Chang Hsien Sung v. Chen Chin Ho

Case No.HCA 2414/2018[2024] HKCFI 764

Court

High Court CFI

Date13 Mar 2024

Judge—

Case Document

100%Judiciary

HCA 2414/2018

[2024] HKCFI 764

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2414 OF 2018

________________________

BETWEEN

	CHANG HSIEN SUNG (張顯松)	Plaintiff
	and
	CHEN CHIN HO (陳慶和)	Defendant

________________________

Before:

Hon Linda Chan J in Court

Dates of Hearing:	18 – 20, 24 and 27 October 2023
Date of Judgment:	13 March 2024

________________________

J U D G M E N T

________________________

1.In this action the plaintiff, Mr Chang Hsien Sung (張顯松) (“Plaintiff”), claims:

(1) a declaration that he is the beneficial owner of 3,000 shares (“Shares”) in Song Lei (HK) Limited (嵩雷(香港)工業有限公司)(“SLHK”) registered in the name of the defendant, Mr Chen Chin Ho (陳慶和) (“Defendant”), which have been held by the Defendant upon trust for the Plaintiff absolutely[1]; and

(2) specific performance of the “Acquisition Agreement” (as defined in §4 below) and/or damages in addition to specific performance.

A. ISSUES

A1. Plaintiff’s case

2.The Plaintiff’s claim, as pleaded in the ASOC, is based on 2 oral agreements allegedly made in August 1997 and 2000-2001 respectively. Neither agreement is contained in or evidenced by any contemporaneous document.

3.First, the “Oral Agreement” allegedly made between the Plaintiff, the Defendant and the late Mr. Kao Chao-Ching (高朝清) (“Kao”) at the meeting held in August 1997 (“August 1997 Meeting”) whereby they agreed to hold their shares in SLHK (which had not been incorporated) on trust for the Plaintiff and 6 “Investors”[2] (being the Defendant, Kao, Ms Chang Yi Ping (張怡萍) (“YP Chang”), Mr Chen Chih Ming (陳志銘) (“CM Chen”), Mr Pan Wen Chun (潘文俊) (“Pan”) and Ms Jia Chi Chen (賈季蓁) (“Jia”) (collectively “Investors”)) in the following proportion (“Proportion”)[3]:

Name Amount transferred to SLTW (NTD[4]) Beneficial interest in SLHK Number of shares in SLHK

Plaintiff 37,900,000 76.5% 7,650

YP Chang 500,000 1% 100

CM Chen 1,600,000 3.2% 320

Kao 3,850,000 7.8% 780

Pan 3,500,000 7.1% 710

Defendant 1,200,000 2.4% 240

Jia 1,000,000 2% 200

Total 49,550,000 100% 10,000

4.Second, the “Acquisition Agreement” allegedly made at “divers meetings” between the Plaintiff and each of the Investors during the period from 2000 to 2001 held at SLTW’s office in Taiwan whereby the parties agreed to the following terms[5]:

(1)  Each Investor shall sell, and the Plaintiff shall purchase the whole of his or her beneficial interests in the shares in SLHK free from incumbrances at a consideration equivalent to twice the amount of the investment made by him or her (“Consideration”).

(2)  The Consideration may be paid by the Plaintiff in instalments at such intervals and of such amounts as the Plaintiff may see fit based on his cashflow position.

(3)  Upon full payment of the Consideration, the shares beneficially owned by such Investor shall, upon demand of the Plaintiff, be transferred to the Plaintiff or as he may direct free from incumbrances.

5.In addition to claiming that the Defendant acted in breach of the Acquisition Agreement, the Plaintiff also advances a trust claim based on the same Acquisition Agreement, which is pleaded in this way[6]:

“By virtue of the Acquisition Agreement, the beneficial ownership of all the shares and interests of the Investors in [SLHK], whether held by the Plaintiff, [Kao] and/or the Defendant, passed to the Plaintiff, and insofar as they were registered in the name of [Kao] or the Defendant, such shares were held by each of [Kao] and the Defendant upon trust for the Plaintiff, subject to their respective rights and obligations under the Acquisition Agreement.”

6.The Acquisition Agreement was only added by the Plaintiff when the ASOC was filed on 25 March 2021. Prior to that, in the statement of claim filed on 15 October 2018 (“SOC”), the Plaintiff’s pleaded case[7] was that:

(1)  “Since about 2001, the Plaintiff decided to acquire the beneficial interest of the entire shareholding in [SLHK] held by the [Investors], and for that purpose he made a series of payments to each of the [Investors].” (underlined added).

(2)  The Plaintiff paid NTD2.6 million to the Defendant by 7 instalments during the period from 3 August 2001 to 17 December 2003[8].

(3)  “Between 9 and 11 March 2009, each of the [Investors] signed an acknowledgement confirming that the Plaintiff had paid in full their investment funds/working capital in [SLHK], as a result of which they no longer had any beneficial interest in [SLHK]” (collectively “Acknowledgements”)[9].

(4)  “On 10 March 2009, the Defendant signed an [A]cknowledgment confirming that he had between 2000 and 2003 received from the Plaintiff in full his investment funds/working capital in [SLHK]”[10].

(5)  Since 17 December 2003, the Plaintiff has been the sole beneficial owner of SLHK, and the Defendant has been holding the Shares “on a bare trust for the Plaintiff”[11].

A2. Defendant’s case

7.The Defendant denies the Plaintiff’s claims. His case, as pleaded in his Defence filed on 3 December 2019 (“Defence”), was that:

(1)  In May 1997, he agreed to become a co-founder of “Song Lei business”, which would engage in the business commonly described as “三來一補”, being 來料加工，來料裝配，來樣加工 and補償貿易 (i.e. processing and assembling of metal and plastic parts and accessories using the materials supplied and/or based on samples and/or compensation trade)  and the operation would involve companies in Taiwan and Hong Kong as well as manufacturing operations in the Mainland, all of which would feature the brand name Song Lei (嵩雷), and he invested NTD1.5 million in the business[12].

(2)  As of July 1997, the Plaintiff, Kao, Pan and the Defendant were original shareholders of Song Lei Precision Industries Co. Ltd (嵩雷精密工業股份有限公司)  (“SLTW”)  and their shares were equal[13].

(3)  From August 1997, the Defendant as co-founder oversaw the development and operation of “Dongguan Factory” (as defined in §18 below)  for over 10 years, and “Kunshan” (as defined in §19(3)  below)  for over 4 years[14].

(4)  On 14 May 2007, SLHK set up its subsidiary in Dongguan (“Songdian”, as defined in §17 below)  with registered capital of US$8.5 million, which was funded by the profits generated by SLTW, SLHK and Songdian. The Defendant continued to oversee Song Lei business in Dongguan until 28 February 2017[15].

(5)  By letter dated 6 June 2017, the Defendant requested the Plaintiff to purchase his 30% shares in SLHK (i.e. the Shares)  for RMB78 million based on the assets and financial information of SLHK known to the Defendant, but the Plaintiff refused[16].

(6)  The Defendant’s shareholding in SLTW and SLHK together with his more than 20 years’ managerial role in Song Lei business including SLHK, Dongguan Factory and Songdian, the Plaintiff’s claim in this action is frivolous and an abuse of process[17].

(7)  The Defendant joined SLTW in May 1997 as part of its management and as executive vice president, and was tasked with the expansion and development of Song Lei business with a focus in the Mainland[18].

(8)  The Defendant paid NTD 1.2 million to SLTW in May 1997 and made a further contribution of NTD 300,000 in return for a share in Song Lei business including 25% shareholding in SLTW and 30% shareholding in SLHK[19].

(9)  The Plaintiff had and has control of the accounts and funds of Song Lei companies and occasionally paid lump sums which he called “dividends” to the Defendant throughout 1998 to 2007 but none of those payments were purported to be payment for purchasing the Shares[20].

(10)  The Defendant never sold the Shares to the Plaintiff nor had he received any repayment for or in relation to his investments in Song Lei business including SLTW and SLHK[21].

8.In his Amended Defence filed on 15 April 2021 (“AD”), the Defendant pleaded the following additional averments or amendments insofar as they relate to the Plaintiff’s claims:

(1)  In May 1997, he agreed to become a “partner” (instead of a co-founder)  of Song Lei business. Originally 5 shareholders signed a shareholders agreement[22] but one of them decided not to join whereupon the remaining 4 shareholders became equal shareholders of SLTW[23].

(2)  The management of SLTW approved the plan to establish and operate SLHK and acted on it[24].

(3)  The Defendant did not attend the August 1997 Meeting and does not know what was allegedly discussed in the meetings between the Plaintiff and the other Investors[25].

(4)  The Acquisition Agreement did not exist, and he does not know of any such Acquisition Agreement between the Plaintiff and other individuals[26].

(5)  In early 2009, the Plaintiff informed the Defendant that the Taxation Bureau of Taiwan had been investigating the tax positions of the Investors in relation to the dividend payments from SLTW. The Defendant trusted the Plaintiff completely and signed the Acknowledgement after being told by the Plaintiff that it was for the purposes of tax avoidance[27].

9.At trial, the Defendant no longer maintains that the NTD 1.5 million he paid represented his investment in 25% in SLTW and 30% in SLHK. Rather, his case is that the entire NTD 1.5 million represented his investment in SLTW, which was the only Song Lei entity existed at the time. He says that SLHK has always been a company with nominal share capital, and none of the registered shareholders has paid up the amount payable on the shares issued by SLHK.

A3. Agreed issues

10.In the agreed list of issues[28], the parties identified the following 5 issues which require determination by the court at trial[29]:

(1)  Issue 1: Whether there existed discussions and agreements between the Plaintiff and the Investors regarding their investments in SLHK? In my view, the issue should be whether the Oral Agreement existed and, if yes, whether it was sufficient to create a trust over the Shares?

(2)  Issue 2: Whether there existed any Acquisition Agreement between the Plaintiff and the Investors whereby the Plaintiff purchased all the beneficial interest of the Investors in SLHK?

(3)  Issue 3: Whether the various payments pleaded in §19(5)  of ASOC were made by the Plaintiff to the Defendant, and if so, whether such payments were made pursuant to the Acquisition Agreement, or whether they were payments of dividends?

(4)  Issue 4: Whether the Acknowledgment dated 10 March 2009 was signed by the Defendant for acknowledging receipt of return of his investment in SLHK, or whether it was signed by him for the purposes of tax avoidance?

(5)  Issue 5: Whether the Defendant is holding the Shares on trust for the Plaintiff?

