Lo Kwok Kwei David v. Yeung Kai Cheung Patrick

HCA 638/2017

[2024] HKCFI 1222

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 638 OF 2017

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BETWEEN

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J U D G M E N T

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A.  INTRODUCTION ……………………………………..  1-2

B.  BACKGROUND ………………………………………  3-21

C.  THE PARTIES’ RESPECTIVE CASES

C1.  P’s Case ……………………………………….  22-23

C2.  D’s Case ……………………………………….  24-25

D.  THE ISSUES ………………………………………….  26-39

E.  THE PRINCIPLES ……………………………………  40-47

F.  THE EVIDENCE ……………………………………..  48-52

F1.  P’s witnesses

F1.1  P …………………………………………  53-78

F1.2  GM ………………………………………  79-91

F2.  D’s witnesses

F2.1  D ………………………………………..  92-117

F2.2  TW, TL, AC, KF Chau …………………  118-119

F2.2.1  TW ……………………………….……  120-129

F2.2.2  TL …………………………………….  130-136

F2.2.3  AC …………………………………….  137-139

F2.2.4  KF Chau ………………………………  140-142

F2.2.5  Evidence concerning the timing of the

relevant events in the listing  …………  143-146

F2.3  LC ……………………………………….  147-155

F2.4  LX ……………………………………….  156-161

F2.5  WW ……………………………………..  162-168

G.  ANSWERS TO THE ISSUES

G1.  Issue 1 ………………………………………..  169

G2.  Issue 2 ………………………………………..  170-177

G3.  Issue 3 ………………………………………..  178-182

G4.  Issue 4 ………………………………………..  183-184

G5.  Issue 5 ………………………………………..  185

G6.  Conclusion …………………………………...  186

H.  DISPOSITION ……………………………………….  187-189

A.  INTRODUCTION

1.The plaintiff (“P”)  and the defendant (“D”)  have known each other for decades.  Both of them are professionals, P being a solicitor and D being an accountant.  They have a dispute over (a)  the nature of P’s interest in relation to a business specialising in corporate finance advisory services, operated by a company known as Asian Capital (Corporate Finance)  Limited (“ACCF”); and (b)  the circumstances in which the principal value of P’s interest was calculated and repaid by D on around 20 October 2019. Unfortunately, the dispute cannot be resolved in an amicable way, and the parties have to go through this trial.

2.In this trial, P is represented by Mr Marc Corlett, together with Mr Raymond Chu.  D is represented by Mr Paul Shieh SC, leading Ms Elizabeth Cheung and Mr Edward Tsui.

B.  BACKGROUND

3.At all material times, P is and was a practicing solicitor in Hong Kong. He was a partner of Messrs So Keung Yip & Sin (“SKYS”)  until 1 July 1999. Thereafter, he set up his own law firm Messrs David Lo & Partners (“DLP”).  DLP is the firm acting for P in this case.[1]

4.D is and was a qualified accountant specialising in corporate finance matters.

5.In around late 1998 to early 1999, with the assistance of SKYS (in which P was a partner at that time), a corporate structure involving the following companies were set up:

(1)  On 25 November 1998, Apollo Star Investment Limited (“Apollo Star”)  was incorporated in Hong Kong.

(2)  Also on 25 November 1998, Nehru Holdings Limited (“Nehru”)  was incorporated in the British Virgin Islands (“BVI”).

(3)  On 8 January 1999, Master Link Assets Limited (“Master Link”, which was wholly owned and controlled by D at all material times)  was incorporated in the BVI.

6.At the time of incorporation, Apollo Star was held equally by 2 shareholders, Nehru and D.  In turn, Nehru was fully held by D directly (holding 1 of 4 shares)  and indirectly through Master Link (holding 3 of 4 shares).  On 12 February 1999, Apollo Star changed its name to ACCF.  In September 1999, ACCF was registered as an investment advisor under the then Securities Ordinance (Cap.333).[2]

7.In around mid-1999, Mr Gerard Joseph McMahon (“GM”)  became a director of ACCF.  Shortly afterwards, he began the Chairman and a Responsible Officer of ACCF.  On 8 October 1999 and 10 November 1999, GM became a shareholder and director of Nehru respectively.

8.In around July 2001 and February 2003, Mr Stephen Clifford Tisdall (“ST”)  and Mr Lawrence Xin Luo Lin (“LX”)  were respectively appointed as directors of ACCF.  ST and LX further became shareholders and directors of Nehru in around 2002 and 2003 respectively.

9.After issuing shares to LX in around February 2003, Nehru’s shares were held by the shareholders in the percentages as shown below:

(1)  Master Link: 60.08%

(2)  D: 8.25%

(3)  GM: 17.17%

(4)  ST: 4.50%

(5)  LX: 10%

10.In around 2003, ACCF was engaged by Wide Gain Limited (“Wide Gain”)  to undertake the recovery of certain property investments in Chengdu (“Chengdu Engagement”).

11.In or about 2003, LX became the Chairman of ACCF in place of GM.

12.Between September 2005 and June 2006, Nehru repurchased all its shares held by GM, ST and LX respectively (“the Repurchase”).  The Repurchase was funded by D personally by way of a loan to Nehru.  After the Repurchase, Master Link and D were the only shareholders of Nehru.

13.In around April 2006, Phillip Capital (HK)  Limited (“Phillip Capital”)  subscribed for new shares in ACCF and became a 30% shareholder.  Nehru’s shareholding was diluted to 70%.[3]

14.On 25 September 2007, Asian Capital (Special Assets)  Limited (“Special Assets”)  was incorporated in the BVI.  Special Assets was held by Master Link as to 70% and Ms Chua Bee Tin (“Chua”)  as to 30% respectively.  Chua was the spouse of Mr Lim Wah Sai (“Lim”), who was a director and 5% shareholder of Phillip Capital.

15.In around November 2007, in order to free up its capital for an impending underwriting activity, ACCF assigned the Chengdu Engagement to Special Assets at cost for HK$1.28 million, representing the outgoings it had incurred to date.

16.In around May 2008, the shareholding of Wide Gain was transferred to Special Assets.  Wide Gain became a wholly-owned subsidiary of Special Assets.

17.In April 2009, the proceeds of the Chengdu Engagement were collected in Mainland China and approval for remitting the same to Hong Kong was obtained.  In August 2009, the proceeds were received in Hong Kong.

18.According to P:

(1)  In 1998, P and D orally agreed that they would set up a business to conduct corporate finance advisory work in Hong Kong.  It was agreed that D would hold 25% shares of Nehru on trust for P.

(2)  Hence, P was a beneficial shareholder of Nehru.  The percentage of P’s beneficial shareholding changed from time to time.  Details are as follows:

(a)  In March 1999, D held 1 out of 4 shares of Nehru on trust for P (25%).  Master Link held the remaining 3 out of 4 shares (75%).

(b)  In October 1999, there was a share issue to GM, D and Master Link.  As a result, GM held 9.09%, D held 22.73% on trust for P, and Master Link held 68.18%.

(c)  In May 2001, there was a share issue to D, Master Link and GM.  As a result, GM held 20%, D held 9.90% on trust for P and Master Link held 70.10%.

(d)  In October 2002, there was a share issue to ST, GM and Master Link.  As a result, ST held 5%, GM held 19.07%, D held 9.17% on trust for P, and Master Link held 66.76%.

(e)  In February 2003, there was a share issue to LX.  As a result, LX held 10%, ST held 4.5%, GM held 17.17%, D held 8.25% on trust for P, and Master Link held the remaining 60.08%.

(f)  After the Repurchase in 2005 and 2006, D held 12.07% on trust for P and Master Link held 87.93%.  There is no dispute that the Repurchase was financed by loans from D personally to Nehru.

(3)  The 2005 Agreement alleged by D (see §19(2)  below)  is denied.  P’s case is that there has never been such an agreement.

(4)  Only in around September 2009, P came to know the details of the Chengdu Engagement when D approached P to discuss to purchase P’s shareholding in Nehru.  In that discussion, D told P that Phillip Capital did not want P to be a minority shareholder.  That discussion took place in a coffee shop (“the 2009 Coffee Shop Meeting”).

(5)  After some negotiation, P agreed to sell his beneficial shareholding in Nehru to D for HK$3.5 million.  D paid the price by a cheque on 20 October 2009 (“the Cheque”).

(6)  Shortly after making payment to P, on 27 October 2009, D asked for a refund as he had made a mistake in calculating the net asset value (“NAV”)  of Nehru by omitting to deduct the interest of the 30% minority shareholder.  P agreed to the refund proposed by D.  As a result, P refunded HK$230,000 to D.

(7)  In around April 2010, P discovered that D was planning to restart an exercise to list the business of ACCF on the Growth Enterprise Market of the Hong Kong Stock Exchange (“GEM Board”). P wrote D an email on 21 April 2010, and the parties then met on 3 May 2010 for coffee to discuss this matter.  P hoped that D would “come clean” but instead D claimed that P never had any shareholding interest upon taking legal advice.

(8)  The Prospectus was issued in June 2010 in regard to the proposed placing and listing of the business of ACCF and Special Assets (through a newly formed holding company Asian Capital Holdings Limited (“AC Holdings”)  on the GEM Board).  P’s case is that D had a listing plan, or at least was aware of the listing potential on the GEM Board, which D had failed to disclose to P at the time when P sold D the shares.

(9)  P claims that D knew that the value of P’s beneficial shareholding would significantly increase had he told him about the listing plan or the listing potential.  In refraining to do so, D had breached his fiduciary duties owed to P: (a)  not to take advantage of P, (b)  must make full disclosure to P when he acquired P’s shares/interest, and (c)  must acquire P’s interest fairly and honestly.

19.On the other hand, D is putting forward the following:

(1)  Despite D’s initial invitation to P to join as a minority shareholder of the business of ACCF, P had expressly refused to take up any interest, whether legal or beneficial, for reasons only known to him and not shared with D.  However, P still wanted to benefit from any upside of the business should it succeed and thus the parties entered into an alternative arrangement whereby P, whilst not having any interest in the business, would be repaid for his payment by way of loan to the business calculated by reference to the NAV of the business at the time of repayment (“the Loan”).  In essence, the Loan is an equity-linked loan (“ELL”).  The parties therefore reached an agreement in relation to the ELL (“the ELL Agreement”).

(2)  At the time of the Repurchase in around 2005, P told D that he wished to obtain repayment of the Loan.  D acceded to P’s request.  However, since D had to contribute substantial sums to Nehru to fund the Repurchase, P agreed to defer the calculation and repayment of the principal value of the Loan until the conclusion of the Chengdu Engagement.  The parties also agreed that the proceeds of the Chengdu Engagement would be taken into account in calculating the amount payable (“the 2005 Agreement”).  Pursuant to the 2005 Agreement, any relationship between the parties arising out of the Loan came to an end at the time of the commencement of the Repurchase.  In other words, the ELL Agreement was superseded or replaced by the 2005 Agreement.

(3)  In around August 2009, after the proceeds of the Chengdu Engagement were received in Hong Kong, P and D met on several occasions to determine the principal value of the Loan pursuant to the 2005 Agreement.

(4)  On or before 20 October 2009, P and D agreed that HK$3.5 million should be the principal value of the Loan (by way of calculating the NAV of Nehru and taking into account the proceeds of the Chengdu Engagement).  The sum was paid by D to P by the Cheque on 20 October 2009.

(5)  Thereafter, in late October 2009, D informed P that D had made errors in calculating the value of P’s interest because (a)  D had omitted to take into account the minority interest in the Chengdu Engagement, and (b)  by omitting to make provision for Mainland Chinese tax or Hong Kong tax.

(6)  On 27 October 2009, P returned HK$230,000 to D by a cheque and orally agreed to reimburse D the relevant portion of any tax payable in respect of the Chengdu Engagement. 

20.As to the listing of the business of ACCF and its related companies, D says the following:

(1)  In or around 2001, following the introduction of the GEM Board listing regime by the Hong Kong Stock Exchange, D and GM discussed about the prospect of listing the business of ACCF on the GEM Board in view of the more lenient requirements on profitability and track record compared to those of a Main Board listing.  The prospect of a listing was discussed with several professional parties, including P, and quotations were obtained.  However, due to the up-front costs and the financial risk of a failed listing, the proposed listing did not proceed any further.

(2)  D did not consider listing the business of ACCF again until it was raised by Mr Lee Thomas Kang Bor (“TL”, a tax professional)  in a meeting on 2 November 2009 (“the 2 Nov 2009 Meeting”).

(3)  On 5 November 2009, D advised ACCF’s board that he had been in dialogue with Phillip Capital who agreed to progress to list ACCF on the GEM Board in the first half of 2010.  LX, the other director present, supported the proposal.

(4)  Between 30 November 2009 and 2 December 2009, various professional bodies were engaged by ACCF to assist in the proposed listing of the business on the GEM Board, including:

(a)  VC Capital Limited (“VC Capital”)  as joint sponsor

(b)  Thomas Lee & Partners Ltd (“TLP”)  to advise on the potential tax exposure of the Chengdu Engagement in the Mainland and/or Hong Kong

(c)  Ernst & Young (“EY”)  as independent reporting accountants

(d)  Nexia Charles Mar Fan & Co (“NCMF”)  to conduct an internal control review

(e)  Messrs Troutman Sanders and Messrs P.C. Woo & Co, as legal counsel

(5)  From about January 2010, in preparation for the proposed listing of the business of ACCF and its related companies, a corporate reorganisation took place.  AC Holdings, which was to become the listed entity, was incorporated in the Cayman Islands on 5 January 2010.

(6)  On 11 June 2010, the Prospectus was published.  On 18 June 2010, the shares of AC Holdings were listed for trading on the GEM Board.  Immediately after the listing, the shareholders of AC Holdings were as follows:

(a)  Master Link: 52.5%

(b)  Phillip Capital: 21.08%

(c)  Chua: 1.42%

(d)  Various placees: 25%

(7)  In around February 2016, Master Link sold about 372.99 million shares (about 60% of its shareholding)  in AC Holdings at HK$0.39 per share.  As at 31 March 2016, Master Link held 326.27 million shares in AC Holdings.

(8)  In around May or June 2016. D ceased being involved in the management of AC Holdings.  D remained as the Managing Director of ACCF (as a subsidiary of AC Holdings)  until February 2018.

21.On 17 March 2017, P commenced these proceedings against D.

