legal interest in the shares, Lead Success and Superfine were affected by notice of Chen’s interest in Hawkins’ shares before the full consideration for the transfer to them had been paid. Mr Li disagrees with such proposition. 209.As mentioned in the discussion in respect of past consideration in connection with the making of a legally binding contract, an additional perspective in this connection, namely, the defence of bona fide purchaser for value without notice, will be that of the concept of fully executed consideration. 210.Mr Wong refers to Lewin (above) at §41-118 where the author wrote that “consideration of money must actually be paid, it seems in full”. Story v Windsor (1743) 2 Atk 630 was cited. One issue in that old case was sufficiency of pleading. The insufficiency was said to lie in the denial of notice at or before the execution of the deeds but no averment that the purchase money was paid before notice. Then Megarry and Wade at §8-008 was cited. 211.In the above paragraph in Megarry and Wade (which was reproduced in its 9th edition at §5-008), the author wrote that if the purchase is for money consideration, the purchaser must actually pay all the money before receiving notice of the equitable interest. If such notice is received before the money is paid, no obligation or security for its payment will be enforceable. The mere execution of a conveyance of a real estate before notice is received, without payment of the money, will not suffice. The case of Story (above) was again cited, together with the following two cases. 212.In Tourville v Naish (1734) 3 P Wms 307, the plaintiff had an equitable lien on an estate which the defendant subsequently purchased. The latter claimed no notice of the plaintiff’s interest at the time of making his purchaser. Apart from down payment, the defendant had also paid the balance of the purchase price by way of bond which was not due before he became aware of the plaintiff’s interest. The court found there was proof of notice mentioning the plaintiff’s equitable lien prior to the purchase, which would be sufficient (for avoiding the subsequent purchase). However, he continued to say, from the purchaser’s perspective, that under the circumstances now that he had notice of an incumbrance, the court would stop payment of the money due on the bond for the balance of the purchase price. Inherent in the decision of the court was that the purchaser would be unable to take free from the incumbrance and hence his release from the payment obligation. 213.In Taylor Barnard v Tozer [1984] 1 EGLR 21 at 22, the plaintiff received notice of the defendant’s equity between the date of the contract to purchase the lease and the date of the assignment when the purchase price was paid. The court considered obiter whether the plaintiff was a bona fide purchaser for value on the date when he acquired the equitable interest by virtue of entering into the contract. The court answered in the negative on the ground that full price was yet to be paid on that date. Tourville (above) was cited in support. 214.Story and Tourville were cited by Goff and Jone, The Law of Unjust Enrichment (9th ed) at §29-09, when the author wrote that if the purchase is for money consideration, the money must have been paid in full before the purchaser receives notice of the equitable interest, since an obligation to pay will be unenforceable once the purchaser has notice. The author cited a further case, Federal Court of Australia in the recent case of Great Investments Ltd & Ors v Warner (in liq) [2016] FCAFC 85. 215.In Great Investments Ltd, a director, in satisfaction of his own personal debt owed to various parties, transferred certain bonds to them including the plaintiff. The liquidator of the director’s company claimed for the return of the bonds against these parties, who resisted by arguing that they were bona fide purchasers for value without notice. The court held that they were not. The reason was that the bonds were received on the understanding that they only discharged the debt owed by the transferring director to the extent that money was realized from those bonds or to the extent to which they in fact retained their value. Story and Tourville were referred to as support for the proposition that value is not provided for the purpose of the doctrine where a promise is executory instead of executed. 