Chan Hak Lok, Clark v. Chan Hak Kong, Danny and Another

HCA005332A/1986

1986, No. A5332

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon. Liu, J. in Court

Dates of hearing: 4th-8th, 11th-15th, 18th-20th May 1987

Date of delivery of judgment: 20th May 1987

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JUDGMENT

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1. The 1st defendant and the plaintiff are brothers. The plaintiff is junior to the lst defendant. From November 1982 to March 1984, the plaintiff was absent from this territory. In that period of absence, the younger brother gained the status of a Canadian investor immigrant on account of his disclosed sizeable assets. The possessions of the younger brother were summarized in his evidence. The younger brother, enjoyed a comfortable finance base. At the end of 1982, there was a need for the elder brother to be rescued from debtor's prison by the plaintiff then in Canada with over $300,000. The plaintiff returned in March 1984. He left Hong Kong for a short spell between February/May in 1985 on account of some alleged unsavoury entanglement with the Canadian Immigration. This allegation, the plaintiff denies.

2. After the plaintiff's return in 1984, he was drawn to the 1st defendant's scheme to float an airline business. Three companies were thereafter involved, namely the Oriental Pearl Airways, the Wayonet Enterprises Limited and the Takasor Investment Limited. I shall call them OPA, Wayonet and Takasor respectively.

3. 55% majority shareholdings in OPA were bought from one Mr. Fujiwara and the calls made on two allotments in the same company were paid. Today these purchased and allotted shares stand at 61.5% of the total issued capital in OPA.

4. For different reasons given by the plaintiff and the 1st defendant Wayonet was acquired. The two subscribers' shares in Wayonet were transferred to the plaintiff and the 1st defendant respectively. There was a resolution passed at an Extraordinary General Meeting in January 1985 for increasing its $10,000 capital to $1,000,000. This resolution was cancelled or revoked on the 1st February 1985. The shareholdings in Wayonet are said to be held as to 30% by the plaintiff and as to the remainings 70% by the 1st defendant. Two nominees were subsequently put up for holding the shareholdings in the same ratio. These nominees were the 2nd defendant and a man by the name of Patrick Chan. However involved the dispute between the plaintiff and the 1st defendant is, the 2nd defendant has settled with the plaintiff and agreed to transfer all the shares to him against an indemnity.

5. Again for different reasons advanced by the plaintiff and the 1st defendant, Takasor, an existing company controlled by the 1st defendant and the mother of the parties now before me was taken over. Takasor wholly owns Wayonet. As to the shareholdings in Takasor, the same ratio was being followed, that is to say, as to 30% registered in the name of the plaintiff and the remaining 70% in the name of the 1st defendant.

6. That is essentially the background from which the present disagreement between the plaintiff and the 1st defendant arose. As I see it, the primary questions to be answered are: First, who is the beneficial owner of the 61.5% of OPA and secondly, who is the beneficial owner of Takasor which in turn owns 100% of Wayonet. The dispute revolving around Wayonet has, in the circumstances, lost much of its real significance. Almost all the funds touched upon in these proceedings in relation to the three companies admittedly came from the plaintiff in source. In the course of resolving these primary questions, it is also necessary to consider who the actual investor was, at various stages, in each of the three companies.

7. I will deal first with OPA. After the return of the plaintiff to Hong Kong in 1984, the 1st defendant spoke to the plaintiff about a scheme floating an airline business by gaining control of OPA through the majority shareholder Mr. Fujiwara. The 1st defendant claimed that Mr. Fujiwara initially demanded $8 million to $9 million for his majority shareholdings but subsequently reduced it to $4.5 million. There is no conceivable reason why I should reject this part of the evidence of the 1st defendant. In the course of negotiation, $2,000,000 was deposited with a firm of solicitors. The purchase price was ultimately bargained down to $1,000,000 for 24,750 shares representing 55% of OPA. It was paid from such deposit. The acquisition was sometime in November 1984. According to the plaintiff, he agreed to implement and finance the project put up by the 1st defendant. The plaintiff agreed to give the 1st defendant 15%, not just of the majority shareholdings so purchased but of the entire authorised capital of OPA on resumption of flight operation. It was implicit in the relationship between he, the plaintiff and the 1st defendant, so the plaintiff also claimed, that the 1st defendant would receive this 15% only if he served him faithfully and properly in this venture. On these conditions, the gift of 15% was said to be made.

8. Pursuant to this alleged agreement and on those alleged terms, in November 1984, the 1st defendant had transferred to him 6,750 shares representing not just 15% of the bought majority shareholdings of Mr. Fujiwara but 15% of all the then issued share capital of 45,000 shares.