C.  THE PARTIES’ RESPECTIVE CASES

C1. P’s case

22.As set out in the above, P’s case is that he was a beneficial shareholder of Nehru, and D was holding the relevant shares on trust for him.  In September 2009, D knew that the value of P’s beneficial shareholding would significantly increase had he told P the listing plan or the listing potential of the business of ACCF and its related companies.  For the purpose of buying P’s beneficial interest in the business at a lower price, D chose not to tell P the listing plan or the listing potential.  In doing so, D had breached his fiduciary duties owed to P.

23.P’s alternative case is that if P in fact did not have any beneficial interest in the business and P’s investment in the business was an ELL as alleged by D, P and D were nevertheless in a joint venture.  D would still owe the same fiduciary duties to P under this scenario.  By deliberately not to reveal the listing plan or the listing potential of the business to P while D was discussing the repayment of the ELL to P in September and October 2009, D has breached those fiduciary duties.

C2.  D’s case

24.D denies P’s case and claims that P’s investment in the business was the ELL as stated in the above.  As to P’s alternative case, D’s case is that the fiduciary duties as alleged by P could not arise in the scenario as set out in P’s alternative case.

25.D further argues that, even if D owed fiduciary duties to P as alleged, there was no breach of such duties.  D’s case is that when D was discussing with P about repaying the ELL, D was not aware of the listing potential of the business or having any listing plan.  Since P is putting his case on the basis of dishonesty and/or knowledge, and P is not suing D for negligently failing to alert to P or advise P of the listing potential, if D’s case on this point is accepted, that would be dispositive of the whole case.

D.  THE ISSUES

26.The parties are unable to produce an agreed list of issues. Accordingly, it would be necessary for me to set out what are the issues to be resolved in the trial.  In doing so, I have carefully examined the parties’ pleadings.  It is well established that the issues in a trial are defined by pleadings, not by evidence.  One cannot slip in an unpleaded issue by saying that there is evidence on the issue.  As said by Ma CJ in Kwok Chin Wing v 21 Holdings Ltd[4]:-

“21. It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case)  so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues:- Wing Hang Bank Limited v Crystal Jet International Limited [2005] 2 HKLRD 795, 799 [6(1)]. It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced. As the Court of Appeal remarked in Wing Hang Bank Limited v Crystal Jet International Limited:-

‘(2)  In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be “slipped in” when evidence is being given in the hope that the other side is not sufficiently alert to object.’

22. …… one does not sift through the evidence adduced in a trial in the hope that something was said that can conceivably found a cause of action. Issues, I would reiterate, must be properly pleaded unless for some reason the pleadings have assumed a less significant role in the proceedings.” (Emphasis added)

27.D proposes that the issues to be resolved in the trial are as follows:

(1)  what were the terms of the agreement between P and D in respect of the monies that P advanced to D in around the end of 1998/early 1999?  In particular, whether it was agreed that:

(a)  the monies would be capitalised by the issue of shares by Nehru to D, who would hold the same on trust for P; or

(b)  the monies would be an ELL to D, ie an unsecured and non-interest bearing loan, valued at the date of repayment by reference to a percentage of the NAV of Nehru;

(2)  If the monies advanced by P to D constituted an ELL:

(a)  whether the parties were joint venturers in the business of ACCF held by Nehru; and

(b)  if so, whether D owed any fiduciary duties to P as such joint venturer.

(3)  On or about 20 October 2009, whether:

(a)  the business of ACCF and its related companies (“Combined Business”)  was in fact able to meet and/or had the potential of meeting the requirements for a listing on the GEM Board (“Listing Potential”); and/or

(b)  there was in fact a plan to effect a listing of the Combined Business on the GEM Board (“Listing Plan”);

(4)  If the answer to (1)(a)  or (2)  is yes, and if the answer to (3)(a)  or (3)(b)  is yes, whether in breach of duty:

(a)  the Listing Potential was dishonestly withheld by D from P; and/or

(b)  the Listing Plan was dishonestly withheld by D from P;

(5)  If so, had P been aware of the Listing Potential and/or the Listing Plan, whether P would have agreed to the sale of his interest to D on or about 20 October 2009.

28.As to issues 1 to 3 framed by D, save and except the difference on some wording, P is in broad agreement with D.  In my view, the minor difference between the parties on some wording used in the formulation of these issues is insignificant.  I agree that issues 1 to 3 as formulated by D are the first three issues to be resolved in this trial.

29.As to issue 4 suggested by D, P disagrees and has suggested the following replacement:

“(4)  If the answer to (1)(a)  or 2 is yes, and if the answer to 3(a)  or (b)  is yes, whether D breached his fiduciary duties by reason that he did not disclose the Listing Potential and/or Listing Plan prior to P agreeing to sell his shares (or ELL interest)  to D on or about 20 October 2009 by:

(a)  taking advantage of his position,

(b)  failing to make full disclosure to P as beneficiary or as person to whom a duty of full disclosure was otherwise were owed, and/or

(c)   acquiring the beneficial shareholding or P’s rights in the ELL at terms which were not fair or honest.”

30.Mr Shieh for D submitted that as shown in P’s pleadings, P’s pleaded case against D is that D had knowingly and dishonestly withheld disclosure of the “Listing Potential” and/or “Listing Plan” to P on or before 20 October 2009:

(1)  ASOC §32:

“[D] knew at that time of the Listing Potential and/or the Listing Plan. He also knew that P did not know of them. In accordance with his duties pleaded at paragraphs 20 or 22 above, D was bound to disclose them before seeking to acquire the Beneficial Shareholding or P’s rights in the ELL. He did not do so”. (Emphasis added)

(2)  ASOC §35:

“[D]’s knowledge of the Listing Potential and/or the Listing Plan on or before 20 October 2009 and his dishonesty can be inferred from the following facts and matters……” (Emphasis added)

(3)  ASOC §36:

“In the premises, [D] knew of the Listing Potential and/or the Listing Plan was already in existence in around October 2009 and specifically on 20 October 2009.” (Emphasis added)

(4)  ASOC §39:

“Further, [D]’s dishonesty can be inferred from the following, by reason of its inconsistency with the alleged reason for [D]’s proposal to acquire the Beneficial Shareholding as pleaded in paragraph 28(b)  above ……” (Emphasis added)

(5)  Reply §3:

“[D]’s above allegations are all fabrications and are further acts of his dishonesty and are in dishonest and/or fraudulent breach of trust or his fiduciary duty as particularised in the SOC”. (Emphasis added)

31.Mr Shieh submitted that in order to establish liability against D, P must prove the dishonesty as alleged in his pleadings.  Merely proving an inadvertent failure to disclose on D’s part would not be sufficient.

32.Mr Corlett for P accepted that dishonesty is an element in P’s case.  Mr Corlett submitted that prior to 20 October 2009, either (a)  D knew of the Listing Potential and/or had Listing Plan, or (b)  D knew there was Listing Potential and/or Listing Plan but that was subject to the “technical” issue of “merger accounting”.  As such, for D to overcome P’s complaint of dishonest breach, he must have fully disclosed to P either (i)  his knowledge of the Listing Potential and/or Listing Plan, or (ii)  his knowledge of Listing Potential and/or Listing Plan subject to an issue of merger accounting.

33.Mr Corlett submitted that if D had not done so, he was acting dishonestly as the same would entail that he either

(1)  took advantage of his position,

(2)  failed to make full disclosure to the P as beneficiary or as person to whom a duty of full disclosure was otherwise were owed, and/or

(3)  acquired the beneficial shareholding or the P’s rights in the ELL at terms which were not fair or honest.

Mr Corlett submitted that these have been specifically pleaded at ASOC, §§20 and 40. 

34.For avoidance of any doubt, in my judgment, an inadvertent omission to disclose the Listing Plan or Listing Potential cannot be treated as dishonesty.  It is plain and obvious that an inadvertent omission is not equivalent to dishonesty.

35.The two paragraphs in the ASOC relied upon by Mr Corlett are as follows:

(1)  ASOC §20:

“As such trustee and/or joint venturer, [D] owed, inter alia, the following duties to [P]:

(a)  A fiduciary duty to act bona fide in the best interests of [P];

(b)  A fiduciary duty not to act in relation to the trust property in circumstances where there existed an actual or potential conflict between his fiduciary duties and his own self-interests;

(c)  A fiduciary duty not to traffic with or otherwise profit by trust property;

(d)  A fiduciary duty not to purchase a beneficial interest in the trust property except on terms that (i)  he took no advantage of his position, (ii)  he had made full disclosure to the beneficiary and (iii)  the transaction was fair and honest;

(e)  A duty to exercise reasonable care and skill; and

(f)  A duty to be ready with his accounts.”

(2)  ASOC §40:

“Accordingly, in negotiating the Purported Sale, [D] (i)  took advantage of his position, (ii)  failed to make full disclosure to [P] as beneficiary or as a person to whom a duty of full disclosure was otherwise were owed, and/or (iii)  acquired the Beneficial Shareholding or [P]’s rights in the ELL from [P] at terms which were not fair or honest. In the premises, [D] is personally liable to [P] for the said breaches of trust and fiduciary duty.”

36.It is clear that in ASOC §20, P has only set out the alleged duties owed by D to him.  As to ASOC §40, as shown by the word “accordingly” at the beginning of that paragraph, that paragraph is a conclusion, based upon the matters pleaded in the previous paragraphs.  The matters pleaded in the previous paragraphs are those mentioned by Mr Shieh in his submissions, which have been set out in §30(1)  to (4)  in the above.  In my view, based upon the pleadings, P has not pleaded a case that mere inadvertence to disclose can be treated as dishonesty.

37.In my view, issue 4 as formulated by D is an issue to be resolved in this trial.  The version suggested by P is not correct.

38.As to issue 5 suggested by D, after some exchanges, P does not dispute that issue 5 is an issue in this case.

39.In conclusion, the above are the issues to be resolved in this trial.

E.  THE PRINCIPLES

40.As said in §26 above, issues are defined by pleadings, not by the evidence.  It is trite that a party is bound by his own pleadings, and he is not allowed to run any unpleaded case at the trial.[5]

41.As to evaluation of evidence given by witnesses, a valuable guidance can be found in Hui Cheung Fai and another v Daiwa Development Limited[6], in which DHCJ Eugene Fung SC said:

“77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce)  ……

78. 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: e.g. Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011)  §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80.  I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam  Dick Yuen (2002)  5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics)  Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA)).”

42.Similar guidelines can be found in Lee Fu Wing v Yau Po Ting Paul[7], in which DHCJ Au (as he then was)  said:

“53. In assessing the credibility of a party’s case on a particular issue, I accept the submissions of [counsel] that the Court should take into considerations the following: -

(1)  Whether the party’s case is inherently plausible or implausible.

(2)  Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise)  which is undisputed or indisputable.

(3)  Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility.

(4)  The demeanour of the witnesses.”

43.While there is a long passage of time between the material events and the trial, contemporaneous documentation is of particular importance.  In Esquire (Electronics)  Ltd v Hong Kong and Shanghai Banking Corp Ltd [8], Stock JA (as he then was)  said:

“…… Comparison with contemporaneous documentation is always an aid to reliability of oral testimony, unless there is reason to believe that the documentation is contrived or materially incomplete; but where the passage of time between events and trial is as long as it was in the present case, and where there is such a host of contemporaneous documentation, as there was in this case, the documentation must, I would have thought, assume a special importance. ……

I would venture to suggest that the truth, in so far as one is able to reach it or, as is sometimes the case, to reach a version of it that is more likely to be correct than not, can best be tested by reference to contemporaneous documentation where it exists, or to its absence where one would expect it to have been created, as well as to inherent probabilities (though bearing in mind that there may be occasions where the truth may run against that particular grain)  having regard to all the facts that are known. This is particularly so in a case such as the present, where events have taken place so long before trial and where there exists a mountain of contemporaneous documentation that can be used to point the way. This is not to say that the documentation should have been treated as if it stood on its own, not to be explained, contradicted or supported by oral testimony. It is however to say that in this case the approach adopted to assessment of the facts placed far too much emphasis on character impression and too little upon what was suggested by the documentation and by the inherent probabilities in their historical context. That documentation, as well as conflicts within the evidence, inherent probabilities, and a study of how matters were originally pleaded and asserted in witness statements – these are the factors which in a trial such as this, so long removed from the time of the events in question, were likely to be of particular use in assessing the facts ……” (Emphasis added)

44.In considering the validity of a criticism made against a witness, the rule in Browne v Dunn[9] is relevant.  The following would need to be borne in mind[10]:

(1)  The rule in Browne v Dunn is a rule of practice or procedures designated to achieve fairness to witnesses and a fair trial between the parties.

(2)  The general principle is that, where an attack on a witness' evidence is to be made, notice should normally be given to the witness in cross-examination of the nature of the attack if such is not otherwise obvious.

(3)  There is no breach of the principle if the witness knew or ought to have known that his version of events was being challenged or that adverse inferences might be drawn against him.

(4)  Even if the procedural rule is transgressed, it does not inexorably follow that matters which have not been put to a witness in cross-examination cannot be relied on. It may be a question of the weight to be given to a witness’ testimony taking into account all the available evidence.  Thus, for example, a witness’ evidence may be so incredible as to be incapable of belief or his evidence may be unsupported or contradicted by known facts and contemporaneous documents.

(5)  The principle does not inflexibly require every point which might be used against the witness to be put to him.  There is no hard-and-fast rule.  The paramount consideration is fairness to the witness. In essence, the principle is breached if in all the circumstances, an omission to cross-examine on a specific point is unfair to a witness.

45.In assessing whether an allegation of a serious misconduct is proved, while the standard of proof is still the balance of probabilities, the court has to bear in mind that the less likely it is that the event occurred, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability.  As said by Lord Nicholls of Birkenhead in Re H & Others (Minors)  (Sexual Abuse: Standard of Proof)[11]:

“Where the matters in issue are facts the standard of proof required in non-criminal proceedings is the preponderance of probability, usually referred to as the balance of probability. This is the established general principle. ……

The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. ……” (Emphasis added)

46.Inferences of fraud or serious misconduct are not to be reached by conjecture, nor on a mere balance of probabilities.  Instead, they have to be plainly established as a matter of inference from proved fact.  The court guards against drawing an inference where the primary evidence does not logically and reasonably justify such inference, and the court is not entitled to merely choose between guesses on the ground that one seems more likely than the other.  See Ming Shiu Chung & Ors v Ming Shiu Sum & Ors[12], in which Ribeiro PJ said:

“45. It is difficult to see any justification for the Judge’s approach. He was being asked to draw the inference that someone had forged the August minutes (as well as some of the questioned share certificates). As Sir Anthony Mason NPJ pointed out in HKSAR v Lee Ming Tee & Securities and Futures Commission (Third Party) (2003)  6 HKCFAR 336 at §72, inferences of fraud or serious misconduct are “… not to be reached by conjecture nor … on a mere balance of probabilities.” They are “to be plainly established as a matter of inference from proved facts”.