A4. Plaintiff’s attempt to expand his claims

11.As will be seen further below, both parties have adduced much evidence in support of what they claim to be the beneficial ownership of the shares in SLTW. Mr Lawrence Ng[30], counsel for the Plaintiff, even goes so far as to submit that “it is clear from the pleadings that one of the issues in this Action is whether the Plaintiff was and still is the beneficial owner of all the shares in [SLTW]” relying on §7(1) of his submissions at the PTR, and this Court “should have no difficulty in finding that this is clearly an issue to be tried in this Action” ^{^[31]}.

12.I do not see how the Plaintiff can expand his claim in the way suggested by Mr Ng for the following reasons:

(1)  The action was commenced by the Plaintiff in October 2018. The only reliefs sought are those concern with the Shares.

(2)  No relief has ever been sought by the Plaintiff in respect of the beneficial ownership of the shares in SLTW. This is despite the fact that (a)  both the SOC and the ASOC were settled by Mr Ng; (b)  the ASOC were filed on 25 March 2021, more than 15 months after the Defendant had in his Defence pleaded that he had invested NTD1.5 million in SLTW and has 25% beneficial interest in SLTW’s shares.

(3)  The amendments made in the ASOC are very extensive and many new allegations, including the Acquisition Agreement, not previously advanced were introduced. Still, no relief is sought in respect of the beneficial ownership of the shares in SLTW.

(4)  Nor has the Defendant made any counterclaim in respect of any shares in SLTW.

(5)  Although both parties refer to SLTW in their pleadings and witness statements, that were done in the context of advancing their respective cases on the beneficial ownership of the Shares.

(6)  It is also clear from the documentary evidence adduced by the parties that the Plaintiff (who has been in control of SLTW)  only disclosed selected and incomplete accounting documents and corporate documents of SLTW supportive of his case. It would be extremely unfair to the Defendant if this Court were to determine the beneficial ownership of the shares in SLTW in the absence of the complete sets of accounting and corporate documents of SLTW for the period relevant to the cases advanced by the parties.

(7)  In the agreed list of issues, neither party has identified the dispute in beneficial ownership of shares in SLTW as one of the issues to be determined at trial.

B. BACKGROUND

13.Unless otherwise stated, the following facts are either not in dispute or are indisputable.

B1. Parties and relevant persons

14.The parties and the other persons involved in SLHK and/or SLTW are residents of Taiwan and except the Defendant, all of them are related to the Plaintiff, Kao or Pan:

(1)  The Plaintiff:

(a)  Ms Chang Yang-Feng (張揚鳳)  (“Chang Senior”)  is the Plaintiff’s mother;

(b)  Ms Chen Mei-Hau (陳美華)  (“Mrs Chang”)  is the Plaintiff’s wife;

(c)  CM Chen is Mrs Chang’s elder brother and hence the Plaintiff’s brother-in-law;

(d)  Jia is the Plaintiff’s friend and was his former colleague;

(e)  Ms Chang Ya-Cing (張雅晴)  (“YC Chang”)  is the Plaintiff’s first younger sister;

(f)  YP Chang is the Plaintiff’s second younger sister;

(g)  Mr Sun Hong-Jyun (孫宏鈞）(“Sun”)  was the ex-husband of YP Chang. He is the operations manager of SLTW;

(h)  Ms Chang Ciou-Fen (張秋芬)  (“CF Chang”)  is the third younger sister of the Plaintiff; and

(i)  Ms Sie Ruei-Min (謝瑞敏)  (“Sie”)  is an employee in SLTW’s accounting department and is trusted by the Plaintiff.

(2)  Kao: Ms Gu Shin-Mei (古世梅)  (“Mrs Kao”)  is Kao’s wife.

(3)  Pan:

(a)  Mr Pan Shuei-Huo (潘水火)  (“Pan Senior”)  is Pan’s father; and

(b)  Ms Shin Fong-Ciou (施鳳秋)  (“Mrs Pan”)  is Pan’s wife.

B2. SLHK

15.SLHK was incorporated under the former Companies Ordinance (Cap. 32) on 29 August 1997. Its issued capital is (and has always been) HK$10,000 divided into 10,000 of HK$1 each, all of which are credited as paid-up. Its registered office is at Full Win Commercial Centre, 573 Nathan Road.

16.At the time of its incorporation, SLHK had 3 subscribers and their respective shareholdings were: the Plaintiff (40%), the Defendant (30%) and Kao (30%) and they were appointed as its first directors.

17.SLHK has a wholly owned subsidiary, 東莞嵩電電子科技有限公司 (“Songdian”). Songdian:

(1)  was established on 14 May 2007 in Dongguan City, Guangdong Province with an operating period of 20 years;

(2)  has registered capital of US$4,800,000[32], which has been paid up by 3 December 2010[33];

(3)  engages in the business of manufacture and sale of high volume optical and magnetic disks drivers and parts and accessories; and

(4)  currently has 3 directors who are the Plaintiff, 張維哲 (Chang Wei Zhe)  and Pan. Its supervisor (監事)  is YP Chang.

18.SLHK was set up as the “window” company of東莞黃江嵩雷五金加工廠 (“Dongguan Factory”) in that it purchased raw materials for, and sold the products manufactured by, Dongguan Factory.

B3. SLTW

19.SLTW:

(1)  was incorporated in Taiwan on 19 April 1996 with issued capital of NTD 2 million divided into 200,000 shares;

(2)  carries on business in manufacturing and sale of electrical components and products;

(3)  has 2 wholly owned subsidiaries in the Mainland namely, Dongguan Factory and 嵩雷精密電子工業(昆山)有限公司 (“Kunshan”);

(4)  on 29 November 1996, the issued capital was increased from NTD 2 million to NTD 5 million divided into 500,000 shares; and

(5)  on 20 November 2001, the issued capital was further increased to NTD 15 million divided into 1,500,000 shares.

20.The Plaintiff was the founder of SLTW and has since its incorporation been a director and chairman of the board. The other 2 directors of SLTW have always been the family members of the Plaintiff in that:

(1)  From 19 April 1996 to 30 April 2013, Chang Senior and Mrs Pan were directors.

(2)  From 30 April 2013 to 25 March 2016, Chang Senior and YC Chang were directors.

(3)  From 25 March 2016 onwards, YC Chang and CF Chang are directors.

21.The registered shareholders of SLTW and their respective shareholdings on different dates are as follows:

Name Date of share issue or transfer[34] Number of shares Shareholding

Plaintiff 19/4/1996 55,000 27.5%

29/11/1996 137,500

20/11/2001[35] 27,500

412,500

30/4/2013 670,000 44.67%

25/3/2016 745,000 49.67%

Kao 19/4/1996 55,000 27.5%

29/11/1996 137,500

20/11/2001 27,500

412,500

30/4/2013 0 0%

Mrs Pan 19/4/1996 50,000 25%

29/11/1996 125,000

20/11/2001 25,000

375,000

30/4/2013 0 0%

Chang Senior 19/4/1996 10,000 5%

29/11/1996 25,000

20/11/2001 5,000

75,000

25/3/2016 0 0%

Mrs Chang 19/4/1996 10,000 5%

29/11/1996 25,000 5%

10/12/1998 0 0%

22/5/2012 75,000 5%

30/4/2013 530,000 35.33%

Mrs Kao 19/4/1996 10,000 5%

29/11/1996 25,000

20/11/2001 5,000

75,000

30/4/2013 0 0%

Pan Senior
19/4/1996 10,000 5%

29/11/1996 25,000

20/11/2001 5,000

75,000

30/4/2013 0 0%

Sie 10/12/1998 25,000 5%

20/11/2001 5,000

75,000

1/12/2004 0 0%

Sun 1/12/2004 75,000 5%

22/5/2012 0 0%

YC Chang 30/4/2013 150,000 10%

CF Chang 30/4/2013 75,000 5%

22.Since 30 April 2013 the Plaintiff and his family members have been the only registered shareholders of SLTW.

23.Both the Plaintiff and the Defendant claim that the registered shareholding in SLTW does not reflect the beneficial ownership of the shares[36]:

(1) The Plaintiff’s case is that he is and has always been the sole beneficial owner of all the shares in SLTW and the other shareholders (who are his close relatives or trusted employee of SLTW and/or their close relatives) are his trustees and/or nominees[37], and all the directors of SLTW were or are his nominees[38].

(2) The Defendant’s case is that since July 1997, the shares in SLTW have been beneficially owned by the Plaintiff, the Defendant, Kao and Pan as to 25% each[39]. Reliance is placed on the “Shareholders Agreement” (as defined in the next paragraph).

B4. Shareholders Agreement

24.It is not in dispute that a 股東協議書 (in Chinese) dated 23 July 1997 (“Shareholders Agreement”) was signed by the Plaintiff, Kao, Pan, the Defendant and 葉南田 (“Yip”), and it contains the following terms:

“股東協議書

一. 嵩雷精密工業股份有限公司[40]

股東人員：張顯松. 高朝清. 潘文俊. 陳慶和,. 葉南田共五人

資本額：新台幣：壹仟萬元正（明細如下）

固定資產三重市五華街185號四樓 (辦公室)

新台幣：貳佰柒拾萬元正.

車庫：新台幣肆拾伍萬元正．

貨車2台：新台幣貳拾伍萬元正．

辦公設備：新台幣陸拾萬元正．

大陸廠設備：新台幣參佰萬元正．

模具投資：新台幣壹佰伍拾萬元正．

現有資金新台幣壹佰伍拾萬元正．

合計現有固定資產壹仟萬元正．

銀行融資：捌佰伍拾萬元正．

l. 肆佰柒拾萬元.房子貸款15年．

2. 參佰捌拾萬元.現金週轉.信用貸款.

二. 股東合作條約:

1. 絕不能有貪污. 欺騙行為. 如經查獲. 送交股東會.將追溯已往. 投資部份扣除. 及追訴餘額．

2. 股東行政體系倫理. 要尊重. 絕不能超越其權限.

3. 股東推薦新人進入公司. 需要股東會同意或董事長同意．

4. 股東合作應本著無私的心. 開誠佈公. 不做假. 不虛僞. 不欺騙. 同心協力. 祈望公司更上層樓.

5. 86年[41]7月底盈餘. 所得歸屬舊股東所有. 明細如下：

張顯松. 高朝清. 潘文俊. 陳慶和

月前盈餘資金. 充作公司週轉金．

爾後. 如有盈餘. 將視公司週轉情況. 盈餘資金. 將逐步攤提.

6. 新股東：葉南田先生. 將負責業務. 副總經理. 協助大陸廠. 能轉虧為盈. 所有人員也將要大力協助. 以利公司營運.

86年9月 – 12月. 每月將生產電源供應器40萬台以上. 以作為互信基礎.

