Vigers Hong Kong Ltd (in Creditors’ Voluntary Liquidation) v. Michael Andrew Barclay Binney and Others

HCA 744/2013

[2022] HKCFI 261

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 744 OF 2013

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Before:  Hon Linda Chan J in Court

Dates of Hearing:  25 – 26, 29 – 30 November, 1 – 3, 10 December 2021

Date of Judgment:  20 January 2022

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J U D G M E N T

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A. OVERVIEW

1.In this action the plaintiff, Vigers Hong Kong Limited (in creditors’ voluntary liquidation) (“P”), claims reliefs against the defendants in relation to the following impugned transactions:

(1)  the transfers of 99% shareholding in (a) Vigers Realty Ltd (“Realty”), (b) Vigers E-Net Ltd (“E-Net”) and Vigers Property Management Services (Hong Kong) Ltd (“VPM”) from P to the 7^th defendant, Vigers Holdings Ltd (“VH”), for nil consideration in September 2004 and November 2004 (collectively “Transfers”);

(2)  the 38 payments from P to the 8^th defendant, Vigers Asia Pacific Ltd (“VAP”), during the period from 30 January 2008 to 29 July 2009 in the total amount of $8,248,875 (collectively “VAP Payments”);

(3)  the transfer of the $19,883,866 (“Loan”) owed by P to The Grande Capital Group Ltd (“GCGL”) from GCGL to VAP with effect from 31 October 2008, and the transfer of the Loan from VAP to VH on 31 December 2008. The Loan was set-off against the sum of $9,564,984.66 (“Sum”) then owed by VH to P as at 31 December 2008 with the result that VH became a creditor of P (together “Assignments/Set-off”);

(4)  the 41 bank transfers and 25 transfers of account balances (as recorded in P’s ledgers) from P to VH during the period from 31 January 2009 to 23 February 2020 in the total amount of $12,225,790.85 (collectively “VH Payments”); and

(5)  the failure to put in place a professional indemnity insurance (“PII”) for P after the previous PII expired on 31 July 2002 (“PII Claim”).

2.The claims are brought against the de jure or de facto / shadow directors of P, who are[1]:

(1)  the 1^st defendant, Mr Michael Andrew Binney (“Binney”), who was director of P from 7 August 2003 to 24 December 2008;

(2)  the 2^nddefendant, Mr Kenny Suen Wai Cheung (“Suen”), who was director of P from 1 March 2000 until 11 June 2008;

(3)  the 3^rddefendant, Vigers Nominees Ltd (“VN”), which was a director of P from 24 December 2008 to 3 March 2010;

(4)  the 4^thdefendant, Vigers Asia Pacific Holdings Ltd (“VAPH”), a BVI company, was P’s director from 24 December 2008 to 3 March 2010;

(5)  the 5^thdefendant, Mr Raymond Ho (“Raymond”), who was P’s director from 15 October 2008 to 7 September 2009;

(6)  the 6^thdefendant, Mr Christopher Ho (“Ho”), who was allegedly a de facto or shadow director of P and VH “at all material times”[2]; and

(7)  VH (a BVI company) was a director of P from 11 June 2008 to 24 December 2008.

3.It is P’s case, as pleaded in the Re-re-re-Amended Statement of Claim (“SOC”), that:

(1)  the Transfers were made by the directors (Suen, Binney and Ho) in breach of fiduciary duties as P did not receive any consideration for the Transfers, and VAPH and VH dishonestly assisted in the directors’ breach of duties[3];

(2)  the VAP Payments constituted dispositions to defraud creditors under s.60 of the Conveyancing and Property Ordinance (Cap. 219) (“CPO”) and VAP is liable to repay the same to P. Further, the directors (VN, VAPH, Raymond and Ho) acted in breach of fiduciary duties in that the VAP Payments were not in the interest of P and/or were not made for a proper purpose[4];

(3)  the Assignments/Set-off constituted dispositions to defraud creditors under s.60 of CPO and VH is liable to repay the Sum to P. Further, the directors (Raymond, VN, VAPH and Ho) acted in breach of fiduciary duties in that the Assignments/Set-off were not in the interest of P and/or for a proper purpose[5];

(4)  VH was an “associate” of P and the VH Payments constituted unfair preferences under ss.266 and 266B of the former Companies Ordinance (Cap. 32) (“former CO”) and VH is liable to repay the same to P. Alternatively, if VH was not an “associate” of P, those parts of the VH Payments made during the 6 months’ period prior to the commencement of the winding up of P (being $5,774,029.45) constituted unfair preferences[6]; and

(5)  As a result of the directors’ failure (Binney, Suen, Raymond and Ho) to put in place a PII at the time when the “Claimants” (as defined in §21 below) brought their claims against P in 2003, P lost the chance to make a claim against a valid PII[7].

4.In his Closing, Mr Johnathan Wong (appearing with Ms Jacqueline Ng), counsel for P, confirms that:

(1)  In relation to the claims against Ho, P abandons the allegation that he was a de facto director, and only pursues a claim that he was a shadow director of P;

(2)  As regards the Transfers, P abandons the claim in relation to the transfer of E-Net and Realty and the claim against VH. Instead, P only pursues the claim relating to the transfer of VPM (“VPM Transfer”) against the directors (Suen, Binney and Ho) for breach of fiduciary duties, and against VAPH for dishonest assistance;

(3)  As for the VAP Payments, P abandons the claim under s.60 of CPO and the payments made during the period from 30 January 2018 to 31 December 2018 ($5,978,000). P only pursues the claim against the directors (VN, VAPH, Raymond and Ho) for breach of fiduciary duties and in respect of the payments made during the period from 22 January 2009 to 29 July 2009 ($2,270,875) (“Remaining VAP Payments”);

(4)  In relation to Assignments/Set-off, P abandons its claim under s.60 of CPO, and only pursues the claim against the directors (Raymond, VN, VAPH and Ho) for breach of fiduciary duties;

(5)  As for the VH Payments, P’s claim remains unchanged; and

(6)  As regards the PII Claim, P abandons the claim against Binney, Raymond and Ho. Instead, P only pursues a claim against Suen for breach of duty of care and skill in that he failed to maintain and put in place a “proper” PII upon the expiry of the last PII on 31 July 2002.

5.Consequently, save where otherwise stated, in the latter part of this Judgment, I will focus on the facts and matters relating to the claims which P still pursues.

6.In their Amended Defence filed on 7 March 2019 (“Defence”), Ds deny all the claims made by P, and advance the following positive defence to the claims:

(1)  The VPM Transfer was made “upon proper consideration” in that (a) VPM and the “Vigers Group” (as defined in §10 below) had suffered losses in their operations and were in poor financial position; (b) the VPM Transfer was part of the restructuring of the Vigers Group following its acquisition by GCGL in May 2003; and (c) the VPM Transfer was “in line with the usual trade practice of restructuring and operating a corporate group to address its poor financial performance and to salvage its financial situation”[8];

(2)  VAP was set up as the centralized cash agent of the Vigers Group, and the VAP Payments (which included the fees received, and the expenses paid, by P on behalf of other companies within Vigers Group) were made pursuant to such arrangement. The VAP Payments were “in line with the usual trade practice of operating a corporate group”[9];

(3)  The Assignments/Set-off did not diminish the assets of P, and were done to remove GCGL as a creditor of P so as to obviate the risk of GCGL demanding P for repayment of the Loan[10];

(4)  The VH Payments were made in order that VH would support P’s business (by causing the staff of VH’s subsidiaries to provide services to P) and were “in line with the usual trade practice of operating a corporate group”[11]; and

(5)  No professional indemnity insurer was willing to provide a PII to P after its expiry on 31 July 2002 and, even if it were possible to obtain a quote, the premium would be beyond P’s “affordable limit”[12].

7.Accordingly, the issues which require determination of the Court (collectively “Main Issues”) are:

(1)  whether Ho was a shadow director of P at all material times (Shadow Director Issue);

(2)  whether in approving the VPM Transfer for nil consideration, the directors (Binney, Suen, Raymond and Ho) acted in breach of fiduciary duties and, if so, whether VAPH was liable for dishonest assistance (Transfer of VPM Issue);

(3)  whetherthe Remaining VAP Payments($2,270,875) weremadeby the directors (VN, VAPH, Raymond and Ho)in breach of fiduciary duties (VAP Payments Issue);

(4)  whether the Assignments/Set-off amounted to dispositions of P’s properties and whether they were made by the directors (Raymond, VN, VAPH and Ho) in breach of fiduciary duties (Assignments/Set-off Issue);

(5)  whether the VH Payments, or those paid during the 6-months’ period prior to the commencement of the winding up of P (being $5,774,029.45), constituted unfair preferences under ss.266 and 266B of the former CO (VH Payments Issue); and

(6)  whether Suen acted in breach of duty of care and skill in failing to put in place a “proper” PII for P after 31 July 2002, and whether P lost the chance to make a claim against a “proper” PPI (PII Issue).

B.  BACKGROUND FACTS

8.Save where otherwise stated, the following facts are not in dispute or are indisputable.

B1.  Vigers Group

9.Vigers was a partnership established in London in 1842, and developed strong roots, experience and expertise in the area of property surveying.

10.In 1975, the first Vigers operation in Asia was established in Hong Kong. In 1980s and 1990s, Vigers established a group of companies providing property related services in valuation, corporate property, investment advisory, general practice surveying, building surveying, commercial, retail and industrial agency, and property management in Asia (collectively “Vigers Group”).

11.In around 1994, the Vigers Group was acquired by a Mainland investor and, following the Asian financial crisis in 1998, the Sunchase group took over the Vigers Group.

12.In 2000, the Vigers Group began to operate at a loss. In 2001 and 2002, the Vigers Group expanded its property agency services in Hong Kong to cover residential, commercial, retail, industrial, and investment property sections.

13.In late 2002, the outbreak of SARS hit the property market in Hong Kong and the Vigers Group as a whole suffered a substantial loss. According to the unaudited consolidated balance sheet of the Vigers Group as at 31 March 2003 (“2003 CBS”), the Group had:

(1)  cash and bank balances of $2,725,000;

(2)  net current liabilities of $502,000, being current assets of $31,912,000 less current liabilities of $32,414,000;

(3)  accumulated losses of $132,589,000; and

(4)  net liability of HK$55,518,000.

B2.   Financial performance of P in 2000-2003

14.P’s principal business was to provide property consultancy services.

15.Until 8 September 2004, P held 99% shareholding in 3 subsidiaries, all of which were incorporated in Hong Kong:

(1)  VPM, which provided property consultancy and building management services;

(2)  E-Net, which provided professional property consultancy services; and

(3)  Realty, which provided property agency services.