…

78. Whether, at the end of the day, the court is entitled to draw the inference sought by the plaintiffs therefore depends on the evidence as a whole, the evidence both for and against such inference. Mr Grossman correctly accepts that the plaintiffs bear the burden of showing that when the father signed the 12 documents, he did not know what he was doing. That is a matter of inference and what I stated in Nina Kung v Wang Din Shin (2005)  8 HKCFAR 387, albeit there stated in relation to drawing an inference of forgery, equally applies in the present case:

‘Where … the court is invited to reach a conclusion of forgery as an inference to be drawn on the basis of circumstantial evidence, any such inference must be properly grounded in the primary facts found. The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question.’ (§185)

79. As was there pointed out, Dixon CJ stressed in Jones v Dunkel & Another (1958–59)  101 CLR 298 at p.305, that a court is not entitledto:

‘… choose between guesses, where the possibilities are not unlimited,on the ground that one guess seems more likely than another or theothers. The facts proved must form a reasonable basis for a definiteconclusion affirmatively drawn of the truth of which the tribunal offact may reasonably be satisfied.’ (at p.305)” (Emphasis added)

47.With these principles in mind, I now turn to the evidence.

F.  THE EVIDENCE

48.P has filed the witness statements made by him and GM.  Both P and GM have given oral evidence in the trial. 

49.D has filed the witness statements or affirmation made by the following witnesses:

(1)  D (current chief executive office and responsible officer of Asian Capital Limited (“ACL”))

(2)  TL (a tax specialist, founder chairman and executive director of Thomas Lee & Partners Limited (“TLP”)  and TLP Group of companies)

(3)  TW (auditing, accounting and taxation specialist, current managing director of Nexia Charles Mar Fan Limited (formerly Nexia Charles Mar Fan & Co (“NCMF”)))

(4)  Mr Chau King Fai (“KF Chau”, current managing director of Grand Moore Capital Limited and former managing director of VC Capital)

(5)  Mr Chow Antonio Shiu Hay (“AC”, current assurance partner of Pricewaterhouse Coopers and former assurance partner at EY)

(6)  Mr Chan Hok Leung (“LC”, current managing director of First Capital International Finance Limited, former executive director of ACCF and AC Holdings, and former senior executive of the Securities and Futures Commission (“SFC”))

(7)  Ms Au Shuk Ying Kathy (“KA”, current head of administration at ACL and former secretary of ACCF)

(8)  Mr Wong Kai Kok, also known as William Wong (“WW”, current senior advisor of ACL and managing director of Asian Capital Asset Management Limited, former senior officer at Phillip Securities (Hong Kong)  Limited and former director of ACCF)

(9)  Mr Xin Luo Lin (“LX”, current non-executive chairman of ACL, former director and shareholder of Nehru, former director of ACCF and former non-executive director and honorary chairman of AC Holdings) 

50.KA was unable to give oral evidence in the trial, for she had contracted COVID.  Since KA has not given any oral evidence in the trial and has not been subject to cross-examination, I would disregard her witness statement and the matters mentioned in that witness statement are not evidence in the trial.

51.The other 8 witnesses from D’s side have given oral evidence in the trial.

52.Having seen and heard the evidence given by the witnesses, subject to the discussion in §134(4)  below, I am of the view that D and the other witnesses from D’s side are reliable.  P and GM are not reliable witnesses.

F1.  P’s witnesses

F1.1 P

53.P has been practising as a Hong Kong solicitor since 1987.  Currently, he is a full-time partner of DLP in Hong Kong. 

54.P mentioned the following in his evidence:

(1)  Since around late 1998 or early 1999, P had been a beneficial shareholder of Nehru until he sold the beneficial interest to D in October 2009.  D was holding those shares on trust for him.  D dishonestly breached the fiduciary duties owed by D to him when D was purchasing his beneficial interest in the shares, for D knew of the Listing Potential and/or had Listing Plan at that time.

(2)  He had no specific intention to conceal that his beneficial shareholding was held by D on trust for him.  P claimed that his beneficial interest has been referred to in a number of documents, including board minutes.  The trust arrangement was not motivated by a desire to conceal the ownership of the shares from other people. It was just a result of discussion with D.  A simplified shareholding structure with his shares being held on trust would be easier for D to find investors.

55.During cross-examination, Mr Shieh referred P to some provisions in the Securities and Futures Commission Ordinance which was in effect in late 1998 and early 1999 (“the Old SFCO”).  Mr Shieh told P that under the Old SFCO (which was in force at the material time), if the alleged trust arrangement between P and D was disclosed, P would be regarded as a substantial shareholder of ACCF for the purpose of the Old SFCO.  Mr Shieh suggested to P that he was aware of the risk of being a beneficial shareholder of Nehru and hence he chose not to be a beneficial shareholder but just to enter into the ELL Agreement with D.  Mr Shieh’s interpretation of those provisions in the Old SFCO is not challenged by Mr Corlett.  Having gone through the provisions in the Old SFCO referred to by Mr Shieh, I am of the view that Mr Shieh’s question has a valid legal basis.  To that question, P disagreed with Mr Shieh’s suggestion.  P also said that he did not have the concept of “associate” in the Old SFCO at that time.

56.P said that because he was a beneficial shareholder of Nehru, he was invited to attend shareholders’ meetings and directors’ meetings of ACCF and Nehru until March 2004.  He did not attend these meeting as an “ex gratia” legal advisor, for GM and ST were experienced and

57.It was put to P that shortly after August 2005, P wished to exit the business because he lost confidence.  P disagreed and said that he was on D’s side, hoping to preserve the business.

58.P denied the ELL Agreement as claimed by D.  P also said that he and D did not discuss the Chengdu Engagement in 2005.  P denied the existence of the 2005 Agreement.  P said that he was approached by D in around September 2009 for the purchase of his beneficial shareholding in Nehru “because Phillip Capital no longer wished to have a minority shareholder”[13].

59.Under cross-examination, P was asked questions concerning the following documents:

(1)  A receipt dated 20 October 2009 (“the Receipt”), which was signed and issued by P after receiving the Cheque on that date.  In the Receipt, P said:

“Receipt acknowledged by [P] in full and final settlement of loans and other interests in [Nehru].” (Emphasis added)

(2)  An email from P to D on 20 October 2009 at 3:45 pm, in which P said:

“Thanks for the cheque. In the receipt I added that the cheque is for full and final settlement of loan and other interests in Nehru in case it is wrongly construed as a loan.”

P said that the word “loans” in the Receipt was referring to some referral fees (the total of which being HK$156,800)  owed by Nehru to him. The term “other interests” in the Receipt was his beneficial shareholding in Nehru.  P claimed that “interest” was a term repeatedly used by D to refer to shareholding.

60.In ASOC §13, P identified some documents, in which P was described as having shares in ACCF and/or Nehru.  ASOC §13 is as follows:

“13. [D] acknowledged the Beneficial Shareholding in the following documents prepared by him or by his staff under his direction ……:

(a)  The Agenda for the board meeting of [ACCF] held on 26 April 2000 included the following attachments:

(i)  The draft minutes of board meeting of [ACCF] dated 22 March 2000, in which the paragraph headed “Increase of Capital” contained the following statement:

‘The meeting agreed that the better made to agree on would be the eventual shareholding percentage. Accordingly, CL [Caspar Li, then an executive at ACCF] would have 10% of the enlarged capital, [GM] would be offered a share option for him to top up to 10% of the enlarged capital (at NAV of the previous month), [P] 15% and [D] the balance ... ’

(ii)  The Aide Memoire on Increase of Capital, which contained the following statements:

‘3. The number of shares in issue of [Nehru] is 110, respectively held by [D] as to 75 shares, [D] on behalf of [P] 25 shares and GM 10 shares ...

7. Our understanding of the eventual distribution of share interest in Nehru is ... [P] -15% (before dilution by CL and GM options)  ...

8 .... [P] - 14 shares of HK$18,000 each, or HK$252,000, which together with the existing 25 shares will total 39 shares representing 17.727% (to be diluted to approximately 15% after CL and GM exercising their respective options).’;

(b)  The Agenda for the board meeting of [ACCF] held on 20 January 2001 included the draft board minutes dated 8 December 2000. In the draft board minutes, the paragraph headed “Increase in Capital” contained the following statement:

‘It was agreed that the capital be increased to HK$5,000,000 by initially capitalizing the profit and by injection of fresh capital. [P] advised that he wished to be diluted to just below 10% ... it was agreed that the referral fees/contingent salary for GM/[P]/[D] be 'capitalized' ... ’;

(c)  The Agenda for the board meeting of [ACCF] held on 16 August 2001 included the draft board minutes of [ACCF] dated 29 May 2001, in which the paragraph headed "Capital Injection" contained the following statement:

‘GM suggested that, pursuant to the earlier understanding amongst shareholders, his referral fee entitlement for Inter/orm for HK$935,000 should be put into [ACCF] to increase his interest to 20%. [D] pointed out that his capital injection would dilute the shareholding of [P], who might wish to top up his shareholding to 9.9%’;

(d)  A spreadsheet prepared by [D] showing the payment of interim dividend for [ACCF] / Nehru for 2001, shows that the amount of HK$41,580 was payable to “Patrick Yeung (David Lo)”;

(e)  The email sent by [D] to [P] on 3 October 2002 contained the following statements:

‘In relation to the proposed rights issue to raise approximately HK$600k to fund the rights issue of Crown Million, David has indicated that he is not interested to participate. [ST] on the other hand has indicated he wishes to subscribe about 5% of the capital of [ACCF]. As [ACCF] is 100% owned by Nehru, which in turn owns 30% of Crown Million, if the above indications are followed, the end result will be [P]’s effective interest in Nehru will be diluted, [GM] and my interests in Nehru will also, albeit less, diluted and [ST] will get about 5% of the enlarged capital ... ’

‘[P] will be diluted to 9.17% by not participating in the rights issue ...’;

(f)  The attachments to the email from [KA] of [ACCF] dated 18 January 2003 to [D] and other shareholders of Nehru at the time included the 2002 management accounts, the agenda for shareholder meeting of [ACCF] / Nehru and the Shareholders Remuneration Record for Nehru's shareholders. The Shareholders Remuneration Record under [P]’s name shows that an interim dividend of HK$41,580 payable to [P] in 2001;

(g)  By an email dated 29 April 2005 sent by [KA] of [ACCF] to the then Nehru shareholders and [P] attached several documents for discussion at Nehru's shareholder's meeting. In the spreadsheet entitled "Monetary movements since incorporation at 03.2005", there are two columns headed “Patrick Yeung” and “PY”. The column headed “PY” showed that HK$250,000 was contributed as capital. The amount represented [P]’s initial investment;

(h)  An amended version of this spreadsheet was sent by fax from [ACCF] to [P] on 26 July 2005 showing the percentages of shareholding in Nehru held by its then shareholders;

(i)  Notices of Nehru's shareholders' meetings were emailed by Mabel Lee and [KA] of [ACCF] to [P] and the then shareholders of Nehru on 16 January 2003, 29 April, 25 July and 21 September 2005; and

(j)  By an email dated 28 April 2008 from [D] to [P], [D] proposed that [P]’s law firm should act as the Hong Kong legal adviser in the Chengdu Engagement ... The email contained the following statement:

‘You will act as lawyer for ACSCL but only your disbursements if any will be billable. This will be your contribution as a shoreholder!’.”

61.In response to the pleas in ASOC §13, D’s case is that[14]:

(1)  The documents pleaded in ASOC §13(a)(ii), l3(d)  and (h)  were plans which had not been implemented and/or in draft form which had not been finalized and executed and/or cannot be understood in isolation.

(2)  References to terms such as "shares" or "shareholders" in the context of P was simply a convenient shorthand reference to his entitlement to receive a return on the Loan referable to a notional number of shares in Nehru. They do not reflect or mean that in law or in fact P was (or had any rights of)  a legal or beneficial owner of any shares in Nehru or ACCF. No shares or share certificates were ever issued to P nor any trust documents for such shares ever issued in favour of P.  P and D had never discussed nor agreed to either of them assuming any role as a joint venturer with the other, nor were any documents concerning any alleged joint venture relationship ever prepared, circulated or executed as there was no such arrangement in place between the parties at any time.

(3)  The documents set out in ASOC §13 are consistent with the understanding of the parties that the value of the principal of the Loan was to be calculated by reference to the value of the new business of D, of which the NAV of Nehru served as a proxy.

(4)  The documents were not prepared by lawyers and were prepared not in any legal context.

62.In his evidence, P refused to accept D’s explanation that “shares” or “shareholders” or similar terms and expressions used in the documents mentioned in ASOC §13 and some other documents bearing similar descriptions concerning P[15] (“Documents relied by P”)  are merely shorthand references to P’s entitlement to receive a return pursuant to the ELL Agreement.  P said that “shares” and “loans” are two different animals.

63.In ACCF’s board meeting held on 30 March 2004, it was resolved that it would no longer be appropriate for P to be involved in the board meetings. That board meeting was chaired by LX and attended by LX, GM, ST and D.

64.D’s case is that in December 2009, D met P at a social function and mentioned to P about the Listing Plan and asked P whether he wanted a pre-IPO stake, but P declined.  A few weeks thereafter, P called D and asked for details of the listing.  D told P that the listing application had been submitted and it was too late for P to take up any pre-IPO stake.

65.P accepted that he met D at a social function a few months after October 2009.  D told him that D was doing a listing, but D did not mention any pre-IPO allocation.  As to the telephone call mentioned by D, P did not recall the said telephone conversation.

66.On 21 April 2010, P sent D an email (“the 21 Apr 2010 Email”), in which P complained that the IPO was only mentioned to him after the payment of HK$3.5 million.  P said that “the sum I received is only a “fraction” of the market value”.  P demanded D to give him a full picture of what was going on at the material time.

67.On 25 February 2016, P made a complaint to the SFC against D, ACCF and VC Capital, and all other directors of AC Holdings at the time of the IPO.  P alleged that in the Prospectus, the fact that he was a founding shareholder and had beneficial shareholding in Nehru was not mentioned.  These were material misleading omissions in the Prospectus.  In his evidence, P denied that he was using the complaint to SFC to extort D.