7. 股東合作. 不容許中途退出. 如公司營運虧損. 經股東會同意解散. 所有負債部份. 股東5人平均分攤. (不得異議).

8. 如公司營運更上層樓. 要作轉投資需提撥資金. 股東會同意用表決方式. 少數服從多數. 民主方式解決.

9. 投資設備.要視公司資金週轉狀況.超過50萬元以上,. 需經股東會同意. 50萬元以下. 由董事長決定.

10. 公司週轉如需調撥資金. 先向所有股東知會. 如有資金. 利息支付. 由股東會決定. 如股東無現有資金. 需向外圍借支. 亦要由股東會決定. 其借支借款, 利息支出由股東5人分攤.

11. 支付新股東葉南田先生新台幣壹佰萬元正. 將先充作公司週轉金. 視公司週轉狀況. 再提撥歸還葉南田先生.

12. 以上11項條款. 股東需遵守. 不得異議”

(English translation)

“Shareholders’ Agreement

I. SONG LEI PRECISION INDUSTRIES CO., LTD.

Shareholders: Zhang Xiansong, Gao Chaoqing, Pan Wenjun, Chen Qinghe and Ye Nantian, five in total.

Capital: NTD Ten million only. (Details are as follows)

Fixed Assets: 4F, No. 185 Wuhua Street, Sanchong City (Office)

NTD: Two million seven hundred thousand only.

Garage: NTD Four hundred and fifty thousand only.

Two trucks: NTD Two hundred and fifty thousand only.

Office equipment: NTD Six hundred thousand only.

Mainland factory equipment: NTD three million only.

Mold investment: NTD One million five hundred thousand only.

The existing funds: NTD One million and five hundred thousand only.

Total existing fixed assets: NTD Ten million only.

Bank financing: NTD Eight million five hundred thousand only.

l. NTD Four million seven hundred thousand only. 15 years house loan.

2. Three million eight hundred thousand. Cash flow. Credit loan.

II. Shareholders’ Cooperation Treaty:

l. There must be no corruption and fraud. If found, it shall be submitted to the shareholders meeting. The past will be traced back, and the investment will be deducted and the balance will be pursued.

2. Ethics of shareholder administrative system. Respect it and never exceed its authority.

3. Shareholders recommend new persons into the Company. The consent of the shareholders’ meeting or the chairman is required.

4. Shareholders’ cooperation should be selfless, open, honest, not fake, not hypocritical, not cheating, All work together and hope that the Company scales new heights.

5. The surplus income at the end of July 86, belongs to the old shareholders. Details are as follows:

Zhang Xiansong, Gao Chaoqing, Pan Wenjun, Chen Qinghe

Surplus funds before the month shall be used as working capital of the Company.

Thereafter, if there is any surplus, it will be amortized according to the Company’s turnover.

6. New shareholder: Mr. Ye Nantian will be in charge of the business as the deputy general manager, and shall assist the mainland factory in turning losses into profits. All personnel will also give great assistance to facilitate the operation of the Company. Over 400,000 power supplies will be produced monthly from Sept. to Dec. 86. As a basis for mutual trust.

7. Shareholders’ cooperation. Withdrawal halfway is not allowed. If the Company suffers from operating losses, it will be dissolved with the consent of the shareholders’ meeting. All liabilities will be shared equally among five shareholders. (No objection is allowed).

8. If the Company operates to a higher level, it needs to allocate funds for reinvestment. The shareholders’ meeting agreed to resolve the matter by voting with the minority obeying the majority in a democratic way.

9. Investment in equipment depends on the Company’s capital turnover situation. If it exceeds NTD 500,000, it shall be approved by the shareholders’ meeting and if below NTD 500,000, it shall be decided by the chairman.

10. If the Company needs to allocate funds for its turnover, it shall inform all shareholders first. If there is any interest payment on the funds, it shall be decided by the shareholders’ meeting. If the shareholders have no existing funds, they need to borrow from the periphery. It shall also be decided by the shareholders’ meeting. If they borrow, the interest expenses shall be shared by five shareholders.

11. The payment of NT$ 1 million to the new shareholder, Mr. Ye Nantian, will be used as the Company’s working fund first, and then paid back to Mr. Ye Nantian depending on the Company’s turnover situation.

12. The above 11 clauses shall be observed by shareholders. No objection is allowed.”

25.Appended to the Shareholders Agreement is a chart showing administrative system of SLTW (“嵩雷精密工業股份有限公司行政體系”) which describes the Plaintiff as chairman (董事長), Kao as general manager (總經理), the Defendant as executive vice general manager (執行副總經理), Yip as deputy general manager (副總經理) and Pan as assistant manager of resources and materials (資材協理).

B5. SLTW’s subsidiaries: Dongguan Factory & Kunshan

26.The Dongguan Factory:

(1) is a processing plant (來料加工廠) established in Dongguan City on 18 August 1997 with an operating period of 20 years (until 17 August 2017); and

(2) carried on processing and assembling of metal and plastic parts and accessories using the materials supplied and/or based on samples which is commonly described as “三來一補” (i.e. 來料加工，來料裝配，來樣加工 and補償貿易) until July 2011 when part of its business was taken over by Songdian.

27.Kunshan:

(1)  is established on 18 April 2000 in Kunshan City, Jiangsu Province with operating period of 50 years (up to 17 April 2050);

(2)  has always had the Plaintiff as its legal representative;

(3)  has registered capital of US$4,510,000; and

(4)  engages in the business of manufacture and sale of computer magnetic disk storage devices, and development, manufacture and sale of related computer accessories.

B6. Defendant’s role in Song Lei companies

28.From mid-1997 up to February 2017, the Defendant was based in Dongguan during which he worked full time at various Song Lei companies and occupied the following positions[42]:

(1)  SLTW: as “general staff” from 1 May 1997 until 28 February 2017 (following his application for resignation on 16 February 2017)  but had no responsibility at SLTW.

(2)  Dongguan Factory: as deputy general manager from 18 August 1997 to 1 April 2005, and as executive deputy general manager (“EDGM”)  from 1 April 2005 until 12 July 2011 when it ceased operation.

(3)  Songdian: as EDGM and director from 14 May 2007 until 28 February 2017 when his resignation as EDGM became effective. The Defendant contends that he remains a director of Songdian.

29.There is a dispute on the nature of the Defendant’s involvement in Song Lei companies:

(1) The Plaintiff’s case is that during the entire period from 18 August 1997 to 28 February 2017, the Defendant managed the affairs of Dongguan Factory and Songdian “on behalf of the Plaintiff”[43].

(2) The Defendant denies this and says that in May 1997, he agreed to become a “partner” of SLTW (the only Song Lei company existed at the time) and invested NTD 1.5 million in the business. Since July 1997, the Plaintiff, Kao, Pan and the Defendant have been the 4 “original shareholders” of SLTW with equal shareholding.[44]

B7. Payments received by Defendant from SLTW

30.From January 1999 to at least December 2009, the Defendant continued to receive regular payments from SLTW.

31.The Defendant maintained a NTD saving account and a foreign currencies savings account at The Shanghai Commercial & Savings Bank, Ltd (“SCB”) (together “SCB Accounts”):

(1)  The SCB Accounts were the only bank accounts used by the Defendant to receive payments from SLTW.

(2)  During the period from 1 January 1999 to 31 December 2009, the Defendant received an aggregate amount of NTD 22,615,364 and US$400,000 from SLTW.

(3)  Details of the amounts received by the Defendant during the period from 1998 to 2007 are set out in the FBPD[45] (collectively “Periodic Payments”)  and are reproduced in the first and second columns of Schedule 1 hereto. There is no dispute that all the Periodic Payments can be traced back to the amounts shown in the records maintained by SCB.

32.In addition, the Defendant also received regular payments described as salary transfers (“薪水轉帳”) from SLTW through the SCB Accounts:

(1) In the list of transactions of the NTD savings account produced by SCB for the period from 1 January 1999 to 31 December 2009, every month, there were at least one payment described as “薪水轉帳” all of which were in odd dollars (collectively “Salary Transfers”).

(2) Except the amounts paid at the beginning or towards the end of the year, most of the Salary Transfers within the same calendar year were of the same amounts and the amounts ranged from NTD15,634 (in 1999) to NTD 25,303 (in 2009).

33.The nature and purpose of the Periodic Payments is hotly disputed:

(1)  The Defendant says that the Periodic Payments represent the dividends paid to him on account of his 25% beneficial interest in SLTW.

(2)  On the other hand, the Plaintiff says that amongst the Periodic Payments, 7 of them in the aggregate amount of NTD 2.6 million represent payments of the Consideration pursuant to the Acquisition Agreement (collectively “7 Instalments”)[46]. The amount paid to the Defendant was slightly more than twice the NTD 1.2 million invested by the Defendant and the excess was a “bonus” paid by the Plaintiff to the Defendant[47].

(3)  In her Opening[48], Ms Carol Wong, counsel for the Defendant, submits that the 7 Instalments were random transactions taken from the dividends paid to the Defendant. She illustrates this by identifying the 7 Instalments against the Periodic Payments, which are marked in the third column of Schedule 1.

B8. Acknowledgements

34.The Plaintiff relies heavily on the Acknowledgements signed by the Investors on 9, 10 or 11 March 2009 which he says, evidenced receipt of the Consideration payable to each of the Investors[49]:

Signed by Date of Acknowledgement

YP Chang 10/3/2009

CM Chen 10/3/2009

Kao 9/3/2009

Pan 10/3/2009

Defendant 10/3/2009

Jia 11/3/2009

35.The Acknowledgements and each of them was a one-page document hand written by the person who signed it and their contents are materially the same. The Acknowledgement signed by the Defendant states as follows:

“1.

本人陳慶和在嵩雷精密工業股份有限公司，擔任副總職務。

2.

投入股本及營運資金於張顯松先生以個人名義赴香港投資成立的公司為﹕嵩雷（香港）工業有限公司

3.

在民國89-92年[50]間，透過由雷精密工業股份有限公司所開立的支票，其為償還本人在香港所投入的營運資金。絕非嵩雷精密工業股份有限公司盈餘分配。
特此說明。”

(English translation)

“This is to explain

1. I, [the Defendant], served as deputy general manager of [SLTW].

2. (I) have invested share capital and working capital in [SLHK] established by [the Plaintiff] in Hong Kong in his own name.

3. During 2000-2003, he repaid me the working capital I invested in Hong Kong with the checks issued by [SLTW]. They were absolutely not earnings distributed by [SLTW].”

36.The Defendant denies that the Acknowledgment evidenced receipt of the Consideration and says that he signed the Acknowledgement in the belief that it was for the purposes of tax avoidance.