216.In so holding, the Australian court in Great Investments Ltd noted another case of Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, specifically at §188. There the issue was where the purchase of properties was partly financed by a mortgage advance on the property belonging to the purchaser, which the purchaser personally covenanted to repay, whether the purchaser would be treated as having paid the consideration by her own money. The court held that she was. The different modes of payment of the consideration in Farah Constructions Pty Ltd and Great Investments Ltd explain the remark of the court in the latter case that any doubt, in the circumstances of the former case, had not been extended to suggesting that an unfulfilled, conditional forgiveness of debt could be sufficient value as that in the latter case. 217.The above analysis was again endorsed in Snell’s Equity (33rd ed) at §4-027, where the author wrote that if notice of prior equitable interest was received before all the money was paid, even after the conveyance was executed, the purchaser remained subject to the equitable interest. If he received notice after the money was paid but before the legal estate was vested in him, he remained subject to the prior equitable interest. See also Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed) at §8-250 for the same explanation. 218.In Goff & Jones (above) at §29-09, the authors, in endorsing the same principle, explain that an obligation to pay will be unenforceable once the purchaser has notice. For the purpose of the defence of bona fide purchaser for value without notice, the relevant value must have passed under a valid contract between the relevant parties before notice of the prior equitable interest. This reflects the decision of Tourville (above). 219.In Hong Kong, Tourville was applied in Kwok Siu Lau v Kan Yang Che (1913) 8 HKLR 52. 220.Lewin (above), while stating the above principle without any intention of stating any contrary view, commented about a situation where someone agrees to purchase property worth £1,000 for £1,000, and pays £900, he does not have the defence, while if he agrees to purchase the same property for £100 and pays that, then he has a defence. The author found that to be striking. However, it does not appear that one could take such comment too far, as Mr Li seems to be doing. The application of the principle is at the same time guarded by the consideration of sufficiency of consideration. So long as the consideration is valuable, irrespective of whether or not it is adequate, the comparison made in such comment does not assist, let alone cast doubt on the principles as such. 221.What I said in the preceding paragraph, if necessary, is also manifested in the case of Ng Luk Mui v Shiu Tsun Wai Vincent [2011] 5 HKLRD 707, which is cited by Mr Li. In that case, the appellate court reiterated (at §32) that the words “for value” in the context of a purchase for value does not necessarily mean full value. It means any consideration in money or money’s worth. It does not have to be adequate provided it is not nominal. To defeat a prior equitable interest, a purchaser must have given value but he does not have to give full consideration for the court will not enquire into adequacy of the consideration. So understood, the case of Ng Luk Mui was about the issue of sufficiency of consideration. It is not relevant to the question of whether notice of prior equitable interest after execution of the sale and purchase agreement but before full payment of the agreed consideration will affect the purchaser – apparently the very purpose for which Mr Li intends to cite this case. 222.Mr Li also relies on China Construction Realty Ltd v Luck Dragon Ltd & Ors HCA 1237/2012 (1 November 2017). However, there the court expressly found that the total purchase price was paid by way of discharge of debts and security as a matter of fact. The issue of executed consideration by full payment prior to notice of prior equitable interest was not raised. 223.As mentioned in the discussion in respect of the issue of consideration in the context of whether the 2003 Agreement was binding and enforceable, the understanding of Mr Lam of the law regarding executed consideration in the form of full payment by the purchaser prior to his notice of the prior interest actually aligns with that of Mr Wong. I agree with Mr Wong on the principles. 224.Now to the fact of payment for the transfer of Hawkins’ shares to Lead Success and Superfine. On behalf of Chen, the alleged payments of the consideration for the transfer of Hawkins’ shares are challenged for the absence of documentary proof and the inconsistency between the alleged instalments of payment and the available receipts produced. Indeed, for transaction of such nature and the amount at stake, such inadequacy of documentary evidence is the least expected especially when the witnesses, ie Madam Liu and Zhang, testified that the available receipts were signed at the office of CLCMC. Records, such as those from CLCMC, on behalf of Wong’s camp, and Zhang’s law firm, on behalf of Yu/Bao’s camp, would reasonably be expected to have existed. However, the oral evidence of Madam Liu and Zhang left it unclear, if not self-contradictory, as to whether there is fair basis for condoning the lack of contemporaneous documentary records of the alleged payments. 225.The above query aside, even according to Yu/Bao’s camp, the full payment had not been made until October 2014. The fact was that Lead Success had not complied with the agreed schedule of payment of the consideration under the 2008 S&P Agreement. Nor had Superfine under the 2011 S&P Agreement. Zhang in his evidence confirmed that. Yu was arrested by the end of 2010. Then came the request for reduction in the purchase price from RMB130 million to RMB115 million, which Madam Liu and Zhang in their evidence confirmed to have happened, and about which Wong apparently did not feel happy. 