68.On 7 June 2016, the SFC wrote to P and said:

“Having reviewed the materials and information provided to us, it appears that there is insufficient information indicating that the relevant provisions under the Securities and Futures Ordinance have been breached. Accordingly, we have decided not to take the matter further.”

69.In my judgment, P is not a reliable witness.  On various essential issues, P’s evidence is unsatisfactory, inherently improbable and cannot be true.

70.First, at the very beginning, if P and D agreed that P should be a shareholder of Nehru, the simplest way would be making P as a registered shareholder of Nehru.  It would be for P to explain why he chose to be a beneficial shareholder and not to be a registered shareholder.  P was unable to provide any satisfactory explanation on this under cross-examination.

(1)  At first, P tried to say that as a result of the discussion between him and D, he chose to be a beneficial shareholder and not a registered shareholder.  Plainly, P did not provide the reason as to why he chose to be a beneficial shareholder in this answer.  P was evading the question and refused to provide the reason why he chose to be a beneficial shareholder.

(2)  At a later time, P said that D would have difficulties in finding investors if P was a registered shareholder of Nehru.  In my view, this is an answer invented by P in the witness box.  Further, P was unable to explain why D would have difficulties in finding investors if P was a registered shareholder of Nehru.

71.Second, P claimed that he was unaware of the regulatory consequences that the alleged trust would lead to.  In my judgment, P’s evidence on this point is incapable of being believed.

(1)  As submitted by Mr Shieh, ACCF is a licenced corporation with reporting obligations to the regulators.  If the trust alleged by P is true, all the contemporaneous records filed with the SFC at all material times would not be correct.  P has never been named as having an alleged beneficial interest in any regulatory filings between 1999 and 2003.  It is inherently improbable that P, D and GM, as experienced corporate finance professionals, would have knowingly breached the disclosure requirement and misled the SFC.

(2)  During cross-examination, Mr Shieh referred P to the following definition in s.2 of the Old SFCO (which was in force from 1 May 1989 until 31 March 2003)

“‘substantial shareholder’ (大股東), of a company, means a person who, either alone or with an associate –

(a)  has an interest in shares in the company –

(i)  the nominal value of which is equal to more than 10% of the issued share capital of the company;

(ii)  which entitles the person, either alone or with an associate, and either directly or indirectly to exercise or control the exercise of more than 10% of the voting power at any general meeting of the company; or

(b)  holds shares in another corporation or corporations which holdings allow him either alone or with an associate and either directly or indirectly to exercise or control the exercise of 35% or more of the voting power of the other corporation, or of a further corporation, which is itself entitled either alone or with an associate and either directly or indirectly, to exercise or control the exercise of more than 10% of the voting power of the company…” (Emphasis added)

(3)  Mr Shieh has also referred P to the definition of an “associate” in s.2 of the Old SFCO. As per the definition, an “associate” in relation to a person was inter alia: “(d)  the trustee of a trust of which the person, his spouse, minor child or minor step-child, is a beneficiary or a discretionary object…”

(4)  Accordingly, if P’s case is true:

(a)  D was a trustee of P in relation to Nehru’s shares registered in D’s own name. D was the trustee of a trust of which P was a beneficiary and D was thus an “associate” of P.

(b)  P, together with D, would arguably have been holding shares in another corporation (ie Nehru)  which holdings would allow them to exercise 35% or more of the voting power of the other corporation (ie Nehru), which is itself entitled to exercise more than 10% of the voting power of the company (ie ACCF).

(5)  Under s.26A(1)  of the Old SFCO, a person shall not become a substantial shareholder of a registered person (ie ACCF)  unless he has, inter alia, served on the SFC written notice that he proposes to become a substantial shareholder in the registered person and applied to the SFC for its approval of the same. Under s.26A(9), a person who contravenes s.26A(1)  commits an offence and is liable on conviction on indictment to a fine of HK$1,000,000 and imprisonment for 2 years.

(6)  P has never made an application pursuant to s.26A of the Old SFCO (or s.132 of the Securities and Futures Ordinance (Cap. 571)  after the repeal of the Old SFCO, which is to like effect)  to become a substantial shareholder of ACCF. By failing to do so, P would have exposed himself to the risk of committing a criminal offence and being sentenced to a term of imprisonment.

(7)  In cross-examination, P claimed that he was not aware of the risk that he might be regarded as a substantial shareholder of ACCF if he beneficially owned shares in Nehru. P alleged that in the late 1990s and early 2000s, he was not aware of the Old SFCO provisions on the restriction on substantial shareholding, and he was not aware of the existence of the concept of “associate” under the Old SFCO.

(8)  P commenced his legal practice in 1987 and set up his own law firm in 1999. By the later 1990s, P was an experienced corporate finance lawyer. It is unbelievable that P was completely unaware of the concept of “associate”, the concept of “substantial shareholder” and the relevant control relating to “substantial shareholder” in the Old SFCO at that time.

(9)  In my judgment, the ignorance of the regulatory regime as alleged by P is untrue. The truth is that P was aware of the regulatory regime at that time, but he was not a beneficial shareholder of Nehru, and in turn would not be regarded as a “substantial shareholder” in ACCF. Hence, P would not expose himself to the risk being caught by the regulatory regime.

72.Third, the exclusion of P from ACCF’s board meetings since 30 March 2004 and the lack of the protest or enquiries from P also show that P did not have any beneficial shareholding in Nehru.

(1)  In his evidence, P claimed that he was invited to attend ACCF board meetings because he was a beneficial shareholder of Nehru.  However, the following are indisputable facts:

(a)  In the ACCF board meeting held on 30 March 2004 (attended by LX, D, GM and ST, and chaired by LX), a resolution proposed by LX was unanimously passed that “… it would no longer be appropriate for [P] to be involved in the board meetings” (“the 30 Mar 2004 Resolution”).

(b)  Thereafter, P did not attend any board meeting of ACCF, save and except the one held on 15 September 2004, in which ACCF’s potential liability to a client introduced by P and the feasibility of calling on DLP’s insurance to satisfy the claim were discussed.

(c)  After the 30 Mar 2004 Resolution, there has not been any protest from P against the decision to exclude him from the ACCF board meetings.

(d)  In his Reply, P claimed that he was not aware of the 30 Mar 2004 Resolution until seeing the Defence filed by D on 7 July 2017, ie more than 13 years after the 30 Mar 2004 Resolution was made.  Under cross-examination, P said that he did not pay attention because he was busy with his practice, and there was no particular day when he suddenly became aware that he was not invited.  In my judgment, P’s case on this point is inherently improbable.  Before the 30 Mar 2004 Resolution, P attended most of the ACCF board meetings in 2003 and 2004.  P’s attendance came to an abrupt end after the 30 Mar 2004 Resolution was made.  Save and except the board meeting held on 15 September 2004, P did not attend any other ACCF board meeting.  If there is any truth in P’s claim that he had an entitlement to attend ACCF board meetings because of his beneficial shareholding in Nehru, naturally, at a time reasonably after 30 March 2004, or at a time reasonably after 15 September 2004, P would have made some enquiries to find out why he was no longer invited to ACCF board meetings. However, no enquiry has ever been made by P.

(e)  Under cross-examination, P said that he was certainly aware that he was not invited to ACCF board meetings after Phillip Capital became a shareholder.  However, P has never made any protest, or any enquiries as to why he was no longer invited to ACCF board meetings.  This is clearly inconsistent with P’s alleged entitlement to attend ACCF board meetings by virtue of his beneficial shareholding in Nehru.

73.As submitted by Mr Shieh, there is evidence in support of the contention that that P’s involvement in ACCF board meetings was because he was invited at D’s discretion to (a)  render legal advice to the board in case it was needed[16] and/or (b)  discuss referral fees which were from time to time due to him[17].  I agree that P’s attendance at ACCF board meetings before the Mar 2004 Resolution is consistent with his roles as an ex gratia legal advisor and a referrer of business to ACCF.  Further, I also agree with Mr Shieh that since any change in Nehru’s share capital would have an impact on P’s entitlement under the ELL Agreement (for the increase in Nehru’s share capital would have the effect of increasing the denominator of the fraction in the relevant formula, see §92(2)  below), it is unsurprising that P was involved in discussions regarding proposals for an increase in share capital.

74.Fourth, it is clear that P was involved in and had knowledge of Phillip Capital’s subscription of new shares in ACCF in April 2006, as the subscription agreement (“the Subscription Agreement”)  was prepared by DLP.  However, P had never disclosed his alleged beneficial shareholding in Nehru to Phillip Capital. Under cross-examination, P accepted that there was nothing to show that Phillip Capital was aware of his alleged beneficial shareholding in Nehru at the time when negotiations for the subscription were conducted.  In my view, if there is any truth in P’s case, there is no reason why P would refrain from telling Phillip Capital his alleged beneficial shareholding in Nehru.  Bearing in mind that according to P, he was entitled to attend ACCF board meetings because of his beneficial interest in Nehru.  If Phillip Capital was not made aware of his beneficial interest, P could hardly expect to be invited to attend any future board meetings.

75.Fifth, the Receipt issued by P to D on 20 October 2009 (see §59(1)  above)  is an important contemporaneous document which sheds light on the true nature of P’s interest in Nehru.

(1)  In the Receipt, P acknowledged receipt of the HK$3.5 million paid by D “in full and final settlement of loans and other interests in [Nehru]”.  P’s evidence is that the wording of the Receipt was dictated by him to his secretary.  The Receipt has also been signed by P personally.

(2)  P said that the word “loans” in the Receipt was referring to the referral fees owed by Nehru to him, the total of which being HK$156,800.  I do not accept this explanation.

(a)  According to P, the referral fees in fact were sums owed to him by ACCF, but Nehru assumed the obligation to pay those sums to P.  As a matter of logic, these sums would not be loans from P to Nehru.  This was not disputed by P under cross-examination.

(b)  As a matter of magnitude, HK$156,800 would be a very small portion of the HK$3.5 million paid by D to P at the time of the Receipt (less than 5%).  The purchase of P’s alleged beneficial interest in Nehru would be a much more important matter covered by the payment of HK$3.5 million.  Under cross-examination, P was asked why he did not state the beneficial interest first in the Receipt.  P’s answer was that it would not be natural to say “other interests and loans”, and that the description used was something which D would understand.  In my view, P was evading the question.  As a matter of common sense, it would not be difficult at all to put down the term “beneficial shareholding” in the Receipt at all.  P could not provide any satisfactory explanation as to why the term “beneficial shareholding” was not used in the Receipt.

(3)  As to the email from P to D on 20 October 2009 at 3:45 pm (see §59(2)  above), in cross-examination, P said that by saying “in case it is wrongly construed as a loan” in that email, he wanted to avoid any confusion that the Cheque of HK$3.5 million was a loan advanced by D to P.  However, this email does not explain why P chose to use the word “loans” in the Receipt.

(4)  At the final submissions stage, Mr Corlett drew my attention to an email from P to D sent on 27 October 2009 at 2:43 pm (“P’s 27 Oct 2009 Email”).  That email is one of the emails passing between P and D in late October 2009, in which they were discussing the correctness of the amount (ie the HK$ 3.5 million)  paid by D to P on or around 20 October 2009 was correct.  In that email, P said:

“The price is not really negotiated but a ball park figures as I do not have the latest management account or any explanation regarding how the PRC Receivable was treated or whether any tax is payable. We can re-negotiate on the price if you provide the latest management accounts and relevant documents relevant documents[18] regarding the receivable so that I can make an informed decision.” (Emphasis by counsel)

(5)  Based upon this email, Mr Corlett submitted that by using the word “price” in the email, the matters being discussed by P and D would be matters concerning the buyout of P’s beneficial interest in Nehru, not the repayment of the Loan as alleged by D.  Mr Corlett submitted that “price” is a natural word to use when people are buying or selling something.

(6)  With respect, I am unable to accept Mr Corlett’s submissions.  I do not regard P’s 27 Oct 2009 Email as contemporaneous evidence in support of P’s case.

(a)  The proposition submitted by counsel is that by using the word “price” in this email, P and D were discussing matters concerning the buyout of P’s beneficial interest in Nehru.  P has not given any evidence in support of this proposition.  In other words, this is a proposition not supported by P’s own evidence.

(b)  Further, this proposition has not been put to D in cross-examination.  In response to the question from the court, Mr Corlett submitted that the proposition has been sufficiently put to D in cross-examination, and he referred me to the exchanges in the transcript, page 189H-Q.  I have considered the transcript carefully. As shown in the transcript, Mr Corlett referred D to P’s 27 Oct 2009 Email and asked D whether he would agree “that “price” is a natural word to use when you’re buying or selling something”.  D said that he could see that P used the word “price” in the email, but he did not know what counsel was trying to say.  With respect, in my judgment, the proposition advanced by Mr Corlett in his final submissions (ie by the appearance of the word “price” in P’s 27 Oct 2009 Email, P and D were discussing matters concerning the buyout of P’s beneficial interest in Nehru in that email)  has not been put to D in cross-examination.  P would not be allowed to rely upon the proposition to support his case at the final submissions stage, for this would be unfair to D.  Had the proposition been put to D in cross-examination, D would have had an opportunity to respond to it.  As a result of not having put the proposition to D in cross-examination, D has been deprived of the opportunity to respond to the proposition.  

(7)  In my view, the Receipt should be read according to its plain and natural meaning.  The word “loans” therein was referring to the Loan, and the phrase “other interests” was a residual clause capturing any other sum(s)  due to P (for example, the referral fees)  and interest(s)  conferred to P as a result of the ELL (for example, P’s right to receive balance sheets of Nehru and/or ACCF for the purpose of ascertaining the NAV), but that phrase was not intended to have any specific coverage.

(8)  In my judgment, the Receipt is a contemporaneous document contradicting P’s case and supporting D’s case.

76.Sixth, P claimed that he was approached by D in around September 2009 for the purchase of his alleged beneficial interest because “Phillip Capital no longer wished to have a minority shareholder” (see §18(4)  above). This is inherently improbable.  Under cross-examination, P accepted that he had never disclosed his “hidden shareholding” to Phillip Capital. There is no evidence that Phillip Capital was aware that P had a beneficial shareholding in ACCF.  In the circumstances, D could not have told P that Phillip Capital did not want a “minority shareholder”. 