37.It is not in dispute that if the Periodic Payments received by the Defendant were in the nature of dividends from SLTW, the Defendant would be liable to pay tax on such dividends but he never reported or paid any tax in relation to any of the dividends received from SLTW.

B9. Payment of NTD 15 million to Kao and transfers of shares in SLHK & SLTW

38.On 30 April 2013, all the shares held by Kao’s family (32.5%) and Pan’s family (30%) in SLTW were transferred to the Plaintiff’s family namely, the Plaintiff (17.17%), Mrs Chang (30.33%), YC Chang (10%) and CF Chang (5%). Since then, all the shares in SLTW have been held by and registered in the names of the Plaintiff and his family members.

39.During the 3 years’ period from 10 May 2013 to 10 April 2016, every month, a cheque in the amount of NTD 416,900 was paid to Kao. By 10 April 2016, the total amount paid to Kao was NTD 15 million.

40.On 8 May 2013, Kao resigned as director of SLHK and transferred his 30% shares to the Plaintiff.

41.On 14 April 2020, the Defendant ceased to be a director of SLHK and Mrs Chang became a director.

42.On 8 May 2020, the Plaintiff transferred one share in SLHK to Mrs Chang.

B10. Defendant’s requests and Plaintiff’s replies

43.By letter dated 6 June 2017 (“6/6/2017 Letter”), the Defendant referred to his 30% interest in SLHK and Songdian and requested the Plaintiff to purchase his Shares for RMB 78 million. In this Letter, the Defendant stated that:

(1)  he joined SLTW (set up by the Plaintiff, Pan and Kao in 1995)  and invested NTD 1.5 million in May 1997 and the 4 of them agreed that each of them would have 25% shares in SLTW;

(2)  the 4 of them and Yip signed the Shareholders Agreement which referred to their equal interest in SLTW but Yip decided not to join so the interest of the parties remained at 25% each;

(3)  in July 1997, SLHK was incorporated with the Plaintiff, Kao and him as shareholders;

(4)  his effort in establishing and operating Dongguan Factory from August 1997 until it ceased operation in June 2011;

(5)  the establishment of Kunshan in April 2000 and the involvement of new shareholders[51] which, according to the Plaintiff, reduced his interest in SLTW, Dongguan Factory and Kunshan to 17.5%;

(6)  from 1997 to 2004, the Plaintiff caused SLTW to pay dividends (“分紅”)  in the amount of NTD 1.5 to 4 million every year, and in 2005 and 2006, the dividends paid were US$200,00 each year;

(7)  the dividends paid were decided by the Plaintiff unilaterally, rather than by reference to the Defendant’s interest in SLTW, Kunshan and Dongguan Factory, but he did not protest out of respect for the Plaintiff;

(8)  as the Plaintiff had already used the funds of SLTW, Kunshan and Songdian to re-purchase the shares from the new shareholders, the Defendant’s interest in SLTW, Kunshan and Dongguan Factory should be restored to 25%;

(9)  as regards Songdian established in May 2007, its paid up capital of US$8.5 million was partly provided by SLTW through SLHK and partly out of the profits of Dongguan Factory;

(10)  from 2007, the Plaintiff paid year-end bonus (“年終獎金”)  of NTD 100,000 to 200,000 and Mainland year-end bonus (“大陸年終獎金”)  of RMB 50,000 to 300,000 together with the year-end prizes (“員工年終獎”)  to the staff of the operating entities, and no further dividend was paid to the Defendant;

(11)  as at 31 December 2016, the net asset value of Dongguan Factory was RMB 171,473,931.35;

(12)  Dongguan Factory and SLHK under the control of the Plaintiff had never paid any dividend to the Defendant. On the basis that the equity value of Dongguan Factory and SLHK was RMB 260 million, his 30% shares worth RMB 78 million, and he requested the Plaintiff to repurchase his shares at this price; and

(13)  the Plaintiff was requested to respond to the proposal or to state his view on the valuation and the repurchase price failing which the Defendant would consider selling his shares in SLHK and SLTW to other parties.

44.In response, the Plaintiff through his solicitors in Taiwan, Via Justice Law Offices (“VJLO”), letter dated 16 June 2017 stated that:

(1) Songdian is wholly owned by SLHK and the Defendant is not a shareholder. There is therefore no basis for the repurchase request;

(2) The Defendant was merely an employee of SLTW and he held all the shares in SLHK as the Plaintiff’s nominee. The Defendant never invested any amount and the Plaintiff terminated the nominee arrangement. The exact wordings in Chinese are:

“且查, 陳慶和先生原為 [SLTW] 之員工同仁, 其所有之 [SLHK] 股份係本人借名登記於其名下, 陳慶和先生並無實質出資。職此, 本人現終止與陳慶和先生間之借名登記委任關係, 并請貴大律師函告陳慶和先生, 於函到3日內速洽貴大律師, 聯繫並安排[ SLHK] 股權回正歸還予本人等事宜。”

45.By letter dated 23 June 2017 the Defendant through his lawyer in the Mainland (“23/6/2017 Letter”):

(1)  accused the Plaintiff for manipulating the accounts of the companies in Taiwan, Hong Kong and the Mainland and understated the profits made by the companies in breach of the applicable tax regulations;

(2)  no document had been provided by the Plaintiff to substantiate the alleged nominee arrangement;

(3)  until 2007, every year dividends had been paid to the Defendant on the basis that he was a shareholder even though the amounts paid were much lower than the actual profits made by SLHK;

(4)  the Defendant invested NTD 1.5 million by paying NTD 1.2 million to SLTW and the remaining NTD 300,000 was deducted from his salary; and

(5)  although Song Lei companies have always been owned by 4 shareholders, the 3 of them deferred to the Plaintiff in view of his leadership skill and seniority. The Defendant worked very hard for Song Lei companies for over 20 years. However, despite the very substantial profits made by Songdian, in the past few years, no dividend was paid to him. The Defendant could not continue to work in this way and wanted to withdraw from the business and requested the Plaintiff to repurchase his shares in SLHK and his indirect interest in Songdian.

46.In reply, the Plaintiff through VJLO’s letter dated 13 July 2017 reiterated that the Defendant held the Shares as the Plaintiff’s nominee, and informed the Defendant that at the extraordinary general meeting of SLHK held on 5 July 2017, a resolution had been passed requiring the Defendant to return the Shares to the Plaintiff. The Defendant was requested to return the Shares to the Plaintiff immediately.

47.By letter dated 31 August 2018 the Defendant through his former solicitors informed the Plaintiff that he had been looking for potential buyers to acquire the Shares, and if the Plaintiff intended to acquire the Shares, he should inform the Defendant within the next 14 days.

48.It was only until 28 September 2018 that the Plaintiff through Messrs. Mike So, Joseph Lau & Co.’s (“MSJL”) alleged, for the first time, that:

(1)  An oral agreement had been reached at the August 1997 Meeting between the Plaintiff, his “trusted employees/associates” including Kao and the Defendant that:

(a)  the Plaintiff, Kao and the Defendant would invest NTD 37,900,000, NTD 3,850,000 and NTD 1,200,000 respectively into SLHK (yet to be incorporated)  and the Plaintiff, Kao and the Defendant would become beneficial owner of 76.5%, 7.8% and 2.4% in SLHK; and

(b)  to facilitate the Defendant’s and Kao’s management and operation of SLHK, the shares in SLHK would be allotted to the Plaintiff, Kao and the Defendant as to 40%, 30% and 30% respectively, “to be held on a trust for [the Plaintiff] and his trusted employees/associates” in the percentages specified.

(2)  Since about 2001, the Plaintiff decided to acquire the beneficial interest of the entire shareholding in SLHK held by his trusted employees/associates and for that purpose, he made a series of payments to each of them.

(3)  From 3 August 2001 to 17 December 2003, the Plaintiff paid NTD 2,600,000 to the Defendant. On 10 March 2009, the Defendant signed an acknowledgment confirming that he had between 2000 and 2003 received from the Plaintiff in full “his investment funds/working capital” in SLHK. Therefore, since 17 December 2003, the Plaintiff has been the sole beneficial shareholder of SLHK and the Defendant has been holding the Shares “on a bare trust” for the Plaintiff.

49.In the same letter, MSJL denied all the allegations set out in the 6/6/2017 Letter and the 23/6/2017 Letter and demanded the Defendant to transfer the Shares to the Plaintiff within 7 days failing which proceedings would be commenced against him.

50.The Defendant did not reply to MSJL’s letter. Nor did he instruct any solicitors in Hong Kong to accept service of the writ.

51.On 15 October 2018, the Plaintiff issued the writ with the SOC.

52.It was only until 9 August 2019 that the writ was served on the Defendant in the Mainland.

C. DISCUSSION

C1. Principles on assessment of evidence

53.The approach of the court in assessing the credibility of witnesses where there is a direct conflict of their testimony as to the existence of an alleged oral agreement is well established. As stated by DHCJ Jin Pao SC in Leung Chin Sing, Rabo and Another v Ko Chun Hay, Kelvin [2021] HKCFI 2242, §§41-44:

“41. Since this case concerns the existence of an alleged oral agreement, and turns on my assessment of the credibility of witnesses, the legal principles on evaluating the truthfulness of an account given by a witness are relevant. These principles were referred to in Hui Cheung Fai v Daiwa Development Ltd (HCA 1734/2009, 8 April 2014)  at [77-80] by DHCJ Eugene Fung SC, and helpfully summarized by Recorder Yvonne Cheng SC in Joint and Several Trustees of the Property of Yeung Wing Sing v Yeung Wing Sing [2021] HKCFI 2018 at [26] as follows:

‘(1)  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)  regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence;

(4)  care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character;

(5)  witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.’

42. It is rare in modern commercial litigation to encounter a claim based on an agreement which is not only said to have been purely by word of mouth but of which there is no contemporaneous documentary record of any kind. The prevalence of e-mails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic imprint: Blue v Ashley [2017] EWHC 1928 (Comm)  at [65] per Leggatt J (as he then was); Music Holdings Property HK Ltd v Ooi Lean Choo [2020] HKCFI 1312 at [58] per Ng J. Because the value of a written record is understood by anyone with business experience, its absence may, depending on the circumstances, tend to suggest that no contract was concluded: Blue v Ashley at [49]; Wing Hing (1956)  Co Ltd v Nissin Foods Co Ltd [2021] HKCFI 638 at [56] per DHCJ Abraham Chan SC.

