Lee Sai Hoi v. Li Sin Man and Another

HCA 1456/2021

[2022] HKCFI 2984

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1456 OF 2021

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BETWEEN

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DECISION

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I.  Introduction and Background

1.By a writ indorsed with statement of claim dated 24 September 2021, the plaintiff (“Mr Lee”)  commenced the present action against the 1^st and 2^nd defendants, his daughter and son respectively (together, the “Elder Children”).

2.On 12 October 2021, Mr Lee issued an injunction application (the “Injunction Summons”), seeking to restrain the Elder Children from inter alia passing certain board resolutions of Kendari Company Ltd (the “Company”), as proposed by them in a notice of board meeting issued on 8 October 2021 (the “Notice of Board Meeting”). The intended board resolutions include, inter alia, (1)  approving the alleged transfer of 560,000 shares of the Company (the “Subject Shares”)  from Mr Lee to the Elder Children and to change the Company’s register to reflect the same; (2) changing the registered office and correspondence address of the Company; and (3)  changing the bank mandate of all existing bank accounts of the Company such that the 1^st defendant (the “Daughter”)  be the sole authorised signatory.

3.On 12 October 2021, Linda Chan J granted an “interim interim” injunction restraining the passage or approval of resolutions approving the transfer of the Subject Shares to the Elder Children, upon Mr Lee’s undertaking that he will not dispose or exercise any rights in respect of the Subject Shares in the meantime (the “October 12 Order”).

4.Mr Lee seeks the continuation of the October 12 Order. On the other hand, the Elder Children seek to discharge the October 12 Order and dismiss the Injunction Summons on the grounds that, inter alia, there is no serious issue to be tried, damages are an adequate remedy, the balance of convenience weighs against an injunction and that there has been material non-disclosure at the hearing before Linda Chan J.

5.For present purposes, the background leading up to the present action may be summarised briefly as follows:

(1)  Mr Lee was born in 1933 and is now 89 years old. He was married to Yu Chu Nui (“Madam Yu”), who passed away in 2015. The Daughter and the 2^nd defendant (the “Elder Son”)  were born to Madam Yu in Mainland China in 1963 and 1964 respectively.

(2)  Mr Lee moved to Hong Kong in the 1960s and started to work in a watch manufacturing factory, leaving behind Madam Yu and the Elder Children in Mainland China.

(3)  Shortly after he arrived in Hong Kong, he met and began an extra-marital relationship with Cheuk Yuk Lang (“Madam Cheuk”)  which produced a son in 1997, Lee Shu Kong (the “Younger Son”).

(4)  In 1973, Mr Lee started his own watch band manufacturing business.

(5)  In the late 1970s and early 1980s, Madam Yu and the Elder Children came to Hong Kong.  

(6)  In 1985, Mr Lee closed down his watch band business and established the Company, which was engaged in the business of property investment.  The main source of profit for the Company was and continues to be from property investment and rent collection, and the Company holds a number of valuable landed properties in Hong Kong, including a building on Shanghai Street, Kowloon.

(7)  In or around 1986, Mr Lee hired an accounting firm known as Messrs Alexander Cheung & Co (“ACC”)  to keep and manage the financial records of the Company and to handle company secretarial matters. Mr Hui Wing On (“Mr Hui”)  and Ms Lun Mei Sheung (“Ms Lun”)  of ACC often assisted Mr Lee in handling company documents and paperwork relating to the operation and management of the Company.

(8)  Initially, the Company only had two issued shares each with a par value of HKD1.00. Mr Lee and Madam Yu each held one share and the two of them were the sole directors.  In 1987, 1,599,998 new shares were allotted, with Mr Lee holding a total of 1,120,000 shares (70%), and Madam Yu and the Elder Children each holding 160,000 shares (10%).  In addition to Mr Lee and Madam Yu, the Elder Children were also appointed directors of the Company.

(9)  In 1994, the Elder Son emigrated to Canada.

(10)  Madam Yu passed away in 2015.  In December of that year, her 160,000 shares of the Company were transferred to the Elder Children in equal shares, such that each of them became the registered holder of 240,000 shares (15%).

(11)  Mr Lee also asked the Daughter to assist him in the affairs of the Company as he was suffering from cataracts and other health problems, and she was paid HK$15,000 in monthly remuneration.

(12)  However, the relationship between Mr Lee and the Daughter deteriorated significantly beginning in 2017, as reflected by various altercations between the Daughter, Mr Lee and Madam Cheuk, including repeated rebuffed attempts by the Daughter to have Mr Lee examined by a psychiatrist regarding his mental health.

(13)  In 2018, the Company dismissed ACC as the Company’s auditors.

(14)  On 10 February 2021, the Daughter’s solicitors, Messrs Iu, Lai & Li (“ILL”), issued two letters to Mr Lee, the first inviting him to attend a psychiatric examination, and the second stating that in or about 2012, he had transferred 160,000 shares of the Company to the Daughter and 400,000 shares of the Company to the Elder Son by executing instruments of transfer, bought and sold notes and board resolution of the Company approving such transfers (the “Alleged Share Transfers”). ILL notified Mr Lee that the Daughter would be submitting the said documents to the Inland Revenue Department (the “IRD”)  for stamping.

(15)  On 23 February 2021, Mr Lee’s solicitors, Messrs Chiu, Szeto & Cheng (“CSC”)  replied to ILL requesting all relevant documents in respect of the Alleged Share Transfers.

(16)  On 5 March 2021, ILL sent a letter to CSC reiterating their request for Mr Lee to attend a psychiatric examination, failing which they would apply for an order for medical examination of Mr Lee by court-appointed psychiatrists.

(17)  On 23 March 2021, ILL sent a letter to CSC again reiterating their request for Mr Lee to undergo psychiatric examination and enclosing (one month after CSC’s request)  documents in support of the Alleged Share Transfers, namely:

(a)  Bought and sold notes and instruments of transfer for 160,000 shares of the Company dated 18 October 2012 purportedly executed by Mr Lee as transferor and the Daughter as transferee at a consideration of HK$400,000 and stamped by the IRD on 15 March 2021.