9. According to the plaintiff, after the acquisition virtually everything was left in the hands of the 1st defendant. The minority shareholders were far from being domesticated. They were curious and uncooperative. Finally, the activities of OPA reached the point that it was almost impossible if not difficult to have any further progress. Difficulties were experienced in attempts at taking over or otherwise absorbing the minority interests as originally intended. Allotments of shares were resorted to and put into execution with a view to diluting the minority interest. The 1st allotment was made sometime in January 1985 for an additional $1.1M shares to the plaintiff and the 1st defendant, then in reality representing the plaintiff's interest. On call, the minority shareholders then came up with $900,000 for their 45% share. Thus, the 1st allotment did not succeed in diluting the minority interest. In this first allotment, 8,000 shares went to the plaintiff and 3,000 went to the 1st defendant. Such distribution reflected the 15% promised conditional gift by the plaintiff to the 1st defendant. Of this first allotment, $1.1M of shares, 11,000 shares, were paid for by the plaintiff by two cheques.

10. In the meantime, an application was being made to the Civil Aviation Department for what is known as A.O.C. (Air Operator's Certificate).

11. The plaintiff and the 1st defendant then went about attempting once more to dilute the interests of the minority shareholders in OPA.  A 2nd allotment was made sometime in June 1985. Slightly earlier in time than the 2nd allotment, at an Extraordinary General Meeting, held on the 20th June 1985, a resolution seeking to increase the authorised capital of OPA from $10 million to $20 million was defeated. The 2nd allotment, a few days afterwards, resulted in the issuance of the same quantity of shares in OPA to the plaintiff and the 1st defendant, namely 8,000 to the plaintiff, 3,000 to the 1st defendant. This time, the minority shareholders did not pay for their allotted shares. As a result, the shareholdings of the plaintiff held by himself and allegedly on his behalf by the lst defendant came up to 61.5% from 55%.

12. The plaintiff's case is that he intended to and did pay for this 2nd allotment which was $1.1M. It is common ground that the plaintiff gave the 1st defendant his cheque of $1M for this purpose. This initial sum can be traced to the payment of the 2nd allotment together with another $100,000 from Takasor. The plaintiff claimed that this $1.1M also came from him.

13. It would be helpful to give a chronology of fund movements. At the end of 1984, the plaintiff paid $1M for Mr. Fujiwara's 24,750 shares in OPA. In January 1985, the plaintiff paid another $1.1M for the 1st allotment of OPA.  I have just referred to the $1M cheque of the plaintiff for the 2nd allotment in OPA. From these over $3M, various movements emanated. In March, 1985, $400,000 in two equal sums left OPA for Takasor.   In June, 1985, the plaintiff's $1M for the 2nd allotment in OPA ultimately found its way into Takasor. With the said $400,000, it increased Takasor's capital to $1.5M. Within a few days, $1.1M was returned from Takasor to OPA for its 2nd allotment.  In July, 1985, another $700,000 left OPA for Takasor to increase its capital to $2.2M.

14. The 1st defendant's version is somewhat different. It was claimed that the plaintiff, at his request, permitted him to use this $1M for his own benefit for a few days but that unbeknown to the plaintiff, he invested this $1M in Takasor. According to the 1st defendant, the 1st defendant was invited by the plaintiff to look for an extra $100,000 so that together with the $1M in a cheque so handed over to him, the $1.1M for the 2nd allotment in OPA could be met.

15. With the plaintiff's alleged consent, the 1st defendant banked the plaintiff's $1M cheque into his own account and from his own account he paid it into the account of Takasor. Eventually, $1,1M was taken out from Takasor, I believe, in two cheques. They were paid into the account of OPA to meet the call for the 11,000 shares, totalling $1.1M in the 2nd allotment.

