庄跃进 and Others v. 白平
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DCCJ 324/2025 [2026] HKDC 1812 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 324 OF 2025 --------------------------------------- BETWEEN
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------------------------ DECISION ------------------------ Introduction 1.The Plaintiffs claim to be beneficial owners of certain shares in Joystar (Hong Kong) Holdings Limited (“Company”) and that the Defendant holds such shares for them as trustee. They seek declaratory reliefs to that effect and seek an order for the Defendant to execute all necessary documents to have such shares transferred to them. 2.In default of the Defendant’s filing of an acknowledgment of service, and pursuant to the Plaintiffs’ application, DDJ Gekko Lan granted a default judgment against the Defendant on 23 April 2026 (see [2026] HKDC 673). 3.This is the hearing of the Defendant’s summons dated 7 May 2026, where the Defendant applies to set aside the default judgment and to stay the execution of the judgment pending the substantive determination of the setting aside application. 4.Prior to this hearing, the Defendant applied for and obtained an interim-interim stay of the judgment up to the date of this hearing before DDJ Lee Siu Him on 18 June 2026 (see [2026] HKDC 1100). 5.At the hearing, with no objection from the Plaintiffs, I extended the interim-interim stay until the date of this decision, such that the parties could focus on arguing the setting aside application, for which I now give my decision. Factual Background 6.DDJ Gekko Lan and DDJ Lee Siu Him have in their judgments set out the relevant background facts in detail, which I shall gratefully adopt and supplement as follows. 7.The 1st Plaintiff invited the Defendant to assist him in managing certain businesses to be carried out via a company. A consensus and common intention were formed between them to the effect that:-
8.On the basis of the above, the Company was incorporated in 2004, with the 1st Plaintiff and the Defendant becoming the two subscribers holding 9,900 (99%) and 100 (1%) shares respectively, and the directors of the Company. The costs for setting up the Company and the paid-up capital in the sum of HK$10,000 were paid by the 1st Plaintiff. 9.In or about 2006, the 1st Plaintiff commenced two businesses in the Chinese Mainland, each to be run under a new subsidiary company incorporated in the Chinese Mainland, namely 亿安(厦门)无纺布有限公司 and 裕兴通(厦门)汽车内饰材料有限公司 (“Subsidiaries”), which were wholly owned by the Company. In order for the Subsidiaries to be treated as wholly foreign-owned enterprises in the Chinese Mainland (“WFOE”), the entire shareholding of the Company had to be held by Hong Kong or foreign residents. 10.As the 1st Plaintiff was not a Hong Kong or foreign resident, he intended to transfer all his shares in the Company to the Defendant, who was then, and remains, a Hong Kong resident, in order to comply with the WFOE requirements. 11.In or about June 2006, upon the 1st Plaintiff’s invitation, eight other investors (namely the 2nd to 6th Plaintiffs herein plus three others, collectively referred to as “Investors”) agreed to invest in the Company. By a written confirmation (“2006 Confirmation”) dated 6 June 2006, the 1st Plaintiff, the Defendant, the Investors, the Company and the Subsidiaries confirmed that the change in registered shareholders in the Company was to comply with the WFOE requirements, and that the shareholding would be changed in due course to reflect the actual beneficial ownership of the 1st Plaintiff and the Investors in the Company and the Subsidiaries as follows:-
12.Pursuant to the 2006 Confirmation, on 15 June 2006, the 1st Plaintiff transferred his 9,900 shares in the Company to the Defendant, who then became its sole registered shareholder. On 4 February 2010, the 1st Plaintiff resigned as a director of the Company, leaving the Defendant as its sole director since that date. 13.In 2007, another Hong Kong company named United Winway Enterprise Limited (“United Winway”) was set up. It was intended to become the holding company of the Company, but this plan did not materialise. On 10 February 2008, the 1st Plaintiff, the Investors, the Defendant’s sister-in-law (黃小紅, “Madam Wong”) signed another confirmation to record the shareholding structure of United Winway (“2008 Confirmation”), which corresponds to the shareholding split in the Company, save that D’s Wife and Madam Wong would each hold 12% of the shares in United Winway. In other words, under the 2008 Confirmation, D’s Wife effectively agreed to give 12% of her beneficial shareholding in the Company to her sister Madam Wong. Subsequently, on 13 November 2013, Madam Wong informed other shareholders that she would gift her shares to D’s Wife. Thus, the shareholding split in the Company reverted back to that as recorded in the 2006 Confirmation. 14.The Plaintiffs allege that, in or about 2022, the Defendant acted in breach of his fiduciary duties by, among others, causing the Company to commence proceedings in the Intermediate People’s Court of Zhangzhou City in the Chinese Mainland against the Plaintiffs’ wishes and interests (“Zhangzhou Proceedings”). In gist, the Company sought orders to the effect that the transfer of its 100% shareholding in its subsidiary, 諾奧(福建)環保家居用品有限公司 (“NuoAo”), to another entity was invalid. By a civil judgment dated 27 June 2025, the Changtai District People’s Court of Zhangzhou City dismissed the Company’s claim. The Company’s appeal was heard by the Intermediate People’s Court of Zhangzhou City, and the result is pending. 15.Separately, the 1st Plaintiff brought an action in the Chinese Mainland against the Defendant, seeking among others a declaration that the 2006 Confirmation was valid (“Xiamen Proceedings”). By a civil judgment dated 10 December 2023, the Jimei District People’s Court of Xiamen Municipality declared that the 2006 Confirmation was valid, but did not make any declaratory reliefs to the effect that the Defendant held 65% of the Company’s shareholding for the 1st Plaintiff. By a civil judgment dated 15 March 2024, the Xiamen Intermediate People’s Court of Fujian Province dismissed the Defendant’s appeal. Relevant Principles 16.It is common ground that where a default judgment was obtained regularly, it is incumbent upon a defendant to demonstrate that his defence has a real prospect of success or carries with it some degree of conviction. In this regard:-