(b)  Bought and sold notes and instruments of transfer for 400,000 shares of the Company dated 18 October 2012 purportedly executed by Mr Lee as transferor and the Elder Son as transferee at a consideration of HK$400,000 and stamped by the IRD on 15 March 2021.

(the “Alleged Transfer Documents”)

(18)  Mr Lee’s signatures on the Alleged Transfer Documents were purportedly witnessed by Mr Hui and those of the Elder Children were witnessed by Ms Lun.

(19)  On 29 March 2021, CSC issued a letter to ILL denying that Mr Lee ever signed the Alleged Transfer Documents. Further, Mr Lee had undergone a medical examination by psychiatrist Dr Cheung Hung Kin, who opined that he was mentally competent in the administration of his assets and financial matters.

(20)  On 28 May 2021, CSC issued a letter to ILL reiterating that the Alleged Transfer Documents were signed without his knowledge and consent, or his purported signatures thereon were forged. CSC further demanded the Daughter to provide answers as to (1)  where the Alleged Transfer Documents were signed; (2)  who prepared the Alleged Transfer Documents; (3)  who presented the Alleged Transfer Documents for stamping; and (4)  reasons for the delay in stamping the Alleged Transfer Documents. Apparently, ILL gave no reply to the questions raised.

(21)  On 24 September 2021, Mr Lee commenced the present action.

(22)  On 8 October 2021, ILL issued a letter to CSC enclosing the Notice of Board Meeting.

(23)  On 12 October 2021, perhaps unsurprisingly, Mr Lee issued the Injunction Summons and obtained an “interim interim” injunction from Linda Chan J.

6.As will become apparent below, the present case is in substance a dispute over family assets. At the beginning of the hearing, I invited the parties and their legal representatives to seek an amicable resolution, if only for an acceptable status quo pending the trial of the action. However, despite repeated attempts and entreaties by the Court, regrettably, the parties were unable to reach any consensus.  I then heard the parties on the Injunction Summons and indicated that I would hand down my decision in due course.

II.  The Parties’ Respective Cases

7.Given the nature of the dispute, unsurprisingly, the evidence before the Court was larded with allegations against the respective behaviour of Mr Lee, the Elder Children, Madam Yu, Madam Cheuk and the Younger Son, much of which is disputed. I do not intend to set them out in this Decision save where the context requires below.

8.Mr Lee’s case may be summarised as follows:

(1)  He never signed any of the Alleged Transfer Documents as alleged or at all. The signatures purported to be his were forged.

(2)  Alternatively, even if the Alleged Transfer Documents bore his genuine signatures, he affixed the same upon the fraudulent misrepresentation made by Mr Hui and/or the Daughter in the following circumstances:

(a)  For many years prior to the termination of ACC’s services, Mr Lee relied upon Mr Hui to handle most of the paperwork and company documents relating to the operation and management of the Company.

(b)  As Mr Lee received education only up to primary level and could not read, write or understand English, he had difficulty understanding a number of company documents and paperwork relating to the Company.

(c)  He therefore relied upon Mr Hui to handle not only financial records of the Company, but also other company documents and paperwork in English.

(d)  From time to time, Mr Hui and/or his colleagues at ACC would deliver documents to Mr Lee by mail and ask him to sign and return them to their office afterwards for their handling. Mr Hui told to Mr Lee that such documents were required to be executed by him on behalf of the Company and were for the operation and management of the Company.

(e)  Mr Lee did not understand the contents of the company documents which Mr Hui asked him to sign but relied on the representations of Mr Hui and had on more than one occasion signed on them on behalf of the Company in the belief that they were necessary for the operation and management of the Company.

(f)  Mr Hui was aware that that Mr Lee did not understand the contents of the said documents.

(3)  In 2011 and 2012, Mr Lee suffered from cataracts and had difficulty reading documents due to blurred and clouded vision. The Daughter took the initiative to assist Mr Lee in handling paperwork and company documents relating to the Company:

(a)  The Daughter would prepare documents, such as but not limited to tenancy agreements and receipts to be issued to tenants and request Mr Lee to sign on them.

(b)  The Daughter told Mr Lee that the documents were required to be executed by him on behalf of the Company and were for the operation and management of the Company.

(c)  The Daughter had full knowledge that Mr Lee could not see and read clearly let alone understanding the contents of the documents she asked Mr Lee to sign and that he relied completely on what he was told by the Daughter when executing the documents.

(d)  Mr Lee had on more than on one occasion signed documents at the Daughter’s request in such circumstances.

(4)  Mr Lee therefore believed that in was at that time that either Mr Hui or the Daughter or both delivered the Alleged Transfer Documents to him to sign, fraudulently representing to him that the documents were for the operation and management of the Company.  In reliance upon such representations, he was induced to sign the Alleged Transfer Documents.

(5)  Further or alternatively, Mr Lee relies upon the doctrine of non-est factum.

(6)  As a result, the Alleged Transfer Documents were not signed with Mr Lee’s consent and knowledge as to the contents and effect of those documents. In any event, Mr Lee had no intention and never agreed to the Alleged Share Transfers at all.

(7)  Mr Lee never received the purported consideration stated on the Alleged Transfer Documents of HK$160,000 and HK$400,000, or any part thereof.

(8)  Mr Lee therefore seeks declaratory relief that Alleged Share Transfers are void and of no legal effect.

9.No defence has yet been filed by the Elder Children. However, their case is set out in the Daughter’s evidence:

(1)  The Daughter and the Elder Son both maintained a good relationship with their parents, Mr Lee and Madam Yu, and the Daughter contributed half of her salary to them after she started working in 1985 as part of her filial duty.

(2)  In 2014, the Daughter and Madam Yu learned of Mr Lee’s relationship with Madam Cheuk, and Madam Yu wanted a divorce as well as “her fair share of the Company”. Mr Lee promised that he would dispose of his assets fairly.  In fact, he had already made a will in 2012 which left everything to Madam Yu after his death.

