Jian Yu Qiang v. Li Shi Liang and Others
Read the full judgment text of HCA 459/2003 on BabelCite. This High Court CFI judgment was delivered on 10 June 2005.
1. This action concerns the beneficial ownership of the 10,000 issued shares in Kenson Properties Limited (“Kenson”), the 2 nd defendant herein.
Cited by 3 cases
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HCA459/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.459 OF 2003 --------------------- BETWEEN
---------------------- Before : Deputy High Court Judge Poon in Court Dates of Hearing : 15-18, 21-23 March & 21 April 2005 Date of Handing Down Judgment : 10 June 2005 ------------------------- J U D G M E N T ------------------------- 1.This action concerns the beneficial ownership of the 10,000 issued shares in Kenson Properties Limited (“Kenson”), the 2nd defendant herein. The parties 2.The plaintiff is and was at all material times a businessman carrying on business activities in Hong Kong and in the Mainland. 3.The Bank of China, Guangdong Branch (“BOCGD”) was the principal banker of the plaintiff and two of his companies in the Mainland, Jade Peak Property Investment Co. Ltd (“Jade Peak”) and Zhu Hai Yi An Development Company (“Yi An”). 4.All the individual defendants were at all material times BOCGD’s officers. The 1st defendant was until 1998 one of the Vice-Presidents. He has since joined Continental Mariner Investment Co. Ltd (“CMI”), a public listed company in Hong Kong, as its managing director. The 3rd defendant is still under BOCGD’s employ. She used to be the deputy chief of the Investment Business Section, Assets Reservation Department of BOCGD. The Department was recently cancelled. At trial, her new posting is yet to be assigned. Since 15 November 2002, she has been a director and secretary of Kenson. The 4th defendant joined BOCGD in 1985 and resigned in November 2003. He has been a director of Kenson since 28 May 1995. 5.The background facts leading to this action are summarized below. Kenson 6.Kenson was incorporated on 5 March 1992 by Madam Lau Cheung Mee and Madam Lei Man Rong (“Madam Lau” and “Madam Lei” respectively). It was set up for the purpose of holding a development project of a piece of land situated at No.2 Guandong Dian, Chaowai Street, Chaoyang District, Beijing (“the Project”). 7.Sometime in 1993, Kenson and Beijing Dianguangyuan Corporation proposed to the Beijing authority to form a joint venture company, later known as Beijing Gaoyi Property Development Company Limited (“Beijing Gaoyi”), for developing the Project. Such approval was later obtained on or about 30 May 1994. On 26 July 1994, Beijing Gaoyi was formally incorporated with Kenson holding 70% of its shares. acquiRING Kenson 8.In 1993, the plaintiff became interested in the Project. After negotiations with Madam Lau and Madam Lei, he together with his trustee, a Mr Tong Chi Ho (“Mr Tong”), entered into an agreement with them dated 2 December 1993 to buy Kenson’s entire share capital (10,000 shares) for HK$7 million. The sale was duly completed on 20 January 1994. Of the 10,000 shares, 9,000 were then registered in the plaintiff’s name. The remaining 1,000 shares were registered in Mr Tong’s name on trust for the plaintiff. 9.On 7 April 1994, Messrs Ho & Wong, solicitors acting for Madam Lau and Madam Lei issued a certificate to the plaintiff, certifying that the plaintiff had wholly owned Kenson since 7 April 1994. On the same date, Madam Lau and Madam Lei resigned as directors. The plaintiff and Mr Tong then took up their vacancies. Transfer to the 1st defendant 10.On 31 May 1994, the 1st defendant entered into an agreement with the plaintiff (“the Agreement”), for the sale and purchase of all the 10,000 shares in Kenson at HK$10,000. At the same time, the 1st defendant was appointed as director and secretary of Kenson while Mr Tong resigned as director. 11.On 2 July 1994, the plaintiff transferred the 9,000 shares in Kenson registered under his name to the 1st defendant. Mr Tong transferred the 1,000 shares registered under his name to the plaintiff. The plaintiff then executed a declaration of trust in favour of the 1st defendant in respect of these 1,000 shares (“the Declaration of Trust”). Thus on record, the 1st defendant had since become the beneficial owner of all the 10,000 issued shares in Kenson. Proceedings in the Mainland 12.Between 1993 and 1995, BOCGD had advanced various loans to Jade Peak and Yi An. I will describe these loans in greater detail when I come to the defendants’ evidence. 