226.By March 2011, only RMB41.34 million had been paid. Even considering the position of Superfine in absolute isolation, it had actual notice of Chen’s claim upon its being joined as a defendant in this action in February 2013. On any account, Yu/Bao’s camp had notice of Chen’s claim of equitable interest in Hawkins’ shares prior to full payment of the agreed consideration for the transfer of those shares to its camp as a matter of fact. 227.As mentioned, supplemental agreements were entered into in 2013 and 2014 apparently on the pretext of adjustment of the timetable for payment of the consideration under the 2008 S&P Agreement as replaced by the 2011 S&P Agreement. The 2014 Supplemental Agreement on its face served to put the remaining balance of the consideration for the sale and purchase of Hawkins’ shares into an escrow account held by CLCMC. 228.As mentioned, in response to Chen’s pursuit for the transfer of 80% Hawkins’ shares pursuant to the 2003 Agreement, Wong during their meeting in February 2011 suggested Chen to proceed with the transfer of the shares in Shunde Quanshun first, whilst withholding from Chen the existence of the 2008 S&P Agreement. While the 2008 S&P Agreement covered the sale and purchase of Hawkins’ shares by Wong’s camp to Lead Success, it already entailed the intended vesting of the beneficial interest in the shares in Superfine, with Bao being the ultimate owner concealed from the outside world. 229.Then while Chen acted according to what he was given to understand during the meeting with Wong and Liu in February 2011, which was evidenced by the draft resolution and transfer agreements eventually sent to Wong on 7 April 2011, the 2011 S&P Agreement was being prepared behind his back. This again happened when Yu/Bao’s camp was admittedly aware of Chen’s claim of interest in Hawkin’s shares pursuant to the 2003 Agreement. 230.Within the 2 months after CLCMC had also been alerted to Chen’s claim of interest in Hawkins’ shares and the documentary proof, they apparently carried out instruction to prepare the 2011 S&P Agreement and the related documentations. The documentations were said to have been prepared sloppily and in a rush. On behalf of Chen, it is pointed out that not only the timing, but also the documentations so prepared tend to demonstrate their fast gear towards perfecting the scenario of the further disposition of Hawkins’ shares by Lead Success to a (remote) third party. This, it is argued, also shows the reality that even the parties to the 2008 S&P Agreement considered the transfer of Hawkins’ shares to be incomplete, and hence the need for the 2011 devices. 231.Indeed, somehow the deed of transfer was undated and the consideration unspecified. The bought and sold notes as well as instrument of transfer were dated April 2011, but not stamped or registered until 2012. In the notifications filed by CLCMC with the Companies Registry in April 2012, the registered holder of Hawkins’ shares remained to be Lead Success. This also explains why Chen was not aware of the further transfer of the shares to Superfine when he commenced the present action. 232.Shares pledge agreement was also executed in April 2011, whereby Superfine pledges Hawkins’ shares to Line Power and Trengei. However, it is pointed out that, as mentioned, the full purchase price had yet to be paid by Line Success or Superfine as well as the bought and sold notes and instrument of transfer had yet to be stamped. Therefore, Superfine was in fact not in a position as a full legal or beneficial owner to pledge Hawkins’ shares back. As far as the shares pledge agreement said to be executed together with the 2008 S&P Agreement is concerned, there was only such reference in the 2011 S&P Agreement. The agreement was never disclosed or produced, which caused the challenge that it did not even exist. Mr Wong submits that in any event, the shares pledge agreements might not have been devised without reason, and the reason is reflected by the pleaded case of Yu/Bao’s camp, that is proof of their full beneficial ownership of Hawkins’ shares and thus their position as “equity’s darlings”. 233.It is not that Yu/Bao’s camp did not seek to explain the setting up of two corporate vehicles and the further sale and purchase agreement in April 2011, with a view to dispelling any suspected calculation targeting Chen’s potential claim. However, the explanation is not easy to follow. Zhang admitted that it was he and his law firm which assisted in the setting up of Lead Success and Superfine on behalf of Bao for the purpose of entering into the 2008 S&P Agreement. He also became a director of Lead Success and later Superfine. He somehow claimed no understanding why Superfine, a BVI company, was set up for the purpose of holding the beneficial interest in Hawkins’ shares from the transaction, save that this was a popular or common practice (in Hong Kong). For Zhang who is a lawyer and personally involved together with CLCMC to claim such ignorance in the matter is incredible. 