(3)  However, the will was rendered meaningless after the death of Madam Yu in 2015. Mr Lee therefore made a new will leaving “the majority of his assets” to the Elder Children, except for a residential property to his domestic helper, Amita.

(4)  Notwithstanding the discovery of his extra-marital relationship, the Daughter maintained a close relationship with Mr Lee.  In fact, even before 2015, she assisted Mr Lee in managing the affairs of the Company without remuneration in addition to her full-time job, including rent collection, paying stamp duty and managing the properties. She also accompanied Mr Lee and Madam Yu to their doctors’ appointments over the years.

(5)  Shortly after Madam Yu’s death, Madam Cheuk moved out of her residence in Tseung Kwan O and moved near Mr Lee. She spent most of each day caring for him, which the Daughter did not initially oppose due to the fact that Mr Lee was “vulnerable both physically and mentally after [Madam Yu’s demise]”.

(6)  However, she soon discovered that Madam Cheuk was isolating Mr Lee from the family and constantly casting aspersions on her. “Due to Madam Cheuk’s intermeddling, I soon lost the privilege to speak to [Mr Lee] alone and [Mr Lee] became more and more agitated with me. Soon, [Mr Lee] had become a former shell of himself. He was fully dependent on Madam Cheuk’s care and was acting under the control of Madam Cheuk”.

(7)  In the meantime, “Madam Cheuk spared no time to extract money” from Mr Lee, including inter alia:

(a)  Apparently paying sums of money from his personal accounts to Madam Cheuk and the Younger Son.

(b)  Madam Cheuk drawing up or having Mr Lee draw up a home-made will for Mr Lee (the “Home-made Will”)  in mid-2016, whereby, inter alia, the shares of the Company would be given to the Daughter, the Elder Son and the Elder Son’s children, and the Younger Son would be gifted two properties owned by Mr Lee personally, including a shop unit in Wanchai (the “Wanchai Property”). The Home-made Will was never signed by Mr Lee, “…but showed [Madam Cheuk’s] determination to extract as much assets out of [Mr Lee] in the shortest time possible.”

(8)  The Daughter learned from Ms Tsang, a clerk at Messrs Tai Tang & Chong, which had previously drawn up a will for Mr Lee, that Mr Lee had attempted to make a new will, but the firm considered his mental state unsatisfactory and did not proceed with his instructions.

(9)  In the course of 2018 and 2019, likely at Madam Cheuk’s instigation, Mr Lee made a number of gifts of landed property to the Younger Son, comprising 4 units (including the Wanchai Property)  and 2 carpark spaces totalling over HK$30 million in value. He also purchased a property for Amita at a price of HK$5,533,600, which “Given [Madam Cheuk’s] goal was to extract assets from Mr Lee, it was obviously beneficial for her to gain the support and help of Amita by providing her gifts from [Mr Lee] or the Company’s assets…”

(10)   On 7 August 2018, Ms Tsang telephoned Mr Hui and instructed him to initiate the procedure to transfer Mr Lee’s 62% of the Company’s shareholding to the Younger Son and 8% to Amita. However, Mr Hui apparently refused as “35% of the shares (i.e., the current shares in dispute [the Subject Shares])  had already been transferred to [the Elder Son] and me”.

10.As to the circumstances of the Alleged Share Transfers:

(1)  From 2009 to 2010, Mr Lee borrowed some HK$23,566,000 from the Company to acquire properties in his personal name including, in particular, the Wanchai Property.  These loans were approved retrospectively by a board meeting on 11 March 2010.  

(2)  As the purchase of the Wanchai Property drained a significant portion of the Company’s funds, to “compensate” the Elder Children, Mr Lee decided to transfer the Subject Shares to them.

(3)  At the same time, as Madam Yu’s health was deteriorating, she also decided to transfer her 160,000 shares to them before passing away.

(4)  It was then decided that Madam Yu would transfer all her 160,000 (10%)  shares to the Daughter, Mr Lee would transfer 160,000 (10%)  shares to the Daughter and 400,000 shares (25%)  to the Elder Son, such that the Daughter would receive a total of 320,000 shares (20%)  and the Elder Son would receive 400,000 shares (25%).

(5)  To effect the transfers, Mr Lee instructed Mr Hui to prepare the relevant documents including the Alleged Transfer Documents.

(6)  On 18 October 2012, a board meeting was held attended by Mr Lee, Madam Yu, the Elder Son and the Daughter, and Mr Hui and Ms Lun were also present to explain the documents and to witness the transfer (the “Alleged October 2012 Board Meeting”).

(7)  Before the documents were executed, Mr Hui explained in detail to Mr Lee the effect of the transfers and the meaning of the Alleged Transfer Documents. Mr Hui and Ms Lun also witnessed the execution of the documents. Mr Hui made an affirmation to attest to these events in separate proceedings HCMP 1205/2021 (the “HCMP Proceedings”), which was an action commenced by the Elder Children against the Company requiring the Company to register the Alleged Share Transfers.

(8)  After the execution of the Alleged Transfer Documents, the Elder Children did not immediately cause them to be stamped or registered for the following reasons:

(a)  Initially, the Alleged Transfer Documents were left with ACC after they were signed. The Elder Children did not follow up with ACC on the status of the shareholding on the misunderstanding that ACC would proceed with stamping and registration. Also, at the time, the relations within the family were amicable and there was no rush to ascertain their shareholding position.

(b)  After the passing of Madam Yu in 2015, the Daughter started working full time at the Company. She then realised that the documents had not yet been stamped and the Subject Shares not yet registered in their names. As it turned out, ACC was simply keeping the Alleged Transfer Documents in safe custody pending instructions for them to be stamped and registered.