43. In Gestmin SGPS SA v Credit Suisse (UK)  Limited [2013] EWHC 3560 (Comm)  at [16-20], Leggatt J (as he then was)  set out a detailed analysis on the unreliability of human memory and the impact on the civil litigation process on recalling past events. In view of these considerations, at [22], it was held that the best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance on witnesses’ recollection of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. These observations were cited with approval by Kwan VP in Galleria (Hong Kong)  Ltd v DBS Bank, Hong Kong Branch [2021] HKCA 611 at [175]...

44.  I also bear in mind that the burden of proof rests on the Plaintiffs to prove and establish the oral agreement, including the manner in which it was concluded and on the terms as pleaded, on a balance of probabilities. There is no burden on the Defendant to persuade the Court that his alternative version of events should be accepted: Music Holdings Property HK Ltd at [55] per Ng J.”

C2. Principles on trust

54.For a valid express trust to be created, there must be certainty of intention, subject matter and object (Snell’s Equity, 34^th ed., 2020, §22-012).

55.As regards common intention constructive trust, the relevant principles have been summarized by DHCJ Stock SC in Leung Hang Lin and Li Kwai Fuk v Lam Mei Yung [2019] HKCFI 2819, at §§7-8, as follows:

“7. The principles applicable to common intention constructive trusts are set out in various Hong Kong authorities, notably: Luo Xing Juan v Estate of Hui Shui See (2009)  12 HKCFAR 1 per Ribeiro PJ at §§35 – 38; Liu Wai Keung v Liu Wai Man [2013] 5 HKLRD 9; Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985; Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327.

8. In summary:

(1)  The starting point is that equity follows the law. There is a presumption that the beneficial interest follows the legal interest. Where the property is registered in a defendant’s name, the plaintiff bears the burden of showing, on the balance of probabilities, that the defendant held the property on trust for him or her such that the beneficial ownership differs to the legal ownership. See: Liu Wai Keung §44; Mo Ying §5.16; Primecredit §17.

(2)  The burden may be discharged by showing that: (i)  there was a common intention held by the plaintiff and the property owner at the time of the purchase (or exceptionally, thereafter)  that the beneficial ownership was to be different to the legal ownership; (ii)  the plaintiff altered his or her position in detrimental reliance upon the common intention; and (iii)  it is unconscionable for the property owner to assert ownership in reliance on the legal title. The constructive trust is constituted by the plaintiff’s detrimental reliance on the common intention and the unconscionability of the legal owner departing therefrom. See: Luo Xing Juan §38; Liu Wai Keung §46.

(3)  The approach to ascertaining common intention is objective. One looks to the intention of each party which was reasonably understood by the other party to be manifested by the first party’s words and conduct. See: Liu Wai Keung §47; Mo Ying §5.16.

(4)  The doctrine is sometimes described as having two limbs. First, where at any time prior to the acquisition (or exceptionally, at a later date), there is an agreement, arrangement or understanding reached between the parties as to how the property is to be held beneficially, based on evidence of express discussions. Second, where there is no evidence to support such a finding but the court relies on the parties’ conduct as a basis from which to infer a common intention. There is some authority that under the second limb, direct contributions to the purchase price by a party who is not a legal owner will readily justify the inference. See: Mo Ying §5.8; Primecredit §§2.3 and 2.4.

(5)  However, the modern approach is to assess the parties’ common intention by a holistic approach having regard to the context and the particular facts. The court is not constrained to consider only pure direct monetary contributions to the purchase price. In a Chinese setting, especially for the older generations, where explicit discussions on property rights within the family are not that common, the court has to pay more regard to circumstantial matters. See: Mo Ying §§5.14 and 5.15; Primecredit §1.6.”

C3. Issue 1: whether Oral Agreement existed

56.The burden is on the Plaintiff to prove that the Oral Agreement existed, which is the only basis advanced by the Plaintiff in support of his case that the Defendant has been holding the Shares on trust for the Investors.

57.In my judgment, the Plaintiff’s case on the alleged Oral Agreement is inherently implausible and incapable of belief for the reasons set out below.

58.First, the very fact that for the entire period of 20 years (from August 1997 to July 2017) there was no suggestion by the Plaintiff that the Shares had been held by the Defendant on trust is very telling. It shows that the Plaintiff did not consider that there was any basis to suggest that the Defendant did not own the Shares.

59.Second, the Oral Agreement alleged to have been made in August 1997 was never mentioned or featured in any contemporaneous documents. The Plaintiff has not been able to produce a single document in support of his assertion that the parties (be it 3 parties or 7 parties) had reached the Oral Agreement, let alone at the August 1997 Meeting.

60.The absence of contemporaneous document must be seen against the following facts and matters:

(1)  On the Plaintiff’s case, the Oral Agreement involved 7 parties, of which only YP Chang and CM Chen are his relatives. Kao, Pan and the Defendant were employees of SLTW while Jia was a friend. Even if there were any basis to suggest that the Plaintiff trusted the 6 Investors, there was no basis (none has been suggested by the Plaintiff)  for YP Chang, Jia and CM Chen to trust the Defendant to hold the Shares on trust for them as they had not even met the Defendant. It is implausible that all the parties would be contented to leave the Oral Agreement in that form without recording it in writing. This is reinforced by the fact that just one month before the alleged Oral Agreement, on 23 July 1997, the Plaintiff, Kao, Pan and the Defendant signed the Shareholders Agreement.

(2)  In the Shareholders Agreement, the parties set out their status as shareholders of SLTW (even though Pan and the Defendant was not and had never been listed as registered shareholders of SLTW), the amounts and manner of capital contribution, the bases of their cooperation and their respective roles in the company. There was no reason why the same 3 persons (the Plaintiff, the Defendant and Kao)  would have acted differently when dealing with SLHK. Had the Plaintiff, the Defendant and Kao agreed that the legal ownership and beneficial ownership of the shares in SLHK should be different, they would have put the Oral Agreement into writing and required all parties to sign the agreement, which was what they did in respect of the Shareholders Agreement.

(3)  Even if there were some basis to suggest that the 7 parties did not require a written agreement to be signed, one would expect these 7 parties or any of them in particular the beneficiaries who would not hold any shares in SLHK, to record the Oral Agreement in some form before they invested any amounts pursuant to such agreement. Again, this was not done and no explanation has been put forward by the Plaintiff to explain the absence of any record of the Oral Agreement.

61.Third, according to the Plaintiff, the Oral Agreement was made at the August 1997 Meeting held between the Plaintiff, Kao and the Defendant. There is no plea or evidence that the Plaintiff (or Kao and the Defendant) acted on behalf of the other Investors (YP Chang, CM Chen, Pan and Jia) in entering into the Oral Agreement. It is impossible to see how a tripartite agreement can be turned into an agreement between 7 parties when 4 of the parties were not privy to such agreement.

62.Fourth, on the Plaintiff’s case, the financial contributions were provided by the 7 parties by transferring the following sums to SLTW over a period of 7 years, from 3 June 1996 to 2 January 2003 (collectively “Contributions”):

Party Date of payment Amount (NTD)

Plaintiff

3/6/1996 700,000

27/12/1996 2,000,000

13/1/1997 700,000

5/3/1997 1,400,000

2/6/1997 850,000

10/6/1997 800,000

7/10/1997 2,000,000

21/11/1997 3,000,000

4/5/1998 2,500,000

29/8/1998 1,500,000

31/8/1998 3,500,000

11/11/1998 1,500,000

5/12/2001 700,000
(paid by Chang Senior)

5/12/2001 3,850,000

21/8/2002 900,000
(actual amount transferred was 910,000)

2/1/2003 12,000,000

CM Chen 26/2/1997 1,600,000

YP Chang 24/10/2000 500,000

Jia 31/12/1997 1,000,000
(cheque issued by Farmers Association)

Kao 5/12/2001 3,850,000

Pan 5/12/2001 3,500,000
(paid by Mrs Pan)

Defendant 5/5/1997 1,200,000

Total 49,550,000

63.There is no plea on how the Contributions received by SLTW were then transferred from SLTW to SLHK. Nor is there any plea or evidence as to how the Contributions paid to SLTW could be converted into beneficial interest in the shares in SLHK, still less over the Shares held by the Defendant.

64.Although the Plaintiff, under cross-examination, asserts that when SLTW received the Contributions, it would use the money to purchase materials in Taiwan for “Songlei” in the Mainland and as operation fund for SLHK such that SLTW was receiving the money on behalf of SLHK, the assertion is incredible and must be rejected:

(1)  It is not supported by any document. If SLTW did receive the Contributions on behalf of SLHK and applied the same for the stated purposes, there would be documents evidencing the purchase of materials and transfers of the same to SLHK, as well as documents evidencing the transfers of funds from SLTW to SLHK. No such document has been produced by the Plaintiff.

(2)  As will be seen in §69 below, a substantial part of the Contributions (NTD 11.9 million)  were in fact payments made in the name of the registered shareholders for subscribing the new shares issued by SLTW on 5 December 2001 pursuant to the resolution passed on 20 November 2001.

(3)  SLHK did not have any subsidiary in the Mainland until Songdian was established in May 2007. Prior to that, the only Songlei companies in the Mainland were Dongguan Factory (established in August 1997)  and Kunshun (established in April 2000), both of them were wholly owned by SLTW.

65.Fifth, I accept the Defendant’s evidence that the NTD 1.2 million paid by him to SLTW in May 1997 was for the purpose of investing in SLTW, which is consistent with the following objective facts:

(1) The NTD 1.2 million was paid by the Defendant in May 1997. At that time, SLHK had not even been incorporated. There was simply no reason for the Defendant to pay his life saving to invest in a company which did not even exist.

(2) The Plaintiff, Kao, the Defendant, Pan and Yip signed the Shareholders Agreement in July 1997 where clause 2(5) stated that by July 1997, the old shareholders (“舊股東”) of SLTW were the Plaintiff, Kao, Pan and the Defendant. If the Defendant had not invested any amount in SLTW at the time the Shareholders Agreement was signed, the Plaintiff would not have agreed to state that the Defendant was as an old shareholder and was entitled to share in the profits made by SLTW by the end of July 1997. When this is put to the Plaintiff during cross-examination, he is not able to offer any explanation other than asserting that he signed the Shareholders Agreement without reading its contents. This cannot be true as the Shareholders Agreement listed out the details of the assets then owned by SLTW, and the information could only have come from the Plaintiff who had always been in charge of SLTW’s affairs.

66.Sixth, on the Plaintiff’s own case, the beneficial interest of the 7 parties, which was a key term of the Oral Agreement, had not been discussed or agreed at the August 1997 Meeting. Instead, the Proportion (and hence the 7 parties’ beneficial interest in SLHK’s shares) was only ascertained on 2 January 2003 (when the Plaintiff paid the last sum of NTD 12 million to SLTW). The fact that the 7 parties were at liberty to pay their Contributions in any amount at any time within a period of 6 years is inconsistent with the parties having reached the Oral Agreement back in August 1997.