See: Fameway Finance Ltd v Joy Rich Development Ltd [2024] HKCFI 2204 at §4.1 per DHCJ Jonathan Wong; 刘跃超 v Tihimi Resources Ltd [2019] HKCFI 2016 at §§3-4 per DHCJ William Wong SC (as the learned Recorder then was). Merits of the Defendant’s Defence 17.The Defendant accepted that the default judgment granted by DDJ Gekko Lan against him was a regular one. On the other hand, there was no complaint about undue delay on the Defendant’s part in making the setting aside application. Hence, the central question to be determined is whether the Defendant can demonstrate that his defence has a real prospect of success or carries with it some degree of conviction. 18.The Defendant does not dispute the existence or validity of the 2006 Confirmation and the fact that by virtue of the 2006 Confirmation he was a bare trustee holding the shares in the Company for the 1st Plaintiff and the Investors. His defence, as detailed in his 1st affirmation, is that the trust arrangement was terminated in early 2010, and the 1st Plaintiff and the Investors directed vesting of the beneficial interest of their shares in the Defendant absolutely. The alleged termination of the trust arrangement came about in the following circumstances:-
19.Mr Timothy Lam, counsel for the Plaintiffs, submitted that where a defendant alleges the existence of an oral agreement to vary the terms of a written document, the threshold onus on the defendant is compounded by the onus to strictly prove such an oral agreement: see Chiyu Banking Corporation Ltd v Garswell Ltd [2026] HKCFI 4339 at §32 per Hon Au-Yeung J. Indeed, in Huang Mucai v Cheng Zhen Shu HCA 1237/2011 (unreported, 17 September 2012), DHCJ Lok (as Hon Lok J then was) said the following at §19:-
20.I agree with Mr Lam that while those two authorities were concerned with summary judgment applications, the said observations apply equally here where the Defendant alleged that there was an oral agreement to vary the written 2006 Confirmation. 21.It is thus incumbent on the Defendant to adduce sufficient evidence to substantiate the alleged oral agreement. However, as can be seen in §18 above, the Defendant could only vaguely say that there was some discussion between him and the 1st Plaintiff. He did not provide any particulars as to when and where the alleged discussion took place, and whether other Investors, who obviously had stakes in the matter, participated in the discussion. This casts serious doubt on the veracity of the alleged oral agreement to terminate the 2006 Confirmation. 22.Worse still, no acceptable reason has been provided by the Defendant as to why he and the other parties did not see it fit to reduce the alleged oral agreement into writing, especially considering the past practice of the parties in setting out their understanding in writing in the 2006 Confirmation and 2008 Confirmation. Strikingly, there is also not a single piece of contemporaneous document which would lend support to the alleged existence of the oral agreement (with one exception, which I shall address below). 23.Furthermore, if the oral agreement had indeed been reached, the Defendant would have been expected to mention it earlier in the Xiamen Proceedings. As stated above, in those proceedings the 1st Plaintiff herein sought a declaration that the 2006 Confirmation was valid. The Defendant would naturally be expected to say in those proceedings that the 2006 Confirmation was already terminated. He apparently did not say so. Rather, as can be seen in the judgment of the Jimei District People’s Court of Xiamen Municipality, the Defendant only took such technical points as lack of jurisdiction and the non-joinder of the Investors in that action. And as can be seen in the judgment of the Xiamen Intermediate People’s Court of Fujian Province, on appeal the Defendant also did not expressly refer to the termination of the 2006 Confirmation; he merely argued that there were changes in the shareholding structure of the Company and the subsidiaries. 24.Mr Tommy Cheung, counsel for the Defendant, submitted that the Chinese Mainland judgments did not give rise to issue estoppel (for the record the Plaintiffs did not say there was any issue estoppel), but he with utmost fairness accepted that those judgments might have bearing on the Defendant’s credibility. I find it incredible that the Defendant would choose not to mention the termination of the 2006 Confirmation if it were the truth. Whether the Defendant can take the matter further in the Chinese Mainland (as he tries to suggest that another appeal mechanism is available) is neither here nor there; what matters is that the Defendant inexplicably failed to mention the alleged termination of the trust when afforded the opportunity to do so. 25.The Defendant’s allegation is also inherently implausible. It amounts to suggesting that the 1st Plaintiff and the Investors agreed to give away for free all their shares and interests in the Company and the Subsidiaries, which Mr Cheung for the Defendant fairly admitted were not worthless. This cannot be explained by the friendly relationship between the 1st Plaintiff and the Defendant, as there exist the Investors with whom even the Defendant does not allege close acquaintance. Furthermore, it is not disputed by the Defendant that at the material time, in recognition of his contribution to the businesses, he was remunerated by the Wuxi Group even though he ceased to have any substantive involvement in its business after 2014. So there was no good commercial reason for the 1st Plaintiff and the Investors to additionally gift their shares in the Company to the Defendant. 