(c)  However, after the Daughter’s discovery, she and the Elder Son nevertheless decided to withhold the stamping of the documents and registration of the shares. The reason was that as Madam Yu had just passed away, as the son and daughter of a traditional family, they did not wish to appear “eager in going after [their] family assets when [Mr Lee] was still alive”. As the Company was found and built by joint effort of the family, they wished to respect his role as the remaining founder and elder of the Company.

(d)  In addition, while they already knew about Madam Cheuk’s relationship with Mr Lee, they did not perceive her as a threat to their interest in the Company since she had yet to show her intention to seize control of the Company.

(e)  She also knew in 2015 that Mr Lee had already made a will in the office of TTC to the effect that the Elder Son and she would both eventually inherit Mr Lee’s shares in the Company.

(f)  As to Madam Yu’s shares, as the relevant transfer documents were never stamped or registered before Madam Yu’s death, it was eventually agreed between Mr Lee, the Elder Son and the Daughter that her shares would be transmitted in equal shares of 80,000 each to the Daughter and the Elder Son. Pursuant to a deed of family arrangement dated 23 October 2015 between Mr Lee and the Elder Children, bought and sold notes and instruments of transfer were executed on 4 December 2015 and stamped on the same day.

(g)  However, from 2017 onwards, Madam Cheuk began “meddling” in the affairs of the Company and seeking to “seize total control of the Company through [Mr Lee]”.  The “last straw” was when she discovered in September 2020 that (i)  Mr Lee had on 20 July 2020 informed the Companies Registry that the Younger Son had been appointed a director and the company secretary when there was no resolution supporting such appointment; and (ii)  that Mr Lee had on 1 September 2020 informed the Companies Registry that the Daughter and the Elder Son had resigned as directors when in fact, there had been no such resignation (or removal).

(h)  The Elder Children therefore felt that they had to protect their interest, and they “took immediate action to cause the [Alleged Transfer Documents] to be stamped.” The Companies Registry was subsequently informed that the Elder Son and the Daughter were reinstated as directors.

11.In his affirmation in reply, Mr Lee firmly denied the Elder Children’s case, whether as to the background or the circumstances of the Alleged Share Transfer. It is unnecessary to set it out here in detail, save as to mention that:

(1)  As to the apparent signatures on the Alleged Transfer Documents, Mr Lee said as follows:

“Years had passed, and my memory does not serve well as to what documents I signed in the past. However, I am certain that I never just signed on documents and transferred half of my shares (i.e., 35% of the issued shares of the Company)  to the [Elder Children] right away. There are different possibilities: the signatures were forged, or I undersigned [sic] under the apprehension that the [Alleged Transfer Documents] were something else; or Mr Hui prepared the [Alleged Transfer Documents] to take effect only after my passing. However, I strenuously deny that I ever instructed him to prepare them to give the Subject Shares right away to the [Elder Children] and for me to sign such documents.”

(2)  In any event, the purported consideration for the Subject Shares of HK$160,000 and HK$400,000 had not been paid.  On 25 October 2021, ILL sought to make payment by cheque of HK$560,000 dated 18 October 2021 to CSC.  Mr Lee contends that even if the documents were genuine, any agreement “clearly expired or lapsed by effluxion of time, void for total failure of consideration and was time barred.”  It is not entirely clear from the evidence whether CSC rejected the cheque.

(3)  Mr Lee denied that Mr Hui had mentioned to him in the telephone conversation on 7 August 2018 that the Subject Shares had been transferred to the Elder Children. Rather, he and Ms Tsang telephoned Mr Hui to transfer his 70% shareholding to the Younger Son, but Mr Hui refused to do so, notwithstanding that Ms Tsang asked Mr Hui to comply with Mr Lee’s instructions.

(4)  As to the loans totalling of HK$23,566,000, these had been all repaid prior to the Alleged Share Transfers in October 2012.

(5)  The Home-Made Will made in 2016 also showed that the “present shareholding” of the Company was Mr Lee – 70%, the Daughter – 15% and the Elder Son – 15%, which supported Mr Lee’s belief and understanding at the time that he was still the holder of 70% of the Company’s shares.

III.  Discussion

12.The principles concerning the granting of interlocutory injunctions are not in serious dispute: it is for the applicant to show that (1)  there are serious issues to be tried on the merits of the case; (2)  damages would not be adequate remedy; (3)  the balance of convenience lies in favour of the grant of an injunction; and (4)  it is just and convenient to grant the injunction: See e.g. Hong Kong Civil Procedure 2022 §§29/1/8 – 29/1/17.

13.It is well established that the test for showing a serious issue to be tried is not a high hurdle. The prospects of the applicant’s success are to be investigated to a limited extent only - all that is required is that the applicant has prospects of success which, in substance and reality, exist. Odds against success are immaterial at this stage unless they are so strong that he can have no expectation of success. See e.g., Gu Zhuoheng and Anor v Huang Wei Cheng and Ors [2019] HKCFI 381 §65 per Lisa Wong J.

14.On the balance of convenience, as Ma J (as he then was)  held in Music Advance Ltd v Incorporated Owners of Argyle Centre [2010] 2 HKLRD 1041 at §12(d), the underlying principle for the grant of an interlocutory injunction is that the Court should “take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong”.

15.Mr Avery Chan, counsel for the Elder Children, conducted a multi-pronged attack on Injunction Summons, namely, that there was no serious issue to be tried, that damages were an adequate remedy and that the balance of convenience was against the continuation of the injunction.  He submitted also that the October 12 Order should be discharged for material non-disclosure. I shall address each in turn.

Whether Serious Issue to be Tried

16.Despite Mr Chan’s persuasive submissions, I have no doubt that there are serious issues to be tried in respect of the validity of the Alleged Transfer Documents and the Alleged Transfer Documents.