13.In August 1997, upon default, BOCGD commenced legal proceedings in the Mainland for repayment of the loans. In 1999, the Intermediate People’s Court of the Guangdong Province entered judgment against Yi An in the sum of US$3,600,000 with interest. The Higher People’s Court of the Guangdong Province entered judgment in favour of BOCGD against Jade Peak in the sum of US$28,071,405.34 with interest and RMB79,074,300 with interest. In 2001, the Supreme People’s Court dismissed Jade Peak’s appeal. The judgments have remained unsatisfied to date. The plaintiff’s claim 14.In January 2003, the plaintiff commenced the present proceedings. The statement of claim alleges the plaintiff is and was at all material times the beneficial owner of all the 10,000 issued shares in Kenson. He transferred 9,000 shares to the 1st defendant with no consideration. The defendant holds the shares as a bare trustee for his sole benefit. Despite requests, the 1st defendant has refused to transfer the shares back to him. 15.The plaintiff claims for a declaration that the beneficial ownership of the 9,000 shares in Kenson held by the 1st defendant belong to him, specific performance of transfer of those shares to him and various injunctions. Defence and counterclaim 16.In brief, the defendants’ defence is that the 1st defendant holds all the shares in Kenson as a trustee for BOCGD, pursuant to an agreement made with the plaintiff and BOCGD at the time whereby the shares were to be provided as security for loans advanced to the plaintiff’s companies. The Agreement and the Declaration of Trust were made to effectuate the transfer of the shares in Kenson by the plaintiff to the 1st defendant as BOCGD’s nominee. The plaintiff has however failed to take any further step to transfer the 1,000 shares. 17.The 1st defendant counterclaims for specific performance of the transfer of the 1,000 shares held by the plaintiff or alternatively an order for such transfer. INTERIM Injunction 18.On 13 June 2003, the plaintiff obtained an interim injunction restraining the 1st defendant from disposing of the 9,000 shares in Kenson registered under his name. Both the 1st defendant and BOCGD were given liberty to apply on notice to discharge the injunction. Neither of them had done so. The main issue 19.It is common ground that the 1st defendant holds the shares in Kenson as a trustee. The only question is : who is the beneficial owner? Is it the plaintiff or BOCGD? Two preliminary points 20.At this juncture, I digress to deal with two preliminary points taken by Mr Harris, counsel appearing for the plaintiff. The first point relates to resulting trust and the second, burden of proof. A. Resulting trust 21.Mr Harris submits that the 1st defendant holds the shares in Kenson on a resulting trust for the plaintiff. It is the plaintiff’s case that the shares were transferred to the 1st defendant without any consideration. While the Agreement provided that the 1st defendant had paid HK$10,000 to the plaintiff, it is unlikely that the 1st defendant had made any payment at all. He said in his oral testimony that he could not recall he had made such payment. Further, it is highly unlikely that BOCGD would have made any payment for the transfer of the shares. Thus, Mr Harris submits, the evidence clearly established that the 1st defendant received the shares without providing any consideration. In such circumstances, a resulting trust arose. 22.In my view, this point is not open to the plaintiff both as a matter of procedure and substance. 23.On procedure, this point is not pleaded and was not raised until the opening of the trial. Even then, no corresponding application has been made to amend the statement of claim. In the absence of a proper plea, the plaintiff is not entitled to rely on it. 24.On substance, no resulting trust can possibly arise on the evidence before me. Put simply, resulting trusts are founded on the presumed (but rebuttable) intention of the transferor or purchaser of property : Lewin on Trusts, 17th edn, paragraphs 7-02 at p.181. Where there is evidence on the parties’ common intention, the concept of resulting trust cannot be invoked : see Re Superyield Holdings Ltd [2000] 2 HKC 90, per Recorder Kotewall, SC at p.111D-F. 25.Here, as will be seen in a moment, the plaintiff alleges in his evidence that he and the 1st defendant entered into an express agreement pursuant to which the 1st defendant holds the shares as his trustee. On the other hand, the 1st defendant alleges that there was an express agreement between the plaintiff and BOCGD for the transfer of the shares. Thus both parties contend that there was an express agreement in respect of the transfer of the shares. The bare trust, on both parties’ case, is thus based on an express intention. No presumed intention can possibly arise. B. Burden of proof 26.Mr Harris next submits that as the 1st defendant had provided no consideration for the shares, the burden rests on him to prove he holds the shares on trust for BOCGD, failing which, the plaintiff is entitled to judgment. In support, he seeks to rely on Seldon v. Davision [1968] 1 WLR 1083, Mak Ka Hing v. Pang Ming Chung, CACV215/2002. 