16.The financial performance of P’s subsidiaries was far from satisfactory in that they were either operating at a loss or had net liabilities. The results, as reported in the audited financial statements (“AFS”) of each subsidiary, may be summarized as follows:

(1)  VPM:

Period	Net profit / (loss)	Net assets / (Net liabilities)
1/7/2000 – 30/6/2001	$199,482	$3,930,386
1/7/2001 – 30/6/2002	($3,268,126)	$5,674,991
1/7/2002 – 31/12/2003	($1,135,933)	$4,539,058

(2)   E-Net:

Period	Net profit / (loss)	Net assets / (Net liabilities)
1/7/2000 – 30/6/2001	($203,331)	($693,196)
1/7/2001 – 30/6/2002	$225,399	($467,797)
1/7/2002 – 31/12/2003	$186,179	($281,618)

(3)  Realty:

Period	Net profit / (loss)	Net assets / (Net liabilities)
1/7/2000 – 30/6/2001	($4,367,093)	($7,357,388)
1/7/2001 – 30/6/2002	($1,041,185)	($8,398,573)
1/7/2002 – 31/12/2003	($3,396,018)	($12,334,591)

17.According to its AFS, from 1 July 2001 onwards, P also suffered substantial loss in its operation and was “balance sheet” insolvent:

Period	Net profit / (loss)	Net assets / (Net liabilities)
1/7/2000 – 30/6/2001	($1,018,624)	$11,285,823
1/7/2001 – 30/6/2002	($14,996,536)	($3,710,713)
1/7/2002 – 31/12/2003	($24,536,889)	($28,247,602)

18.The financial position of P continued to deteriorate in that on a number of occasions in 2002 and early 2003, P was unable to pay salaries to the staff in particular, senior staff like Raymond.

19.On 31 July 2002, the last PII purchased by P expired. That PII consisted of 4 policies and the total premiums paid by P was GBP191,600 per annum.

20.By letter dated 17 February 2003 addressed to P, the solicitors for China United Holdings Ltd (“China United”)[13] and its subsidiaries, alleged that the valuation report dated 9 May 1997, which valued the properties known as Whole of Basement, 28 Marble Road, North Point (“Properties”) at $470 million (“Valuation”), was prepared to assist the former managing director of China United to perpetrate a deceit/fraud on their clients. P was requested to attend a without prejudice meeting to discuss who gave instructions to P to prepare the Valuation and who took part in the fraudulent scheme (“Letter Before Action”).

21.In early 2003, China United and 3 of its subsidiaries (collectively “Claimants”) commenced HCA 1589/2003 against inter alios P for damages for breach of duty of care in preparing the Valuation and conspiracy to defraud the Claimants (“HCA”). At that time, the person who prepared the Valuation had already left P (in November 2002) to pursue his own practice as chartered surveyor[14].

B3.   Acquisition by GCGL

22.In May 2003, GCGL, a wholly owned subsidiary of The Grande Holdings Limited (“Grande Holdings”), a company then listed on the Main Board of the Hong Kong Stock Exchange, acquired all the issued shares in VH (and hence the Vigers Group) at $23 million (“Acquisition”).

23.At the time of the Acquisition:

(1)  GCGL was not aware of the existence of the Letter Before Action or the HCA.

(2)  Ho was an executive director of Grande Holdings and Chairman of its board of director. He was one of the 3 members of the executive committee of Grande Holdings (“ExCo”) which had been entrusted with the responsibility of considering and approving major decisions concerning Grande Holdings and all its subsidiaries and associates (together “Grande Group”);

(3)  Binney was an executive director of Grande Holdings;

(4)  Suen was (and had since 1 March 2000 been) a director of P;

(5)  Raymond was (and had since 2002 been) the “operations director” of P, responsible for the business side including getting business and approving valuation reports for clients. He reported to Mr Alfred Lai Che Keung (“Alfred”), who was a director and Managing Director of P until he resigned on 17 August 2004[15]. Thereafter, Suen took over Alfred’s role as Managing Director of P[16];

(6)  VH and VAPH (both incorporated in the BVI) were investment holding companies and did not carry on any business in their own right;

(7)  VH was the ultimate holding company of the Vigers Group. It held shares in a number of subsidiaries (including P, Vigers Building Consultancy Limited (“VBC”), Vigers Appraisals and Consulting Ltd (“VAC”)) and a number of associates all of which were operating companies; and

(8)  P was the only subsidiary within the Vigers Group which held shares in 3 operating subsidiaries (i.e. Realty, E-Net and VPM) and an associate (Vigers Design Holdings Ltd)[17].

24.Shortly after the Acquisition:

(1)  Binney became the Chairman of the Vigers Group. He was appointed as director of P on 7 August 2003. He was also appointed as director of some other companies within the Vigers Group including VH, Realty and VPM at around the same time; and

(2)  Ms Bianca Leung (“Bianca”), a senior staff working in the accounting department of the Grande Group, was deployed to deal with the accounting and financial matters of the Vigers Group.

25.It is Ds’ case that shortly after the Acquisition, Binney devised and implemented a restructuring of the Vigers Group to simplify the corporate structure, reduce costs and improve the overall financial performance of the Group (“Restructuring”). The Restructuring involved the following steps:

(1)  to incorporate a new company in Hong Kong, VAP, on 23 June 2003, to act as the support service arm and centralized cash agent of the Vigers Group so as to streamline the administrative and accounting functions across the Vigers Group;

(2)  to dispose of or close down those subsidiaries operating in other countries which GCGL considered to be non-performing. This resulted in the subsidiaries in Korea, Malaysia and Singapore being sold or closed down; and

(3)  to streamline the management and control of the remaining operating companies, so as to bring them all under the investment holding companies (VH and VAPH) .

26.As part of the Restructuring and for the purpose of bringing all operating companies under the investment holding companies:

(1)  On 23 July 2003, VH became a 99% shareholder of VBC;

(2)  On 7 August 2003, VH became a 99% shareholder of VAP;

(3)  On 9 September 2003, VH increased its shareholding in VAC from 50% to 99%;

(4)  On 8 September 2004, P transferred its 99% shareholding in Realty and E-Net to VH;

(5)  On 12 November 2004, P transferred its 99% shareholding in VPM to VAPH; and

(6)  P continued to hold 33% shares in Design, which was then a dormant company.

B4.   Operations post-Restructuring

27.It is Ds’ case that following the Restructuring, from June 2004 onwards to December 2009, the Vigers Group adopted the following modus operandi in dealing with the accounting and treasury affairs of the Group companies[18]:

(1)  P received sales income on behalf of other operating companies within the Group, which were recorded in P’s current accounts with these companies;

(2)  other Group companies paid expenses including salaries on behalf of P, and P also paid expenses on behalf of other Group companies, all of which were recorded in P’s current accounts with the relevant companies;

(3)  the balances of the companies within the Group, as recorded in P’s current accounts with such companies (“C/A Balances”), were consolidated at the end of each month;

(4)  the C/A Balances, in turn, were transferred to P’s current account with VH, usually at the end of each month;

(5)  the effect of monthly consolidation of the current accounts balances and the transfer of C/A Balances to VH was that at the end of the month:

(a)  all receivables or payables between P and other Group companies (i.e. C/A Balances) were transferred to VH, thereby eliminating the amounts recorded in P’s current accounts with such other Group companies;

(b)  all payables from P to other Group companies were treated as amounts owed by P to VH;

(c)  all receivables of P from other Group companies were treated as amounts owed by VH to P;

(6)  VAP acted as centralized cash agent of the Vigers Group in that whenever a Group company needed to transfer money to another Group company, it would often be done through VAP; and

(7)  P charged management fees against other Group companies in return for their use of P’s clients base, and the fees were booked as P’s receivables at the end of the financial year.

28.As a result of the Restructuring, P was able to reduce its administrative costs considerably, as shown in P’s AFS:

Period	Administrative expenses
1/7/2000 – 30/6/2001	$28,289,998
1/7/2001 – 30/6/2002	$27,451,450
1/7/2002 – 31/12/2003	$33,299,701
1/1/2004 – 31/12/2004	$951,199
1/1/2005 – 31/12/2005	$2,837,548
1/1/2006 – 31/12/2006	$3,874,120
1/1/2007 – 31/12/2007	$5,717,374
1/1/2008 – 31/12/2008	$1,835,929

29.Further, there was a significant improvement in the financial performance of P in that by 2005, P was able to make a profit:

Period	Net profit / (Net loss)	Net assets / (Net liabilities)
1/1/2004 – 31/12/2004	($3,331,321)	($31,578,923)
1/1/2005 – 31/12/2005	$7,759,925	($23,818,998)
1/1/2006 – 31/12/2006	$8,477,956	($25,341,042)
1/1/2007 – 31/12/2007	$6,415,188	($8,925,854)
1/1/2008 – 31/12/2008	$4,391,172	($14,534,682)

30.Although P remained “balance sheet” insolvent, its AFS were prepared on a going concern basis (as accepted by the auditors without any qualification), having regard to GCGL’s agreement “to provide adequate financial support to enable [P] to meet its financial obligations as they fall due”.

B5.   Sale of VH to Lordful, Assignments/Set-off

31.By a sale and purchase agreement dated 30 May 2008, GCGL sold all the issued shares in VH to Lordful Development Limited (a BVI company) (“Lordful”)for $42 million. The sale was completed on the same day.

32.On 11 June 2008, Suen resigned as director of P and left the Vigers Group. VH became director of P on the same day.

33.On 30 July 2008, HCA was set down for trial.

34.On 15 October 2008, Raymond was appointed as director of P. On 24 December 2008, Binney and VH resigned as directors of P, and were replaced by VN and VAPH on the same day.

35.On 30 December 2008, GCGL assigned the Loan ($19,883,866) to VAP with effect from 31 October 2008.

36.As at 31 December 2008:

(1)  VH owed $9,564,984.66 (i.e. the Sum) to P;

(2)  VAP assigned the Loan (then in the amount of $19,783,866) to VH; and

(3)  the Loan was set-off against the Sum, and VH became a creditor of P to the extent of $10,218,881.3.

37.By a resolution passed by the directors (VN and VAPH[19]) on 16 February 2009, the authorized bank signatories of P’s bank accounts at Bank of China were changed to Mrs Eleanor Crosthwaite (“Crosthwaite”) (group A), Bianca, Raymond and Suen (group B) and 4 other persons (group C).

B6.  Judgment and winding up of P

38.On 18 May 2009, the trial in HCA commenced, which continued until 4 June 2009.

39.On 19 August 2009, the HCA Judgment was handed down. P was found to have acted in breach of duty of care owed to the Claimants, and was liable to compensate the Claimants for $257,791,171.26 (“Judgment Debt”), being the difference between the Valuation ($470 million) and the true open market value of the Properties ($110.5 million) less the compensation received by the Claimants from other defendants ($101,708,828.74)[20].

40.On 7 September 2009, Raymond resigned as director of P.

41.On 19 October 2009, one of the Claimants presented a winding-up petition against P based on the Judgment Debt[21].

42.By a sale and purchase agreement dated 7 November 2009, Lafe Corporation Limited (“Lafe”) (through its wholly-owned subsidiary) acquired all the issued shares in VH from Lordful for US$8.8 million .