234.The pleaded case of Lead Success and Superfine is that the development subsequent to the 2008 S&P Agreement gave rise to the need for the parties to re-negotiate. Such development included the economic loss suffered by Shunfeng, and thus its value, as a result of first, the direction of the Liaoning authority in respect of the exploitation of part of Shunfeng’s iron ore mine; and second, the legal steps taken by Yeung and his company against Shunfeng in connection with his litigation with Wong over Hawkins’ shares. The alleged re-negotation led to the reduction in agreed consideration for the sale and purchase by RMB15 million. Evidence to that effect was given by Zhang as per his witness statement. The idea was allegedly to replace the 2008 S&P Agreement by the 2011 S&P Agreement. 235.When it came to Zhang’s evidence, a different understanding of why there was the 2011 S&P Agreement came about. According to him, the 2008 S&P Agreement concealed Bao as the real purchaser behind Yu and thus avoiding the reach of Yeung’s interference. However, circumstances changed upon Yu’s arrest in late 2010 on corruption charges, which rendered it necessary for Bao to dissociate himself from Yu and the revelation of Bao as the ultimate purchaser through the 2011 S&P Agreement. The different understanding was admittedly not pleaded. Nor was that covered by any witness statements on behalf of Chen’s opponents. In court, Madam Liu was unable to corroborate such explanation. 236.Insofar as concealing the identity of Bao was concerned, the setting up of the BVI company may seem to be unnecessary in 2008, as the shares in the hands of Lead Success pursuant to the 2008 S&P Agreement were already held on trust which would also be withheld from the public. Indeed, the declaration of trust over Hawkins’ shares by Lead Success was also not revealed in the 2008 S&P Agreement, but recited only in the 2011 S&P Agreement. Be it under either agreement, the contracting parties had agreed by its terms to keep the terms of the agreement, including the trust revealed in the 2011 S&P Agreement, confidential from third parties. In other words, keeping the purchaser to a single one such as Lead Success, and in terms of the 2008 S&P Agreement, would have achieved any intent regarding secrecy of the identity of Bao being the ultimate purchaser without the need for Superfine. 237.Insofar as revelation of the identity of Bao as the ultimate beneficial interest holder of the Hawkins’ shares is concerned, the public record that Lead Success (and thus Yu) was the holder of Hawkins’ shares remained even after the 2011 S&P Agreement. The alteration was not filed until 2013. The alleged effect of revelation of Bao was far from immediate. Further, it is common knowledge that the constitution, and thus the identities of the beneficial owners, of Superfine, being a BVI company, would not be open to the public. In other words, there would still be no such intended revelation of Bao after the 2011 S&P Agreement. In court, Zhang added that if necessary, the 2011 S&P Agreement could be produced for the revelation. However, the confidentiality provision in the agreement, as mentioned above, would entail the consent of the contracting party, ie Wong’s camp, and any further evidence from Zhang with a view to showing how that might be got round would be more speculate than reliable. 238.Considering the development as set out above, one cannot help becoming skeptical about the decision and timing of those steps being taken by Chen’s opponents as a design to address Chen’s claim known by them. This was reminiscent of the theme of deploying the notion of bona fide purchase for value without notice advised by CLCMC to overreach any claim that Chen might launch, which Wong referred to in the 8 September 2005 Letter to Yu discussed above. However, Mr Li argues that this did not actually proceed exactly as per script. I agree with Mr Wong that such argument would not assist Yu/Bao’s camp, insofar as the issue of good faith is concerned. Setting up both Line Power and Superfine for the purpose of the transfer(s) of shares definitely marked the beginning. Things might not develop thereafter as contemplated. Yet, they probably also did not contemplate that the transfer documentations in 2011 would be executed in such sloppy manner beforehand either. 239.All matters considered, including those discussed above, I am not satisfied that Lead Success and Superfine can take advantage of the protection of bona fide purchaser for value without notice so as to take Hawkins’ shares free of Chen’s prior equitable interest. N. KNOWING RECEIPT; UNCONSCIONABILITY 240.Chen also pursues against Lead Success and Superfine as the transferees having knowingly received Hawkins’ shares as trust property belonging to him beneficially. 