67.Seventh, the Plaintiff’s case on the Contributions is contradictory to his case on the Acquisition Agreement. If, as the Plaintiff alleges, he had through the Acquisition Agreement made with the Investors in 2000-2001 acquired all the beneficial interest in SLHK’s shares, there was no reason for him to make further capital contributions in the amounts of NTD 900,000 on 21 August 2022 and NTD 12 million on 2 January 2003 for the purpose of acquiring further beneficial interests in SLHK.

68.Eighth, the alleged Oral Agreement is inconsistent with the Plaintiff’s earlier assertion (in VJLO’s letters) that the Defendant held the Shares as his nominee. As stated in Section B10 above:

(1)  The Defendant had in his letter dated 6 June 2017 described the history of his involvement in SLTW and SLHK and their subsidiaries, his investment of NTD 1.5 million into SLTW back in May 1997, and the dividends he received in the past 20 years in support of his request for the Plaintiff to purchase his Shares in SLHK (including his indirect interest in Songdian)  for RMB78 million.

(2)  In rejecting the Defendant’s request, the only reasons cited by the Plaintiff, as stated in VJLO’s letters dated 16 June 2017 and 13 July 2017, were that (a)  the Defendant is not a shareholder of Songdian; (b)  the Defendant was merely an employee of SLTW and held all the shares in SLHK as the Plaintiff’s nominee; and (c)  a resolution had been passed on 5 July 2017 requiring the Defendant to return the Shares to the Plaintiff.

(3)  The Oral Agreement was only raised by the Plaintiff more than one year later in MSJL’s letter of 28 September 2018.

(4)  Had the parties made the Oral Agreement in August 1997 such that the Defendant never held beneficial interest in all the Shares, one would expect the Plaintiff to have said so in VJLO’s letters. This was not done and no explanation has been provided by the Plaintiff as to why he did not mention the alleged Oral Agreement in response to the Defendant’s request contained in 6/6/2017 Letter.

69.Ninth, as submitted by Ms Wong, amongst the Contributions, the payments made on 5 December 2001 by the Plaintiff (NTD 3,850,000), Chang Senior (NTD 700,000), Kao (NTD 3,850,000) and Mrs Pan (NTD 3,850,000) coincide with the date when SLTW increased its capital from NTD 1 million to NTD 15 million and issued 1,400,000 new shares to the registered shareholders:

(1)  According to the passbook of SLTW produced by the Plaintiff, the following amounts were paid by the registered shareholders of SLTW into the savings account of SLTW on 5 December 2001. The amounts paid were the same as the amounts payable on the new shares issued by SLTW to the registered shareholders as can be seen from the following table:

Name Amount paid (NTD) New shares issued by SLTW on 5/12/2001 Shareholding in SLTW

Kao 3,850,000
385,000
(from 27,500 to 412,500) 27.5%

Plaintiff 3,850,000 385,000
(from 27,500 to 412,500) 27.5%

Mrs Pan 3,500,000 350,000
(from 25,000 to 375,000) 25%

Sie 700,000 70,000
(from 5,000 to 75,000) 5%

Mrs Kao 700,000 70,000
(from 5,000 to 75,000) 5%

Pan Senior 700,000 70,000
(from 5,000 to 75,000) 5%

Chang Senior 700,000 70,000
(from 5,000 to 75,000) 5%

(2)  Under cross-examination by Ms Wong and in answer to the questions raised by this Court, the Plaintiff confirms that the amounts paid into SLTW’s bank account on 5 December 2001 were for the purpose of subscribing for the new shares issued by SLTW to the shareholders pursuant to the board resolution passed on 20 November 2001, and the same had nothing to do with SLHK. Although the Plaintiff claims that all the payments were funded by him as he had been the sole beneficial owner of SLTW, the assertion is contradicted by the express terms of the Shareholders Agreement and is not supported by any document.

(3)  The Plaintiff has not adduced any document to show that on 5 December 2001, another set of payments in the same amounts were paid to SLTW (still less transferred to the use of SLHK)  viz., the Plaintiff (NTD 3,850,000), Pan Senior (NTD 700,000), Kao (NTD 3,850,000)  and Mrs Pan (NTD 3,500,000)  for the purpose of investing in SLHK’s shares.

70.Tenth, as pointed out by Ms Wong, amongst the Contributions, 8 of them pre-dated the August 1997 Meeting (i.e. 6 payments by the Plaintiff, one by CM Chen and one by the Defendant), yet there was no discussion or agreement at the August 1997 Meeting as to how the amounts already paid would be translated into beneficial interest in SLHK.

(1) It is inconceivable that Defendant would be contented to pay NTD 1.2 million into SLTW, which represented all the savings he had at the time, in return for some uncertain beneficial interest in SLHK.

(2) When the fact that 8 payments predated the August 1997 Meeting is put to the Plaintiff under cross-examination, he claims (for the first time) that in February 1997, he already had the idea of establishing a Hong Kong company and that was the time when CM Chen made the investment. The assertion has never been mentioned in pleadings or his witness statement and is incredulous. Had the Plaintiff already formed the idea of setting up a Hong Kong company, there was no reason why he did not raise the matter at the August 1997 Meeting for discussion given its obvious importance.

71.Lastly, I agree with Ms Wong’s submission that the reason given by the Plaintiff for the alleged trust arrangement does not make sense:

(1) On the Plaintiff’s case, the alleged trust arrangement whereby “Kao and the Defendant would together hold more than 50% shares and appear to have a controlling interest in [SLHK], then they would be able to give more confidence to parties dealing with [SLHK]”[52].

(2) However, when SLHK was incorporated and the Shares were allotted to the Defendant, both Kao and the Defendant were appointed as directors of SLHK and hence had authority to deal with third parties qua directors of SLHK. Their shareholding in SLHK was wholly irrelevant to whether they had the authority to deal with any third parties on behalf of SLHK.

72.Each of the above matter points to the conclusion that the alleged Oral Agreement is incredulous and must be rejected. I find that the alleged Oral Agreement did not exist. It follows that the Defendant did not hold the Shares on trust for anyone.

73.For completeness, I deal with 2 points raised by Mr Ng in Closing:

(1) He submits that 3 of the Investors (Pan, YP Chang and Jia) have come forward to give evidence on the substantial amounts invested by them in acquiring their beneficial interest in SLHK, and the court should have no difficulty in accepting their evidence in full[53].

(2) The Defendant “expressly disavowed his pleaded case” both in his WS and oral testimony and admits that the NTD 1.5 million was invested in SLTW and he did not invest anything in SLHK. Mr Ng contends that these “damaging admissions” and “declarations against interest” should be given considerable weight. On the Defendant’s admission, he had “no beneficial interest in [SLHK]”. No reliance can be placed on the Defendant’s WS §22 where he said he was given the Shares in SLHK due to his involvement and contributions in venturing the business in the Mainland, as such matter has not been pleaded in the Amended Defence[54].

74.As regards the first point, I do not think that the evidence given by Pan, YP Chang and Jia assists the Plaintiff’s case on the Oral Agreement for the following reasons:

(1)  The contents of their witness statements on the Oral Agreement[55] are identical and are clearly matters not within their personal knowledge. This can be seen from their description of the August 1997 Meeting said to have taken place between the Plaintiff, Kao and the Defendant.

(2)  There is no suggestion or evidence that Pan, YP Chang and Jia was present at the August 1997 Meeting or that they had through any other means entered into the Oral Agreement with the Defendant.

(3)  Pan, YP Chang and Jia all say that they were interested in investing in SLHK and they provided their funds to SLTW as operating funds for SLHK. There is no indication as to when and to whom they indicated their interest, and when they invested their funds into SLHK. Nor is there any explanation as to when and how they came up with the percentage of their beneficial interest in SLHK viz., 7.1% for Pan, 1% for YP Chang and 2% for Jia. During cross-examination, it is clear that Pan, YP Chang and Jia are only rehearing what they were told by the Plaintiff, rather than giving evidence based on their personal knowledge.

(4)  It is also clear from the evidence of Pan, YP Chang and Jia that they only dealt with the Plaintiff but not the Defendant in respect of their investments. At the highest, they only reached agreement with the Plaintiff, but not with the Defendant or Kao.

75.As for the so-called “admissions” against self-interest, it has no merit given that:

(1)  The starting point is that equity follows the law. There is a presumption that the beneficial interest follows the legal interest. The burden is on the Plaintiff to show that the Defendant holds the Shares on trust for the Investors (Leung Hang Lin §8(1), cited in §55 above).

(2)  It is not in dispute that SLHK has nominal capital of HK$10,000 and none of the shareholders have paid the amount payable on the shares issued to them. If the so-called admission supports the Plaintiff’s contention that the Defendant does not have any beneficial interest in the Shares (which I do not agree), the same can be said of the 70% shares currently held by the Plaintiff and Mrs Chang.

(3)  More importantly, it is the unchallenged evidence of the Defendant[56] that the capital for setting up Songdian (a wholly subsidiary of SLHK)  came from the profits generated by Dongguan Factory, Kunshan and SLTW (of which he had 25% interest evidenced by the Shareholders Agreement)  as well as the loan of US$4 million obtained by SLHK from a bank for which he had given a personal guarantee as security, and he provided operating funds to Songdian in 2011-2012. The Defendant’s evidence is consistent with the fact that since the establishment of Songdian, no further dividends had been paid by SLTW to the Defendant.

C4. Issue 2: whether Acquisition Agreement existed

76.As the Plaintiff’s case on the Acquisition Agreement is based on the existence of the Oral Agreement, which I find did not exist, it follows that the Acquisition Agreement allegedly made between the Plaintiff and the Investors did not exist.

77.Even if, contrary to my view, the Oral Agreement existed, I do not consider the Plaintiff’s allegation on the Acquisition Agreement to be credible, for the reasons explained below.

78.First, the Acquisition Agreement was not mentioned or recorded in any contemporaneous document despite its alleged importance to the Plaintiff. It is inconceivable that an experienced and sophisticated businessman like the Plaintiff would have purchased the beneficial interest in SLHK’s shares from all the Investors without recording the same in any written form.

79.Second, the Acquisition Agreement was only raised by the Plaintiff in March 2021 when the ASOC was filed. It is necessary to see how the alleged Acquisition Agreement came about:

(1)  As stated in Section B10 above, in as early as the 6/6/2017 Letter, the Defendant already referred to the substantial dividends (“分紅”)  paid to him during the period from 1997 to 2006, which represented the Periodic Payments. The Plaintiff did not in any of the letters in response suggest that he had acquired the beneficial interest in the Shares from the Defendant, still less pursuant to the Acquisition Agreement.