43.On 10 November 2009, the directors of P (VN and VAPH[22]) approved the transfers of one share from VN to Lordful, and 9,999,999 shares from VH to Lordful.

44.On 3 March 2010:

(1)  the directors of P filed a Statement of Voluntary Winding Up in Case of Inability to Continue Business which stated that P had net deficiency of $414,666,744;

(2)  VN and VAPH resigned as directors of P; and

(3)  Provisional liquidators were appointed over P[23].

45.At the first creditors’ meeting held on 30 March 2010, Mr Stephen Briscoe and Mr Wong Teck Meng (“WTM”) were appointed as joint and several liquidators of P (together “Liquidators”)[24].

46.On 20 April 2011, Binney was interviewed by the Liquidators and the questions and answers were recorded in transcripts (“Binney’s Transcripts”).

47.On 31 May 2011, Bianca (as representative of VN and VAPH) was interviewed by the Liquidators and the questions and answers were recorded in transcripts (“Bianca’s Transcripts”).

C.  EVIDENCE

C1.   Applicable principles

48.The approach of the Court in fact finding and assessment of credibility has been sufficiently stated by DHCJ Eugene Fung SC (as he then was) in Hui Cheung Fai & anor v Daiwa Development Ltd & ors, HCA 1734/2009, 8 April 2014, §§77-81, and may be summarised as follows:

(1)  Generally, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility.

(2)  In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events.

(3)  In determining a witness’ credibility, it is important to consider the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence as between his oral testimony and witness statement.

(4)  The Court has to guard against the danger of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses, or from the assessment of the witnesses’ character.

49.As regards burden of proof, the principles stated in Phipson on Evidence, 19^th ed., §6-06 are relevant:

“So far as persuasive burden is concerned, the burden of proof lies upon the party who substantively asserts the affirmative of the issue. If, when all the evidence is adduced by all parties, the party who has this burden has not discharged it, the decision must be against him. This is an ancient rule founded on considerations of good sense and should not be departed from without strong reasons.

This rule is adopted principally because it is just that he who invokes the aid of the law should be the first to prove his case; and partly because, in the nature of things, a negative is more difficult to establish than an affirmative. The burden of proof is fixed at the beginning of the trial by the state of the pleadings, and it is settled as a question of law, remaining unchanged throughout the trial exactly where the pleadings place it, and never shifting.

In deciding which party asserts the affirmative, regard must be had to the substance of the issue and not merely to its grammatical form; the latter the pleader can frequently vary at will. Moreover, a negative allegation must not be confused with the mere traverse of an affirmative one. The true meaning of the rule is that where a given allegation, whether affirmative or negative, forms an essential part of a party’s case, the proof of such allegation rests on him. An alternative test, in this connection, is to strike out of the record the particular allegation in question, the onus lying upon the party who would fail if such a course were pursued.” (underlined added)

50.I turn to the principles governing the drawing of adverse inference. Where a defendant elected not to give evidence which is material to the issues raised by the parties, the Court is entitled to draw all reasonable inferences as to what are the facts which he has chosen to withhold. The principle was stated by Lord Diplock in British Railways Board v Herrington [1972] AC 877 at 930G-931B as follows:

“The appellants, who are a public corporation, elected to call no witnesses, thus depriving the court of any positive evidence as to whether the condition of the fence and the adjacent terrain had been noticed by any particular servant of theirs or as to what he or any other of their servants either thought or did about it. This is a legitimate tactical move under our adversarial system of litigation. But a defendant who adopts it cannot complain if the court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold.”

51.The inference to be drawn must be grounded on the primary facts proved (Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at §§185-187, per Ribeiro PJ).

52.Where the evidence is incomplete and obscure in critical aspects, the silent party’s failure to give evidence may convert that evidence into proof on the matters which are within his knowledge. As stated by Lord Sumption JSC in Prest v Petrodel Resources Ltd and others [2013] 2 AC 415 at §44:

“… There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it. For my part I would adopt, with a modification which I shall come to, the more balanced view expressed by Lord Lowry with the support of the rest of the committee in R v Inland Revenue Comrs, Ex p TC Coombs & Co [1991] 2 AC 283, 300:

‘In our legal system generally, the silence of one party in face of the other party’s evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party’s failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party, may be either reduced or nullified.’ ” (underline added)

C2.  Factual witnesses

C2.1  WTM

53.WTM gives evidence on behalf of P. He answers all the questions put to him in a straight-forward and candid manner even though some of his answers are not favourable to P’s case or are materially different from what is stated in his witness statement (“WS”) and supplemental witness statement (“SWS”). I find that WTM is a credible witness and I accept his evidence.

54.Raymond, Binney and Ho give evidence on behalf of Ds.

C2.2  Raymond

55.Although his WS and SWS are quite extensive and cover general matters concerning the Vigers Group, P and all the impugned transactions, it is clear from his oral evidence that his main role in P was to prepare and approve valuation reports for clients and to get more business for P. He was not involved in the decision making process concerning (1) the PII, (2) the Acquisition, (3) the Restructuring, (4) the Transfers, (5) the setting up of VAP or its function, (6) the Assignments of the Loan from GCGL to VAP, and from VAP to VH; (7) the Set-off of the Loan against the Sum; (8) the sale of VH to Lordful, and (9) the sale of VH from Lordful to Lafe. Nor was he involved in designing or implementing the accounting and treasury arrangements for the Vigers Group, which was the responsibility of Binney.

56.In his written Closing, Mr Wong makes much criticisms on Raymond seeking to deny his position as “Managing Director” of VH prior to his appointment as its director on 14 December 2008.

(1)  Under cross-examination, Raymond admits that he used the title “Managing Director” in his name card, and explains that such title was used to convey to the clients that he was in charge of the business side of the operating companies. The explanation makes commercial sense and is consistent with Raymond’s role and responsibility in the Vigers Group.

(2)  On the other hand, I am unable to accept Mr Wong’s contention that being a Managing Director of VH “effectively means Raymond Ho was a managing director in respect of all the business of VH and VAPH via their subsidiaries”, and there is “no meaningful distinction between Raymond Ho’s role prior to 14 December 2008 and as a board director of VH and/or VAPH thereafter”. Not only is such contention never pleaded in the SOC, it is also contradicted by the undisputed evidence on Raymond’s role and responsibility in the Vigers Group, which shows that until his appointment as director of P and VH on 15 October 2008 and 14 December 2008 respectively, he was not involved in making any major decisions for P, VH or the Vigers Group.

(3)  There is simply no basis in support of P’s contention that Raymond was a director of P or of VH before he was appointed as such director on 15 October 2008 and 14 December 2008 respectively. It follows there is no basis to suggest that Raymond owed any duties to P or VH before his appointment as its de jure director.

57.Mr Wong also points to (1) various inconsistencies in Raymond’s evidence on the identity and his acquaintance with Crosthwaite and her involvement as group A signatory after the Vigers Group had been sold to Lordful in May 2008, (2) his answers in respect of why the Grande Group still featured in the internal documents and correspondence with Messrs. Kennedys (P’s solicitors in HCA) after the Vigers Group had been sold to Lordful. While some of his answers are not wholly consistent, one cannot lose sight of the fact that the matters asked by Mr Wong occurred more than 13 years ago. In any event, the sale of VH from GCGL to Lordful is at most only a peripheral issue, if not a non-issue, as it did not form part of the impugned transactions or the claims made by P against Ds. It is unsurprising for Raymond to be unable to recall the fine details or give wholly consistent answers on matters which are not material to the impugned transactions. I do not find the answers given by Raymond to be evasive or incredulous as submitted by Mr Wong.

58.Mr Wong also points to Raymond’s admission under cross-examination that what he said in WS (1) as to why the VH Payments were made and (2) if quotes had been obtained for a PII in 2002, the fees would have been exorbitant and beyond P’s affordable limit, are based on his own speculation. These are not valid criticisms against the credibility of Raymond’s evidence. As stated above, under cross-examination, WTM also departs from what he said in his WS/SWS and accepts that some of the matters stated therein are either unsustainable or are based on his surmises and speculations, and I do not find that his belated acceptance of such matters affect his credibility as a witness.

59.Overall, I find that Raymond is a credible witness who gives evidence in accordance with the best of his knowledge and recollection.

C2.3  Binney

60.His WS is quite short, as he adopts and incorporates the parts contained in Raymond’s WS which he has personal knowledge. During the interview, he told the Liquidators that he had day-to-day involvement in the management of the Vigers Group until 2006 when he was relocated by the Grande Group to work in Singapore on a full time basis.

61.Under cross-examination, Binney disagrees with Mr Wong’s characterization of the Restructuring as 3 distinct and sequential steps. He agrees with Raymond’s description (in his WS) of the 3 steps, but explains that the steps were not sequential as suggested by Mr Wong. Rather, Binney describes the Restructuring as an ongoing process which started right after the Acquisition and continued all the way up to the end of 2004 and included:

(1)  designing and implementing costs cutting measures across the Vigers Group from May 2003 onwards;

(2)  streamlining the accounting, treasury and administration matters including the incorporation of VAP as centralized cash agent;

(3)  disposing of non-performing subsidiaries; and

(4)  putting all operating subsidiaries under the investment holding companies (VH and VAPH) including making the Transfers from P to VH, thereby saving the costs involved in P acting as the intermediate holding company of E-Net, Realty and VPM.

62.Mr Wong submits that Binney departs from his WS substantially in that it is only under cross-examination that (1) he says that he does not fully agree with Raymond’s view on the Restructuring, (2) he mentions Crosthwaite’s role as representative of Lordful after it acquired the Vigers Group, and (3) he describes a host of specific factors he took into account when deciding to make the VPM Transfer. I do not think that any of these matters impinge on the credibility of Binney’s evidence given that:

(1)  In §11 of Binney’s WS, which sets out his response to §3.1.3(ii)-(v) of the valuation report of P’s expert, Binney repeatedly describes the Restructuring as “a substantial restructuring programme” which involved the steps / matters described in the preceding paragraph, and that the process took place “during the period from the acquisition by Grande to end of December 2004”;

(2)  Binney’s evidence on the Restructuring process is consistent with the description given by Raymond, Bianca and Ho about the changes brought to the Vigers Group after the Acquisition up to the end of 2004. I do not read Raymond’s description of the Restructuring in his WS as suggesting that the steps involved in the Restructuring were distinct or sequential or that the entire Restructuring process completed in 2003, as Mr Wong suggests during cross-examination;

(3)  the Lordful’s acquisition of VH and the role of Crosthwaite are peripheral if not trivial matters and it is unnecessary for Binney to deal with such matters in his WS. Indeed, it is only during cross-examination of Ds’ factual witnesses that these matters suddenly assume some significance as Mr Wong suggests to the witnesses; and

(4)  the factors which Binney took into account when deciding to make the VPM Transfer arise out of the questions put by Mr Wong during cross-examination. There is nothing sinister about Binney giving details on the precise factors he took into account in deciding to make the VPM Transfer when the propriety of his decision is being challenged.