16. As for OPA, there was a Mr. Tse from Thailand, a friend of the plaintiff, who was approached by the Chan brothers with a view to persuading him to invest in and take up half of the OPA shares i.e. 50%. The endeavour with respect to Mr. Tse yielded no fruit. In view of the uncooperative attitude of the minority shareholders, the Chan brothers, according to the plaintiff, were minded to have a holding company of OPA so that through the holding company, OPA could be controlled and managed through the 61.5% majority shareholdings and so that a 50% could clearly be carved out for a prospective investor. Wayonet was thus allegedly acquired. The 1st defendant then came up with the name of one Mr. David Ngo who was supposed to invest US$3M for 50% of the holding company. According to the plaintiff, after the acquisition of Wayonet in the market, the two subscriber shares were vested in the plaintiff and the 1st defendant. The ratio of shareholdings in this newly acquired company, Wayonet, was in the ratio of 30% to the plaintiff, 20% to the 1st defendant and 50% reserved for the investor. As to how this 20% came about instead of the 15%, the plaintiff explained that since he was pleased with the 1st defendant's expeditious manipulation in securing a prospective investor in the person of David Ngo, he made a conditional gift to the 1st defendant to the extent of 20% providing, of course, and conditional upon the 1st defendant being successful in securing the financial support from the investor and resumption of flight operation. The plaintiff also claimed that the gift was impliedly dependent upon the 1st defendant serving him faithfully and properly in the project. Counsel for the plaintiff conceded that as Takasor was initially intended to be also the holding company of OPA, the 1st defendant's promised equity or benefit in OPA would likewise be 20%. It was explained that because of such original intention, it was not found necessary to alter the share ratio in OPA. When I refer to 15% of OPA, this incident must be borne in mind.

17. There was a letter dated the 22nd March 1985 from a finance institution by the name of Christiania (Hong Kong) Limited, disclosing its interest in granting a US$3M loan for the project.

18. Sometime after the 2nd allotment in Takasor in July 1985,  according to the evidence subsequently analysed with minute care by counsel for the plaintiff for my benefit, it was in or about August 1985, when the plaintiff confronted the 1st defendant with the contents of this letter from Christiania (Hong Kong) Limited and the subject-matter about the prospective investor, David Ngo. The plaintiff was then given to understand by the 1st defendant that there was no fund to come from David Ngo and that the letter from Christiania (Hong Kong) Limited was a make-believe document for disclosure to the Civil Aviation Department. Thereupon, according to the plaintiff, he was less than agreeable and in anger, he demanded the return of 50% in the Wayonet shares placed in the name of the 1st defendant with a view to them being taken up by an investor. The demand was for 50% not 70%, presumably because the project was still being processed and another investor was still being sought. But there was no specific explanation from the plaintiff as to why 50% instead of 70% was demanded. The 1st defendant explained, so the plaintiff claimed, that rather than immediately re-transferring 50% back to the plaintiff and having the same subsequently transferred to an interested investor, he might as well be permitted to hold onto the 50% pending the search of a substitute investor. The plaintiff complained to the Court that he was left with little alternative and left the matter as it stood.

19. The OPA's application to the Civil Aviation Department was at their request withdrawn sometime in April or May 1986. As for Wayonet, it applied on the 26th February 1985 for an A.O.C. and its application was acknowledged by Civil Aviation Department on the 1st March 1985. According to the plaintiff as confirmed by Macy Cheung, Wayonet, though initially purchased with a view to holding OPA, by reason of the uncooperative attitude of the minority shareholders and in order to accommodate any interested investor with a clean 50%, was ultimately managed and run as a separate section in the project making its own concurrent independent application for an A.O.C. By then, so the Court was told by the 1st defendant, the misconception that only OPA and not any company could make an application for an A.O.C., had been dispelled. It dawned on the 1st defendant that any company could make the application.

20. At one time, the plaintiff's and the 1st defendant's names appeared in the management of both OPA and Wayonet. Wayonet was to trade as Air Hong Kong. Thus, the two companies ran the same type of business in competition and unless the managements were different, a conflict would arise. Nominees were therefore proposed and appointed. This is what the plaintiff claimed to be a conflict of interest. The 1st defendant's understanding was different. In any case, the shareholdings in Wayonet were split up between the 2nd defendant and Patrick Chan as the respective nominees of the 1st defendant and the plaintiff. These gentlemen executed Declarations of Trust of all the Wayonet shareholdings in favour of Takasor which company I shall turn to in a moment or two. They also signed blank Transfer Forms for these shareholdings.

21. Macy Cheung produced a cheque, strangely enough from Air Hong Kong which was run then by Wayonet. It was a cheque in the sum of $9,293 for payment of incorporation expenses of Wayonet.

22. In January 1985, it was proposed to increase the $10,000 capital of Wayonet to $1,000,000, a resolution was passed but the resolution was revoked on the 1st February 1985. So far as this Court is aware of the application for A.O.C. by Wayonet is now suspended due to the present dispute between the plaintiff and the 1st defendant. In any case, the application is not being actively processed nor actively pursued by Wayonet during these proceedings.