241.The general requirements for the finding of knowing receipt are: (1) the property subject to a trust; (2) the property is transferred; (3) the transfer is in breach of trust; (4) the property (or its traceable proceeds) is received by the defendant; (5) The receipt is for the defendant’s own benefit; and (6) the defendant receives the property with knowledge that the property is trust property and has been transferred in breach of trust, or if not a bona fide purchaser of a legal estate without notice, retains the property, or deals with it inconsistently with the trust, after acquiring such knowledge: see Lewin (above) at §§42-001; 42-022; 42-052; Independent Trustee Services Ltd v GP Noble Trustees Ltd [2010] EWHC 1653 (Ch) at §48. Where the defendant is enriched, without justification, at the expense of the beneficiaries, the person is personally liable to account as a constructive trustee: see Lewin at §42-023; 42-001; 7-022. 242.It follows from the finding in favour of Chen against Wong’s camp that Hawkins’ shares (80% of which) were subject to a vendor-purchaser constructive trust held by Wong in favour of Chen. The Hawkins’ shares were transferred in breach of trust. The shares were received by Lead Success as nominee of Superfine as the beneficial owner under the 2008 S&P Agreement, and the legal title to those shares were subsequently transferred to Superfine under the 2011 S&P Agreement. The first four requirements mentioned above are satisfied. So is the fifth requirement, as the shares were received the own benefit of Lead Success and/or Superfine under the beneficial ownership and control of Bao. 243.As to the last requirement, the recipient’s state of knowledge should be such as to make it unconscionable for him to retain the benefit of the property received: see Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437; Lewin at §42-037. The following circumstances are relevant:
244.All matters considered, I am satisfied that Lead Success and Superfine are liable as constructive trustees on the basis of knowing receipt and assistance. 245.On the basis of the above findings, Chen proceeds against Wong for breach of trust. O1. Against Wong, Line Power and Trengei 246.Disposition of the shares in breach of trust entitles Chen to claim against Wong, Line Power and Trengei as constructive trustees. Mr Lam questions the value of granting the declaratory relief to that effect against Wong’s camp, considering that they relate to history and Hawkins’ shares are no longer in the hands of anyone of them. I do not agree. Declaration of such state of affairs cannot be objectionable, when that also found the basis for proprietary claim (ie tracing of the shares or their proceeds). For Chen’s entitlement to tracing: see Lake v Bayliss [1974] 1 WLR 1073 at 1075-1076; Lewin at §10-008. 247.Mr Lam questions the entitlement of Chen to an account of profits against Wong in these circumstances, relying on what the court said in Luxe Holdings Ltd v Midland Resources Holding Ltd [2010] EWHC 1908 (Ch) at §§47-54. As Mr Wong points out, this appears to be an inaccurate reading of the judgment in that case. That was a case concerning interim injunction. In the context of further sale of land or shares in breach of a subsisting sale and purchase agreement in respect of the same, the court there found that the purchaser under the agreement had a good arguable case in the form of a proprietary claim to the proceeds of sale subject to allowing for the balance of the purchase price that the purchaser would have had to pay under the agreement. This rendered the alternative way the purchaser put its case, namely claim for account of profits, academic. Nevertheless, the court proceeded to analyse this alternative claim for completeness. Such analysis proceeded on the assumption that (contrary to the actual finding) the purchaser had no proprietary claim to the proceeds of sale, and therefore the claim for account of profits was based purely on breach of contract. It was on this basis that the court considered that the purchaser would have no good arguable claim. 248.In the present case, Mr Lam accepts that in principle Chen may be entitled to a proprietary claim to 80% of Hawkins’ shares or their proceeds. I do find that Chen is entitled to such proprietary claim and the claim for account of profits, albeit overlapping in substance. Mr Lam then argues that Chen is not so entitled on the ground that Chen does not actually admit that Yu/Bao’s camp had paid Wong’s camp for the shares. This was partly addressed in the discussion of limitation above. I would add that Chen is not running inconsistent case in this respect. The question as to Yu/Bao’s payment of the consideration pursuant to the 2008 S&P Agreement and the 2011 S&P Agreement is an integral part of Chen’s contention in denial of the defence of bona fide purchaser for value without notice. Whilst it will be up to Yu/Bao’s camp to prove such payment, Chen’s focus is never the total failure of such payment. The focus is really whether there was full payment before Yu/Bao’s camp’s notice of Chen’s prior equitable interest in 80% of the shares. It serves the purpose of Chen’s contention to identify when, instead of whether, such full payment is said to have been made according to the evidence of Yu/Bao’s camp. Mr Wong already made that clear in his opening submission. 