26.More importantly, various documents pertaining to the operation of the Company in or after 2010 contradict the Defendant’s alleged termination of the 2006 Confirmation. For instance:-
27.Mr Cheung for the Defendant argued that the 1st Plaintiff was merely authorized by the Company to enter into the above agreements (which, however, would undermine the Defendant’s own suggestion of a clean break between himself and the 1st Plaintiff), but as Mr Lam for the Plaintiffs rightly pointed out, this cannot explain why it was stated in the agreement dated 23 July 2010 that the 1st Plaintiff and others were the shareholders of the Company. 28.There is another piece of document contradicting the Defendant’s case. On 16 July 2014, Madam Wong (ie the Defendant’s sister-in-law) sent an email to the 1st Plaintiff to demand the repayment of some loans, and in the email, Madam Wong referred the 1st Plaintiff as the majority shareholder and ultimate controller of the Company and its subsidiaries (ie the Subsidiaries and NuoAo). She also said that the Defendant merely registered the Company in Hong Kong for the 1st Plaintiff to obtain preferential tax treatment. The Defendant submitted that Madam Wong may not know about the termination of the 2006 Confirmation. I find this suggestion incredible, as Madam Wong herself was a party to the 2008 Confirmation, and as noted above, on as late as 13 November 2013 she still held out herself as a shareholder of United Winway (which should correspond to her interest in the Company). This is not to mention that the Defendant has not asked Madam Wong to file any affirmation to explain away her email. 29.The only documentary evidence that might lend support to the Defendant’s case is the prospectus issued by the Listed Co on 21 September 2010 when the Listed Co applied to have its shares listed on the GEM Board. The prospectus stated that the Company was wholly owned by the Defendant in the following terms:-
30.In gist, it was not only stated that the Defendant was the sole shareholder of the Company, but it was also impliedly suggested that other directors of the Listed Co (including the 1st Plaintiff) had no interest in the Company. The Defendant places heavy reliance on the prospectus and submits that it is most unlikely for the 1st Plaintiff to lie to the regulatory authorities about the shareholding and ownership status of the Company, as such fraudulent statements may constitute the commitment of criminal offences. 31.In response, the 1st Plaintiff has effectively admitted that the aforesaid statement in the prospectus was untrue. He said the following in his 2nd affirmation:-
32.Indeed, in his oral submissions, Mr Lam for the Plaintiffs acknowledged that that “at least to some extent, better disclosure could have been made” by the Listed Co. 33.Notwithstanding the said statement in the prospectus, the fact remains that the Defendant could only give scant particulars on the alleged termination of the 2006 Confirmation and that other contemporaneous documents contradict his claim. Considering all the evidence in the round, I come to the firm view that the 2006 Confirmation has not been terminated as alleged by the Defendant, and as a result of that the aforesaid statement in the prospectus is untrue. In this connection, I note with regret that the Listed Co, with the 1st Plaintiff as the chairman, has apparently misled the Hong Kong Stock Exchange, other regulators and the public investors by failing to disclose in the prospectus the true ownership structure of the Company. 34.Be that as it may, I accept Mr Lam’s submission that even though the prospectus has failed to reveal the true position of the shareholding in the Company, in light of other evidence which overwhelmingly contradicts the Defendant’s case, it does not follow that the Defendant’s defence has a real prospect of success. Relatedly, while I agree with Mr Cheung that the Plaintiffs should have adduced the prospectus and drawn DDJ Gekko Lan’s attention to it when they applied for default judgment, eventually the prospectus does not militate against the Plaintiffs’ case and Mr Cheung’s complaint of material non-disclosure falls away. 35.All in all, I consider that the Defendant has failed to demonstrate that his defence has a real prospect of success or carries with it some degree of conviction. Disposition 36.For the aforesaid reasons, I dismiss the Defendant’s summons dated 7 May 2026 entirely, including the setting aside and the stay applications. I make an order nisi that the Defendant do pay the Plaintiffs’ costs of and incidental to the summons and all costs reserved (including the costs reserved by DDJ Lee Siu Him), to be taxed if not agreed with certificate for counsel.
Mr Timothy Lam, instructed by Guantao & Chow Solicitors and Notaries for the Plaintiffs Mr Tommy Cheung, instructed by Chiu, Szeto & Cheng for the Defendant | ||||||||||||||||||||||||||||||||||
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