23. I mentioned Takasor: it is common ground that Takasor owns 100% of Wayonet. In addition to the consensus, we have the Declaratiors of Trust and blank Transfer Forms from the two nominees in July 1985. The 2nd defendant, one of the nominees, has gracefully bowed out of these proceedings. I have outlined his terms of settlement with the plaintiff. I understand that the other nominee has raised no opposition to the plaintiff's claim. I decline to be influenced by their attitude.

24. Takasor was a company with issued shares of $1 each as to 80,000 to the mother of the parties before me, 8,000 to Chan Nai-bing and 12,000 to the 1st defendant. In all there were, prior to its take-over for the purpose of the project, $100,000 shares issued. The company was, so the plaintiff maintained, initially taken over to run OPA as well as Wayonet. The plaintiff claimed Takasor as wholly owned by himself. The plaintiff traced the initial $1M sunk into Takasor to his personal cheque from the Yien Yieh Bank which admittedly he borrowed from a friend, Mr. Tsim Sang. The plaintiff had borrowed from him before. The plaintiff told the Court that he was unaware of the 1st defendant's manipulation with this amount of $1M by first depositing the same into his, the 1st defendant's own bank account before it went into Takasor. The 1st defendant was left virtually in sole charge of all the. formalities and arrangements so much so that blank papers signed by the plaintiff and his wife were left in the custody of the 1st defendant. The plaintiff had been advised by the 1st defendant and agreed that Takasor was to be acquired and that funds were to be removed from OPA.

25. The plaintiff left almost everything to the 1st defendant. On the analysis of the documents and accounts and with the information from the former accountant of the companies, Mr. Stephen Tam, on behalf of the plaintiff counsel traced the increases in Takasor's capital from $100,000 to $2.2M as follows.

26. There were two drawings devised, with the consent of the plaintiff, by the 1st defendant as salary and double pay drawings from OPA, $200,000 each totally $400,000. The motive was so testified the plaintiff, to lift stagnant fund from OPA for better use elsewhere. $200,000 was drawn in the name of the plaintiff and $200,000 in the name of the 1st defendant with one authorising the withdrawal in the name of the other. It was submitted by counsel for the plaintiff that the sums so drawn were only designated as salary and double pay but in fact the moneys were for the benefit of the plaintiff. The 1st defendant's version is again different.

27. There was therefore $1.4M added to the original $100,000 issued shares. The capital of Takasor was increased up to $1.5M by an allotment of $1.4M shares in June 1985. There was a subsequent increase of another $700,000 in July 1985 bringing the issued capital of Takasor up to $2.2M. I have explained how this $700,000 also came from OPA. As usual the money coming out from OPA went first into the account of the 1st defendant before it was paid into the account of Takasor.

28. As for the $1,000,000 alleged loan which the 1st defendant used for Takasor: I suppose as the plaintiff had loans from Tsim Sang, the 1st defendant's claim of a loan from the plaintiff should not by itself be looked upon as being far-fetched. The 1st defendant claimed that the $1,000,000 temporary loan from the plaintiff was repaid by the $1,000,000 transfer from Takasor for the purpose of the 2nd allotment. of OPA. He claimed, in effect, that he had overpaid the plaintiff by $100,000. But it could hardly be taken as any repayment by the 1st defendant to the plaintiff on the record. In the company records of these two companies, it was a transfer from one company, Takasor to another, OPA. I suppose it would be opened to the 1st defendant to argue that as a transfer from his alleged personal company, Takasor, this $1,000,000 could be taken as a repayment from him personally to the plaintiff, particularly when the plaintiff's initial instructions for putting in $1,000,000 for the 2nd allotment in OPA were then dutifully complied with. The manoeuvre was unusual and convoluted. First of all, if the plaintiff's version were accepted, the intervension of depositing into and paying out of the 1st defendant's personal account would not make him a true beneficial owner of the funds or the investments. With Takasor being a limited company, any personal repayment to the plaintiff by the 1st defendant should perhaps be first withdrawn by the 1st defendant personally from Takasor before the same was paid into OPA on behalf or in the name of the plaintiff. In the words of the lst defendant, even the auditors felt that it was not quite the "proper procedure".

