Yip James v. Li Ching Ping Vincent
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HCA 1573/2022 [2026] HKCFI 5356 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1573 OF 2022 _____________ BETWEEN
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_____________ JUDGMENT _____________ 1.Introduction 1.1In these proceeding, the Plaintiff (“P”) seeks to establish that (1) he has since February 2016 become the beneficial owner of 5% of the issued share capital (“P’s Portion”) of Sunline Prosticks Financial Solutions Limited (“Prosticks”) and (2) such shares are held by the Defendant (“D”) on trust for him (“Alleged Trust”). It is P’s case that, despite demands made since October 2020, D has refused to transfer P’s Portion back to him. 1.2Prior to 16 August 2022, D was the holder of 20% of the issued share capital of Prosticks (“Subject Shares”). It is P’s case that the Subject Shares included P’s Portion. Pursuant to a settlement agreement dated 29 July 2022 (“Settlement Agreement”) between D and Sunline Holding (HK) Limited (“Sunline HK”), D sold and Sunline HK acquired the Subject Shares for HK$18,000,000 (“Disposition”). 1.3It is P’s case that D has breached the Alleged Trust, in that the Disposition (which included P’s Portion) was effected by D without P’s knowledge and consent. Were P to succeed on liability, P seeks equitable compensation quantified by reference to the terms of the Settlement Agreement. 1.4D denies the existence of the Alleged Trust. 1.5At the trial, P was represented by Mr Vincent Chiu of counsel and D appeared in person. 2.Core undisputed facts 2.1In addition to P and D, the other protagonists include Mr Felton Lau (“Felton”) and Shenzhen Sunline Tech Company Limited (“Shenzhen Sunline”), a company listed on the Shenzhen Stock Exchange. Sunline HK is and was at all material times a wholly-owned subsidiary of Shenzhen Sunline. 2.2The matters stated in this section are either undisputed or indisputable by reference to the documentary evidence. 2.3P and D met in late 1970s or 1980s and were, prior to the present dispute, good friends for around 40 years. Although not entirely clear as to the duration, it is D’s evidence that at the material time (around late 2014 to mid 2015), he and Felton were also good friends. 2.4P worked in the finance industry for over 40 years. At the material time, both Felton and he were employed by Chong Hing Bank (“CHB”), the former as Chief Executive Officer and the latter as Senior Advisor. Prior to joining CHB in 2014, P was a director and the Head of Financial Markets Group of Fubon Bank Hong Kong Limited (“Fubon”). In 2015, D was a director and the sole shareholder of Prosticks. Prosticks was engaged in the business of production, development and distribution of computer software for financial institutions in Hong Kong. 2.5In late 2014 or early 2015, D was looking for potential investors who might have an interest in acquiring Prosticks. Through Felton and P, D was introduced to Shenzhen Sunline in around mid 2015. As shown in the contemporaneous documents, Felton and P were also involved in the negotiation process. 2.6Eventually, on 7 January 2016, Shenzhen Sunline (as purchaser) and D (as seller) entered into a Conditional Sale and Purchase Agreement (附條件生效的股份收購協議) (“CS&P”) in respect of 80% of the issued share capital of Prosticks (“Sale Shares”) at the consideration of HK$64,000,000 (“Consideration”). Under the terms of the CS&P, the purchaser included Shenzhen Sunline or its designated entity. Subsequently, by a supplemental agreement, Sunline HK was designated to be the transferee of the Sale Shares. 2.7Clause 9.6(2) of the CS&P expressly provides that, upon completion, D was the holder of the Subject Shares (ie 20%). However, a provision was made in respect of part of the Subject Shares, namely 5% of the issued share capital was reserved for Prostick’s employees as incentive:
2.8The sale and purchase of the Sale Shares under the CS&P was completed on 17 February 2016 (“Completion”). 2.9On 30 December 2021, D presented a winding-up petition against Prosticks and Sunline HK (HCCW 492/2021). As set out in the recitals of the Settlement Agreement: (1) Sunline HK and D were respectively the 80% and 20% shareholder of Prosticks and (2) D commenced HCCW 492/2021 for an order for buy-out or alternatively the winding-up of Prosticks. 2.10As noted above, the Settlement Agreement was entered into on 29 July 2022 and the transfer of the Subject Shares pursuant to the Settlement Agreement was completed on 16 August 2022. 2.11Whilst the above core facts are either undisputed or indisputable, the parties have advanced diametrically opposite factual cases on the Alleged Trust. 3.P’s pleaded case on the Alleged Trust 3.1P’s pleaded case on the Alleged Trust is as follows. 3.2In early 2015, Felton introduced Mr Wang Chang Chun (“Mr Wang”), the founder and chairman of Shenzhen Sunline, to P. It was made known to P by Felton and Mr Wang that Shenzhen Sunline was interested in acquiring technology companies in Hong Kong and Mr Wang intimated that he would require the assistance of Felton and P in introducing potential acquisition targets. 3.3In around May or June 2015, P presented D with the opportunity of selling Prosticks to Shenzhen Sunline. D expressed his interest in the opportunity. 3.4At a dinner meeting in mid 2015 in Shenzhen attended by Mr Wang, Felton and P:
3.5Pausing here, I should explain how the HK$50,000,000 contained in the Shenzhen Sunline Proposal relates to the Consideration (ie HK$64,000,000) set out in the CS&P. In gist, there was a loan owed by D to Prosticks in the sum of HK$14,000,000. Under the terms of the CS&P, D was required to repay the loan to Prosticks. At the trial, it was accepted by the parties that the difference was effectively an adjustment, but in substance the Shenzhen Sunline’s net “outlay” was HK$50,000,000. 3.6It was P’s understanding that he and Felton were designated to each take up 5% of the issued share capital of Prosticks as Shenzhen Sunline would like to have their assistance in acquiring other related businesses in Asia and in taking such businesses (together with Prosticks) for listing in the future. By granting 5% interest in Prosticks each to Felton and P, Shenzhen Sunline could ensure that both Felton and P would remain interested in rendering such assistance to Shenzhen Sunline. The foregoing is pleaded at Statement of Claim §15. At the trial, Mr Chiu emphasized that, properly read, the foregoing was not a condition which needed to be fulfilled before P acquired his beneficial interest in P’s Portion. 3.7Thereafter, Felton and P reported the Shenzhen Sunline Proposal to D in Hong Kong. D agreed to and accepted the Shenzhen Sunline Proposal and it was thereupon further commonly understood and agreed amongst D, Felton and P that the 2nd Condition would be modified (“Modified 2nd Condition”) such that D would hold the 5% issued share capital of Prosticks respectively designated to P (ie P’s Portion) and Felton (“Felton’s Portion”) on trust for P (ie the Alleged Trust) and Felton as the case may be and would transfer the same upon demand (“Modified Shenzhen Sunline Proposal”). 3.8Shortly after D’s acceptance of the Modified Shenzhen Sunline Proposal (with the Modified 2nd Condition), P and Felton reported D’s acceptance of the Modified Shenzhen Sunline Proposal to Mr Wang at a dinner in Shenzhen to which Mr Wang (for and on behalf of Shenzhen Sunline) agreed. 3.9It was in the above circumstances that a common understanding was formed amongst Shenzhen Sunline, D, Felton and P in respect of Shenzhen Sunline’s acquisition of Prosticks (“Alleged Quadripartite Common Understanding”). 4.D’s pleaded case on the Alleged Trust 4.1D’s Amended Defence was filed at the time when he was still legally represented. On a very high level of generality, it is D’s pleaded case that:
5.The evidence 5.1The disputes relating to the existence of Alleged Quadripartite Common Understanding and the Alleged Trust are quintessentially factual disputes. P and D gave evidence. Where the Alleged Quadripartite Common Understanding also involved Felton and Shenzhen Sunline, they did not come forward to give evidence. (i) P’s evidence 5.2P has filed two witness statements. Read fairly, the gist of his evidence, including the evidence given at trial on the contentious issue of the Alleged Trust may be summarized as follows. 5.3Whilst the timing of the Shenzhen Sunline Proposal is pleaded with some imprecision at Statement of Claim §14 (ie mid-2015), P supplemented in his oral evidence that it was made on 8 June 2015. Similarly, whilst the timing of D’s agreement to the Modified Shenzhen Sunline Proposal is pleaded with some imprecision at Statement of Claim §16 (ie after the meeting referred to at Statement of Claim §14), he supplemented in his oral evidence that D agreed to the Modified Shenzhen Sunline Proposal on 9 June 2015. 5.4Condition 2 of the Shenzhen Sunline Proposal was modified because (1) Fubon had been a major client of Prosticks since 2000 and P considered that it best if he could avoid holding Prosticks’ shares on paper within a short time after leaving Fubon (§2.4 above) and (2) Felton had similar considerations since CHB had ongoing dealings with Shenzhen Sunline. 