63.Mr Wong also submits that Binney is unable to give direct answers in relation to the role and involvement of Ho in the Vigers Group and the value of VPM. I disagree. My impression is that Binney gives consistent answers throughout his cross-examination on both aspects.

64.As regards the role of Ho, Binney says that Ho took over from him the position as Chairman of the Vigers Group 6 months after the Acquisition.

(1)  When he told the Liquidators during interview that “everything had to be approved by Mr Ho ultimately”, he was referring to the 6-month period after the Acquisition when the “more strategic transactions” had to be approved by Ho if and when such matters were discussed at ExCo. This included the Restructuring which was put to ExCo for approval, and Ho was involved as a member of ExCo.

(2)  When it is put to Binney that contrary to his denial in WS, he told the Liquidators during the interview that “the finance and operational staff would put the strategies developed by Mr Ho into place”, Binney explains that after the Acquisition, he was the person-in-charge of the finance department, and Ho was only involved in deciding the overall strategy.

(3)  I do not see any inconsistency in Binney’s answers.

65.As for the value of VPM, Binney accepts that according to the 2003 CBS, VPM had the second highest net equity in the Vigers Group (after VH) but does not agree that it was the second most valuable company.

(1)  He explains why he considered E-Net, Realty and VPM to have no value at the time he designed and implemented the Restructuring for the following reasons:

(a)  VPM had been operating at a loss for 2 consecutive years and did not have a track record of profitable operation;

(b)  Nor did VPM have the right personnel to provide consultancy services to the clients. Without such personnel in place, VPM did not have any value;

(c)  the decision then faced by the directors was whether VPM should be closed down or be restructured. They eventually decided to restructure VPM by putting in a lot of efforts to turn around its operations including hiring new personnel with experience to provide consultancy services to its clients and reduced its operating and administrative costs. It was as a result of these restructuring efforts that VPM was able to reduce its administrative costs and made profits in the year ended 31 December 2004;

(d)  the largest assets of VPM were a receivable from its intermediate holding company ($7,803,473) and accounts receivable ($4,390,611), the value of these assets would need to be adjusted if VPM were to be sold to an outside purchaser; and

(e)  the deferred tax asset was only a balance sheet item and did not have any value.

(2)  Binney explains that although the Transfers were effected in September 2004 and November 2004, the actual transfers of the business took place much earlier on as part of the Restructuring. His evidence on this is not being challenged.

(3)  I accept that for the reasons stated in sub-§§(1)-(2) above, there were proper bases for the directors to come to the view that at the time the Restructuring was devised and implemented, VPM did not have any value.

(4)  Binney accepts that if in November 2004, one were to look at VPM separately (as opposed to the VPM Transfer forming part of the Restructuring), its book value was such that it should receive some consideration. When Binney is asked as to why VPM was not transferred to VH at “cost” (i.e. the book value of $8 million), he explains that there was no point to transfer VPM to VH at cost, and then for VH to write off the cost of acquisition immediately. I find that Binney’s answer is consistent with what actually happened after the Acquisition.

66.Binney is an honest witness who answers all the questions put to him in a candid and truthful manner and I accept his evidence in entirety. If and to the extent that there is any inconsistency between the evidence of Binney and that of the other witnesses, I prefer the evidence of Binney.

C2.4  Ho

67.Ho’s WS only contains 2 pages in which he denies P’s allegation that he was a de facto or shadow director of P. Ho says that he was the Chairman and executive director of Grande Holdings, which was the parent company of VH and its subsidiaries, and he attended the ExCo meetings referred to in WTM’s WS for an on behalf of Grande Holdings and solely in his capacity as a member of ExCo.

68.Mr Wong criticizes Ho’s WS as “perfunctory and superficial” and submits that no weight should be attached to such WS. However, it is difficult to see what’s more could have been said by Ho in his WS, given that those are the only allegations made by P in the SOC and WTM’s WS/SWS.

69.More importantly, during cross-examination, Mr Wong does not challenge any of the matters stated in Ho’s WS.

(1)  This is despite the fact that Binney gives evidence that Ho was only involved in approving transactions for the Vigers Group, including those of P, in his capacity as a member of ExCo. It has not been put to Binney (or Raymond) that he did not make his decisions for P independently. Nor has it been put to Binney (or Raymond) that he was accustomed to act in accordance with Ho’s wishes or instructions.

(2)  Similarly, it has not been put to Ho that he was at any point in time a shadow (or de facto) director of P, or that the de jure directors of P were accustomed to act in accordance with his wishes or instructions.

70.Mr Wong makes much out of the so-called improbable answers given by Ho during his cross-examination, which relate to (1) his role as Chairman of the Vigers Group, which Binney says took place 6 months after the Acquisition, (2) his lack of personal knowledge on why no provision was made in P’s AFS in respect of the contingent liability associated with the Claimants’ claim in HCA, (3) his lack of knowledge about the Transfers, (4) why VPM was listed as one of the principal subsidiaries of the Grande Group; (5) his lack of detailed knowledge on the sale of VH to Lordful or Crosthwaite’s involvement after the sale to Lordful; and (6) his lack of knowledge on the fact that his sister (Ms Chrstine Asprey) signed off one of the documents of VAP.

71.I do not see the relevance of these criticisms on the issue whether Ho was a shadow director of P. This is particularly so when Mr Wong does not challenge what is stated in Ho’s WS.

C2.5  Suen

72.Suen was a de jure director of P from 1 March 2000 up to 11 June 2008. He has not filed any WS and does not give evidence at trial. No explanation has been given by Ds as to why Suen elected not to give any evidence at trial.

73.While one would ordinarily expect a director who is alleged to have acted in breach of duties to give evidence to explain and justify his act or omission to act, and if he elects not to give evidence, the Court is entitled to draw adverse inferences against him as to what are the facts which he has chosen to withhold provided that such inferences are grounded on the primary facts proved (see §§50 – 51 above). However, whether and if so what inferences can be drawn depends on whether P has discharged the burden of proving a prima facie case of breach of duties against that director. It is only if such a case has been established that there is a case for the director to answer, and the Court will have to examine whether the reasons and justifications advanced by the director are established and, if so, whether they constitute a defence to the claim. More importantly, as explained in Prest v Petrodel Resources Ltd,§44, it is only if there is a reasonable basis for some hypothesis in the evidence or the inherent probabilities that the Court can draw inferences from a party’s failure to rebut it.

74.The only adverse inference which Mr Wong invites the Court to draw against Suen is in relation to the email dated 13 September 2002 from AON to Suen (“AON Email”) which, he submits, suggests that there were offers from AON for at least a primary policy and a first excess liability policy for GBP 4 million coverage. I will consider the AON Email in the context of the PII Claim Issue.

C3.   Expert witnesses

75.The expert issues, as framed by the relevant orders made by the Masters, are as follows:

(1)  “[E]xpert evidence for the purpose of analyzing the primary accounting documentation and explaining the extent to which such documentation does or does not support [Ds’] case as pleaded in [§§30, 32-37 of the Defence]” (“Accounting Issue”);

(a)  §30 contains Ds’ denial that the VH Payments were made with the desire to improve VH’s position in an insolvent liquidation. Instead, they were made by P to VH in order that VH would support P’s business and P would not have been able to earn any income in 2008[25];

(b)  §§32-37 relate to Ds’ averment that VAP was the Vigers Group’s centralized cash agent, and P received the fees on behalf of other Group and reimburse VAP for salary of staff seconded to P[26];

(2)  The market value of P’s 99% shareholding in each of Realty and E-Net as at 8 September 2004, and 99% shareholding in VPM as at 12 November 2004 (“VPM Shares”), to be “measured pro rata to the value of the respective companies” with reference to their assets, profitability and future prospects (“Valuation Issue”); and

(3)  “Identify the relevant trade practice, if any, applicable to restructuring and operating a corporate group to address its poor financial performance and to salvage its financial situation; and if so, whether the Transfers (as implemented for the purpose stated in [§§20-25 of the Defence]) were in line with the usual trade practice of restructuring and operating a corporate group to address its poor financial performance and to salvage its financial situation” (“Restructuring Practice Issue”); and

(4)  “Whether there exists such trade practice for operating a company group similar to the arrangements for the alleged payments as pleaded in [§30(3) of the Defence]; and if so, whether the arrangement for the alleged payments have deviated from such usual trade practice of operating a corporate group; and if so, to what extent such trade practice have been deviated” (“Group Payments Practice Issue”).

76.Both parties adduced very lengthy reports from their respective experts and joint statements of the experts (“JS”) summarizing their agreements or respective opinions on the “agreed issues” identified therein:

(1)  In respect of the Accounting Issue, P calls Ms Mavis Tan (“Tan”) of Control Risks Pacific Limited, while Ds call Mr John Robert Lees (“Lees”) of Ernst & Young;

(2)  In respect of the Valuation Issue, P calls Mr Colum Bancroft (“Bancroft”) of Alix Partners, while Ds call Lees; and

(3)  In respect of the Restructuring Practice Issue and the Group Payments Practice Issue, P calls Mr Cosimo Borrelli (“Borrelli”) of Borrelli Walsh Limited and Ds call Lees.

77.There is no dispute on the independence or expertise of the experts.

78.At the beginning of the trial, this Court observes that it is inappropriate for the experts to go beyond the expert issues as framed in the relevant orders without leave of the Court (none has been applied for), and this Court will not consider any opinions which fall outside the expert issues. In light of this indication, the cross-examinations of the experts only focus on the points relating to the expert issues insofar as they are in dispute. My impression of the experts is that they all give evidence in a fair and objective manner based on their knowledge in their respective disciplines.

79.My view on the opinions and their relevance to the Main Issues will be considered under the heads of each issues. As will be seen in the latter part of this judgment, most of the experts’ opinions do not really assist the determination of the Main Issues.

D.  DISCUSSION ON MAIN ISSUES

D1.   Shadow Director Issue

80.The principles are not in dispute.

81.Shadow director is defined in s.2 of the former CO as “in relation to a company, means a person in accordance with whose directions or instructions the directors or a majority of the directors of the company are accustomed to act”

82.In Re Hydrodan (Corby) Ltd [1994] BCC 161, Millett J (as he then was) explained the principle governing shadow director in this way:

“A shadow director, by contrast, does not claim or purport to act as a director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind others who, he claims, are the only directors of the company to the exclusion of himself. He is not held out as a director by the company. To establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether de facto or de jure; (2) that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did so; (3) that those directors acted in accordance with such directions; and (4) that they were accustomed so to act. What is needed is, first, a board of directors claiming and purporting to act as such; and, secondly, a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others.”