17.Mr Chan began by referring the Court to well established authorities that allegations of forgery or deception are very serious involving fraud and dishonesty, which should not be advanced without cogent evidence: see e.g., Chinachem Charitable Foundation v Chan Wai Tong Christopher and others [2021] HKCFI 1347.  Allegations of fraud and dishonesty “must be pleaded distinctly and with utmost particularity”: see e.g., Re Cyberworks Audio Video Technology [2020] HKCFI 398 at §43 per Coleman J.  Finally, inferences of fraud or serious misconduct only should be drawn only where such inferences are compelling: see e.g., Lee Yuk Shing v Dianoor International Ltd (In liq) [2016] 4 HKC 535 at §37, per Kwan JA.

18.He submitted that the forgery plea raised by Mr Lee is “fundamentally flawed in terms of both pleadings and evidence” for a number of reasons, including that, (1)  there is a lack of particulars as to the circumstances of the forgery; (2)  there is no allegation as to whether it was the Elder Children, Mr Hui or an unknown person who had forged his signature; (3)  the plea of forgery is inconsistent with his alternative case of non-est factum and therefore one of the alternative cases is liable to be struck out, in reliance on a decision of DHCJ Leung in Chan Sunny v Chen Min Chun and others [2022] HKCFI 1659 at §57.

19.Further, Mr Chan points out that there is no handwriting expert evidence to support that Mr Lee’s signatures on the Alleged Transfer Documents are forged. The allegation of forgery is also contradicted by the affirmation of Mr Hui filed in the HCMP Proceedings, where he corroborated the Daughter’s evidence as to the circumstances in which the Alleged Transfer Documents were signed. Mr Hui was an independent third party, and no grounds have been advanced as to why he would fabricate evidence.

20.Mr Chan is of course correct as to the need for a high degree of particularity and the heavy evidentiary burden to support a plea of fraud or dishonesty. That said, as I explained in Pacific Rainbow International Inc v Shenzhen Wolverine Tech Limited & Ors (unreported)  HCA 3023/2016, 2 May 2017 at §74 in the context of whether a good arguable case had been established for serious misconduct:

“The principles above on assessing probabilities and the drawing of inferences in cases where serious misconduct is alleged (as in the present case)  are of course well established. However, these principles must be viewed in the context of deciding whether there is a good arguable case at the interlocutory stage. The court is not making any findings of fact, but merely taking a view as to whether, on the materials now before the court, a case has been shown that is “…barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success”.  That said, in taking such a view, the court will take into account all of the circumstances, including the inherent improbabilities of serious misconduct.”

(cited with approval by the Court of Appeal in Heitkamp & Thumann KG v Living Profit Trading Develop Limited [2019] HKCA 119 at §30)

21.The same approach applies, a fortiori, in the context of whether a serious issue to be tried has been established.

22.The essence of Mr Lee’s case is that, as mentioned above, he has no recollection ever consenting to the Alleged Transfer, knowingly signing the Alleged Transfer Documents, or instructing Mr Hui or the Daughter to prepare such documents.  He was therefore “shocked” to be told of the Alleged Share Transfers in the letter from ILL on 23 February 2021.

23.Mr Lee says he does not understand how his purported signatures on the Alleged Transfer Documents came into existence, but doing the best he can, posited several possibilities – either the documents were forged, or he was misled into signing on the documents in the belief that the documents were something else. In any event, he never agreed to the Alleged Transfer and would not have knowingly signed on the Alleged Transfer Documents.

24.Whilst the Court generally accords very significant weight to signed documents and the burden is firmly on the apparent signatory to show that the signature is not his own or that he was misled into affixing his signature, one must view the matter the context and surrounding circumstances. The first matter to bear in mind is that even in 2012, Mr Lee was 79 years of age and suffering from various ailments. Mr Lee was diagnosed with cataracts in 2010 and had clouded and blurred vision which caused him to have difficulty reading documents. Further, on the Elder Children’s own case, Mr Lee was diagnosed with dementia in 2016.

25.There is also no serious dispute that prior to 2017, Mr Lee reposed trust and confidence in Mr Hui and the Daughter to assist him concerning the affairs of the Company and that he would sign documents presented to him on various occasions by Mr Hui or the Daughter without being able to read or understand their contents.

26.In such circumstances, at least for present purposes, I do not agree that raising alternative pleas of forgery and non-est factum is wholly without justification such that one of them must be disallowed.  Order 18 rule 12A provides:

“A party may in any pleading make an allegation of fact which is inconsistent with another allegation of fact in the same pleading if —

(a)  the party has reasonable grounds for so doing; and

(b)  the allegations are made in the alternative.”

27.In Pako Enterprises Limited v Tse Yuet Toa [2020] HKCFI 773, which was referred to by DHCJ Leung in Chan Sunny, DHCJ MK Liu explained at §13 that:

“As said by Au J in Hui Yin Sang Another v Tsoi Ping Kwan and Another [2010] 1 HKC 585 at §25(10), the objective of this rule is to prevent a party from pleading inconsistent cases in relation to a matter which is plainly within his knowledge, so that there could be no justification for him to put forward inconsistent factual alternatives.” (emphasis added)

28.Mr Lee’s case is that he had no knowledge of the provenance of the Alleged Transfer Documents, which he said he saw for the first time in March 2021, notwithstanding that they were allegedly signed by him nearly 8½ years earlier. Save for the Elder Children’s case that Mr Hui once mentioned the Alleged Transfer in a telephone conversation with Ms Tsang and Mr Lee in August 2018 (which is disputed by Mr Lee), there is no dispute that these documents never surfaced (or resurfaced)  until 2021.

29.Having regard to these circumstances, I do not accept that Mr Lee does not have reasonable grounds to plead an alternative case of forgery and non-est factum.

30.As to the sufficiency of evidence supporting the forgery allegation, I see the force of Mr Chan’s submission that there has not been any handwriting expert evidence before the Court to suggest that the signatures on the Alleged Transfer Documents were not those of Mr Lee. However, I do not regard that as being fatal to a serious issue to be tried being shown at this stage. It is also important to note that handwriting evidence is not by itself conclusive. As the Court of Appeal observed in To Pui Kui v Ng Kwok Piu & Ors (unreported)  CACV 281/2012 (21 August 2014)  at §81:

“… As it has been said, handwriting expert evidence is not the only means to prove forgery. When there is other compelling evidence pointing towards forgery, the court should not shy away from so finding simply because of inconclusive handwriting expert evidence which can be subject to its own inherent inadequacies in the resolution of such an issue (see Nina Kung v Wong Din Shin, supra, para 12 to 15, 393; Chinachem Charitable Foundation v Chan Chun Chuen HCAP 8 of 2007, 2 Feb 2010 paras 214-6).