(2)  Even after the Plaintiff commenced the present action, his case (as pleaded in §11 of the SOC)  was that since 2001, he decided to acquire the beneficial interest held by the Investors and made payments to the Investors for such purpose:

(a)  “Since about 2001, the Plaintiff decided to acquire the beneficial interest of the entire shareholding in [SLHK] held by the [Investors], and for that purpose he made a series of payments to each of the [Investors].”[57];

(b)  The Plaintiff paid NTD2.6 million to the Defendant by the 7 instalments during the period from 3 August 2001 to 17 December 2003 (i.e. 7 Instalments)[58].

(3)  The plea in §11 of the SOC shows that at the highest, the so-called acquisition was a decision made by the Plaintiff unilaterally, rather than pursuant to an agreement he had reached with (inter alios)  the Defendant.

(4)  In §4(14)  of his Defence filed on 3 December 2019, the Defendant pleaded that he had paid NTD1.5 million to SLTW in return for a share of the Song Lei business including 25% shareholding in SLTW and 30% shareholding in SLHK[59].

(5)  In §4(16)  of the Defence, the Defendant pleaded that the Plaintiff had control of the accounts and funds of all Song Lei companies and “occasionally paid lump sums that the Plaintiff called ‘dividends’ to the Defendant throughout the years from about 1998 to 2007 but none of these lump sum payments were purported to be payment for the purchase of the Defendant’s shares in [SLHK]”.

(6)  Pursuant to the Plaintiff’s request for particulars of §4(16)  of the Defence, the Defendant filed his FBPD on 6 May 2020 and in Answer §2(1)  thereof, provided particulars of the “dividends” paid by SLTW to him (i.e. Periodic Payments).

(7)  It was only in March 2021 that the Plaintiff amended his case by filing the ASOC and alleged, for the first time, that (a)  he had reached the Acquisition Agreement with the Investors (including the Defendant)  in or around 2000-2001 to acquire the beneficial interest of all the shares held by the Investors in SLHK; and (b)  pursuant to the Acquisition Agreement, he paid NTD2.6 million to the Defendant to acquire his 2.4% beneficial interest in SLHK’s shares.

80.Had the Plaintiff reached the Acquisition Agreement with (inter alios) the Defendant back in 2000-2001, one would expect the Plaintiff to have raised it immediately after the Defendant had requested the Plaintiff to purchase his Shares. At the very least, the Plaintiff would have informed his legal representatives about the existence of the Acquisition Agreement so that the same could be pleaded in the SOC. This was not done and no explanation has been provided by the Plaintiff.

81.Third, there is no evidence to show that the Plaintiff himself has paid any amount to the Defendant, still less pursuant to the Acquisition Agreement:

(1)  It is clear from the documents adduced by the parties that the 7 Instalments were all paid by SLTW, not the Plaintiff.

(2)  There is no basis for the Plaintiff to treat the payments made by SLTW as if they were payments made by him. No evidence has been adduced by the Plaintiff to show that he had at any time paid or repaid NTD 2.6 million to SLTW.

(3)  Although the Plaintiff asserts that he has always been the sole owner of SLTW such that he treated SLTW’s money as his own money, I do not accept his assertion given that it is contradicted by (a)  the express terms of the Shareholders Agreement (which stated that there were 4 shareholders of SLTW); (b)  the fact that SLTW had (and still has)  other registered shareholders; and (c)  the manner in which the affairs of SLTW were dealt with, which shows that SLTW was separate and distinct from the registered shareholders. For example, when SLTW issued new shares to the registered shareholders on 5 December 2001, each of them had to pay subscription money for the new shares by depositing the amount into SLTW’s bank account. This confirms the fact that there was a distinction between SLTW and the Plaintiff, and the Plaintiff could not equate himself with that of SLTW.

82.Fourth, the objective evidence is consistent with the Defendant’s case that the 7 Instalments were part of the dividends paid by SLTW to the Defendant, and is inconsistent with the Plaintiff’s case that they were payments of the Consideration pursuant to the Acquisition Agreement:

(1)  In her Opening[60], Ms Wong submits that the 7 Instalments were no more than 7 random transactions taken from the dividends paid to the Defendant (see the third column of Schedule 1).

(2)  The timing (paid on a monthly basis)  and the amounts (same amount was paid within the same calendar year)  of the Periodic Payments are consistent with the Defendant’s case that they were payments of dividends from SLTW. I accept the Defendant’s evidence that the Periodic Payments represented his share of the profits generated by 4 Song Lei companies namely, SLHK, SLTW, Kunshan and Songdian although the actual profits made by these companies far exceeded the dividends paid to him.

(3)  The Plaintiff is unable to offer any explanation as to why out of the Periodic Payments, the 7 Instalments should be treated as payments of the Consideration. No contemporaneous document such as letter, payment slip or accounting ledgers which may support his case that the 7 Instalments were payments of the Consideration has been produced by the Plaintiff.

(4)  Although the Plaintiff calls 2 accounting staff of SLTW, Ms Bien Chin Yi (卞靜儀)  and Ms Kao Hui Ling (高彗玲), who both assert that the Periodic Payments were not dividends, but were payments of salaries (“工資”), year-end bonuses (“年終獎金”), special contribution awards (“特殊功績獎金”)  and long service payments (“久任獎金”)[61], no document, including accounting ledgers showing how the Periodic Payments were recorded or letters issued by SLTW to the Defendant, has been produced by the Plaintiff to substantiate their assertion. The assertion does not sit well with the fact that the Periodic Payments were made in as early as February 1999, and continued to be paid on a monthly basis, and most of the payments within the same calendar year were in the same amount.

(5)  The fact that SLTW never reported the Periodic Payments paid to the Defendant as dividends to the tax authority in Taiwan[62] does not support the Plaintiff’s assertion that the 7 Instalments were for payments of the Consideration. I accept the Defendant’s evidence, which is an admission against his interest, that SLTW did not report the dividends paid to him was for tax avoidance purpose, and he knew about it.

83.Fifth, the alleged Acquisition Agreement is inconsistent with the following objective facts:

(1)  The Plaintiff never demanded the Defendant to transfer his Shares to him until July 2017. This does not sit well with the Plaintiff’s allegation that he had acquired all the beneficial interest in the Shares held by the Defendant 16 years ago (in 2000-2001).

(2)  Nor did Kao transfer his shares to the Plaintiff after the alleged Acquisition Agreement. Instead, Kao continued to hold his shares until 8 May 2013[63], the same month when Kao started receiving payment of NTD 461,660[64] every month until 10 January 2016 when he received an aggregate sum of NTD 15 million. The fact that Kao only transferred his shares in SLHK to the Plaintiff at the same time the Plaintiff started making payments to Kao is inconsistent with the Plaintiff’s allegation that Kao had sold all his beneficial interest in SLHK’s shares 13 years ago in 2000-2001.

(3)  Under cross-examination, the Plaintiff admits that the NTD 15 million paid to Kao was to acquire Kao’s interest in SLTW, SLHK, Kunshan and “Dongguan Songlei” (presumably, Dongguan Factory and Songdian). Had the Plaintiff already acquired Kao’s beneficial interest in SLHK’s shares in 2000-2001, he would not have to purchase Kao’s interest in SLHK again in 2013.

84.Sixth, there is no evidence to show that the Plaintiff himself has paid any amounts to the Investors, let alone pursuant to the Acquisition Agreement. The payments relied on by Mr Ng[65] were all payments made by SLTW, not the Plaintiff:

(1)  For YP Chang, the 4 payments in the total sum of NTD 1.1 million made on 17 August 2001 (NTD175,000), 21 December 2001 (NTD175,000), 17 December 2002 (NTD 175,000)  and 17 December 2003 (NTD575,000)  [66] were all paid by SLTW[67].

(2)  For Pan, the 19 payments in the total sum of NTD 7.1 million (amounts ranged from NTD 300,000, NTD 500,000 and NTD 700,000)  paid during the period from 17 May 2002 to 17 December 2003[68] were all paid by SLTW[69].

(3)  For Jia, the 11 payments in the total sum of NTD 2,025,000 (amounts ranged from NTD 180,000, NTD 100,000 and NTD 362,500)  paid during the period from 17 June 2002 to 17 December 2003[70] were all paid by SLTW[71].

85.Similarly, the cheques produced by the Plaintiff all show that the payments to CM Chen and Kao were made by SLTW, not the Plaintiff:

(1) For CM Chen, there were 12 payments in the total sum of NTD 3,163,902 during the period from 7 August 2001 to 3 June 2003 (amounts ranged from NTD 163,992, NTD 250,000 and NTD 499,970), and all the payments were made by SLTW.

(2) For Kao, there were 16 payments in the total sum of NTD 7,850,000 during the period from 17 May 2002 to 15 December 2003 (amounts ranged from NTD 50,000, NTD 300,000, NTD 500,000, NTD 700,000 NTD 1 million) and all the payments were made by SLTW.

86.There is no evidence that the Plaintiff had ever reimbursed the amounts paid to Pan, YP Chang, Jia, CM Chen and Kao, whether before or after the alleged Acquisition Agreement. For the same reasons stated in §81 above, there is no basis for the Plaintiff to equate himself with SLTW or to treat SLTW’s funds as his funds.

87.Lastly, the Acknowledgements signed by the Investors do not support the Plaintiff’s allegation that the Acquisition Agreement existed:

(1)  The Acknowledgments were all signed in March 2009, more than 8-9 years after the alleged Acquisition Agreement was made. The Plaintiff is not able to provide any credible explanation as to why in March 2009 he had to ask the Investors to sign the Acknowledgements to confirm receipt of the amounts paid by SLTW to them back in 2001 to 2003.

(2)  Even if (which I do not accept)  there were any credible explanation as to why suddenly in March 2009 each of the Investors had to sign the Acknowledgements as receipts of the amounts received pursuant to the Acquisition Agreement, it was only natural for the Investors to refer to (a)  the extent of their beneficial interest in SLHK’s shares, (b)  the Acquisition Agreement, (c)  the amounts and the dates they received the sums from the Plaintiff, and (d)  a confirmation or acknowledgment that having received the sums, they ceased to have any interest in SLHK’s shares. No such statement can be found in the Acknowledgements and no credible explanation has been provided by the Plaintiff on the complete absence of such information in the Acknowledgements.

(3)  Instead, the wordings of the Acknowledgements are materially the same. The only inference one can draw is that the wordings were suggested by the Plaintiff to each of the Investors, who proceeded to write the words and signed the Acknowledgments.