29. As for this transfer of $1.1M from Takasor into OPA for its 2nd allotment, counsel for the plaintiff sought to take advantage of certain Declarations of Trust in relation to the 2nd allotment of OPA, which were not produced to the Court. The 1st defendant explained that the accountant firm was not extremely happy with the manipulation of this $1.1M transfer. Various remedies were suggested, one which was to have Declarations of Trust executed for the 11,000 shares. But the proposed Declaration of Trusts were subsequently scrapped. In addition to the 1st defendant's explanation, the Court heard only evidence of Declaration of Trust in relation to just the 2nd allotment in OPA, and we know not what documents, if any, had been executed in relation to the majority shareholdings and the 1st allotment. I cannot, as invited by counsel for the plaintiff, place any significant reliance on these said Declarations of Trust.

30. The plaintiff's narrative is straight-forward. The 1st defendant's version is, to say the least, strained. I prefer the plaintiff's account of it.

31. As for the $400,000, the 1st defendant initially put it down as his salary and double pay. On further probing, he agreed that in fact half was salary and double pay to the plaintiff but borrowed by him. Because of the departure of the plaintiff from Hong Kong and because of the plaintiff's alleged complete lack of interest in the project at the material time, the 1st defendant told the Court of his impression that at one time, as he thought that the plaintiff would never return to Hong Kong, the $200,000 would not have to be accounted for. On further questioning, he produced "D23", a cheque drawn in the name of the plaintiff but banked into another person's account. The lst defendant claimed that this was repayment to the plaintiff of the $200,000. No supporting documents or accounts were produced by the 1st defendant, and the matter was not further elaborated. The 1st defendant had all the account matters under his control, and there was no satisfactory explanation as to why the purpose of this cheque "D23" could not be verified or reasonably corroborated.

32. As to the $700,000, the 1st defendant claimed that it was salary of his from OPA. He said he banked it into his own account and then into Takasor. According to Mr. Stephen Tam, gleaned from the Directors' Current Account of the company, Takasor, because of the Remark at page 176 of Bundle A that salaries of the directors were not included, the $700,000 drawn apparently by the 1st defendant was no salary otherwise the Remark could not have been consistently read with the entries.

33. The understanding and arrangement for funds to be withdrawn from CPA as explained by the plaintiff seems to be well supported by the parties' conduct. When the first amount of $120,000 each was withdrawn, the plaintiff authorized the payment out to the 1st defendant who in turn authorized the payment out to the plaintiff. The $120,000 for the 1st defendant was in fact paid into the plaintiff's account subsequently. That is a good illustration as to how the device was to work, as related by the plaintiff. Moreover, there was no evidence that anyone else had received salary. As a matter of fact, the 1st defendant in his questioning suggested that the men working for the project had not asked for or received salary for quite some time. OPA's majority shareholdings of 55% were acquired in November 1984. The plaintiff and the 1st defendant became members of the management of OPA with effect from the 15th October 1984. The drawing for the first salary of $120,000 each was made on the 2nd February 1985, some 3½ months later. The further $400,000 alleged to be salary and double pay was drawn out in two cheques of $200,000 each on the 20th March 1985, some months before OPA was put on an even keel and its 2nd allotment in June 1985.

34. According to the plaintiff, it was the 1st defendant who had advised a holding company for CPA and Wayonet. At the suggestion of the 1st defendant, an available company by the name of Takasor which had been dormant for a long time and worth nothing was taken over as a shell company in order to save several thousand dollars. What is not in dispute is that Takasor owns 100% of Wayonet. If the plaintiff's version were to be accepted, with Takasor holding 100% of Wayonet, the original $100,000 shares in Takasor must have been wholly and validly put into and absorbed by the common pool otherwise it would have been impossible for the plaintiff to carve out 20% of the total holdings of Takasor to the 1st defendant as a conditional gift. On the other hand, if the original $100,000 shares in the dormant worthless shell company of Takasor had throughout remained vested in the 1st defendant, then he would have been entitled to some interest in the new venture through this holding company whether or not he succeeded in earning his 20% by fulfilling the conditions.

35. Everything points to the conclusion on that the $100,000 initial issued shares had been absorbed by the common pool for redistribution. The 1st defendant himself never raised the issue. In fact, in cross-examination, the 1st defendant mentioned a Board Meeting on the 1st December 1985 for transferring this $100,000 shares.

36. The whole controversy between the plaintiff and the 1st defendant in Takasor was focused on his 20% allegedly given to him as a conditional gift, 50% allegedly held by him pending the location of an investor.