27.Mr Harris rests his submission on the basis that it is the 1st defendant’s case that he had not provided consideration for the shares. With respect, Mr Harris has completely overlooked the tenor of the defendants’ case, which is this. The 1st defendant was at all material times a nominee of BOCGD. BOCGD entered into the express agreement with the plaintiff for the transfer of the shares as security for loans advanced to the plaintiff’s companies. Consideration had been provided, not by the 1st defendant but by his principal, BOCGD. 28.Further, the two authorities cited by Mr Harris, when properly understood, do not assist him. They support the proposition that a defendant bears the burden of proving that he does not need to repay if (a) he admits that the plaintiff has made the payment and (b) there is no suggestion that the money was paid to discharge an existing debt or in return for cash or anything of that sort. This proposition will be applicable to the present case only if there is no suggestion that consideration had been provided for the transfer of the shares. But as I have just demonstrated, the defendants’ case is quite to the contrary. 29.In El Vince Ltd v. Wu Wen Sheng [2005] 1 HKC 111, the Court of Appeal held that when there is an allegation that the payment by the plaintiff (admitted by the defendant) was a repayment of a loan, the burden of proof remains with the plaintiff : per Tang JA at paras.9-12. Applying the same principle by analogy, the burden rests with the plaintiff to prove his beneficial ownership in the shares as alleged. 30.That said, the defendants still bear the burden to prove their case that BOCGD is the beneficial owner of the shares. As I understand Mr Yuen, SC, counsel appearing for the defendants, he does not contend otherwise. The plaintiff’s evidence 31.I now come to the plaintiff’s evidence. 32.In his first witness statement filed on 17 December 2003, which has been adopted as his evidence in chief, the plaintiff had this to say :
33.On the Declaration of Trust, the plaintiff said in paragraph 46 of the same witness statement that he did not recall when, where, how with whom and under what circumstances he had signed it. 34.The plaintiff further made the point that there were no contemporaneous documents showing that the 1st defendant held the shares on behalf of BOCGD. He also alleged that BOCGD denied the existence of such security in the Mainland Proceedings. THE DEFENDANTS’ EVIDENCE 35.The defendants’ evidence is summarised below. A. The 1st defendant’s evidence 36.On his relationship with the plaintiff, the 1st defendant denied that he had a close personal relationship with him as alleged. He came to know the plaintiff in his official capacity and the contacts between the two of them were business in nature. He however admitted that the plaintiff did occasionally entertain him at the latter’s expense. 37.On his alleged connection, the 1st defendant also denied that in the early 1990s, he was well connected as alleged. In particular, he denied that at that time, he knew certain influential individuals including the two executive directors of CMI, Mr Wang Jun and Mr He Ping, and Madam Deng Rong, the daughter of the late Deng Xiaoping. Under cross-examination, he explained that it was pursuant to a swapping exercise of personnel between state-owned enterprises in about 1999 that he left BOCGD and joined CMI. 38.The 1st defendant then described how BOCGD dealt with loan applications. In brief, those matters would be dealt with at the departmental level. Reports would then be made to the Presidents’ Office where major decisions would be made collectively by the president and the vice-presidents. 39.The 1st defendant then set out the financial dealings between BOCGD and the plaintiffs’ companies that led to the agreement for the transfer of the shares in Kenson to BOCGD as security. 40.On 27 February 1993, a loan of US$20 million was granted to Jade Peak million upon the security of Zhu Hai Yu Hua Yuan (“Royal Garden”) for the term of one year (“the US$20 Million Loan”). Jade Peak guaranteed that the loan was to be applied in connection with the development of the mortgaged property. 