83.In §8 of the SOC, the only paragraph where it is alleged that Ho was a shadow director of P and VH, no material facts have been pleaded in support of the allegation. Mr Wong has not articulated any submissions as to why P should be allowed to run an unpleaded case of shadow directorship against Ho. For this reason alone, the allegation that Ho was a shadow director of P and VH is demurrable and must be rejected.

84.If, contrary to my view, there is any basis for P to run an unpleaded case of shadow directorship against Ho, it is clear that such allegations, even if made out, are not sufficient to establish that Ho was a shadow director of P and VH. The unpleaded allegations which P seeks to rely on, as stated in §§19-25 of its Opening, are as follows:

(1)  In May 2003, Ho personally devised strategies on how to operate and restructure the Vigers Group, and Binney, Alfred and other staff were in charge of execution. There was “a lot of hands-on work” from Ho in the first year after the Acquisition[27];

(2)  The funding requests made by the Vigers Group were reported to and considered by Grande Holdings at the monthly ExCo meetings. At such ExCo meetings,Ho expressed his “views as to yay or nay on certain aspects” and was one of the “ultimate decisions-makers”[28];

(3)  Binney reported to Ho and the Managing Director of Grande Holdings (i.e. Adrian Ma)[29]. The Vigers management team would consult Ho because of his personal experience and expertise as a businessmanand professional accountant[30];

(4)  Apart from his bare denial, Ho has not produced any document in support of his assertion that all his actions in respect of P and VH were conducted with the authority and on behalf of Grande Holdings. Nor has he enlisted any witness from Grande Holdings to give evidence in support of his denial; and

(5)  from 2003 to 16 February 2009, Ho was the only signatory who could sign singly for unlimited amounts in respect of P’s bank accounts with HSBC, Bank of China (HK), Bank of East Asia, Standard Chartered Bank.

85.In his Closing, Mr Wong seeks to rely on the following further unpleaded facts and matters:

(1)  the VPM Transfer at nil consideration was part of Binney’s plan in the overall scheme of the Restructuring;

(2)  the Transfers were put to ExCo for approval;

(3)  at the material time, Binney, Ho and Adrian Ma were the only members of the ExCo;

(4)  where a decision of the Ex-Co involved Ho, Binney and Adrian Ma were not in a position to outvote Ho;

(5)  it appears that Binney answered directly to Ho, whereas Suen was only assistant to Binney with respect to the operation of P;

(6)  the Restructuring was put to the ExCo in sessions where Ho was in attendance;

(7)  in the first 6 months after the Acquisition while Binney was Chairman of the Vigers Group, Ho did not have direct role in the Vigers Group but all strategic matters had to be ultimately approved by him; and

(8)  the Restructuring was devised, approved in the few months immediately following the Acquisition of the Vigers Group, i.e. the second half of 2003.

86.It can be seen from the above matters that nowhere has it been alleged, let alone proved, that Ho in his personal capacity directed the de jure directors onhow to act in relation to P or VH or that that those directors acted in accordance with such directions; and that they were accustomed so to act. Nor has it been alleged that the boards of directors of P and VH claiming and purporting to act in accordance with the directions of Ho, still less a pattern of behaviour in which the boards did not exercise any discretion or judgment of their own, but acted in accordance with Ho’s directions.

87.Indeed, it transpires during the trial that P’s case on shadow directorship rests solely on the basis that Ho, in his capacity as a member of the ExCo, was involved in considering and approving matters which concerned P or VH in that:

(1)  it is accepted by WTM during cross-examination that the ExCo meetings relied on by P were meetings of Grande Holdings;

(2)  it has never been put to Ho that his averment in the WS is in any way incorrect. Nor has it been put to Ho that he did, in his personal capacity, instruct the directors of P or VH to act in accordance with his instructions in respect of any matters concerning P or VH, let alone the impugned transactions;

(3)  it has never been put to Binney or Raymond that they only acted in accordance with Ho’s instructions and did not exercise any discretion or judgment of their own;

(4)  it is only in his written Closing that Mr Wong alleges, for the first time, that the entire Restructuring including the VPM Transfer was devised and approved ultimately by Ho “who alone held the power of veto at the [Ex-Co] level” and, on this basis, Ho was the “puppet master pulling the strings” and in accordance with whose direction the directors of P at the time was accustomed to act. I do not think it is open to counsel to make this allegation when the same has never been pleaded in the SOC. Nor has it been put to Ho or Binney and Raymond (who P contends were directors at the material time).

88.It is well settled that where the directors of a parent company, as a collective body, gave directions to the directors of the subsidiary and the directors of that subsidiary were accustomed to act in accordance with such directions, they did so as agents for the parent company (or as the appropriate organ of the parent company) and the result is to constitute the parent company, but not themselves, shadow director of the subsidiary (Re Hydrodan, 164E-F). In the present case, the organ through which the directions were given was the ExCo of Grande Holdings. Even if (which is not the case) there is any evidence to suggest that the directors of P and VH were accustomed to act in accordance with the directions of the ExCo, at most, it only constituted Grande Holdings a shadow director of P and VH. It would not render Ho a shadow director of P and VH.

89.For the above reasons, P fails to establish that Ho was a shadow director of P and VH. It follows that all the claims against Ho must be dismissed.

D2.   Transfer of VPM Issue

90.As P fails to discharge the burden of proving that (1) Ho was a shadow director of P and (2) Raymond was a director of P at the time of the VPM Transfer, the claim for breach of fiduciary duties can only be made against Binney and Suen.

91.As is clear from §§20-21 of the SOC, the only pleaded particular of breach of fiduciary duties (or breach of trust, which is the same in the context of this case) is that the VPM Transfer was made at nil consideration.

92.As submitted by Mr Bernard Man SC (leading Mr Brian Lee), counsel for Ds, of the 8 matters relied on by P in asking the Court to infer that the VPM Transfer was made for no consideration[31], none of them justifies the inference sought, in light of WTM’s concessions under cross-examination that:

(1)  the prices for the sale of the Vigers Group to GCGL, Lordful and then Lafe respectively in 2003, 2008 and 2009[32] were not indicative of the market value of Realty, E-Net and VPM at the time of the Transfers in 2004;

(2)  the descriptions in the AFS of Realty, E-Net, VPM and P for the years ended 31 December 2003 and 2004 to the effect that they became wholly owned subsidiaries of Grande Holdings[33] merely described the shareholding structure of these entities at those points in time. They could not possibly inform the value of Realty, E-Net and VPM at any time;

(3)  “on 10 November 2009, the directors of [P] approved the transfer of shares of [P] to Lordful”[34] again could not inform the value of Realty, E-Net and VPM at any time;

(4)  the averment that “there was no minutes amongst the records of [P] in the possession of the Liquidators which provide a reason for the Transfers”[35] suffers from a similar problem. The fact that no reason was provided in the relevant board minutes does not prove undervalue; and

(5)  as for the write-off of $8,011,000 stated in P’s AFS for the year ended 31 December 2004, WTM admits that this represents the book value of the paid-up capital of Realty, E-Net and VPM. Such figure did not necessarily reflect the market value of the 3 subsidiaries at the time of the Transfers.

93.As the 8 matters are the only pleaded particulars in support of the allegation that the VPM Transfer was made at no consideration, P’s claim against Binney and Suen must fail.

94.In his written Opening and Closing, Mr Wong tries to expand P’s case on breach of fiduciary duties and relies on the following matters:

(1)  in allowing the Transfers to be made for nil consideration, the directors failed to take into account the interests of P’s creditors, which arose as P was insolvent at the time and the directors knew or should have known about its insolvency (Cyberworks§66; Wing Hong Construction§159)[36];

(2)  the reason given by Binney and Raymond for the Transfers was to further the Restructuring and to streamline the administration and management of the Vigers Group. According to Borrelli (P’s trade practice expert), it is not necessary to transfer the subsidiaries to the investment holding company for the purposes of streamlining the management or costs cutting, although Borrelli accepts that it is more common to see all operating companies at the same corporate level[37];

(3)  even if the VPM Transfer was a management decision, there was no justification for the directors to sacrifice the interests of P for the interests of the Vigers Group when the VPM Transfer was not in the interests of P[38]; and

(4)  there is no evidence of “actual consideration of the interests of [P] in respect of the transfer of VPM at no consideration”. Applying the objective test of an “intelligent and honest man” as explained in Cyberworks (§70), there was no proper basis to hold that the VPM Transfer was made in the interests of P.

95.Again, none of the above matters have been pleaded in the SOC. It is not open to P to run an unpleaded case of breach of fiduciary duties based on the above matters. The unfairness is exemplified by the fact that none of the unpleaded matters have been put to Binney or, indeed, any factual witnesses of Ds.

96.In his oral Closing, Mr Wong criticizes Binney for giving evidence, for the first time during cross-examination, on the factors considered by him and Suen in deciding to make the VPM Transfer at nil consideration. I do not think the criticism is fair when P has not pleaded a case of breach of fiduciary duties on the basis that the directors did not have any reasons or justifications to devise and implement the Restructuring including the VPM Transfer in the way they did.

97.As P fails to plead and prove a prima facie case for breach of fiduciary duties against the directors, it is not necessary to consider whether the matters considered by the directors were sufficient to justify their decision in approving the VPM Transfer as part of the Restructuring. Nevertheless, in case this matter goes further, I make the following findings:

(1)  For the reasons stated in §65 above, I find that at the time the directors devised and implemented the Restructuring of which the VPM Transfer formed part, they were justified in coming to the view that the VPM Shares did not have any value. This is reinforced by the evidence of Bancroft, who confirms that if the management fees paid by VPM were not reversed, the value of VPM using the market approach would be zero (see §102 below);

(2)  For the reasons stated in §§61-62 above, the directors honestly believed that it was in the interests of P and of the Vigers Group to implement the Restructuring including the VPM Transfer. Their belief was amplified by the objective fact that after the implementation of the Restructuring, there was substantial improvement in the financial performance of P, as summarized in §§28-29 above.

(3)  Applying the objective test, a reasonable man standing in the position as the directors would consider that it was reasonable in the circumstances faced by P in particular, its dire financial state, to implement the Restructuring including the VPM Transfer so as to turn around the financial position of P and of the Vigers Group.

(4)  In reaching the above conclusions, I have not considered the opinions of the experts on the Restructuring Practice Issue. Indeed, I fail to see the relevance of the opinions of the experts when there is no dispute that (a) at the time the Restructuring (of which the VPM Transfer formed part) was devised and implemented, the Vigers Group was in a poor financial state, and (b) after the implementation of the Restructuring, the financial position of the Vigers Group including that of P improved considerably.

98.For completeness, I shall deal with 2 other points raised by Mr Wong in his submissions namely, (1) the alleged insolvency of P and (2) the market value of the VPM shares.