5.5In cross-examination, P accepted that he received HK$5,000,000 from D as commission after Completion, from which he paid HK$1,000,000 to Felton (although D suggested HK$1,500,000 was paid). 5.6P denies the existence of the Alleged D’s Promise as it was commercially unreasonable for him to agree to a condition that Prosticks be listed within a short period of 5 years before he could enjoy his interest in the 5% shareholding in Prosticks. 5.7The Alleged Trust came into existence since Completion in accordance with the Alleged Quadripartite Common Understanding. 5.8Following Completion, at the invitation of Mr Wang, P agreed to act as the Chairman of Sunline HK from March 2016 onwards without any remuneration. He resigned in November 2016 and his resignation was accepted by Shenzhen Sunline. During his tenure, he (1) had general oversight over the operation and business of Sunline HK and Prosticks, (2) established processes, procedures and accounting practices for Sunline HK and its subsidiaries and (3) helmed the process of expansion of Sunline HK’s business into Malaysia through the acquisition of a software company in Malaysia. 5.9P relied on the following matters to demonstrate D’s acknowledgment of his beneficial interest in P’s Portion:
5.10On various occasions, specifically at a lunch on 22 October 2020, P requested D to transfer to him P’s Portion. D refused and sent the following message to P:
5.11After P found out about the Settlement Agreement, on 19 August 2022, he instructed his solicitors to issue a letter to D to demand for an account of the income derived from D’s sale of the Subject Shares. No reply was received from D. (ii) D’s evidence 5.12D has filed two witness statements. 5.13In his first witness statement, D denies the existence of the Shenzhen Sunline Proposal, whether in its original or modified form. He pointed out that the terms of the proposal are inconsistent with the public announcements made by Shenzhen Sunline on 8 January and 25 February 2016 (“Announcements”) in which it was expressly stated that Shenzhen Sunline only acquired 80% (instead of 95%) of Prosticks. 5.14D also pointed out that he had personally rewarded P “a handsome amount for his assistance in the acquisition shortly after Completion.” 5.15D confirmed his case on the Alleged D’s Promise. 5.16Whilst D admitted to executing the 2016 Will, he explained that he was at that time in ill-health and was suffering from anxiety. He said that the 10% shareholding of Prosticks mentioned therein included P’s shareholding pursuant to the Alleged D’s Promise and the 5% reserved for the employees’ incentives under the terms of the CS&P. He admitted that agreeing to P’s suggestion to execute the 2016 Will was not, in hindsight, the most appropriate thing to do. 5.17In cross-examination:
6.Analysis 6.1The principles applicable to the court’s fact-finding exercise and assessment of credibility are established. In gist, the credibility of a witness should be assessed by reference to contemporaneous documentation where it exists, as well as inherent probabilities having regard to all the facts that are known. It is also important to bear in mind the internal consistency of the evidence of a witness, which is often tested by a comparison between the oral testimony of the witness on the one hand and his witness statement and pleadings on the other: Hui Cheung Fai v Daiwa Development Ltd, HCA 1734/2009, 8 April 2014 §§77-82. 6.2Where, as here, the Alleged Trust and the Alleged Quadripartite Common Understanding were reached orally, Moorthy Selvaraj v Kaprupayee Ammal [2024] HKCFI 403 §13 is an authority for the following propositions:
6.3Whilst I note P’s reliance on the documentary evidence set out at §5.9 above as corroborating evidence, it seems to me that the observations set out in Moorthy are still apposite. The documentary evidence relied on by P came into existence well after the Alleged Trust and the Alleged Quadripartite Common Understanding. In contrast, as will be seen below, there were WhatsApp exchanges between P and D on both 8 and 9 June 2015 and they make no mention of the terms of either the Alleged Trust or the Alleged Quadripartite Common Understanding. 6.4Mr Chiu has also referred me to Sun Heng v Te Teng [2026] HKCFI 604 in which the following observations are made:
6.5Before I set out my analysis of the evidence, I should point out that D had already mentioned in his supplemental witness statement that, due to his health conditions and the lapse of time, he may have forgotten certain details or specific incidents and he was cross examined by Mr Chiu on that basis. D was already in his late 70s and, having observed D at the trial, it was quite plain that there were occasions that he struggled to remain lucid and he did exhibit signs of ill health. 6.6For the following reasons, I am of the view that, on the balance of probabilities, the Alleged Trust and the Alleged Quadripartite Common Understanding did not exist. 6.7First, not only do the contemporaneous WhatApp exchanges not mention the Alleged Trust or the Alleged Quadripartite Common Understanding, they appear to be inconsistent with their existence. As mentioned above, P supplemented in his oral evidence that the Shenzhen Sunline Proposal was made at a dinner on 8 June 2015. The following WhatsApp exchanges took place between P and D:
6.8Secondly, as mentioned above, the terms of the Alleged Quadripartite Common Understanding is inconsistent with the Announcements. When cross-examined, P said that the Shenzhen Sunline Proposal divided up the transaction into two parts, namely HK$50,000,000 for 80% in Prosticks as the first part (being the transaction as between the companies) and the second part being the splitting up of the remaining 20% to be held by D. I do not accept P’s explanation. As already set out above, Statement of Claim §14.1 and 14.2 expressly plead that Shenzhen Sunline would acquire 95% of the issued share capital of Prosticks for HK$50,000,000 but would in its own name only take up 80% and the pleaded case is confirmed at P’s witness statement §13. 6.9Thirdly, the terms of the Shenzhen Sunline Proposal are inconsistent with the terms of the CS&P. Whilst Condition 3 stipulated that the operation of the employees’ incentive scheme was at the direction of Shenzhen Sunline (§3.4(2)(c) above), Clause 9.6(2) of the CS&P provides otherwise (§2.7 above), namely the scheme was to be operated in D’s sole discretion. 6.10Fourthly, where it is P’s case that Shenzhen Sunline was a party to the Alleged Quadripartite Common Understanding, there is no commercial reason for Shenzhen Sunline to have agreed to the inclusion of an entire agreement clause in the CS&P. Mr Chiu submits that the entire agreement clause does not bind P because P was not a party to the CS&P. But his submission misses the obvious forensic point, as the inclusion of the entire agreement clause would have adverse consequences for Shenzhen Sunline were the Alleged Quadripartite Common Understanding true, as evidenced by the terms of the Settlement Agreement. 6.11Fifthly and related to the observation immediate above, it cannot be overly emphasized that, pursuant to the terms of the Alleged Quadripartite Common Understanding, Shenzhen Sunline had upon Completion already become the owner of 95% of Prosticks’ shares, 15% of which was then designated to be held by D for P, Felton and the employees. Were this to be the case, there seems to me to be no commercial reasons for Sunline HK to pay HK$18,000,000 to D to acquire the Subject Shares under the Settlement Agreement. It is pertinent to note that, under the express terms of the Settlement Agreement (Clause 1.1 thereof), D was acknowledged to be the legal and beneficial owner of the Subject Shares, which acknowledgment contradicts the Alleged Quadripartite Common Understanding. Using simple arithmetic, at the time of Completion, the Subject Shares were worth approximately HK$10.5 million[1] on a pro rata basis. Having already paid a substantial price for the majority of the Subject Shares, there is no apparent reason why Shenzhen Sunline (or Sunline HK) would pay an additional HK$18,000,000 to acquire the Subject Shares. No one from Shenzhen Sunline or Sunline HK has come forward to explain the foregoing and Mr Chiu’s submission that the sum of HK$18,000,000 was paid to get rid of the “litigation nuisance” is, it seems to me, entirely speculative. It is against the foregoing that I think only limited weight should be placed on the December 2021 Message. 