77.P is relying upon his email to D on 21 April 2010, in which he said that D told him that Phillip Capital did not want a minority shareholder.  D’s evidence is that he did not reply to the email upon taking legal advice and that the tone of this particular email left him feeling very uncomfortable that P was trying to extort a settlement by threatening to derail the listing. Having considered the contents of the email and the evidence before the court as a whole, I accept the reasons given by D as to why he did not reply to this email.  The no-reply from D should not be construed as an admission of anything said by P in the email.  

78.I do not regard P as a truthful and reliable witness.  Save and except matters accepted or not disputed by D, I refuse to accept P’s evidence.

F1.2  GM

79.GM is qualified as a barrister in New South Wales and Hong Kong, and as a solicitor in the United Kingdom.  He was the Chief Counsel of the SFC from 1989 to 1992 and the Executive Director of Enforcement of the SFC from 1992 to 1996.  He is a licensed person with the SFC as a responsible officer for type 1, 4, 6 and 9 licenses. 

80.GM became a director of ACCF in March 1999, and a shareholder and director of Nehru in October 1999 and November 1999 respectively.  He received about 9% shares in Nehru for free as an incentive to join the business.

81.GM said that at or around the time he joined ACCF, D informed him that P was a silent shareholder of Nehru.  However, GM did not have any personal knowledge of the financial dealings between P and D giving rise to such silent shareholding.

82.GM was of the view that the ELL alleged by D was a fabrication.  GM was also of the view that P did not attend meetings as a legal advisor, for GM and ST were experienced lawyers and D was knowledgeable in corporate finance, particularly the requirements for listing.  In particular, he disagreed that the participation of P in the board meetings were referable to his capacity as a lawyer because ST was a very good lawyer and he himself was the first chief counsel of the SFC, so they would not need P at all.  GM said that P’s attendance at board meetings was arising out of his beneficial shareholding in Nehru and at the invitation of D. 

83.Under cross-examination, GM was referred to the Prospectus, the contents of which are inconsistent with the scenario that P was a beneficial shareholder of Nehru at the time of listing application.  GM accepted that he had taken part in reviewing the draft Prospectus.  GM also accepted that being a registered officer and a principal of ACCF (which was a sponsor in the listing application), he himself had an obligation to make sure all the information in the Prospectus being correct.  GM said that the omission of P’s beneficial interest in Nehru in the Prospectus was an oversight.  GM accepted that the obligation to provide correct information to SFC is a continuous obligation. GM claimed that he was not aware of the fact that the information in the Prospectus was erroneous.

84.I observe that GM has animosity towards D.  Under cross-examination, GM was referred to an email from him to P dated 1 September 2005.  In that email, GM expressed dissatisfaction in the negotiation between him and D concerning D requiring him to leave the business of ACCF.  GM was unhappy that while he was a director in ACCF, he was only paid a director’s fee of HK$10,000 per month. He was flabbergasted by this figure.  In cross-examination, GM admitted that he parted company in his business dealings with D in a way having a bitter taste in his mouth.  In my judgment, GM is an unreliable witness.  In particular, his evidence is most unsatisfactory in relation to the Prospectus.

85.In the “History and Development” section of the Prospectus, there are express statements concerning the history of beneficial ownership of ACCF and Nehru, including the following:

“In January 1999, each of Nehru and [D] took over one of the two subscribers’ shares of [ACCF] with [D] holding the one share in trust for Nehru. Nehru had an initial issued share capital of US$4.00 divided into four shares of US$1.00 each, of which three shares were issued and allotted to Master Link (which is wholly beneficially owned by [D])  and one share was issued and allotted to [D] in March 1999. Accordingly, [D] was [ACCF]’s sole beneficial owner.” (Emphasis added)

“In October 1999, Nehru issued and allotted further 72 and 24 shares to Master Link and [D] respectively and [GM] subscribed for ten new shares in Nehru. [GM] then became a 9.09% beneficial shareholder in Nehru and [ACCF] and [D]’s beneficial interest (inclusive of his shareholding in Master Link)  in Nehru and [ACCF] was diluted to 90.91%.” (Emphasis added)

“In October 2002, [ST] subscribed for new shares equivalent to 5% of the enlarged capital of Nehru, with [D] and [GM]’s effective shareholdings in [ACCF] diluted to approximately 75.9% and 19.1% respectively. In February 2003, [LX] joined the list of shareholders by subscribing for new shares in Nehru, owning 10% of its enlarged capital. As a result, [D], [GM] and [ST]’s effective shareholdings in [ACCF] were correspondingly diluted to 68.33%, 17.17% and 4.50% respectively”. (Emphasis added)

“Between September 2005 and June 2006, following negotiations at arm’s length, Nehru repurchased all its shares held by [GM], [ST] and [LX] respectively, and [D] became its sole beneficial shareholder.” (Emphasis added)

86.At nowhere in the Prospectus, P’s alleged beneficial shareholding in Nehru was mentioned at all.

87.From the documentary evidence, it is clear that GM was involved in reviewing the draft Prospectus.

(1)  On 7 January 2010, Elsa Li of ACCF emailed the latest draft Prospectus to GM and invited him to study the same.

(2)  On 11 January 2010, GM replied and said that he had

“read the 2^nd draft and… have many queries”, and asked for a telephone conference to be set up to discuss the matter. A telephone conference scheduled on 12 January 2010 was subsequently set up by Elsa Li.

(3)  On 30 January 2010, Elsa Li circulated to GM and others an updated version of the draft Prospectus for review and comments.  Elsa Li indicated that the listing application was intended to be submitted within the week, and asked the recipients of the email to revert any comments by 1 February 2010.

(4)  On 31 January 2010, GM replied by email and said:  “I have been reading all the comments from others as they have been coming in. I have nothing substantial to add at this stage but will wait for the response from the Listing Division.”

88.Under cross-examination, GM agreed that D in fact did specifically ask him to review the “History and Development” section of the draft, and he indicated that he had no comment on that section.

89.GM claimed that when he joined ACCF in 1999, he was told by D that P was a silent shareholder of Nehru.  If there is any truth in this allegation, given GM’s background, it would not be possible to escape GM’s attention that P’s beneficial shareholding in Nehru was omitted in the “History and Development” section of the draft Prospectus.  Under

cross-examination, GM tried to explain by saying that he only paid perfunctory or cursory attention to the draft Prospectus.  This is certainly untrue.  As shown by GM’s email dated 11 January 2010, he managed to come up with “many queries” regarding the 2^nd draft of the Prospectus.

90.In view of all the above, in my judgment, the truth is that GM had never been told by anyone that P was having a beneficial shareholding in Nehru when GM was reviewing the draft Prospectus.  GM’s allegation that when he joined ACCF in 1999, he was told by D that P was a silent shareholder of Nehru, is untrue.  

91.I do not accept that GM has given truthful evidence in this trial.  Save and except matters accepted or not disputed by D, I refuse to accept GM’s evidence.

F2.  D’s witnesses

F2.1  D

92.According to D, the terms of the ELL Agreement as agreed between P and him in late 1998 or early 1999 are as follows:

(1)  The Loan was unsecured and non-interest bearing.  P and D would mutually agree upon when the Loan would be repaid.

(2)  P would participate in the upside of any increase of value of the new business by reference to NAV of the business.  The parties would determine how such upside would be valued at the date of repayment.  As a matter of principle, a convenient proxy would be the NAV of Nehru.  P’s return would be represented by a percentage of the NAV of Nehru. Such percentage would reflect, for convenience of reference, the proportion borne by (a)  a notional number of shares held in D’s name to (b)  the total number of shares in Nehru. Such percentage would vary from time to time, depending on such factors as capital injection by other shareholders, any right issues and the total number of shares issued. The starting proportion was one out of four shares in Nehru as at March 1999.

(3)  P would be invited at D’s sole discretion to attend board meetings of ACCF in order to render legal advice and case management (when necessary)  to ACCF and to be apprised of matters which ACCF was working on, where this originated from a referral from P.

(4)  P would have no role in the management affairs of the business.

(5)  D would procure that the balance sheets of Nehru and/or ACCF be provided to P for the ascertainment of the NAV from time to time, but P would have no right to require audited accounts or management accounts be prepared and presented to him.

93.Regarding the ELL Agreement as claimed by D, while D was giving evidence, I asked D whether D would have no need to repay P anything by (a)  not agreeing to any repayment date proposed by P, or (b)  shortly before the agreed repayment date, transferring all the shares under D’s name to a third party and asking the third party to hold the same on trust for D, thereby there would be no share held under D’s name on the repayment date.  D replied and said that strictly speaking, I might say so.

94.D said that after the Repurchase, he did not have sufficient financial ability to repay P under the ELL Agreement.  At the time of 2005 Agreement, it was uncertain whether Chengdu Engagement would be profitable or not.  Only if there would be a profit, that P would be paid more.  It was also not known when the Chengdu Engagement would be completed.

95.The Chengdu Engagement was completed and the recovery proceeds were released by the State Administration of Foreign Exchange to be remitted to Hong Kong upon the approval of the Mainland Court in April 2009.  The proceeds were received in Hong Kong in August 2009.

96.Mr Corlett submitted that based upon the information in the Prospectus, the proceeds of the Chengdu Engagement were received in Hong Kong in April 2009, not in August 2009.  D lied as to the timing of the receipt of the proceeds in Hong Kong, so as to justify the timing of D approaching P in September 2009.  The contents of the Prospectus relied upon by Mr Corlett are as follows:

“…… The aggregate amount of the recovery proceeds, incorporating the principal sum of approximately RMB28.61 million, penalty interest of approximately RMB10.79 million and total awarded costs of approximately RMB0.45 million, was RMB39.85 million, which, after meeting certain incidental expenses, was eventually remitted to Wide Gain in Hong Kong at the direction of the PRC court in April 2009

…

The table below set out a summary of (i)  the total recovery proceeds recovered by Wide Gain during the Track Record Period; (ii)  the revenue booked by the Group in April 2009; (iii)  the recovery outgoings incurred by the Group; and (iv)  ….” (Emphasis by counsel)

97.The point made by Mr Corlett as set out in the above has not been put to D in cross-examination.  This is a serious allegation made against D.  Without putting the point to D and giving D an opportunity to respond to the same in cross-examination, I am of the view that this point is not open to P in the final submissions stage.

98.Further, without prejudice to the above, I do not agree that the Prospectus should be read in the way as suggested by Mr Corlett.  In my view, the time mentioned in the Prospectus, ie April 2009, is the time when the approval for the release of the proceeds was given by the Mainland Court. Plainly, applying common and commercial sense, before remitting the proceeds from the Mainland to Hong Kong, it would be necessary to obtain the approval from an authority in the Mainland.  In my judgment, there is no reasonable basis to doubt the timing as to the receipt of the proceeds in Hong Kong mentioned by D in his evidence.

99.Upon the conclusion of the Chengdu Engagement, D reached out to P and they met on a couple of occasions to determine the value of the principal of the Loan to be repaid under the 2005 Agreement.  One of those meetings was the 2009 Coffee Shop Meeting.  D denied that in that meeting, he told P that the reason for wanting to buy out P’s interest was that Phillip Capital no longer wanted to have a minority shareholder.

100.According to D, in about October 2009, P and D agreed that the sum which D would need to pay to P to settle the Loan was HK$3.5 million.  D paid the sum to P by the Cheque on 20 October 2009, and P issued the Receipt to D on the same date.  Shortly thereafter, D discovered that he had omitted to make provisions for Mainland and/or Hong Kong taxes, and had also failed to deduct Chua’s minority interest from the proceeds.  P accepted D’s explanation and made a refund of HK$230,000 to D by a cheque dated 28 October 2009.

101.In order to clear the tax issues under the Chengdu Engagement, D approached TW and sought advice from him.  TW told D that he did not have experience in advising on Mainland tax law.  Upon D’s request, TW recommended TL.  Thereafter, D and TL had the 2 Nov 2009 Meeting.  In that meeting, TL advised D that in relation to the Chengdu Engagement, tax liabilities should not arise in either Hong Kong or in the Mainland.

102.In or about 2000 or 2001, following the introduction of the GEM Board, GM and D talked about the prospect of listing ACCF on the GEM Board.  They had discussion with several professional parties to obtain fee quotations on such a listing, including P.  At the end, GM and D decided not to proceed because of the up-front costs and the financial risk of a failed listing.  The listing requirements on the GEM Board were later revised and became more stringent.  D did not consider listing ACCF again, until the matter was brought up by TL in the 2 Nov 2009 Meeting.

103.In the 2 Nov 2009 Meeting, after dealing with the tax issues, TL brought up the topic that the recent business of ACCF combined with the profits from the Chengdu Engagement might lead to eligibility for a GEM Board listing.  Only from that point of time, D started to consider to explore the listing feasibility of ACCF and Special Assets.

104.On 5 November 2009, D reported to the board of ACCF that he had been in dialogue with Phillip Capital who agreed to progress to list ACCF on the GEM Board in the first half of 2010.  The idea was supported by LX.

105.Starting from November 2009, D had been in regular contact with various professionals to try to implement the listing idea.

106.In my view, D is a forthcoming witness and would not shy away from difficult questions.  His oral testimony is consistent with his own witness statements and the evidence given by the other witnesses for D.

107.While D was giving evidence, I asked D questions concerning the terms of the ELL Agreement (see §93 above).  D did not try to evade these questions and admitted that strictly speaking, D would have ways to avoid repaying the Loan to P.  In re-examination, D said that although he could, in theory, “walk away” from the oral agreement, it was quite obvious that he had honoured his part of the commitment throughout the time when the ELL was in place by, for example, informing P of any changes in the shareholding of Nehru.

108.Having considered all the evidence in this case, while the terms of the ELL Agreement as said by D may contain some loopholes which may allow D to avoid the repayment obligation by some means, I accept that the ELL Agreement as claimed by D is true.  Bearing in mind that the ELL Agreement is an oral agreement reached by P and D in late 1998 or early 1999, and P and D were on good terms and had mutual trust between them at that time, it would not be a surprise that the terms of the ELL Agreement were not very sophisticated. Further, as explained in this judgment, the totality of the evidence in this case does not support the trust claim as alleged by P.  On the contrary, the evidence is in support of the ELL as claimed by D.