99.As regards the alleged insolvency of P, which is a consistent theme advanced by Mr Wong throughout his submissions, it is said that the directors acted in breach of their duties in that P was insolvent at the time the VPM Transfer was made, but the directors failed to take into account the interests of P’s creditors. The submissions are wholly without merit given that:

(1)  the allegations have never been pleaded in the SOC. Indeed, the directors’ duties, as pleaded in §§18-19 of the SOC, do not include any such duty;

(2)  nor has it been put to any of Ds’ factual witnesses that they considered that P was insolvent at the time the VPM Transfer was made or became insolvent as a result of such Transfer;

(3)  to the contrary, it is the unchallenged evidence of Ds’ factual witnesses that they did not consider P to be insolvent at the time. This is unsurprising given that the Vigers Group was able to obtain the financial support from GCGL in the form of the Loan, which was unsecured, interest free and with no fixed repayment term;

(4)  as stated in each of the AFS of P for the years ended 31 December 2003 up to 2008, although P was “balance sheet” insolvent, the extent of deficiency was far less than the amount of the Loan advanced by GCGL, and GCGL did not demand for repayment of the Loan. It can also be seen from the AFS during the same period that other than GCGL, P did not have any significant outside creditors. In other words, it was GCGL, the intermediate holding company of P, which had been financing and supporting the business of P and, as such, the interests of GCGL were aligned with those of P. There is thus no basis for P’s (unpleaded) contention that the directors ought to have considered the interests of the creditors when P did not have any significant outside creditors.

100.As for the market value of VPM Shares, it is again a non-issue never pleaded in the SOC. It is also without merit for the following reasons:

(1)  The Accounting Issue is framed on the assumptions that there was a willing buyer for the VPM Shares on 12 November 2004 and without any regard to the liability of VPM. Neither assumptions are correct or justifiable as (a) there is no evidence to suggest that it was possible for the VPM Shares to be sold at the time, let alone at the market value assessed by the experts; and (b) there was an outstanding bank loan of $3 million which needed to be repaid by VPM or P before any outside buyer would acquire the VPM Shares. There is no evidence to suggest that VPM or P had the requisite fund to repay the loan at the time;

(2)  As stated in §65(1)-(3) above, I accept Binney’s evidence that the VPM Shares did not have any value at the time the VPM Transfer was made.

101.In the absence of any pleaded issue and factual basis in support of the assumptions used in the Valuation Issue, it is not necessary to consider the difference in opinions between Bancroft and Lees on the market value of the VPM Shares.

102.In any event, I do not think that there is any basis for P to reverse the management fees actually paid by VPM to P given that:

(1)  according to the answers recorded in Bianca’s Transcripts, which P seeks to rely on in this action, the management fees had been paid by various companies to P (including VPM) in return for the use of the clients base of P;

(2)  after extensive cross-examination, WTM accepts that there was no proper basis to reverse the management fees actually paid by VTM to P; and

(3)  Bancroft confirms during cross-examination that he does not have sufficient information to say whether the management fees should be reversed or not. If the management fees were not reversed, the future maintainable earnings of VPM would be zero, and the market value of VPM as assessed by the market approach would be zero.

103.Lastly, even if, contrary to my view, the directors acted in breach of fiduciary duties in failing to cause the VPM Shares to be sold at their market value and all the current assets of VPM are fully recoverable at their book value such that the market value of the VPM Shares was $4,477,283, as assessed by Bancroft using the net asset value approach, it is clear that P would not be able to show that it has suffered any loss. This is because:

(1)  the price payable by VAPH (qua purchaser) to P would be recorded in the current account between P and VAPH on 12 November 2004;

(2)  on 30 November 2004 (being the month end), the amount owed by VAPH would be consolidated and became the amount owed by VH to P;

(3)  the amount owed by VH to P would be increased from $9,564,984.66 (i.e. the Sum) to $14,042,267.66;

(4)  the entire amount owed by VH ($14,042,267.66) would be set-off against the balance of the Loan assigned by VAP to VH on 31 December 2008 ($19,783,866), leaving VH to become a net creditor of P for the amount of $5,741,598.34 as at 31 December 2008; and

(5)  for the reasons stated in section D4 below, there is no proper basis to impugn the Assignments/Set off. As the so-called “loss” would only result in a reduction of the amount owed by P to VH, there is no basis for P to claim that it has suffered any loss as a result of the VPM Transfer.

104.I turn to the claim against VAPH for dishonest assistance.

105.The principles governing a claim for dishonest assistance are expounded in Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming [1995] 2 AC 378 at 382A-F, 385, 387E and 392, per Lord Nicholls; and Twinsectra Ltd v Yardley [2002] 2 AC 164 at §§107-109, per Lord Millett and may be summarized as follows:

(1)  A person who dishonestly assists a trustee in committing a breach of trust may be liable to the beneficiary for knowing assistance;

(2)  The liability is a form of “secondary” liability in the sense that it only arises where there has been a breach of trust;

(3)  Liability is attributed by reason of the assistance given to the breach of trust and is not dependent upon the receipt of trust property by the accessory;

(4)  Nor is it necessary for the primary breach of trust to have been committed dishonestly or fraudulently; and

(5)  The plaintiff must prove that the defendant assisted in the breach of trust with a dishonest state of mind. In fact, dishonesty on the part of the accessory has been described as the “touchstone” of liability.

106.The test of dishonesty is an objective one. As explained by Lord Hoffmann in Barlow Clowes International Ltd v Eurotrust International Ltd[2006] 1 WLR 1476 §10:

(1)  Liability for dishonest assistance requires a dishonest state of mind on the part of the person who assists in the breach of trust or fiduciary duty;

(2)  Such a state of mind may consist in knowledge that the transaction is one in which he cannot honestly participate (for example, a misappropriation of other people’s money), or it may consist in suspicion combined with a conscious decision not to make inquiries which might result in knowledge;

(3)  The standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant’s mental state would be characterized as dishonest, it is irrelevant that the defendant judges by different standards.

107.In light of my holding that the directors did not act in breach of fiduciary duties in devising and implementing the Restructuring which included the VPM Transfer, P’s claim against VAPH for dishonest assistance must fail.

108.There is another reason why the claim must fail. As Mr Man submits:

(1)  In relation to a claim for dishonest assistance against a company, it must be pleaded which natural person was dishonest and why that person’s dishonesty is to be attributed to the company. This accords with the principle that a company has no real personality and can only act through natural persons as their agents (Moulin Global Eyecare Trading Ltd v Commissioner of Inland Revenue(2014) 17 HKCFAR 218 at §67).

(2)  Thus, the Court would strike out a claim for dishonest assistance against a company where the necessary allegations of dishonesty were lacking (Stanford International Bank Ltd v HSBC[2021] 1 WLR 3507, §47, per Geoffrey Vos MR).

(3)  In the present case, the only particular of dishonesty pleaded is that VAPH was “at all material times aware of the matters pleaded at paragraph 20(1) and 20(2) above”[39]. There is no plea of dishonesty in §20(1) or §20(2) of SOC. Nor is there any plea on which natural person(s) was dishonest and why that dishonesty should be attributed to VAPH.

(4)  It has never been put to any of Ds’ factual witnesses that they (whether on behalf of VAPH or not) harboured a dishonest intent in effecting the VPM Transfer.

109.I agree with Mr Man’s submissions. Indeed, Mr Wong has not articulated any response to answer the points. For these further reasons alone, the claim against VAPH must be dismissed.

D3.   VAP Payments Issue

110.As stated in §7(3) above, the issue is whether the Remaining VAP Payments($2,270,875) during the period from 22 January 2009 to 29 July 2009 weremadeby the directors in breach of fiduciary duties. In light of my holding that Ho was not a shadow director of P, the claim can only be made against VN, VAPH and Raymond.

111.The only alleged breach of fiduciary duties can be found in §34 of the SOC, where it is pleaded that the VAP Payments “were not in the interest of [P] and/or for a proper purpose”. Again, Mr Wong attempts to expand P’s case by repeatedly referring to the alleged insolvency of P both in his submissions and during cross examination of Ds’ factual witnesses. Again, I do not think that P should be allowed to expand its case in this way, given that:

(1)  the fiduciary duties pleaded in §§18 – 19 of the SOC do not include a duty to act in the interests of P’s creditors when P was insolvent;

(2)  although there is a plea in §32 of the SOC that “the VAP Payments were dispositions by [P] when insolvent with the result that [P’s] creditors (including the [Claimants]) were subjected to at least a significant risk of being unable to recover their debts in full”, such plea is part of the (now abandoned) claim that the VAP Payments constituted dispositions to defraud creditors. It is not pleaded as part of the material facts or particulars of any breach of fiduciary duties;

(3)  there is no plea that in allowing the Remaining VAP Payments to be made, the directors knew or subjectively believed that P was insolvent; and

(4)  there is no plea that by the time the Remaining VAP Payments (or the VAP Payments) were made, P was insolvent and in particular, there was no plea that by reason of (a) the contingent liability associated with the Claimants’ claim in the HCA or (b) the change in intermediate holding company from GCGL to Lordful on 30 May 2008, P was insolvent.

112.In any event, I do not think there is any merit in P’s allegation that the Remaining VAP Payments were not in the interests of P and/or that they were not made for proper purpose, having regard to the following facts and matters:

(1)  It is indisputable (and I so find) that VAP was set up during the Restructuring for the specific purpose of acting as the centralized cash agent of the Vigers Group and, since VAP’s establishment in June 2003, it has been the practice of the companies within the Vigers Group (including P) to cause monies payable by their clients or their own monies to be paid to VAP as such centralized cash agent, and for VAP to pay expenses on behalf of the Group companies (“Payments Practice”);

(2)  It is not in dispute that P received payments on behalf of other Group companies from clients (including Housing Authority, Bank of China and Standard Chartered Bank) in respect of the services provided by other Group companies including VAC. This is confirmed by both accounting experts after having reviewed the books and records of P for the relevant years (Tan reviewed the books and records for the period from 1 January 2008 to 3 March 2010, while Lees reviewed the books and records from 2004 to 2009);

(3)  It is also indisputable that the Remaining VAP Payments were paid by P to VAP pursuant to the Payments Practice. In this regard, Lees opines that based on his review of P’s accounting records, VAP acted as centralized cash agent of the Vigers Group and VAP was generally responsible for inter-company transfers. While Tan disagrees that VAP was generally responsible for inter-company transfers, she confirms that P “made regular transfers of income to VAP between January 2008 and July 2009” and from August 2009, P made regular payments to VH instead. Both experts agree that “between January 2008 and July 2009, P made regular bank transfers to VAP, usually towards the end of each month and in round thousands, apart from one payment of USD500 on 22 January 2009”;

(4)  At trial, it is not in dispute that Raymond was not involved in the decision making process concerning the setting up of VAP or its function (see §55 above). Indeed, it is clear from Bianca’s Transcripts that since at least 2008, Bianca had been the CFO of the Vigers Group and was in charge of the accounting function of the Vigers Group;

(5)  There is no plea let alone evidence that the de jure directors had any involvement in causing or procuring P to make the Remaining VAP Payments. Nor is there any plea or evidence that the directors ought to have procured P to stop the Payments Practice. It is impossible to see how it can be said against the directors that they acted in breach of fiduciary duties when they were not involved in making the Remaining VAP Payments; and

(6)  Even if (which is not the case) there is any factual basis for P to suggest that the directors were involved in making the Remaining VAP Payments, it is incumbent upon P to put to Raymond (being the de jure director of P, and a director of VN and VAPH) that he did so without regard to the interests of P or for improper purpose. Neither allegation has been put to Raymond.