6.12Sixthly, I do not regard the 2016 Will as having any material adverse effect on D’s defence. One needs to bear in mind that the 2016 Will was executed in June 2016, in the midst of P acting as Chairman of Sunline HK. By that time, any concern that gave rise to the modification of the 2nd Condition, ie P’s consideration that he should maintain a distance from Prosticks was no longer relevant given that he was already the Chairman of Sunline HK. It was open to (and indeed natural for) P to ask for the transfer of P’s Portion in June 2016. It is also notable that P became the Chairman of Sunline HK at the invitation of Mr Wang. It was therefore also natural for Mr Wang to ask D to transfer P’s Portion to P as, on P’s case, P’s Portion was the incentive for P to “remain interested in rendering assistance to Shenzhen Sunline”. There is no suggestion that Mr Wang did so. As such, the fact that P asked D to prepare the 2016 Will suggests that, on P’s own view, he was not immediately entitled to P’s Portion. I therefore do not agree that the lack of reference to the Alleged Listing Condition in the 2016 Will has a decimating effect on D’s case (as P contends). 6.13Seventhly, it is common ground that some arrangement was made in respect of P’s Portion and a common theme in either side’s version is the potential listing of Prosticks (ie the purpose of the incentive stated in the Shenzhen Sunline Proposal and the Alleged Listing Condition in the Alleged P’s Promise). I do not find that it was improbable, as P contends, that P would have agreed to the Alleged Listing Condition. 6.14Eighthly, I have taken into account the lack of proper explanation by D of the January 2017 Message, especially Mr Chiu’s astute forensic point that the timing of the message was after P had resigned as Chairman of Sunline HK, thereby militating against the Alleged Listing Condition. However, on the totality of the evidence, it seems to me that the January 2017 Message does not outweigh the factors identified above. In any event, even if P was no longer the Chairman of Sunline HK, that did not mean that P could no longer assist in the potential listing of Prosticks. 6.15For the above reasons, I find, on the balance of probabilities, against the existence of the Alleged Trust and the Alleged Quadripartite Common Understanding. 6.16For avoidance of doubt, in reaching the above conclusion, I have taken into account Mr Chiu’s criticisms that D had advanced a number of unpleaded defences, for example (1) the admitted payment of HK$5,000,000 by way of commission covered all compensation to which P was entitled and (2) P’s entitlement to P’s Portion was contingent upon Shenzhen Sunline continuing to operate Prosticks. As a matter of pleading, Mr Chiu is no doubt correct. But as a matter of credibility, I do not believe the identified departures from D’s pleaded case (prepared with the assistance of legal advisers) at trial (when D was acting in person and obviously affected by health conditions) has a serious adverse effect because (1) the commission payment is admitted and in fact not addressed at all by P in his witness statements even though it was raised (although the precise amount was not stated) at D’s witness statement §28 and (2) the allegation that Shenzhen Sunline had stopped running Prosticks and “was murdered” was already raised in D’s WhatsApp message dated 27 June 2021 when the parties’ relationship broke down. 6.17I have also considered the passages in D's cross-examination relied upon by Mr Chiu, in particular D's evidence that "當大家友好嗰時就有呢個安排", which Mr Chiu contends as amounting to an admission of the Alleged Quadripartite Common Understanding. I do not regard D’s evidence as carrying the significance contended for by P, as there were also other instances in cross-examination where D flatly denied the Alleged Quadripartite Common Understanding. Considered fairly and in context, D's answers were equivocal. At their highest, those answers suggest that D considered himself to have made some form of arrangement arising out of the parties' friendship. They fall well short of establishing the specific Alleged Quadripartite Common Understanding and the Alleged Trust said to have arisen therefrom. In any event, the part of D’s evidence which Mr Chiu relies upon has to be considered against the totality of the evidence, in particular the countervailing documentary evidence set out above. I repeat the observations made in Moorthy set out at §6.2 above. 6.18Were I wrong on the issue of liability, I would have assessed P’s claim for equitable compensation by reference to the terms of the Settlement Agreement in the sum of HK$4,693,914.58 made up as follows:
7.Conclusion 7.1P’s claim is dismissed. 7.2I further make a costs order nisi that P is to pay to D the costs of the action (including any costs reserved), to be taxed if not agreed.
Mr Vincent CHIU, instructed by Messrs V Hau & Chow, for the Plaintiff LI Ching Ping Vincent, acting in person |
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