That said, I would expect such evidence to be adduced at the trial of the action in support of the allegation of forgery.

31.Mr Chan also raised the argument that Mr Lee’s alternative case that he may have been misled by Mr Hui into signing the Alleged Transfer Documents as being wholly unparticularised and that it has not been pleaded that if there had been any misrepresentation by Mr Hui, the representation was made by him as agent of the Elder Children such as to enable the Alleged Share Transfers to be rescinded.

32.As to the particularity of Mr Lee’s case of misrepresentation by Mr Hui, I reiterate the point I have made above that all that Mr Lee is able to recall is that he reposed trust and confidence in Mr Hui and often signed documents presented to him by Mr Hui without reading or understanding them, as he did not understand English. Mr Lee never agreed to the Alleged Share Transfer and had no recollection of signing documents to give effect to such a transaction.  He does not know, however, whether he might have signed the Alleged Share Transfer, especially given his poor eyesight and the passage of time, under the guise that it was presented to him as for some other purpose – hence the plea of non-est factum. It would be unrealistic in these circumstances for Mr Lee to be required to plead particulars of when and where or precisely what representation had been made to him by Mr Hui which led to the signing of the documents. I do not regard this as fatal to Mr Lee showing a serious issue to be tried at this stage. It is of course open to the Elder Children to seek further and better particulars on the statement of claim if they think fit.

33.As to the absence of any plea of Mr Hui’s role as agent of the Elder Children, again, the complaint must be viewed in the context of Mr Lee’s case.  He is unable to say at this stage that if the Alleged Transfer Documents were in fact signed by him, how and when he came to sign them.  He is only able to say that if he did, he must have done so without knowing its contents in circumstances where Mr Hui or the Daughter had presented to him documents to sign.  Moreover, on the Elder Children’s own case, Mr Lee signed them in the same room and in the presence of the Elder Children, Mr Hui and Ms Lun.  Again, it is open to the Elder Children to seek further and better particulars if they see fit.  However, I do not see this to be fatal to there being a serious issue to be tried at this stage.

34.I should also add that in Mr Lee’s reply evidence, he hinted at the suggestion that Mr Hui may have prepared the Alleged Transfer Documents “to take effect only after my passing”.  This suggestion is not found in the statement of claim, and it is not entirely clear whether Mr Lee seeks to raise a case that he may have intended to execute certain documents which were only to take effect upon his death. Whilst this does not affect my view as to there being a serious issue to be tried, if Mr Lee intends to raise such a case at trial, it would plainly have to be pleaded.

35.In addition to Mr Lee’s professed lack of knowledge concerning the Alleged Transfer Documents, the provenance and subsequent resurfacing of the Alleged Transfer Documents plainly give rise to serious issues to be tried as to their validity and authenticity.

36.Other than the Alleged Transfer Documents themselves, there is no contemporaneous documentary evidence supporting the transfer at all. For instance, there are no minutes of the Alleged October 2012 Board Meeting, nor has any attendance note from Mr Hui or Ms Lun who attended been produced. Given that the transaction was to be regarded as some form of “compensation” for loans made by the Company to Mr Lee, one would have expected some form of contemporaneous documentation of the Company forgiving the loans made to the Father. There is none. It would make little sense if Mr Lee was still liable to repay those loans to the Company whilst at the same time ceding 50% of his shareholding (at par value)  to the Elder Children.

37.The Alleged Share Transfers are also not reflected at all by the annual returns filed by the Company from 2012 onwards, which, incidentally, had all along been signed by the Daughter as director until 2020. Each of the annual returns continued to show the original shareholding of the Company, a matter which should not have escaped the Daughter’s notice from the outset.

38.Mr Lee was not only the patriarch of a traditional Chinese family but also the founding and controlling majority shareholder of the Company, even if his family members had made contributions to the management of the Company. There is no evidence as to any significant financial contribution by Madam Yu or the Elder Children into the Company. In such circumstances, it is at least open to question whether he would have agreed to cede 50% of his shareholding (at par value)  and majority shareholder control to the Elder Children merely to “compensate” them for loans which had been made to him by the Company.

39.No explanation or calculations have been advanced by the Elder Children even now as to how the figure of 560,000 shares was arrived at to “compensate” them for the alleged loans. In my view, the commercial sense of the entire transaction is questionable, to say the least.

40.Further, the Daughter’s explanation as to the long hiatus between the signing of the Alleged Transfer Documents again raises questions. If the intention of the transfer was, as contended by the Elder Children, unconditional and immediate, it is not obvious why the documents languished at ACC’s office for years.  This is especially so, as ACC would have been aware, when late stamping would attract, as it did, a substantial penalty for late stamping.  Further, it is difficult to accept that, given the value of the shareholding, the Elder Children adopted such a laid back or lackadaisical approach as to whether the transfer had been registered, especially after serious disputes with Mr Lee and Madam Cheuk arose from 2017 onwards.

41.As mentioned above, after Madam Yu’s death, on 23 October 2015, the Elder Children and Mr Lee entered into a deed of family arrangement for the distribution of Madam Yu’s 160,000 shares in the Company.  Indeed, that was the sole purpose of the deed, and it did not deal with any other assets of Madam Yu. The entering into the deed of family arrangement and subsequent transfer of Madam Yu’s shares to the Elder Children would have been an opportune time to deal also with the Subject Shares. Yet, the Alleged Shares Transfers were rather inexplicably never raised at the time.