37. Let me turn to the 1st defendant's version more specifically. In OPA, the 1st defendant claimed that he was promised not 15%, not 20% but 25%. He said that he initially demanded 51%. His demand was subject-matter of certain criticism within the Chan family, and he came down to 25% which was the percentage the plaintiff agreed to let him have. He was attempting to give various explanations as to how this percentage was calculated and arrived at. In the course of his doing so, the plaintiff encountered not inconsiderable difficulties, and he was at last content with a blunt assertion that he was promised 25% and that 25% is what he should get in OPA. OPA's authorised capital is $10M and he should, therefore, be entitled to $2.5M shares in that company. His assertion was not made so much as to raise a claim in these proceedings but in defence of the demand of the plaintiff for the return of the shareholdings allotted to and placed in his name during the progress of the scheme and the intended floatation of an airline business. The 1st defendant further claimed that this 25% was a return for giving the plaintiff his project and for the 1st defendant himself not co-operating with anyone else. These assertions of the 1st defendant's were made in defence of the plaintiff's claim to the 15% shareholdings, though in evidence, he claimed 10% more.

38. The 1st defendant further claimed that the plaintiff agreed to pay him the balance between the $4.5M offer of Mr. Fujiwara and the ultimate paid purchase price of $1M. From time to time, the 1st defendant was not quite decisive as to the actual quantum so allegedly promised. At one time he said :-

"You, (the plaintiff) told me if in future, if the transaction is successful, you would share me $5M."

That is not evidence. That was a question asked of the plaintiff by the 1st defendant. However, it reflects his mental attitude.

39. The 1st defendant maintained that the 25% promised him was no conditional gift. In his analysis for the benefit of the Court, the 1st defendant argued that if it had been a gift on those conditions, they were too harsh conditions to impose because they would have depended on many future contingencies. The 1st defendant asked rhetorically: if he himself had ever been able to meet those conditions with ease, would he not have reserved the whole project for himself? Why would there have been any necessity for dragging in the plaintiff, having all these harsh conditions imposed and landing himself with much less than the wholesome 100%? But one must not lose sight of the earlier events. At the inception, the 1st defendant was labouring under the false impression that not every company was entitled to apply for an A.O.C. and that therefore OPA had to be gained control of in order to seek permission for resumption of its flight operation. The plaintiff's initial funding was necessary. The 1st defendant offered to help his brother to put to work his idea of floating an airline business. The business. was to be set up for the younger brother, the plaintiff. It was his to give away if the plaintiff so wished, and the plaintiff agreed to give the 1st defendant a conditional bonus share or gift. The 1st defendant, according to the plaintiff, gladly accepted such a conditional gift without comment.

40. Despite these assertions of the lst defendant, no counterclaim was pleaded. After 6/7 days of evidence, an application was made to include a counterclaim in vague terms. For the reasons given, the 1st defendant's application was refused.

41. Turning to Wayonet, the 1st defendant claimed that it was a completely different company acquired without the knowledge of or prior consultation with the plaintiff. The plaintiff name was only borrowed as one of the two subscribers. Out of their relationship and generosity, he gave the plaintiff a free gift of 30%. The plaintiff was in the dark as to all this. For the first time, the plaintiff allegedly came to learn of Wayonet when he was requested in February 1985 to sign the resolution revoking the prior resolution for increasing its capital to $1M. Yet the plaintiff was said to be quite agreeable on discovering the 1st defendant's new competing company formed with allegedly a temporary use of his $1M. Calculation of the 30% free gift to the plaintiff was sought to be explained thus: out of the 55% majority shareholdings acquired in OPA, he was. promised 25%. Therefore the plaintiff had himself 30%, and following that ratio, he gave a free gift of 30% to the plaintiff. It is inconceivable that in the midst of a venture undertaken by the plaintiff with the assistance of the 1st defendant, he, the 1st defendant could have individually launched an independent front without the knowledge of or prior consultation with his brother. After all, the plaintiff had invested more than $3M. The suggestion of the 30% free gift to the plaintiff is likewise difficult to accept.

42. The 1st defendant's case on Takasor is as follows: He obtained a temporary loan from the plaintiff to pay for the initial $1M. He got salary and double pay, $200,000. He borrowed another $200,000 from the plaintiff, not with his explicit consent admittedly. He entertained little notion that there was any real need to repay the $200,000 to the plaintiff who had allegedly lost interest in the whole project and had left Hong Kong. On the plaintiff's return, however, he allegedly repaid him.

43. As for the $700,000, the 1st defendant claimed that it was his salary from OPA.

44. So as far as the 1st defendant is concerned, Takasor is wholly his own property save for a 30% free gift. The percentage merely followed that in Wayonet. As no one disputes that Wayonet is 100% owned by Takasor, he owns Takasor and Wayonet except for the 30% free gift and he claims $2.5M in shareholdings in OPA.