109.As to the Documents relied by P, D said that the descriptions in those documents that P was having shares in ACCF/Nehru were merely shorthand references to P’s entitlement to receive a return in the ELL Agreement.  D explained that he saw the need for adopting a “convenient shorthand” because he anticipated difficulties in explaining the precise effect of the personal loan agreement between himself and P to ACCF staff when they were carrying out their duties.  In my view, D was saying that it would be difficult to explain the precise relationship between P and him under the ELL Agreement to third parties such as ACCF’s administrative staff.  As such, for ACCF’s internal purposes, it was easier to simply refer to P as a “shareholder” rather than, say, for example, “holder of ELL”, which might lead to confusion.

110.Mr Shieh has drawn my attention to the documents filed with the SFC by ACCF in discharge of disclosure obligations.  These documents are public documents, and accuracy in the same is essential.  In all these documents, the shorthand way of referring to P’s entitlement to NAV as a “shareholding” interest has never been used.

111.Having considered the evidence and the submissions, with regard to the Documents relied by P, I accept D’s explanation.

112.As explained in §§72 and 73 above, D’s case is not undermined by P’s attendance in ACCF board meetings.  I agree with Mr Shieh that P’s attendance in those meetings is consistent with his roles as an ex gratia legal advisor, a referrer of businesses to ACCF and a stakeholder by virtue of his entitlement under the ELL Agreement (which may be affected by any change in Nehru’s share capital).

113.In his evidence, D mentioned that after Phillip Capital became a shareholder of Nehru, there were two stages for Phillip Capital’s representatives to attend ACCF’s board meetings: (a)  initially WW was nominated by Phillip Capital to become a director of ACCF; (b)  after WW left Phillip Capital, Lim attended the board meetings “by invitation” but not acting as director.  When Lim attended the board meeting, his attendance was recorded either as “in attendance” or “by invitation”.  Based upon this piece of evidence, Mr Corlett submitted that Lim and P were in the same category, and both of them were entitled to attend ACCF board meetings because they were shareholder’s representative (ie Lim)  and shareholder (ie P of Nehru).

114.With respect to Mr Corlett, the unchallenged evidence from LX (see §159 below)  is that in the ACCF board meeting held on 30 March 2004, he proposed to exclude P from future ACCF board meetings because P was neither a director nor a shareholder.  All the others in the meeting, ie D, GM and ST agreed.  Lim was the representative of Phillip Capital, which was then a substantial shareholder of ACCF.  Lim and P were not in the same category.  Lim was recorded as having attended at least 11 ACCF board meetings chaired by LX by invitation between 16 June 2008 and 29 March 2010.

115.Another piece of unchallenged evidence from LX (see also §159 below)  is that in early February 2003, when he was invited by GM to invest in ACCF, he was told that Nehru had only 3 shareholders (beneficial or other)  and directors, namely D, GM and ST.  This evidence is also in support of D’s case.

116.As to when D began to reconsider listing the business of ACCF (after the initial discussion of the listing in 2001), D’s evidence is that the idea began in the 2 Nov 2009 Meeting, when TL brought up this topic in the meeting.  In my view, D’s evidence on this point is corroborated by the evidence given by TW, TL, AC, and KF Chau.  I accept D’s evidence.

117.In my judgment, D is an honest and reliable witness.  I accept his evidence.

  F2.2  TW, TL, AC, KF Chau

118.TL, TW, AC, and KF Chau are independent witnesses who have no interest in the outcome of this case.  They have no reason to be biased towards P or D. They have given evidence on the time of the events concerning the listing.  They have produced contemporaneous documents in support of their evidence.

119.Under cross-examination, it was suggested to them that they could not have an accurate recollection of the relevant events or the timing thereof because memory would fade over time.  However, with reference to the contemporaneous documents in their evidence, they were sure that the timing of the events in their evidence was correct.  Subject to the discussion in §134(4)  below, I accept and attach weight to their evidence.

F2.2.1  TW

120.TW is a tax specialist.  He said that in or around the end of October 2009, D called him and briefed him on the Chengdu Engagement.  D sought his advice on some tax issues in the Chengdu Engagement.  TW told D that he had no experience in advising on Mainland tax law, and he could not provide an authoritative answer to him.  TW recommended TL to D, and told D to seek advice from TL.  At the end, the 2 Nov 2009 Meeting was set up.  In that meeting, TW introduced TL to D.

121.Under cross-examination, TW was referred to §72 of D’s witness statement, in which D said that the proceeds from the Chengdu Engagement were received in Hong Kong in August 2009.  TW was asked given that the proceeds were received in August 2009, whether it would be possible that the initial phone call from D to him was in August or September 2009.  TW answered that the phone call was made by D at a time shortly before the 2 Nov 2009 Meeting, and the time of that phone call should be at a time in late October 2009.

122.TW said that in the 2 Nov 2009 Meeting, TL advised that there should be no tax issue in Hong Kong or in the Mainland arising from the Chengdu Engagement.  After giving the advice, TL went further and explained to D and TW the feasibility of merging ACCF and Special Assets for the purpose of listing the merged entity on the GEM Board.  At the end of that meeting, TL suggested that he could introduce AC to D to further examine the accounting feasibility for the merger and the viability of the listing.

123.In or around the end of November 2009, TW was informed by D that D had decided to proceed with the listing and to engage EY as the reporting accountant.  NCMF was then formally engaged by ACCF and its sponsors to conduct an internal control review.

124.In his evidence, TW has produced an engagement letter issued by NCMF to ACCF and VC Capital dated 1 December 2009 (“the NCMF Engagement Letter”).  In that letter, a meeting among D, Mr Keith Lou of VC Capital and TW on 19 November 2009 (“the 19 Nov 2009 Meeting”)  was mentioned.  The matters discussed in the 19 Nov 2009 Meeting were mentioned in the NCMF Engagement Letter.

125.Mr Corlett submitted that TW had admitted that the initial phone call from D to him could be in August or September 2009, but TW changed his evidence after having full time to re-consider the ramification of his answer.  With respect, I am of the view that this is not a valid criticism.  The relevant part of the cross-examination of TW is as follows:

“Q. If we just go to another statement. This is Mr Yeung’s statement to be found at bundle B, tab 3 at page 85. This is Mr Yeung’s first -- this statement you won’t have seen this, but just in fairness I want to show you this, then I’m going to suggest something to you. Do you see there in paragraph 72 he’s talking of the receipt of the proceeds and he concludes in the final sentence the proceeds were subsequently received in Hong Kong in August of 2009, see that?

A. M’m.

Q. What I’m suggesting to you is that that initial call from Mr Yeung was sometime in August, September of 2009. Could be?

A. Yes.

Q. Now, in terms of the first...

COURT: Sorry, what is your answer, Mr Wong?

A. Yes. I read the statement. Yes. That according to Mr Yeung, that the remittance was received in August 2009.

MR CORLETT: Sorry.

COURT: Sorry, your answer is that you can see the sentence the proceeds were subsequently received in Hong Kong in August 2009?

A. Right.

COURT: All right. I just want to avoid any misunderstanding. Perhaps, Mr Corlett, you ask your question again.

Q. Was that my question, Mr Wong?

A. Yes.

(Discussion between counsels)

MR SHIEH: Perhaps in fairness, the witness may be asked to explain what question he thought he was answering.

MR CORLETT: Well, I’m obliged, but I’ll deal with the cross-examination in the way that I see fit. I asked a question, I got an answer and now what I intend to do is to go back to the transcript, repeat my question, the answer and then follow up. I don’t see how that’s in any way unfair to the witness.

COURT: Mr Corlett, I think you better ask your question again because I don’t want the witness has any misunderstanding of your question.

MR CORLETT: My Lord, that’s exactly what I’m intending to do, so I agree with my Lord.

Q. What I asked you, Mr Wong, was this: what I am suggesting to you is that the initial call from Mr Yeung was sometime in August, September of 2009, could be? And your response to that question was, “Yeah,” remember that?

A. Sorry, can you repeat again?

Q. Sure. What I’m doing right now is reminding you of our question and answer, and then I’ll ask a question. The question that I asked was this: “What I am suggesting to you is that the initial call from Mr Yeung was sometime in August, September of 2009, could be?” And your response to that question was, “Yeah.”

A. I’m not -- if that is the question you have in mind, my answer is no. So that meeting would not be in August because I can recall that was that meeting -- tax meeting was very shortly after November. It’s in November time.

Q. Mr Wong, you clearly understood that my question was not whether you had read the statement, but rather, whether that initial call was -- could well have been in August or September, didn’t you?

A. My answer to it is not to my recollection. The answer would be no.

Q. Your answer on the second go is that not to your recollection.

A. What was second go?

Q. I suggested to you again that given what Mr Yeung has said, that the funds were received in August, that the initial call between him and you was sometime in August, September, do you agree with that?

A. I won’t agree with that. I don’t agree with that.

Q. You don’t have any contemporaneous record, agree with that?

A. Yes.

Q. And do you agree with this proposition then: given that you do not have any contemporaneous record, given that it’s 11 years ago and given that the funds were received in August, it might well be that that telephone call was, in fact, in August or September.

A. No.

Q. Impossible...

A. Why?

Q. Just listen to my question. You’re saying it’s impossible that that phone call was in August or September, are you?

A. Well, as far as my recollection is concerned, it won’t be. It wasn’t in August, okay.

Q. Wasn’t in August, all right. Well, let me ask you this: given that it would appear that the funds were received in August, is it at least possible that that phone call that you’re talking about was in September?

A. No.

Q. Impossible.

A. Not -- very, very unlikely.

Q. Very, very unlikely. You understand you’re on oath?

A. Yes.

Q. Yes. Okay. I’ll give you one more chance. Do you accept that given that there is no contemporaneous record, given that it’s more than 11 years ago, given Mr Yeung’s own statement that the funds were received in August, it could well be that he phoned you in September, possible?

A. That is not my recollection.

Q. I’m not interested in your recollection because we’ve already established that you don’t have a recollection of the actual date. You’ve reconstructed it. What I’m asking you is a very specific question.

A. Yes.

Q. Given the lack of contemporaneous documents, given that it’s 11 years ago, given that the funds were received in August, is it possible that, in fact, that phone call was in September?

A. I will say yes, because of the special nature of the inquiry and because of the event leading to the engagement -- leading to the meeting or that happen in November. So the first inquiry and then bring in Thomas Lee, it won’t be as early as August or even -- it has to be around November time. That is to my best knowledge. I believe that is what happen. So what you have done you also deduce something from other information. Yes, I think that is your prerogative. But also, I have from the document which I have on hand and my best recollection of the event or the nature, I think that answer what I have stated in the statement is the truth.

Q. Well, I really didn’t think any of this was difficult. But the one document that you’ve got a reference to is a letter of engagement, correct?

A. Yes.

Q. And you’ve agreed with me that from that you’ve tried to figure out when this phone call occurred.

A. Yes.

Q. Because you’ve got no contemporaneous note of it. That’s where we’re at so far?

A. Yes.

Q. What I’m suggesting to you is that another data point that we’ve got, if you like, is that funds, according to Mr Yeung at least, were received in August. And what I’m suggesting to you is that given that data point, it’s at least possible that he phoned you in September.

A.  Because, as I said, this to my best own knowledge that doesn’t happen during that early period.  This all happen around in November because that is the time where we discuss about the engagement for the listing as shortly before then, okay.  Shortly before that, we have meeting with Antonio.  And shortly before the meeting with Antonio of E&Y and partner, we have a meeting with Thomas Lee.  And we were trying to contact Thomas Lee. It’s only that I can arrange this in November.”

126.It is plain that at the beginning, when TW answered “Yes”, TW was under the misapprehension that he was still being asked of whether, according to D’s witness statement, the proceeds from the Chengdu Engagement were received in Hong Kong in August 2009.  When TW later realised that he was being asked of a different question, ie whether the initial phone call could have been in August or September 2009, he clearly stated “no” and explained his answer.

127.In his evidence, TW explained that he could remember that the initial phone call from D was made in late October 2009, because D’s inquiry was unusual in that the issue of potential tax implications arising from the remittance of proceeds from a debt recovery in the Mainland to Hong Kong was not something which he normally encountered in his professional practice, such that he had to seek other professional assistance.  Shortly after that telephone conversation, he introduced D to TL in the 2 Nov 2009 Meeting.

128.TW also said that he could have a clear recollection of the matters concerning this engagement because the engagement was the last engagement in which TW’s firm was involved in doing a listing engagement.  Thereafter, TW’s firm decided not to do any further IPO engagement.

129.In my view, TW’s evidence is clear and remains unshaken after cross-examination.

  F2.2.2  TL

130.In his evidence, TL said that in or around late October 2009, he received a call from TW in relation to a potential tax work referral. Thereafter, in or around early November 2009, he attended an introductory meeting at ACCF’s office and met D in that meeting.  After giving advice on the tax issues relating to the Chengdu Engagement, TL mentioned to D that based upon the information of ACCF and the information in the Chengdu Engagement, combining ACCF’s business and the profits from the Chengdu Engagement might satisfy the criteria for a GEM Board listing.  D appeared to be interested in the idea.

131.After that meeting, there were some other meetings between TL and D.  On 30 November 2009, TL’s company (ie TLP)  issued an engagement letter to ACCF (“the TLP Engagement Letter”).

132.In his evidence, TL has produced a flight itinerary.  By referring to this flight itinerary, TL said that he left Hong Kong on 24 October 2009, and returned to Hong Kong on 1 November 2009.  TL has also produced his Outlook Calendar (“TL’s Calendar”).  As per TL’s Calendar, the first meeting between him and D was held on 2 November 2009.

133.Mr Corlett has made some criticisms against TL’s evidence:

(1)  TL’s Calendar was conspicuously cut-off from 26 October 2009 to 8 November 2009.  Further, different pages of TL’s Calendar (total 3 pages)  were printed out at different time – two pages were printed out on 3 July 2017, and one page was printed out on 14 October 2017.

(2)  TL’s evidence that he received TW’s initial call before he flew to Paris on 24 October 2009 appears to be at odds with his witness statement that he received TW’s call in or around late October 2009.

(3)  Before the 2 Nov 2009 Meeting, there may be an earlier meeting between TL and D concerning the listing of ACCF and its related business.

134.With respect, I am of the view that there is no merit in these criticisms.

(1)  During cross-examination, it has not been put to TL that he chose not to disclose the other parts of his calendar with the purpose of suppressing any truth.  That would be a serious allegation.  Without giving an opportunity to TL to respond to this, it would not be fair for P to take this point at the final submissions stage.  Further, as submitted by Mr Shieh, TL could hardly be expected to provide all his calendar entries prior to 26 October 2009 in order to prove the negative that there was no meeting between him and D at any time before that date.