42.Given that, on the Elder Children’s case, Mr Lee voluntarily agreed to transfer the Subject Shares to the Elder Children as fair “compensation” for loans he had obtained from the Company in 2012, it is not immediately obvious why the Elder Children were purportedly concerned about not seeming “eager in going after family assets” in giving effect to the Alleged Transfers, nor why it would amount to any disrespect of Mr Lee’s role as the remaining founder and elder of the Company.  

43.I am also slightly troubled by the fact that ILL remained silent in the face of CSC’s queries in their letter dated 28 May 2021 on the circumstances in which the Alleged Transfer Documents were signed.  If the circumstances were as clear as now suggested by the Daughter, plainly, there would have been no difficulty for ILL in providing an immediate and detailed explanation of the circumstances now advanced by the Daughter in her affirmation and in the HCMP Proceedings, which were issued only some 3 months later in August 2021.

44.I have not omitted to consider the fact that Mr Hui, a professional accountant and an independent witness, has made an affirmation in the HCMP Proceedings corroborating the Daughter’s version of events as to the execution of the Alleged Transfer Documents. His evidence is of course of significant weight.  However, it does not come close in my view to obviating a serious issue to be tried.  The credibility of his evidence will undoubtedly be a matter for trial.

45.As to Mr Lee’s contention that no consideration had been received for the Subject Shares until some 9 years later, on 25 October 2021, Mr Chan submitted that there was no substance to the defence.  He argues that the Elder Children are not seeking specific performance or enforcement of the Alleged Transfer but are simply seeking to record the shareholdings on the Company’s register of members, which does not require any action on the part of Mr Lee or an order of the Court.

46.I am not persuaded, at least for present purposes, that there is no serious issue to be tried in this regard. Assuming that the parties had knowingly entered into an agreement for sale and purchase of the Subject Shares in October 2012, no payment was ever made or proffered.  Even if no payment date had been specified for the purchase of the Subject Shares, the law would imply a term that the purchase price was payable within a reasonable time.  Plainly, 9 years is far beyond any reasonable period of time. Although Mr Lee had executed the instruments of transfer, the transfer of the legal title is not complete until and unless the Company approves and registers the transfer, which it has not yet done.

47.In the circumstances, it is at least arguable that, by reason of non-payment, the Elder Children were in repudiatory breach of the agreement to acquire the shares, and Mr Lee was entitled to terminate the agreement, which he effectively did by making it clear he was not bound.  Upon termination of the sale and purchase, the Elder Children would no longer be entitled to seek the registration of the Alleged Transfer.  Whilst Mr Lee may not have pleaded his case on precisely these terms, the relevant facts are not in dispute.

48.As to Mr Chan’s alternative contention that the consideration had already been paid by way of set-off from the loan to Mr Lee from the Company, leaving aside the fact that there is nothing on the Alleged Transfer Documents to support any such set-off or that the sum was to have been deemed received, this is entirely dependent on the Elder Children’s case for the reasons for the transfer, which is hotly disputed. This is plainly a matter for trial.

49.For the reasons above, I am satisfied that Mr Lee has met the threshold that there is a serious issue to be tried.

Adequacy of Damages and Balance of Convenience

50.Again, I have no hesitation in finding that damages would not be an adequate remedy and the balance of convenience lies firmly in favour of the continuation of the October 12 Order.

51.As to adequacy of damages, it is clear that damages would be difficult, if not impossible, to quantify in a situation such as the present.  There is little doubt in my mind that if the October 12 Order were not continued, and the Elder Children were allowed to take possession of the Subject Shares, as majority shareholders of the Company, they would exert and cement their control of the Company, irrespective of whether Mr Lee remained a director.

52.There is no dispute that the Elder Children, having the majority on the Company’s board, already removed him from the signatory of the Company’s bank account and demand that he deliver-up the company seal. Although the Elder Children have always been directors of the Company, given Mr Lee’s majority shareholding, their continued appointment was subject to Mr Lee’s wishes. This is not a public company, but a private family company founded by Mr Lee, who had since its foundation in 1985 been in control. To be wrongfully deprived of such control (if this turns out to be the case)  until the conclusion of the action (which may be many months if not several years from now)  is not something that can be readily quantifiable or compensable in monetary damages.

53.As to balance of convenience, as mentioned above, the Court should take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong.  It seems to me that such a course must be to preserve the status quo, that is, to maintain the present shareholding without regard to the Alleged Share Transfers. I also take into account the undertakings that Mr Lee had given to Linda Chan J on 12 October 2021, which Mr Jerome Liu[1], counsel for Mr Lee, confirms will be continued.

54.I recognise that even without the ability to exercise the rights to the Subject Shares, Mr Lee will retain majority shareholder control of the Company given that his remaining 35% shareholding would outvote the combined 30% shareholding of the Elder Children. Given the breakdown in trust and confidence between the parties, it is likely that Mr Lee will exercise his shareholder control to alter the composition of the board, so as to assert board control.  Be that as it may, Mr Lee’s majority shareholder control (and therefore the power to decide the composition of the board)  has been the status quo for the past 35 years, and the safest course would in my view be to maintain that position.  Any complaints of prejudice by the Elder Children must also be viewed against the fact that, even on their own case, they decided to remain silent and wait some 8½ years before proceeding with the Alleged Transfer.

55.In support of the Elder Children’s case that the status quo should be changed in their favour, the Daughter has made a litany of complaints in her affirmation alleging wrongdoing and misappropriation of assets of the Company by Mr Lee.  She said that, inter alia, he had “misappropriated not less than HK$47,609,485 and US$1,770,238.78 from the Company without authorisation.” The alleged misappropriation spanned a number of years, with the earliest alleged instance dating back to 2001.

56.As accepted by Mr Chan, such complaints do not add anything to their substantive case concerning the Alleged Transfer but are directed at persuading the Court that shareholder control of the Company should be removed from Mr Lee and placed in the hands of the Elder Children.