45. None of these $1M, $400,000 and $700,000 paid into the Takasor was satisfactorily accounted for by the 1st defendant. The plaintiff left all the financial manipulations to the 1st defendant. When the 1st defendant was totally pre-occupied in assisting his brother in setting up an airline business, it would have been remarkably illogical for the 1st defendent to branch out on his own. I do not accept his evidence of a temporary loan nor his story of salaries and double paid borrowed or accrued.

46. The 1st defendant faced time and again almost insurmountable obstacles in some of his explanations. It is quite unnecessary for me to repeat and comment on each and everyone of these occasions. Suffice it for me to give examples.

47. The 1st defendant was less than specific in his assertion of the promised $3.5M. If his questioning of the plaintiff is anything to go by, he must have thought at one time that the alleged promise was made subject to some condition i.e. "if in future if the transaction is successful". Negotiation on and payment of the OPA purchase price was a one-off situation and prior to percentage allegedly given. It is improbable that the carved out shareholdings percentage was not also just a promise subject to like or some more conditions. The 1st defendant was unable to account for either the failure or omission to press for payment of this promised $3.5M, a sum which cannot be said to be wholly insubstantial. The 1st defendant was not active in pressing for payment, and he was content with the plaintiff's vague agreement to have it calculated at a later stage.

48. As for the promised 15% in OPA, the 1st defendant sought to raise it to 25% and an outright gift. He relied on Exhibit "D1(1)" and the amendments thereon. I accept the plaintiff's explanation that the documents were prepared for his own benefit and were without authority, taken possession of by the 1st defendant. I also accept the plaintiff's evidence that the amendments were effected by persons other than himself. According to the 1st defendant, the 25% had been agreed before the plaintiff wrote out "D1(1)" but on the plaintiff completing "D1(1)", he arbitrarily put down 20%, a unilateral reduction from 25 to 20. However, in his cross-examination of the plaintiff, the case put was that the plaintiff seemed to have offered only 20% and put it down as 20%, that thereupon, he the 1st defendant, asked for 25% and that after all had been written out on exhibit "D1(1)", the plaintiff allegedly agreed, and eventually, so said the 1st defendant, amended it from 20% to 25%. It is evidently not the same version. The alleged promise to pay $3.5M, $5M or several million dollars was not recorded in "D1(1)" nor "D1(2)". If in fact the 1st defendant had been so observant as to the percentage, it would have been extra-ordinary for the 1st defendant to have overlooked a sum as much as $3.5m, $5M or several millions allegedly promised to him by the plaintiff.

49. In his first affirmation filed on the 25th September 1986 in opposition to the claimed injunctions of the plaintiff's, the 1st defendant said in paragraph 3 that the money for the payment of OPA was grouped together with a cheque issued by himself. Then in cross-examination, at one time, he said he made some contribution, but finally he was driven to concede that it was some sort of expenses which he had paid. Thus, he claimed, he, the 1st defendant, regarded the plaintiff as not having paid 100% because of these expenses.

50. The 1st defendant's evidence was also less than satisfactory as regards the subsequent discussions on his percentage. When the 1st allotment of OPA was made, the 1st defendant had only 15% shareholdings. There was no evidence of any opposition or resistence. The same applies to the 2nd allotment in OPA. The 1st defendant claimed that he hoped that the plaintiff would subsequently transfer to him 25%. He wrote a letter to the plaintiff with the percentage, which, he said, cannot now be located, but the plaintiff signed the letter only after amending it back to 15%. The 1st defendant also gave no evidence of any real resistence to the amendment.

51. By the time Wayonet was acquired, allegedly only by the 1st defendant, the plaintiff had not apparently, so the 1st defendant maintained, treated him fairly.  It would appear to be incredible for the 1st defendant to suggest that 30% free gift was nevertheless being reserved to the plaintiff. I do not accept that the lst defendant paid several thousand dollars personally for Wayonet. I find that Wayonet was paid by fund provided by the plaintiff out of the account of Air Hong Kong.

52. There was a Sales Agreement dated the 25th May 1985 whereby the plaintiff and the 1st defendant agreed to sell Wayonet to the 2nd defendant for $8,000. On the same day, there was a receipt for $8,000 signed by the plaintiff and the 1st defendant in favour of the 2nd defendant. These documents were never meant to be used, and the sale never did take place. The 2nd defendant in his evidence confirmed that there was no outright sale. In his opposition to the plaintiff's application for injunctions, the 1st defendant resorted to these documents. He certainly is not a man of unquestionable integrity.