113.Lastly, P fails to prove that it has suffered any loss from the Remaining VAP Payments for the following reasons:

(1)  According to Tan, some of the amounts in question were received by P on behalf of other entities within the Vigers Group. They were not P’s assets and, therefore, cannot form part of the loss allegedly suffered by P. Despite this fact, it has not been made clear by Mr Wong as to which of the Remaining VAP Payments were P’s monies.

(2)  The Remaining VAP Payments were not lost as they were recorded as amounts owed by VAP to P. Such amounts were then transferred to VH by the end of the month and, subsequently, set-off against the balance of the Loan owed by P to VH (as further described in Section D4 below).

D4.   Assignments/Set-off Issue

114.The only remaining claim is for breach of fiduciary duties against the directors (Raymond, VN, VAPH and Ho) in that the Assignments/Set-off were not in the interest of P and/or for a proper purpose[40].

115.Again, the claim can only be made against the de jure directors but not the alleged shadow director, Ho.

116.The claim against the de jure directors is demurrable for the following reasons.

117.There is no material fact pleaded in support of the alleged breach of duties. This is unsurprising given that the objective facts show that the directors did not carry out (or omit to carry out) any act to procure or cause the Assignments/Set-off to be made:

(1)  The Assignment of the Loan from GCGL to VAP on 30 December 2008 (but stated to take effect on 31 October 2008) did not require any act on the part of P (or any its directors acting on its behalf). It was an exercise of right vested in the creditor (GCGL) over its own asset.

(2)  Similarly, the Assignment of the Loan from VAP to VH on 31 December 2008 did not require any act on the part of P (or its directors acting on its behalf). It was also an exercise of right vested in the creditor (VAP) over its own asset.

(3)  The Set-off was a right available to VH as it was both a creditor (in respect of the Loan) and a debtor (in respect of the Sum) of P at the time (31 December 2008). It did not require any act on the part of the directors to effect the Set-off. After the Set-off, VH became a creditor of P to the extent of $10,218,881.3.

118.In his written Closing, Mr Wong is unable to point to any act said to have been done by the directors in relation to the Assignments/Set-off. Instead, he seeks to reverse the burden of proof in this way:

“The first point to note is that [Raymond], who managed [P], VH and VAP at the material time, positively endorsed [Ds’] pleaded case, namely the purpose was to remove GCGL’s status as a creditor of [P] and hence obviate the risk of GCGL making a demand from [P]….There is no suggestion that he did not cause or approve the Set-Off.”[41]

119.If and insofar as it is suggested that there is a plea in §39C(6) of the SOC, which is part of the (now abandoned) claim under s.60 of the CPO, that the directors approved P’s AFS for the year ended 31 December 2008 (which included the Assignments/Set-off), I do not see how the act of approving the AFS can be a material fact in relation to the Assignments/Set-off, as such approval took place on 7 August 2009, more than 8 months after the Assignments/Set-off.

120.In the absence of act (or omission to act) on the part of the directors in procuring or causing the Assignments/Set-off to be made, there is no basis for P to allege that the directors acted in breach of fiduciary duties. For this reason alone, the claim must fail.

121.Much criticisms have been made by Mr Wong in his written Closing about the sale of VH to Lordful in May 2008 and the contingency liability associated with the Claimants’ claim against which no provision was made in the AFS of P, which are said to be the “backdrop” against which the Court has to assess Ds’ pleaded justification for the Set-off[42]. The arguments are wholly devoid of merit, given that:

(1)  P fails to plead or prove an arguable case for breach of fiduciary duties. There is no need for Ds to prove or justify a breach which did not exist in the first place; and

(2)  Neither the sale of VH to Lordful nor the alleged failure to make provision for the contingent liability has been pleaded as part of the material facts in support of the claim. It is unfair for P to try to expand its case in this way.

122.In any event, P is unable to demonstrate how the Sum claimed can be said to be a loss suffered by P, still less a loss caused by the alleged breach of duties.

(1)  Mr Wong has not in his Opening or Closing addressed the point that the Sum was not and could not be a “loss” suffered by P.

(2)  As stated in §117 above, the Sum was simply the net amount owed by P to VH after the Set-off.

(3)  Mr Man submits that the Set-off did not cause loss to P as it was a dollar-for-dollar netting off exercise which did not reduce the net assets of P. I agree.

D5.   VH Payments Issue

123.The only claim is against VH for reversal of the VH Payments ($12,225,790.85) on the ground that they constituted unfair preferences. The following facts are relevant:

(1)  The VH Payments were made during the period from 31 January 2009 to 23 February 2010[43], of which $5,774,029.45 were paid during the 6 months’ prior to the commencement of the winding up of P[44].

(2)  The de juredirectors of P at the time the VH Payments were made were Raymond (until 7 September 2009), VN and VAPH.

(3)  Amongst the VH Payments, 41 payments totaling $2,984,549.45 were bank transfers (collectively “Bank Transfers”), while 25 payments totaling $9,241,241.40 were the inter-company transfers recorded in P’s ledgers (i.e. C/A Balances) and consolidated at the end of each calendar month and subsequently, transferred to P’s current account with VH pursuant to the modus operandi described in §27(1)-(5) above (collectively “25 Transfers”).

(4)  The existence of the modus operandi (as described in §27(1)-(5) above) is confirmed by Tan and Lees, after they have reviewed the accounting records for the respective periods they had been instructed to review, although Tan has identified a few exceptions.

124.The claim must fail in limine as P does not have the locus to make such claim. A claim for unfair preference is a creature of statute and the person who has the right to apply for the relief is prescribed by s.266 of the former CO. As is clear from s.266(2), only the liquidator of a company has the right to apply for relief under s.266 (Butterworths, Company Law (Winding Up and Miscellaneous Provisions) Ordinance Handbook, 4^th ed., §266.02).

125.The lack of locus is sufficient to dispose of the claim. Nevertheless, I will set out the reasons as to why I consider the claim to be wholly without merit even if, contrary to my view, P has the right to make a claim under s.266.

126.Under s.266B of the former CO, a reference in s.266 to a fraudulent preference shall be deemed to be a reference to an unfair preference as provided for in s.50 of the Bankruptcy Ordinance (Cap.6) (“BO”).

127.The relevant provisions in s.50 of BO are as follows:

“(1) Subject to this section and sections 51 and 51A, where a debtor is adjudged bankrupt and he has at a relevant time (defined in section 51) given an unfair preference to any person, the trustee may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that debtor had not given that unfair preference.

(3) For the purposes of this section and sections 51 and 51A, a debtor gives an unfair preference to a person if-

(a) that person is one of the debtor’s creditors or a surety or guarantor for any of his debts or other liabilities; and

(b) the debtor does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the debtor’s bankruptcy, will be better than the position he would have been in if that thing had not been done.

(4) The court shall not make an order under this section in respect of an unfair preference given to any person unless the debtor who gave the unfair preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection(3)(b).

(5) A debtor who has given an unfair preference to a person who, at the time the unfair preference was given, was an associate of his (otherwise than by reason only of being his employee) is presumed, unless the contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in subsection (4).”

128.In the case of an unfair preference, the “relevant time” in s.50(1) is defined in s.51(1)(b)‑(c) of BO as follows:

“(1) Subject to subsections (2) and (3), the time at which a debtor enters into a transaction at an undervalue or gives an unfair preference is a relevant time if the transaction is entered into or the unfair preference given‑

…

(b) in the case of an unfair preference which is not a transaction at an undervalue and is given to a person who is an associate of the debtor (otherwise than by reason only of being his employee), at a time in the period of 2 years ending with that day; and

(c) in any other case of an unfair preference which is not a transaction at an undervalue, at a time in the period of 6 months ending with that day.

(2) Where a debtor enters into a transaction at an undervalue or gives an unfair preference at a time mentioned in subsection (1)(a), (b) or (c) …, that time is not a relevant time for the purposes of sections 49 and 50 unless the debtor‑

(a) is insolvent at that time; or

(b) becomes insolvent in consequence of the transaction or preference …

(3) For the purposes of subsection (2), a debtor is insolvent if‑

(a) he is unable to pay his debts as they fall due; or

(b) the value of his assets is less than the amount of his liabilities, taking into account his contingent and prospective liabilities.”

129.In the context of a company in liquidation, the relevant time began on the date of the commencement of the winding up of the company. Under s.266B(1)(b), a reference in s.266 to a period of 6 months shall be deemed to be a reference to 6 months or 2 years in the case of an associate.

130.As for the meaning of “associate”, s.51B(1) of BO provides as follows:

“(1) For the purposes of sections 49 to 51A, any question whether a person is an associate of another person shall be determined in accordance with this section.

…

(4) A person is an associate of a debtor whom he employs or by whom he is employed and for this purpose, any director or other officer of a company shall be treated as employed by that company.

…

(6) A company is an associate of a debtor if that debtor has control of it or if that debtor and persons who are his associates together have control of it.

…

(8) For the purposes of this section, a debtor shall be taken to have control of a company if ‑

(a) the directors of the company or of another company which has control of it (or any of them) are accustomed to act in accordance with his directions or instructions, but a debtor shall not be considered to have control of a company by reason only that the directors act on advice given by him in a professional capacity: or

(b) he is entitled to exercise, or control the exercise of, 1/3 or more of the voting power at any general meeting of the company or of another company which has control of it, and where 2 or more persons together satisfy either of the above conditions, they shall be taken to have control of the company.

(9) In this section, “company” includes any body corporate (whether incorporated in Hong Kong or elsewhere) …”.

131.To succeed in a claim for unfair preference, P has to establish the following matters:

(1)  VH was a creditor of P at the time the VH Payments were made (s.50(3)(a) of BO).

(2)  P did anything which has the effect of putting VH into a position which, in the event of the liquidation of P, would be better than the position it would have been in if that thing had not been done (s.50(3)(b) of BO).

(3)  In deciding to make the VH Payments, P was influenced by a desire to put VH in a better position as described in sub-§(2) above (s.50(4) of BO).

(4)  The VH Payments were made within the “relevant time”, being 6 months for any other person or 2 years if VH was an “associate” of P (s.266B(1)(b) of former CO).

(5)  P was insolvent at the time of the VH Payments were made or became insolvent in consequence of the VH Payments (s.51(2) of BO).

132.I consider each element in turn.

133.The first element is satisfied as VH was (as I so find) a creditor of P at the time the VH Payments were made.