57.In short, I am not impressed by these arguments:

(1)  First, it does not seem to me that this is the appropriate venue to litigate issues concerning the alleged mismanagement of the Company.  If the Elder Children, as shareholders of the Company have genuine grievances concerning mismanagement or misappropriation of assets by Mr Lee, there are other avenues to ventilate such grievances, even if the Elder Children were to lose board control of the Company.

(2)  Second, as pointed out by Mr Liu, it lies rather ill at the mouths of the Elder Children now to complain of such alleged conduct. The Elder Children have themselves been directors of the Company since 1986 and had personal responsibility for the Company’s management, including to prevent the alleged misconduct or misappropriation. In fact, no complaints had been raised by ethe Elder Children until recently.

(3)  It can also be seen from the auditor’s reports of the Company in the evidence that the Daughter personally signed the Company’s accounts each year from at least 2010 to 2018. In this regard, the Daughter’s claims of ignorance of the Company’s financial affairs as she “was mainly responsible for the administrative side of the Company’s business and I left the financial matters for [Mr Lee’s management]” seems rather disingenuous and self-serving.

(4)  Much of the complaints by the Daughter are directed at Madam Cheuk’s alleged “meddling” in the affairs of the Company and Mr Lee allegedly “succumbing” to Madam Cheuk’s influence.  The Daughter plainly has a great deal of mistrust towards Madam Cheuk, which seems to me likely to be caused or at least exacerbated by Mr Lee showing favour to Madam Cheuk and the Younger Son in recent years and his present intention to gift his shareholding in the Company to the Younger Son in lieu of the Elder Children. The complaints now raised by the Elder Children of wrongdoing and misappropriation against Mr Lee must be viewed and assessed in this light.

58.I have in any event considered the complaints and do not find that they are of sufficient weight to displace my view of where the balance of convenience lies, as explained above.

Alleged Material Non-Disclosure

59.There is no dispute between the parties on the duty of full and frank disclosure in ex parte applications and the consequences of material non-disclosure (see e.g., Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642 at §§56-58).

60.Although the October 12 Order was made pursuant to an inter partes Summons issued 4 days before the hearing and the Daughter was represented by counsel at the hearing, I accept that, having regards to the authorities such as Muginoho Co v Vimiu HK Co Ltd (unreported)  HCMP 107/2012, 24 February 2012, the application should be considered ex parte given the short notice.

61.Mr Chan relied on four grounds of material non-disclosure:

(1)  Mr Lee failed to disclose the fact that the reasons why the Elder Children chose to register the Subject Shares at this time was to protect their interest in the Company in the light of the various misconduct by Mr Lee, likely at the behest of Madam Cheuk.  Mr Lee was aware of the allegations against him as they were set out in the Daughter’s affirmation in support of the HCMP Proceedings.

(2)  Mr Lee was misleading when he told the Court that the Daughter was not “financially dependent” on Mr Lee given that he now accepts that he hardly supported the Daughter financially and he “only paid her about 15,000 a month when she helped him collect rent and deal with some matters of the Company.”

(3)  Mr Lee failed to disclose the Court “the trite principle that a fraudulent misrepresentation would operate to set aside a transaction if the representor was a party to the contract or agent to such party.”

(4)  Mr Lee also failed to inform the Court that the allegation of non-payment of consideration would not render the transaction void or Mr Lee “was contractually estopped from denying that the consideration for the [Alleged Transfer] had been paid”.

62.These points can be disposed of fairly briefly, and I address them in the order above:

(1)  First, the reasons alleged by the Elder Children for the transfer is hotly disputed. In any event, Mr Lee did allude to such allegations being raised in the HCMP Proceedings, not only in paragraph 10 of Mr Lee’s 1^st Affirmation (as referred to by Mr Chan), but also in paragraphs 17 and 18. In my view, there was no material non-disclosure.

(2)  Whilst I note that some inconsistency between Mr Lee’s evidence in his 1^st and 2^nd affirmations in this regard, in my view, this would not have been a significant point in the weighing operation of the ex parte Judge. Again, I do not believe that this inconsistency amounted to any serious material non-disclosure.

(3)  As I have mentioned above, Mr Lee’s case is that he is unaware as to how his signature came to be affixed onto the Alleged Transfer Documents, if those were his signatures at all. The allegation of misrepresentation by Mr Hui was only one of the possibilities raised by Mr Lee. In any event, given that the principle was as Mr Chan puts it, “trite”, it would not have escaped either the Daughter’s counsel at the hearing on 12 October 2021 or the ex parte Judge. I do not believe that this was a sufficiently material non-disclosure as to justify the discharge the injunction.

(4)  Finally, I have already stated my view as to the non-payment of consideration above. It is unclear to me what is meant by Mr Chan that Mr Lee was “contractual estopped” from denying the Alleged Transfer.  No argument of contractual estoppel was developed in Mr Chan’s submissions, and it is not at all clear how such an estoppel would arise on the facts of the present case. I do not consider there to be any material non-disclosure in this regard.

63.For the reasons above, I do not believe that there was any material non-disclosure to justify discharging the October 12 Order.

IV.  Conclusion and Costs

64.For the reasons above, I make an order continuing the October 12 Order until trial or further order, subject to the continuation of the undertakings given by Mr Lee to Linda Chan J and recorded in the October 12 Order.  As far as I understand, the other paragraphs of the Injunction Summons have fallen away, given that the October 12 Order did not restrain the actions specified therein.

65.As to costs, Mr Lee has succeeded in continuing the October 12 Order. Mr Liu asks for costs.  However, as is typical in injunction applications such as the present, whether the injunction is correctly granted will depend significantly upon the findings and outcome of the trial. In the circumstances, I think the fairest order would be that Mr Lee’s costs be in the cause.  I so order on a nisi basis.

66.Last but not least, I thank both teams of counsel for their assistance.

Mr Jerome Liu and Keith Cheung, instructed by Chiu, Szeto & Cheng, solicitors for the plaintiff

Mr Avery Chan, instructed by Iu, Lai & Li, solicitors for the 1^st and 2^nd defendants