(4)  The Defendant in his WS says that the Acknowledgment was signed by him in early 2009 after he had been told by the Plaintiff that the tax authority in Taiwan had been investigating the tax payable on the dividends paid by SLTW, and he copied the words provided by the Plaintiff and signed the same[72]. His evidence is consistent with the words used in the Acknowledgement, which purported to explain to a third party his position in SLTW, the capital he invested in SLHK and the repayment of capital to him during 2000-2003.

(5)  Under cross-examination, the Defendant admits that the statements in §§2-3 of the Acknowledgements were false in that he had neither invested any capital in SLHK nor had he obtained the return of such capital. He has been subject to extensive cross-examination on this and his evidence remains unshaken. The Defendant admits that he knew that under Taiwan’s tax law, he was liable to pay tax on the dividends received from SLTW and he never reported the receipts of dividends to the tax authority nor paid any tax on such dividends. The Defendant also admits that it was wrong for him to have signed the Acknowledgement for the purpose of avoiding having to pay tax on the dividends received.

(6)  Mr Ng makes much criticism on the very serious allegation made by the Defendant and submits that it is full of contradiction and inconsistency[73]. I do not think that the criticism is justified. The Defendant all along said that he had been receiving dividends from SLTW, and he described the circumstances under which he signed the Acknowledgement in his WS. He readily admits that the contents of the Acknowledgement were false and it was wrong for him to have written and signed the Acknowledgment for tax avoidance purpose.

(7)  It is unnecessary for this Court to form any view as to whether or not the Acknowledgements signed by Pan, YP Chang and Jia were also for tax avoidance purpose. It suffices to say that the statement in §2 of the Acknowledgements signed by them, which stated that they had invested share capital and working capital in SLHK and that SLHK was established by the Plaintiff in his own name, cannot be true as they had never invested any capital into SLHK nor was SLHK established in the Plaintiff’s own name.

88.For the above reasons, I find that the alleged Acquisition Agreement did not exist.

C5. Issue 3: nature of 7 Instalments

89.This issue has already been dealt with in the earlier parts of this Judgment. In short:

(1)  The 7 Instalments in the total sum of NTD 2.6 million were all paid by SLTW to the Defendant (§§81-82 above).

(2)  There is no evidence to suggest that the Plaintiff had provided or reimbursed SLTW with NTD 2.6 million or indeed any amounts paid to the other 5 Investors (§§84-85 above).

(3)  There was no basis for the Plaintiff to equate himself with SLTW or to treat SLTW’s funds as his own funds (§86 above).

(4)  The 7 Instalments were part of the dividends paid by SLTW to the Defendant (§82 above).

C6. Issue 4: Acknowledgment signed by Defendant

90.The issue has been dealt with in Section C4.

91.For the reasons stated in §87 above, I find that the Acknowledgment was signed by the Defendant for tax avoidance purpose. It had nothing to do with the alleged return of investments in SLHK pursuant to the Acquisition Agreement which did not exist as I so find.

C7. Issue 5: whether the Shares are held on trust

92.In view of my findings that the alleged Oral Agreement and the alleged Acquisition Agreement did not exist, there is no basis for the Plaintiff to claim that the Defendant has been holding the Shares on trust for him.

93.In any event, as the Plaintiff has never paid any consideration to acquire the Shares from the Defendant, there is no basis for the Plaintiff to claim that the Shares are held by the Defendant on trust for him.

D. DISPOSITION AND COSTS

94.The Plaintiff fails on all issues.

95.The Plaintiff’s claims are dismissed.

96.As for costs, I make a costs order nisi that the Plaintiff is to pay all the costs of and occasioned by the Defendant in this action including all costs reserved on an indemnity basis. It seems to me that costs should be ordered on a higher scale to reflect the court’s findings that the Plaintiff’s claims are based entirely on alleged agreements which did not exist.

	(Linda Chan)
	Judge of the Court of First Instance High Court

Mr Lawrence K F Ng and Mr Victor T S Lui, instructed by Mike So, Joseph Lau & Co., for the Plaintiff

Ms Carol Wong, instructed by Li & Partners, for the Defendant

Schedule 1

Amounts paid by SLTW to the Defendant via SCB Accounts

Date	Amounts paid into SCB Accounts	7 Instalments identified in ASOC §19(5)
25 February 1999	NTD 250,000
7 August 1999	NTD 200,000
17 August 1999	NTD 400,000
17 September 1999	NTD 400,000
18 October 1999	NTD 400,000
17 November 1999	NTD 400,000
3 March 2000	NTD 100,000
17 March 2000	NTD 250,000
17 April 2000	NTD 250,000
17 June 2000	NTD 300,000
17 July 2000	NTD 300,000
3 August 2000	NTD 250,000
17 August 2000	NTD 300,000
18 September 2000	NTD 300,000
17 October 2000	NTD 300,000
17 November 2000	NTD 300,000
5 February 2001	NTD 250,000
17 May 2001	NTD 500,000
19 June 2001	NTD 500,000
3 September 2001	NTD 400,000	1^st Instalment (cf. 3 August 2001)
17 September 2001	NTD 500,000
19 September 2001	NTD 500,000
3 October 2001	NTD 400,000
3 October 2001	NTD 740,524
19 November 2001	NTD 400,000
17 December 2001	NTD 400,000
5 February 2002	NTD 200,000
17 April 2002	NTD 699,840
17 May 2002	NTD 300,000	2^nd Instalment
3 June 2002	NTD 300,000
17 June 2002	NTD 300,000	3^rd Instalment
3 July 2002	NTD 300,000
17 July 2002	NTD 300,000
17 July 2002	NTD 875,000
5 August 2002	NTD 300,000
5 August 2002	NTD 500,000
19 August 2002	NTD 300,000
3 September 2002	NTD 300,000
17 September 2002	NTD 300,000
3 October 2002	NTD 300,000
17 October 2002	NTD 300,000
4 November 2002	NTD 300,000
18 November 2002	NTD 300,000
3 December 2002	NTD 300,000
17 December 2002	NTD 300,000
25 January 2003	NTD 200,000
25 January 2003	NTD 500,000
17 July 2003	NTD 300,000	4^th Instalment
16 August 2003	NTD 300,000	5^th Instalment (cf. 17 August 2003)
17 September 2003	NTD 300,000	6^th Instalment
16 October 2003	NTD 300,000
15 November 2003	NTD 300,000
17 December 2003	NTD 300,000	7^th Instalment (cf. HK$700,000)
15 May 2004	NTD 400,000
17 June 2004	NTD 400,000
17 July 2004	NTD 400,000
17 August 2004	NTD 400,000
17 September 2004	NTD 400,000
16 October 2004	NTD 400,000
17 November 2004	NTD 400,000
1 August 2006	NTD 550,000
6 February 2007	NTD 700,000
Total:	NTD 22,615,364
20 July 2006	US$ 200,000
25 July 2007	US$ 200,000
Total:	US$ 400,000

[1] Amended Statement of Claim (“ASOC”) prayer §(2)

[2] Defined in ASOC §11

[3] ASOC §§11, 14-15

[4] New Taiwan Dollar

[5] ASOC §17

[6] ASOC §18

[7] SOC §11

[8] SOC §11(5)

[9] SOC §12

[10] SOC §12.4

[11] SOC §13

[12] Defence §4(2)-(3)

[13] Defence §4(4)

[14] Defence §4(5)

[15] Defence §4(6)

[16] Defence §4(7), (19)

[17] Defence §4(8)

[18] Defence §4(10)

[19] Defence §4(14)

[20] Defence §4(16)

[21] Defence §4(17)

[22] That is, the Shareholders Agreement, as defined in §24 below

[23] AD §4(3)

[24] AD §24

[25] AD §25

[26] AD §30(iii)

[27] AD §32

[28] Dated 27 September 2023 filed pursuant to this Court’s directions given at the PTR.

[29] Some of the wordings have been rephrased using the same abbreviations as defined in this Judgment.

[30] Appearing with Mr TS Lui

[31] Plaintiff’s Opening §§12-18

[32] ASOC §6(1), cf. AD §4(6) where it is pleaded that Songdian’s registered capital is US$8.5 million

[33] AD §4(6)

[34] Based on the dates when the relevant resolutions were passed, rather than the dates when the shares were actually transferred or issued.

[35] This was the date when the board resolution of SLTW was passed on 20 November 2001, whereby it was resolved that:

(1)   the share capital of SLTW be reduced from NTD 5 million to NTD 1 million to eliminate the loss suffered SLTW;

(2)    thereafter, the share capital of SLTW be increased from NTD 1 million to NTD 15 million divided into 1,400,000 shares at NTD 10 per share;

(3)    the shareholders to subscribe for the new shares by paying NTD 14 million to SLTW.

The share certificates issued by SLTW to the Plaintiff, Kao, Mrs Pan, Chang Senior, Mrs Kao, Pan Senior and Sie stated that the date of investment began on 5 December 2001. It is not in dispute that 5 December 2001 was the date when the payments were made in the name of the shareholders to SLTW and the new shares were issued to them on the same day.

[36] SOC §7(1)(a)(ii), §7(1)(b); AD §4(4).

[37] ASOC §4(4)

[38] ASOC §4(5)

[39] AD §4(4)-(5)

[40] That is, SLTW

[41] “86年” is the same as 1997

[42] ASOC §8(1), AD §22

[43] ASOC §8(1)

[44] AD §4(3)-(4)

[45] Further and Better Particulars of Defence filed on 6 May 2020 (“FBPD”) §2(1)

[46] ASOC §19(5)

[47] ASOC §19

[48] Defendant’s Opening §29

[49] ASOC §22

[50] That is 2000 to 2003

[51] Whose names were not identified

[52] ASOC §13; Plaintiff WS §16

[53] Plaintiff’s Closing §§13-14

[54] Plaintiff’s Closing §§28-32

[55] Pan WS §§3-4; YP Chang WS §§3-4; Jia WS §§3-4

[56] Defendant WS §§39-46, 53; Defendant SWS §§33-34

[57] SOC §11

[58] SOC §11(5)

[59] At trial, the Defendant confirms that the statement, to the extent that it refers to 30% shareholding in SLHK, is incorrect. The NTD 1.5 million was paid for the purpose of investing in SLTW, which was the only entity existed at the time.

[60] Defendant’s Opening §29

[61] Bien WS §4; Kao WS §8

[62] Bien WS §4; Kao WS §8

[63] Schedule 1 to Plaintiff’s WS

[64] Except the first payment which was in the amount of NTD 416,900

[65] Plaintiff’s Closing §13

[66] WP Chang WS §§8-9

[67] ZYP-1

[68] Pan WS §9

[69] PWJ-1

[70] Jia WS §9

[71] JJZ-1