(2)  As to the different printout dates of the different pages of TL’s Calendar, no opportunity was given to TL to explain the matter during cross-examination.  In my view, P cannot rely upon this point to criticize TL’s evidence.  Further or alternatively, it is not known in what way P can derive assistance from this point.  My understanding is that P is not saying that the calendar produced by TL is a forged document.  If there is any allegation of this kind (which is a very serious allegation), the matter must be put to the witness and let the witness have the opportunity to respond to the matter.

(3)  To say that there would be a meeting between TL and D at a time before 26 October 2009, with respect, is a speculation not supported by the evidence.

(4)  As to when TL received TW’s initial call, TW’s evidence is that after having the telephone conversation with D in late October 2009, he tried to reach TL by phone but TL was not in Hong Kong at that time.  Hence, as per TW’s evidence, the initial call from him to TL would be at a time after TL came back to Hong Kong.  As to the difference between TL and TW regarding the timing of the initial call from TW to TL, I prefer TW’s evidence.

(a)  When being asked the timing of that initial call, TL was trying to recall his memory by looking at TL’s Calendar.  However, in TL’s Calendar, there is in fact no entry recording the time of the initial call from TW to TL.  TL has not given any specific reason as to why he could remember the timing of the initial call from TW to him.

(b)  On the other hand, TW is able to give a specific reason as to why he could clearly remember the matters concerning D’s engagement.  See §128 above.  I am of the view that the reason given by TW is convincing.

(c)  Taking the aforesaid into account, on balance, I prefer TW’s evidence regarding the timing of the initial call from TW to TL.

135.Mr Corlett further made the following points:

(1)  In TL’s witness statement, TL said that in the 2 Nov 2009 Meeting, D told him that D had previously had some discussions with his then business partner, GM, in around 2001 about listing the business of ACCF on the GEM Board.  D told TL that at that time, while they considered the criteria required for a listing on the GEM Board were more lenient, they were put off by the professional fee quotations and the risk stemming from the uncertainty of the listing and fund raising prospects, and therefore did not proceed with the listing.[19]

(2)  However, this episode does not appear in TW’s witness statement.

(3)  Hence, there are inconsistencies between TL’s evidence and TW’s evidence.

136.With respect, I am unable to see any merit in the aforesaid points.

(1)  It would not be a surprise that when witnesses are recalling an event occurred years ago, different witnesses would recall different details of that event.  Differences of this kind, without anything more, would not affect the credibility and reliability of the witnesses.

(2)  Without prejudice to the aforesaid, the difference between TL’s evidence and TW’s evidence concerning the 2 Nov 2009 Meeting as submitted by Mr Corlett has not been put to either TL or TW while they were giving evidence under cross-examination.  In the circumstances, P would not be allowed to take the point at the final submissions stage.

  F2.2.3  AC

137.AC said that in November 2009, while he was still an assurance partner at EY, he was contacted by two of his friends, TW and TL about potential work referral on assisting a company, ACCF (which was headed by D), to list on the GEM Board.  Shortly thereafter, TW and TL set up a meeting to introduce AC to D.  Based upon the information provided by D in that meeting, AC gave an initial view that following a merger of ACCF and Special Assets, listing would be possible.

138.AC confirmed that in the preparation of his witness statement, he has referred to an engagement letter issued by EY to ACCF dated 30 November 2009 (“the EY Engagement Letter”).

139.Regarding AC, Mr Corlett submitted that AC might not have the first meeting with D, TW and TL in November 2009.  That time was a result of discussion and getting together with TL, TW and D to recall the memory together.  In my view, it is understandable for witnesses to confer with each other to help to recall and to confirm their memories on the approximate timeframe of events which occurred a long time ago. Although AC had some discussion with TL, TW and D to reconfirm his recollection of the timing of the meeting, AC was able to independently recall the approximate time of the first meeting by working backwards from the date of EY Engagement Letter (ie 30 November 2009)  and the time that he would need in order to go through the process of discussion and meetings before issuing the engagement letter.

  F2.2.4  KF Chau

140.In 2009, KF Chau was the Managing Director of VC Capital, a wholly owned subsidiary of Value Convergence Holdings Limited (“VC Holdings”).  Between 23 September 2009 and 25 May 2017, KF Chau also acted as an Executive Director of VC Holdings.

141.KF Chau said that in or around early November 2009, D called him and asked him to meet and discuss the prospect of listing ACCF.  Subsequently, a meeting at the office of ACCF was set up.  In that meeting, D told KF Chau that after consulting TL, D believed that it would be viable to list ACCF and its combined business on the GEM Board.  D asked KF Chau whether VC Capital would be interested to act as a joint sponsor for the listing.  KF Chau was interested in that proposal.  KF Chau then went through the usual internal approval procedures, and issued an engagement letter to ACCF on 30 November 2009 (“the VC Engagement Letter”).  At the beginning of that letter, it is said:  “Further to our recent discussions …” (Underline added)

142.I have no reason to doubt KF Chau’s evidence.  I accept his evidence.

F2.2.5  Evidence concerning the timing of the relevant events in the listing

143.Mr Corlett submitted that the listing process occurred at break-neck speed and at such haste.  With respect, this point is unsubstantiated by the evidence.  The time taken was in line with the timetable proposed by Deloitte in January 2002 in relation to the contemplated listing of ACCF at the time. There is no evidence showing anything unusual or extraordinary in ACCF being able to list within around 7 months after the decision to proceed with a listing was made in early November 2009.

144.At this juncture, it would be convenient to deal with a point made in P’s pleaded case and in his witness statement.  P suggested that the corporate reorganization of the companies forming ACCF’s business began as early as 2 October 2009, as evidenced by virtue of the incorporation of Best Remedy Investments Limited (“Best Remedy”)  in the BVI on that date.  In my view, there is no merit in this point.

(1)  Under cross-examination, P agreed that there are two ways of acquiring a shelf company from a corporate incorporation agent.  The customer may instruct the agent to incorporate a new company using a preferred name, or the customer may choose from a list of available names provided by the agent.  If a company was chosen from a list, that would mean that the company would have been incorporated at a time before its inclusion on the list.

(2)  ACCF obtained “Best Remedy” from an agent called Offshore Incorporation HK Limited (“OIL”).  If “Best Remedy” was selected by ACCF from a list provided by OIL, the relevant date for assessing when ACCF’s corporate reorganisation took place would be the date when Best Remedy was acquired by ACCF, not when it was initially incorporated by OIL.

(3)  OIL’s invoice for the sale of Best Remedy was issued to ACCF on 9 December 2009 with a credit period of 30 days.  Applying common and commercial sense, it is unlikely that OIL would have issued the invoice more than a month after the sale, in effect more than doubling the credit period.

(4)  OIL’s invoice for the sale of another shelf company, Corporate Wise Limited (“Corporate Wise”), was also issued to ACCF on 9 December 2009.  That would suggest that Best Remedy and Corporate Wise were acquired by ACCF from OIL at the same or around the same time.

(5)  Corporate Wise was incorporated on 12 November 2009.  Clearly, it could not be purchased before that date.

(6)  With all the aforesaid in mind, there is no or no sufficient evidential basis to say that the corporate reorganization began as early as 2 October 2009.  For the reasons set out in the above, that Best Remedy was incorporated on 2 October 2009 does not lead to the conclusion suggested by P.

145.Mr Corlett also submitted that the public searches show that D or his agent had reserved the name for Best Remedy on 30 September 2009, and the name for Corporate Wise on 11 November 2009.  With respect, it is not shown in the documents relied upon by Mr Corlett that the names were reserved by D or his agent.  Further, as submitted by Mr Shieh, the dates when the names of these shelf companies were reserved do not shed any light on when they were purchased by ACCF from OIL.

146.In my view, the totality of the evidence given by TW, TL, AC, and KF Chau on the timing of the relevant events relating to the listing is cogent and compelling.  There is nothing validly casting doubt on the reliability of the evidence. I attach full weight to the timing of the events as shown in the evidence.

F2.3  LC

147.LC was a responsible officer with a company between 2008 and 2009.  On or around 19 October 2009, since LC was leaving that company, LC sent out an email to seek some other opportunities.  D was one of several hundred recipients blind-copied on that email.  In late October or early November 2009, his wife told him that her friend, ie D, had received LC’s email.  D invited LC and his wife to have a lunch.  After reviewing his old diary, LC was able to tell that the lunch was held on 3 November 2009.

148.After some negotiations, LC signed an employment contract with ACCF as an executive director on 23 November 2009.  Throughout the negotiation leading to the employment, D did not mention to LC any plan to list the shares of ACCF on the Hong Kong Stock Exchange.  It was only sometime after the commencement of his employment, D told LC that there was a plan to list the shares of ACCF. By the end of December 2009, most of the professionals were lined up and the listing project moved swiftly.

149.Regarding LC’s evidence, Mr Corlett submitted that there are only two possibilities when viewing LC’s evidence.  First, LC lied when he confirmed that he did not know about the Listing Potential and/or Listing Plan when he was negotiating with D on joining ACCF.  Second, LC did not lie and he did not know about the Listing Potential and/or Listing Plan at the time of having negotiation with D.  That would mean that D had kept the Listing Potential, including his discussions with TW, TL and AC, and/or the Listing Plan, hidden entirely from LC.  If LC is telling the truth, D’s lack of candour with his soon to be executive director is consistent with his alleged lack of candour with P.

150.Mr Corlett made the following submissions in support of the first possibility:

(1)  As to the blind-copied mass email sent out by LC on or around 19 October 2009, he said that he was leaving his company “to pursue other interests”.  However, in the email produced by LC, the recipient is a “mleung”.

(2)  As to what “other interests” he was planning or pursuing, LC did not elaborate or explain. Looking at the timing and totality of the evidence, this was likely to be joining ACCF which was going to list a month later.  On LC’s own admission, listing would be a strong incentive for him to join the company as he would gain some listing experience.

(3)  He signed on as an “Executive Director”.  Most new listed companies need two executive directors.

(4)  He possessed in-depth knowledge of the listing rules and the Hong Kong Codes on Takeovers and Mergers and Share
Buy-backs.

(5)  It is inherently unlikely that an employer would not mention to its only senior employee that they would be listing on an urgent timetable as on the day (or few days after)  he started work.  This would have ramifications on LC’s pay, working hours, work expectations, etc.  The negotiation process was for weeks.  A normal reaction to this would be to re-negotiate terms of employment contract given the drastically different job role.

151.In relation to the 2^nd possibility in his submissions, Mr Corlett submitted that the 2^nd possibility would mean that throughout the entire negotiation process, D actively concealed this information (Listing Potential and/or Listing Plan)  from LC.

152.As to the 1^st possibility mentioned by Mr Corlett, in my judgment, P is not entitled to pursue this point at the final submissions stage.  During cross-examination, it has never been put to LC that he lied when he said that he did not know anything concerning listing when he was negotiating with D on joining ACCF.  The allegation that LC lied when he was giving evidence on oath is a very serious allegation.  The allegation has not been put to LC during cross-examination, and notice of the allegation has not been given to LC by any other means.  In the circumstances, as a matter of fairness, P should not be allowed make submissions based upon this allegation at the end of the trial.

153.Without prejudice to the above, there is no substance in the points in support of the 1^st possibility in P’s submissions.

(1)  It has not been put to LC that the 19 October 2009 email was only sent to “mleung” and was not copied to any other recipients by BCC.  In his evidence, LC did say “Mr Yeung was one of several hundred recipients blind-copied on that email”. This has never been challenged under
cross-examination.  Plainly, it is impermissible for P now to say that the email was only sent to “mleung” and was not sent to any other person.

(2)  Without prejudice to the above, the salutation used in the email, “Dear friend”, strongly suggests that the email was a mass email rather than one only sent to “mleung”.

(3)  The fact that LC did not specify what “other interests” he was planning to pursue in the email is consistent with LC’s evidence that he did not have any commitment at the time and was exploring opportunities with licensed corporations.  If LC had already agreed to join ACCF, LC could simply inform the email recipients that he would move on to ACCF.   

(4)  LC has given clear evidence that he did not leave his company in order to join ACCF. This is not challenged under
cross-examination.

(5)  LC has explained that his qualifications and experience did not make him an ideal candidate for a company which is intending to pursue a listing.  Although he was familiar with the listing rules, he was not familiar with the procedures of a listing. Further, at the time, LC was not qualified to serve as a principal for a listing sponsor.

(6)  In his evidence, LC also said that he did not feel aggrieved for not being told by D the listing at an earlier time, and he did not seek to re-negotiate his salary with D after knowing the listing.  LC said that the listing did not become a significant part of his workload because most of the work connected with the listing was done by professional parties and ACCF’s company secretary.  All these have not been challenged under
cross-examination.

(7)  With all the aforesaid in mind, the 1^st possibility submitted by Mr Corlett must be rejected.

154.D explained in his evidence that when he was negotiating with LC, he did not tell LC the listing because the idea was still at an embryonic stage and there were many uncertainties.  D did not want to mislead LC to join ACCF by the Listing Plan, which might not succeed at the end.  In my view, this is understandable.  One must not forget that the negotiation between D and LC began on 3 November 2009.  With respect, I cannot see based upon the negotiation between D and LC starting from 3 November 2009, in what way it can be inferred that D had concealed the Listing Plan or the Listing Potential from P in September or October 2009.  There is no substance in the 2^nd possibility in Mr Corlett’s submissions.

155.I am of the view that LC is a truthful and reliable witness.  I accept his evidence.

F2.4  LX

156.LX was a director of Nehru from around February 2003 to July 2010, a director of ACCF from around February 2003 to April 2017, and a non-executive director and Honorary Chairman of AC Holdings from June 2010 to June 2016. He became a shareholder and Chairman of the board of ACL from April 2017.

157.In early February 2003, LX invested HK$1 million, becoming a 10% shareholder of Nehru without executing any due diligence. He was appointed to the boards of Nehru and ACCF, with a non-executive role.  LX was informed that Nehru had only three shareholders and directors (D, GM, and ST)  when he invested.