53. The Court also heard evidence of the intention to have an investor for 50%: Mr. Tse in the case of OPA, Mr. Ngo and Christiania (Hong Kong) Ltd. in the case of Wayonet, and Messrs. Tsang and Lai in the case of Takasor. Even behind the plaintiff's back, in the desperate attempted disposition of interests in the companies by the 1st defendant another financier, Mr. Ishikawa was approached with a similar percentage. That 50% was reserved for an investor is the mainstay of the plaintiff's theme and if the 1st defendant's version were to be accepted, the plaintiff's free gift in Wayonet and Takasor would exceed the 1st defendant's shareholdings in his own companies on the introduction of a 50% financier.

54. Conduct of the 1st defendant on various occasions also reflects on him poorly. In his dealings with Messrs. Tsang and Lai, two restructuring schemes were prepared. The first one only came to light in October when a bundle of documents which he handed to Tony Tan was turned over to Tenly Lai. The plaintiff is now in possession of this first restructuring memorandum in which he, the plaintiff, was included. The second restructuring memorandum completely excluded the plaintiff. It was this second restructuring memorandum which was presented at a meeting in August with Mr. Lai, at which the plaintiff also attended. The restructuring as proposed would reduce the plaintiff's shareholdings to just over 6% in all three companies. According to Tenly Lai, the plaintiff was visibly disturbed and silent. According to the plaintiff, the lst defendant gave no satisfactory answer to his subsequent demand for an explanation except for saying to the effect that it was the only way to take in a difficult situation.

55. The dispute between the brothers flared up. The $500,000 deposit made by Mr. Tenly Lai at that meeting was returned by the plaintiff. Yet independently the 1st defendant attempted to sell some shareholdings in Wayonet to Messrs. Tsang and Lai, totally ignoring his brother's complaint.

56. Mr. Tony Tan was also instructed to prepare three prospectus. The first prospectus was prepared at the end of 1985, the second at the end of August 1986, the third in the middle of September 1986. Only the second and the third prospectus were shown to the Japanese interested party, Mr. Ishikawa again without the knowledge of or prior consultation with the plaintiff. In the second prospectus, great play was made of the figures, but basically it was sought to sell $25M out of $50M authorized capital in Wayonet to the investor for an enhanced consideration. The third prospectus was apparently the 1st defendant's endeavour to circumvent the plaintiff's application for injunctions and to sell 50% of Takasor and Wayonet in the form of two new companies, AHK Limited and AHK Air Hong Kong Limited.

57. After the 1st defendant had fallen out with his brother in the project, he had independently pursued the airline business project without any consideration for the plaintiff, but taking advantage of his brother's investments.

58. The 1st defendant was a wholly unimpressive witness. The 1st defendant relied primarily on his oral evidence. His assertion of running new companies in competition with his brother sounds unreal. The documents produced by him are piece-meal without continuity and some of them do not fit in well with even his version of the background information, such as "D1(1)" and "D23".

59. There is not a doubt in my mind that the plaintiff's version should be preferred. In the circumstances, bearing in mind the various discrepancies and implausible explanations, I cannot accept the 1st defendant's version which must be rejected on the balance of probabilities.

60. The plaintiff, I find, owns beneficially Takasor himself and through Takasor, by way of the Declarations of Trust, owns Wayonet. The shares registered in the name of the 1st defendant, I find, were for the purposes as related to the Court by the plaintiff. By his conduct and attempted exclusion of the plaintiff, not only had he not successfully established an airline business in the project, he had virtually put a halt to it. He did not serve the plaintiff faithfully or properly. He did not serve the plaintiff at all at the later stage. He acted contrary to his brother's interest. No flight operation had been resumed. No financier had been secured. None of the conditions attached to the gifts in OPA, Wayonet and Takasor was fulfilled or materialised. In his manipulations to try to mislead and defraud the plaintiff, the 1st defendant had made the project no longer viable. Everything in this project has come to a stand-still. The gifts lapsed and the 50% shareholdings carved out for the prospective investor must also go back to the plaintiff. All the shares transferred to the name of and held by the 1st defendant must now be returned.

61. I am disturbed by the 1st defendant's prevarication and poor performance. The 1st defendant wishes to say nothing further on the stringent order of costs I propose to make.

62. It remains for me to make the following declarations and orders :

Representation:

Mr. K.B. Ng inst'd by M/s Leong, Lam & Co. for the Plaintiff

Chan Hak Kong, Danny, 1st Defendant appearing in Person