249.As to the alternative of equitable compensation, this would be to compensate the beneficiary of the trust for loss by restoring him to the position it would have been had the breach of trust not been committed: see Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681. Mr Lam accepts that in principle the compensation should be the value of the trust property lost. The loss is assessed as at the time of the trial: see Lewin at §39-021. However, he argues that there is no evidence of such market value. Mr Wong acknowledges the lack of evidence of valuation of Hawkins’ shares, but argues that the court should take into account the transaction value of the shares between Wong’s camp and Yu/Bao’s camp as the best evidence of their market value. Mr Wong refers to the difficulty for Chen to come up with evidence of market value of Hawkins’ shares. Apart from the fact that Hawkins’ shares are private, Chen did not have control over the company books and documents of Hawkins that would have put him in a position to procure such valuation. This sounds real. While Chen claims no personal knowledge about the market value proper of the shares, it is never his case or evidence that the stated consideration for the sale of the shares by Wong to Yu/Bao’s camp was manipulated or below market value. 250.In other words, be it proprietary claim for the proceeds of sale of Hawkins’ shares or claim for account of profits or equitable compensation for breach of trust, Chen is seeking to establish quantum by reference to 80% of the amount that Wong’s camp received from Yu/Bao’s camp for Hawkins’ shares. For his purpose, Chen only needs to succeed on one of these bases. 251.The one element that is missing from the evidence is the interest on the amount of RMB21,958,141 after the 10/1/2003 Confirmation. As recorded in the 10/1/2003 Confirmation, Chen should be entitled to deduction of the amount of such interest (accrued up to the transfer of the shares) from the sum of RMB60 million which he agreed to pay within 3 months of the transfer pursuant to the Letter of Undertaking. Contractually, such interest should still be accruing as of today. That the actual amount to be given credit to is unknown is not a reason for saying that assessment is impossible. As to the interest rate, which Mr Wong refers to as the official interest rates in the PRC, that, I accept, should be ascertainable up to the time of the transfer of the shares or alternatively actual account or payment as discussed above. O2. Against Lead Success and Superfine 252.Likewise, Chen is entitled to the declaration in respect of his rights in 80% Hawkins’ shares against Lead Success and Superfine as constructive trustees (and knowing receipt). 253.Hawkins’ shares are admittedly in the hands of Superfine. Chen is entitled to an order that Superfine do transfer, and take all steps to procure the transfer of, 80% Hawkins’ shares to Chen, failing which a partner of the solicitors for Chen may be named and empowered to execute the necessary documents for the transfer. 254.In default of transfer of the shares as aforesaid (say in 90 days), each of Wong, Lead Success and Superfine shall jointly and severally pay to Chen 80% of the value of Hawkins’ shares, which is assessed at RMB115 million x 80% = RMB92 million. Credit shall be given to RMB60 million pursuant to the Letter of Undertaking, which shall in turn be reduced by the interest accrued on the sum of RMB21,925,140 at the prevailing official interest rates in the PRC from 11 January 2003 until full payment. 255.Against the respective defendants, I grant the declarations as claimed. I also make an order for the transfer of 80% of Hawkins’ shares by Superfine to Chen or in default, payment of their value in terms as discussed under the preceding two paragraphs. 256.Following the event, I make a nisi order that Chen shall have his costs of this action against all the defendants, except that costs of and against Hawkins shall also be borne by Lead Success and Superfine. Costs include any costs reserved, and shall be taxed if not agreed, with certificate for 3 counsel (in view of the complexity of the case).
Mr Wong Yan Lung SC, leading Ms Andrea Yu, Ms Jennifer Fan, instructed by Messrs Adrian Yeung & Cheng, for the plaintiff Mr Paul Lam SC, leading Mr Chow Ho Kiu, Mr Bryan Lee, instructed by Messrs C L Chow & Macksion Chan, for the 1st, 2nd and 3rd defendants Mr Laurence Li, leading Mr Tony Chow, instructed by Messrs Winnie Mak, Chan & Yeung, for the 4th, 5th and 6th defendants | ||||||||||||||||||||||||||||
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