134.As regards the second element:

(1)  It is indisputable that the VH Payments had the effect of putting VH in a better position in P’s liquidation in that rather than having to prove in the liquidation as a creditor in respect of the amount owed by P ($10,218,881.3), the entire amount was effectively repaid by the VH Payments.

(2)  However, I do not think that there is any basis for P to claim the return of the 25 Transfers, which were admittedly the amounts owed by other Group entities to P or monies belonging to such other entities.

135.The third element is not satisfied:

(1)  The VH Payments were made by the accounting staff in accordance with the modus operandi (as described in §27(1)-(5) above).

(2)  As Mr Man submits, there is no plea that P subjectively desired to put VH in a better position in an insolvent liquidation. This accords with the principle that a desire to prefer is a subjective state of mind (Re Fairway Magazines Ltd[1993] 1 BCLC 643 at 649f, per Mummery J). Nor is there any plea that the directors (or any of them) had the subjective desire to prefer VH and that his state of mind is to be attributed to P. This is fatal to a claim for unfair preference, which requires P to prove that the decision to make the VH Payments was influenced by the requisite desire to put VH in a better position in the event of an insolvent liquidation (Re MC Bacon Ltd [1990] BCC 78, at 87E-88C, per Millett J (as he then was)).

(3)  It has never been put to Raymond (or any of Ds’ factual witnesses) that he was involved in procuring P to make the VH Payments and in making such decision, he was influenced by a desire to put VH in a better position in the event of an insolvent liquidation.

136.As for the fourth element, P fails to prove that VH was an associate of P:

(1)  In §25 of the SOC, it is alleged that VH was an associate within the meaning of s.51B of the BO. No particular or material fact has been pleaded in support of the allegation.

(2)  As Mr Man submits, if and to the extent that P seeks to rely on s.51B(6) of the BO, there is no averment of the material fact required, namely that (a) P controlled VH or (b) P (debtor) and its associates together controlled VH. It is absurd to suggest that P controlled VH, when VH was the parent company of P.

(3)  For the reason stated in §134(2) above, P cannot claim against VH in respect of the 25 Transfers. Putting P’s case at its highest, the claim can be only made in relation to those Bank Transfers made within the 6 months’ period prior to commencement of the winding up of P, that is, from 4 September 2009 to 3 March 2000.

137.In relation to the fifth element, I agree with Mr Man that in the SOC, there is no plea of insolvency of P, whether in respect of the 2-year period or the 6-month period.

138.For the above reasons, even if (which is not the case) P has the locus to make a claim for unfair preference, the essential elements of the claim for unfair preferences have not been established.

D6.   PII Claim Issue

139.The claim is now only against Suen for breach of duty of care and skill in failing to put in place a PII for P after 31 July 2002, being the date when the last PII expired. P claims to be entitled to damages representing the “loss of chance to make a claim against a valid professional indemnity insurance coverage, to be assessed”[45].

140.Mr Man submits that it has never been made clear by P when exactly was the time of the alleged breach. In view of the fact that the Claimants through their solicitors sent the Letter Before Action (dated 23 February 2003) to P, such that P was required to disclose the existence of the claim to the insurer, it would have been impossible for P to obtain any PII to cover the claim after 23 February 2003. Mr Wong accepts this.

141.The claim is really a “try on” and is wholly without merit.

142.First, Mr Man submits (and I agree) that the particulars of negligence required to raise a claim for negligence have not been pleaded:

(1)  In C.S. Low Investment v Freshfields (a firm),CACV 184/1989, 26 June 1990, §24, the Court of Appeal made the following observation:

“It is surely well established that it is simply not enough for a plaintiff in effect merely to allege that the defendant has acted negligently and thereby caused him damage. He must set out all the material facts which show precisely in what respect the defendant was negligent so that the defendant knows what case he has to meet … If a surgeon is being sued for his negligent treatment of a patient, a pleading which merely avers that the surgeon negligently treated the patient, without particulars being given of the negligence and lack of skill complained of, will obviously fall short of what is required and fail to disclose a cause of action. If someone sues a stockbroker for negligently advising that he should buy certain shares, without more, his pleading will be defective.”

(2)  In §38(1) of the SOC, it is pleaded that “there was no or no proper reasons or justifications for [P] to carry on its business without proper professional indemnity insurance coverage”.

(3)  This plea effectively paraphrases the allegation that P should have obtained a PII, without explaining why. This is plainly insufficient (C.S. Low§24). It also does not spell out any of the essential averments identified in C.S. Low, which are:

(a)  What a “proper” PII was, such as at what coverage, premium and excess;

(b)  Whether that “proper” PII was available in the market to P at the material time;

(c)  Whether that “proper” PII was suitable given P’s risk profile at the time; and

(d)  Whether P could realistically have obtained that “proper” PII given the need to balance its very scarce financial resources at the time for profit-earning activities which involved a degree of risk taking.

(4)  The averment also assumes, wrongly, that the lack of PII coverage is something that calls for justification. As WTM accepts under cross-examination, there was no absolute or mandatory legal requirement for P to take out such insurance.

(5)  Although §38(2) of the SOC refers to contractual duties assumed by P in favour of the Hong Kong Housing Authority (“HKHA”) to take out PII, the plea is irrelevant, and cannot in any event sustain a plea of negligence. The only contracts between P and HKHA adduced by P were entered into in 2004 and 2006. They do not begin to provide a basis for a duty to take out PII in 2002 or 2003. In any event, it is the unchallenged evidence of Ds’ factual witnesses that P did maintain separate PII to cover HKHA’s contracts.

143.The claim as pleaded in the SOC is demurrable. For this reason alone, the claim must fail.

144.In any event, P fails to prove any breach against Suen in that:

(1)  There is no evidence to suggest that by the time the PII expired on 31 July 2002, there was any remote risk of P being exposed to the Claimants’ claim, let alone for hundreds of millions.

(2)  Nor is there any evidence on what PII (be it a group policy, a company policy, or a project policy) were or could have been available in the market to P at the time. There is no proof that Suen could have obtained a PII, let alone a “proper” one (whatever that means).

(3)  It is the uncontradicted evidence of Raymond that at the relevant time, P was in a very poor financial state and did not even have sufficient cash to pay the salaries to all the staff. As Raymond explains (whose evidence I accept), had P had the necessary financial resources at the time, the directors would have renewed the PII upon its expiry on 31 July 2002, as such PII covered the personal liability of the directors when performing services for P, and it was very much in their interest to put in place such a PII to protect themselves.

(4)  Raymond’s evidence is corroborated by the AON Email, which referred to “premium financing” and the person from AON (Regina) stated that “there are some difficulties in getting [it] done”. This suggests that at the time, P had asked AON to explore whether it was possible to finance the premium (as opposed to paying the premium upfront). The inference which Mr Wong asks the Court to draw is not supported by any primary fact (none has been identified).

(5)  WTM fairly accepts under cross-examination that, given P’s financial difficulties, it would not have been able to afford a premium of around GBP 200,000 (which was the premium for the immediately preceding PII) in or about August 2002.

145.Lastly, P fails to plead and prove that it has suffered any loss.

146.Mr Man submits that the alleged loss depends on the hypothesis that, but for the alleged breach, P and a third party (being the insurer) would have entered into a PII which covered the Claimants’ claim. To sustain such a claim, it is incumbent upon P to plead that:

(1)  There was a substantial chance that the third party would have done the hypothetical action; and

(2)  P would, on the balance of probabilities, have done the hypothetical action (McGregor on Damages, 21^st ed.,§10-059; Allied Maples Group Ltd v Simmons & Simmons (a firm)[1995] 1 WLR 1602, at 1609E-G, 1610G-H, 1611A-C; Perry v Raleys Solicitors [2020] AC 352, §§21-22).

147.P’s pleaded case on loss is founded in §39 of the SOC. It contains no averment that:

(1)  There was a substantial chance that an insurer would offer a “proper” PII covering the potential liability in the Claimants’ claim; and

(2)  P would on the balance of probabilities have entered into such a “proper” PII and would have been able to make a claim for that potential liability, assuming (which I do not think is the case) it was possible for P to make a claim under a PII purchased for that year and did not renew the PII all the way up to the liquidation of P, which seems to be the assumption of the Liquidators.

148.The pleaded case on quantum is defective, and the claim against Suen must fail for this additional reason.

149.Further, P fails to prove any loss suffered as a result of the alleged breach.

150.Mr Man submits (and I agree) that:

(1)  P has not adduced any evidence in support of any chance (let alone a substantial one) of an insurer offering a “proper” PII at the material time between 1 August 2002 and 23 February 2003.

(2)  One cannot begin to assess the chance of such policy being offered without understanding what a “proper” PII is alleged to mean.

(3)  P has not even put forward any case on what percentage it says represents the chance of P entering into the PII and making a claim to cover the Claimants’ claim.

(4)  There is therefore no evidential basis to support P’s case on quantum.

(5)  Although P in its Opening[46] still says that the relief sought is “damages (to be assessed) for loss of a chance”, in the absence of an order for split trial, it is not open to P to contend that there should be a further hearing for the purpose of proving the quantum of damages (Hong Kong Civil Procedure 2022§33/4/11).

E.  DISPOSITION AND COSTS

151.For the reasons set out above, P fails on all the Main Issues. It follows that the action and all the claims made against Ds should be dismissed.

152.As for costs, I make a costs order nisi that save for the costs incurred by the parties on the Restructuring Practice Issue and Group Payments Practice Issue, P shall pay the costs of and occasioned by the action, including all costs reserved, to Ds, to be taxed on a party and party basis with certificate for 2 counsel. I make 2 points which may obviate the need for any party to incur further costs in seeking to vary the costs order nisi.

153.I have considered whether to order costs against P on a higher scale as most of the claims advanced against Ds are demurrable or wholly without merit. However, it seems to me that P (and its legal advisers) acted sensibly and reasonably in abandoning a number of claims which are plainly unsustainable, thereby saving the time and costs of the parties and the time of the Court in dealing with such claims.

154.Although Ds are the successful parties, I consider that they should be deprived of the costs incurred in adducing expert evidence on the Restructuring Practice Issue and the Group Payments Practice Issue having regard to the following matters:

(1)  where costs were incurred by a party improperly or unnecessarily, the Court may deprive a successful party of its costs under Order 62 rule 7 of the Rules of the High Court (Wang Din Shin v Nina Kung, CACV 460/2002, 19 April 2005, §§39-40, per Yuen JA);

(2)  it was Ds who sought leave to adduce expert evidence on both issues;

(3)  the expert evidence adduced by the parties is wholly irrelevant to and does not assist determination of the Main Issues; and

(4)  I do not consider that Ds should be ordered to pay the costs incurred by P on these issues, as a substantial part of the expert evidence adduced by P goes beyond the issues as framed by the relevant orders, which is not permissible.

Mr Jonathan Wong and Ms Jacquelyn Ng, instructed by Clifford Chance, for the plaintiff

Mr Bernard Man SC leading Mr Brian Lee, instructed by Jones Day, for the 1^st – 8^th defendants