158.Under cross-examination, LX said that he had not seen the following documents before:

(1)  Draft Minutes of the meeting of directors of ACCF dated 22 March 2000[20]

(2)  Aide-memoire on increase of capital[21]

(3)  Draft Minutes of a meeting of directors of ACCF dated 8 December 2000[22]

(4)  Draft Minutes of a meeting of directors of ACCF dated 29 May 2001[23]

159.Although LX had not seen the documents mentioned in the aforesaid paragraph before he was referred to those documents in cross-examination, LX mentioned the following in his affirmation (which is LX’s evidence in chief):

“11. When I was invited by GM to invest in ACCF and became a shareholder of Nehru, I was informed that Nehru had only 3 existing shareholders (beneficial or otherwise)  and directors, namely, [D], GM and ST. ……” (Emphasis added)

“15. In or around March 2004 when I chaired an ACCF board meeting attended by [D], GM, ST and myself, for corporate governance reasons, the board agreed with me that it was inappropriate for [P] to continue to attend any board meetings of the companies, as he was neither a director nor shareholder. Insofar as I may recall, no one at the board meetings held on 30 March 2004 disputed this motion, which was unanimously resolved …… Perhaps with rare exceptions, subsequently [P] did not attend any further meetings of ACCF.” (Emphasis added)

These matters have not been challenged under cross-examination.  LX has given clear and unchallenged evidence that when he was invited to invest in ACCF, he was invited by GM and was told that Nehru had only 3 shareholders at that time, ie D, GM and ST.  Further, in the ACCF board meeting held on 30 March 2004 (attended by LX, D, GM and ST), when LX said that P was neither a director nor a shareholder and hence it would not be appropriate for P to continue to attend any board meeting, no one disagreed with him.

160.LX said that he had only minimal involvement in the decision to list ACCF because he was suffering from terminal stomach cancer and underwent chemotherapy at that time.  LX said that if ACCF did list, there would be a good prospect of an appreciation in the value of his shares.  LX also said that generally the agenda and board papers would be emailed to directors a few days before a board meeting.  In or around March 2004, the board resolved that P should no longer attend board meetings.

161.The evidence of LX has not been serious challenged under cross-examination.  In my view, LX’s evidence remains intact and unshaken after cross-examination.  I accept LX’s evidence.

F2.5  WW

162.WW was a Director and Head of Corporate and Institutions of Phillip Securities (Hong Kong)  (“Phillip Securities”)  in 2006.  His evidence is relating to the subscription of the shares in ACCF by Phillip Capital in around April 2006, and his subsequent involvement in ACCF representing Phillip Capital.  Phillip Securities was a subsidiary of Phillip Capital in 2006.

163.WW said that he was not aware of P’s alleged beneficial shareholding in Nehru at any time.

164.Under cross-examination, WW was referred to the documents mentioned in §158 above.  WW said that he had not seen these documents before.

165.Under cross-examination, WW was referred to the Subscription Agreement by which Phillip Finance (HK)  Limited agreed to subscribe the shares in ACCF. The Subscription Agreement was drafted by DLP.  WW was asked to confirm that schedule 1 to that agreement only concerned the shareholding in ACCF and did not touch upon the shareholding in Nehru.  WW agreed.  WW went on to say that ACCF being a regulated institution by the SFC, all shareholders had to be disclosed to the SFC, and he relied upon the solicitor representing Phillip Capital to verify the actual facts.

166.Regarding ACCF being an institution regulated by the SFC, the point is set out in Recital (B)  of the Subscription Agreement:

“(B)  [ACCF] is principally engaged in the provision of investment advisory services and to act as a dealer in securities dealing business incidental to the investment advisory business. [ACCF] is a registered corporation under the Securities and Futures Ordinance (Cap 571)  of the Laws of Hong Kong licensed to carry on business in certain types of regulated activities as set out in Schedule 1 hereto.”

167.The evidence of WW has not been serious challenged under cross-examination.  I accept WW’s evidence.

168.It is in fact accepted by P that there is nothing to show that Phillip Capital was aware of his alleged beneficial shareholding in Nehru at the time when negotiations for the subscription were conducted.  It is worth to note that P’s alleged beneficial interest in Nehru was not mentioned in any of the three charts attached to an email chain between D and representatives of Phillip Capital (which was forwarded by D to P and LX on 17 October 2005 showing the anticipated changes in shareholdings of Nehru and ACCF as a result of Phillip Capital’s subscription).  In my judgment, the real reason for P not disclosing (or not asking D to disclose)  his alleged beneficial interest in Nehru to Phillip Capital was because P in fact did not have any beneficial shareholding in Nehru to begin with.

G.  ANSWERS TO THE ISSUES

G1. Issue 1

169.Based upon the evidence accepted by the court, I find that the agreement entered into by P and D in respect of the monies that P advanced to D in around the end of 1998 or in early 1999 is the ELL Agreement, and the terms of the ELL Agreement are those pleaded in the Amended Defence §5(17).

G2.  Issue 2

170.As to P’s alternative case, in the ASOC, it is pleaded:

“21. Alternatively, if (contrary to [P]’s primary case but as [D] has alleged in his Defence herein)  the payment of the moneys by [P] by reference to the business of [ACCF] held by Nehru constituted an equity-linked loan entitling [P] to a return representing any increase in the net asset value of the business (“the ELL”), then [P] and [D] were constituted joint venturers in that business.

22.  As such joint venturer, [D] owed, inter alia, the following duties to [P]:

(a)  A fiduciary duty to act bona fide in the best interests of [P];

(b)  A fiduciary duty not to act in relation to [P]’s rights in the ELL in circumstances where there existed an actual or potential conflict between his fiduciary duties and his own self-interests;

(c)  A fiduciary duty not to traffic with or otherwise profit by [P]’s rights in the ELL; and

(d)  A fiduciary duty not to purchase or redeem [P]’s rights in the ELL except on terms that (i)  he took no advantage of his position, (ii)  he had made full disclosure to the beneficiary and (iii)  the transaction was fair and honest.

23.  In support of the duties mentioned in the last foregoing paragraph hereof, [P] will rely on the facts that:

(a)  The nature of the joint venture was that [P] had an interest in the success of the business of [ACCF] held by Nehru; but

(b)  [P] nonetheless had no control over the management of [ACCF] or Nehru and … no access to information about that business; and

(c)  [D] was in control of both Nehru and [ACCF] at all material times.”

171.The term “joint venture” is not a legal term of art itself.  As said by Lloyd LJ in Ross River Ltd v Waveley Commercial Ltd[24]:

“34.  …... the phrase “joint venture” is not a term of art either in a business or in a legal context, and each relationship which is described as a joint venture has to be examined on its own facts and terms to see whether it does carry any obligations of a fiduciary nature.”

172.In Glenn v Watson[25] at §131, Nugee J summarised the principles concerning fiduciary duties:

(1)  There are a number of settled categories of fiduciary relationships.  The paradigm example is that of trustee and beneficiary; other well-settled examples are solicitor and client, agent and principal, director and company, and the relationship between partners.

(2)  Outside these settled categories, fiduciary duties may be held to arise if the particular facts warrant it. Identifying the circumstances that justify the imposition of fiduciary duties has been said to be difficult because the courts have consistently declined to provide a definition, or even a uniform description, of a fiduciary relationship.

(3)  Fiduciary duties will not be too readily imported into purely commercial relationships. That does not mean that fiduciary duties do not arise in commercial settings – indeed they very frequently do, as the example of agency illustrates – but that outside the settled categories, this is not common, as it is normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party.

(4)  A joint venture is not one of the settled categories of relationships giving rise to fiduciary duties between the joint venturers. Although at first sight the analogy with a partnership might suggest that it would be, it is clearly established that the phrase “joint venture” is not a term of art either in a business or in a legal context, and each relationship which is described as a joint venture has to be examined on its own facts and terms to see whether it does carry any obligations of a fiduciary nature.

(5)  The default position is that no such fiduciary duties arise.  In the absence of agency or partnership, it would require particular and special features for such fiduciary duties to arise between commercial co-venturers.

173.In P’s alternative case, all the material facts in support of the alleged fiduciary duties owed by D to P are pleaded in ASOC §23.  In my view, these facts would not be sufficient to give rise to the fiduciary duties alleged by P.

174.I have raised the following scenario with counsel and invited counsel to make submissions on the matter:

(1)  A solicitor employed by a law firm (“the employee”)  would have an interest in the success of the firm.

(2)  However, the employee would have no control over the management of the firm, and would have no access to information about the business of the firm.

(3)  The partners of the firm would be in control of the firm at all times.

The aforesaid scenario would meet all the conditions set out in ASOC §23.  However, no one would say that the partners of the firm would owe any fiduciary duty to the employee in this scenario.  P is unable to provide a satisfactory answer to the question posed by the court.

175.With respect, in my view, there is no merit in P’s alternative case.  As submitted by Mr Shieh, the matters pleaded in ASOC §23 would also exist in a creditor/debtor relationship.  If P is right, fiduciary duties would invariably be owed by, for example, creditor to debtor, employer to employee, and controlling majority shareholder to non-controlling minority shareholder.  This is far-fetched and cannot be right.

176.Mr Corlett submitted that a fiduciary relationship between P and D existed because P had reposed trust and confidence on D as a matter of substance.  In my judgment, based upon the pleadings and the evidence, this point is not open to P.

(1)  The allegation that P had “reposed trust and confidence” on D has not been pleaded by P.  As said in the above, all the material facts in support of the alleged fiduciary duties have been pleaded in ASOC §23.  Plainly, there is no plea alleging that at any time, P reposed trust and confidence on D.  In the absence of this plea, P is not entitled to raise the point for the first time in the final submissions.

(2)  Further, in P’s evidence, there is no allegation that P had reposed trust and confidence on D at any time.  Such an allegation was also not put to D in cross-examination.

(3)  Without prejudice to the above, as submitted by Mr Shieh, fiduciary relationship does not arise simply because trust and confidence is reposed by one person on another.  In Kao Lee & Yip v Koo Hoi Yan Donald[26], Ma J (as he then was)  said that the essence of a fiduciary relationship is one of trust and confidence between the fiduciary and the beneficiary, and that some relationships have traditionally always been regarded as giving rise to a fiduciary relationship.  As rightly pointed out by Mr Shieh, Ma J did not suggest that a fiduciary relationship would exist simply because “trust and confidence” is reposed by one person on another.  Similarly, none of the examples of fiduciary relationships mentioned by Ribeiro PJ in Libertarian Investments Ltd v Hall[27] were said to arise simply out of “trust and confidence”, without anything more.

(4)  P is unable to derive any assistance from what Ribeiro PJ said at §108 of Libertarian. In that passage, Ribeiro PJ was merely saying that there need not be subjective intention to create a trust.  That passage cannot be interpreted as saying that there need not be actual subjective reposing of trust and confidence to give rise to a fiduciary relationship in the “joint venture” context in P’s alternative case.  As explained by Nugee J in Glenn v Watson[28], what is “meant by a relationship of trust and confidence in this context is where one party places himself, or is placed, in the position where he trusts and confides that the other party will act exclusively in the first party’s interests” (Emphasis added).

(5)  In the absence of any evidence showing that P had reposed trust and confidence on D at any time, the point made by Mr Corlett in his final submissions, with respect, cannot succeed in any event.

177.In my judgment, the relationship between P and D created by the ELL Agreement is merely a creditor/debtor relationship.  The fiduciary duties as alleged by P does not arise from this relationship.

G3.  Issue 3

178.Based upon the evidence accepted by the court, I find that D was made aware of the Listing Potential in the 2 Nov 2009 Meeting by TL for the first time.

179.P has put forward an alternative argument that even if the Listing Potential was mentioned in the 2 Nov 2009 Meeting for the first time, D must have already known of the same before the meeting, and simply remained silent at the meeting.  This argument is based upon D’s past experience in IPOs, the relaxation of the listing rules in 2008, and there is nothing overly technical or difficult in merger accounting.

180.As mentioned in the above, in order to have a successful listing, it would be necessary to merge the business of ACCF and the business of Special Assets.  There is no evidence showing that by D’s own experience and training, it would be obvious to D that merging the businesses of ACCF and Special Assets is something feasible.  Based upon the evidence before the court, merger accounting is not something that is as simple as just adding the financial figures of two companies together.

(1)  TL explained that whether it is possible to have merger accounting of the profits of two companies depends on whether they are considered to be under common control, which is a “technical issue” that required the input of a specialist such as AC.

(2)  AC explained that even if it is possible to consolidate the two sets of accounts belonging to the two companies, the actual consolidation of the two sets of accounts is not as simple as just adding the figures in the accounts together.  Instead, various transactions would have to be considered and adjustments would have to be made to cater for, inter alia, transactions between the two companies and different accounting policies that may have been adopted by the two companies.

181.In my judgment, there is insufficient evidence in support of P’s contention that D himself must have been aware of the Listing Potential before the 2 Nov 2009 Meeting.

182.Having considered the evidence and the submissions, I find that:

(1)  On or about 20 October 2009, the Combined Business had the Listing Potential.  However, at that time, D was unaware of the Listing Potential.

(2)  On or about 20 October 2009, D was not yet aware of the Listing Potential.  At that time, D did not have the Listing Plan.

G4.  Issue 4

183.On or about 20 October 2009, when D made a payment of HK$3.5 million to P to repay the Loan, D was not aware of the Listing Potential and did not have the Listing Plan.  Accordingly, it cannot be said that the Listing Potential, or the Listing Plan, was dishonestly withheld by D from P at that time.

184.Bearing in mind the principles as set out in §§45 and 46 above, the evidence in this case is far from sufficient for proving that D has dishonestly withheld the Listing Potential or the Listing Plan from P on or around 20 October 2009 or at an earlier time.

G5.  Issue 5

185.Since I have ruled against P on the aforesaid issues, issue 5 simply does not arise.  As a matter of completeness, if issue 5 is still relevant, since I have refused to accept P’s evidence, there is no evidence in support of an answer favourable to P in relation to issue 5.  Insofar as may be necessary, this is a further reason for dismissing P’s claim. 

G6.  Conclusion

186.As a result of the above, P’s claim against D must fail.  I would dismiss P’s claim.

H.  DISPOSITION

187.I dismiss P’s claim.

188.Counsel have agreed that costs should follow the event.  In the circumstances, I order that costs of these proceedings (including costs reserved)  be to D, with a certificate for two counsel (covering the fees of senior counsel and the fees of senior junior counsel), to be taxed if not agreed.

189.Lastly, it remains for me to thank all counsel for the helpful assistance rendered to the Court.

Mr Marc Corlett and Mr Raymond Chu, instructed by David Lo & Partners, for the Plaintiff  

Mr Paul Shieh, SC leading Ms Elizabeth Cheung and Mr Edward Tsui, instructed by Morgan, Lewis & Bockius, for the Defendant