41.On 1 March 1993, a loan of RMB10 million was granted to Yi An for the term of one year. 42.In or about October or November 1993, the plaintiff applied for a further loan. By that time, the land at the Royal Garden project had already been charged. BOCGD therefore assigned Mr Jin Chong Min (“Mr Jin”), a department head, to contact the plaintiff for further information. Mr Jin later reported to the President’s Office that the plaintiff needed about US$5 million in connection with the Project. While the application was still under process, the plaintiff issued a guarantee letter dated 3 March 1993, guaranteeing that, among other things, the land use certificate of the Project would be deposited with BOCGD once it became available. Eventually on 27 November 1993, a loan of US$5 million was granted to Jade Peak for the purposes of developing the Project upon the security of the right to use the land at the West Side of Yingbin Avenue, Gongbei, Zhuhai. 43.In December 1993, the plaintiff applied for a loan of RMB19 million for construction costs of the Royal Garden Project. On 25 December 1993, upon consent of the Presidents’ Office, a loan of RMB19 million was granted to Jade Peak for a term of three months upon the security of the Yuhe Qingjing project in Zhuhai, the existing office building and the restaurant of Royal Garden (“the RMB19 Million Loan”). 44.On 21 January 1994, a loan of US$2 million was granted to Jade Peak for a term of three months, upon the security of the land of the Royal Garden Project. 45.In early March 1994, both the US$20 Million Loan and the RMB19 Million Loan became due but no repayment was made. Upon negotiations, the due date for the US$20 Million Loan was extended to 1 March 1995. 46.In early April 1994, the plaintiff asked BOCGD to extend the repayment dates for the loans made to Jade Peak. He also hoped that BOCGD could fully support the Project. The profits generated from the Project, after deducting costs, could be used to set off all the outstanding debts. The plaintiff was also willing to share the balance of the profits with BOCGD. He was willing to cause his shares in Kenson to be transferred to BOCGD or its nominee so as to protect BOCGD’s interest and to enable BOCGD to fully monitor and control the Project and the related fund raising arrangements. 47.Though not touched upon by the 1st defendant in his witness statements, it is apparent from the documentary evidence that on 8 April 1993, two loan applications were made. One was made by the plaintiff together with Jade Peak for US$11 million upon mortgage of the Royal Garden. The other was by the plaintiff alone for US$20 million to be secured by the shares in Kenson. Both applications were refused by BOCGD. 48.According to the 1st defendant, the Presidents’ Office duly considered the plaintiff’s proposal. It was then decided to take over the shares in Kenson in order to gain the right to monitor and control the Project and to protect BOCGD’s interest. 49.BOCGD then reached an agreement with the plaintiff in these terms :
50.On 12 April 1994, BOCGD advanced a loan of US$11 million to Jade Peak by way of three cashier orders upon the security of the land certificate of the Project and Kenson as guarantor. BOCGD requested the plaintiff to forward cashier orders to the Beijing land authority as payment for the land fees for the Project. 51.After the requisite approval had been obtained for the Project, the parties on 30 May 1994 proceeded with the transfer of the shares in Kenson. The plaintiff’s solicitors, Messrs Ho & Wong, prepared the Agreement. On 31 May 1994, the 1st defendant was sent by the Presidents’ Office to Hong Kong to sign the Agreement. The 1st defendant was asked to do so because at that time, he was one of the few vice presidents who could travel between Hong Kong and the Mainland. 52.In his oral testimony, the 1st defendant said that he had not received any draft of the Agreement for consideration before he came to Hong Kong. BOCGD did not see the need to instruct a separate lawyer to prepare the Agreement as they considered the transfer a sufficient protection. 53.At that time, BOCGD had a window company in Hong Kong called Shum Ming Enterprises Co. Ltd (“Shum Ming”). The 4th defendant was then Shum Ming’s general manager. The 1st defendant explained that BOCGD did not consider acquiring the shares in Kenson or Shum Ming because they were not thinking of going into an investment or joint venture with the plaintiff. The shares were just security. 54.In June, BOCGD discovered that the plaintiff had not paid the three cashier orders referred to in paragraph 50 above to the Beijing land authority. Because of urgency, BOCGD paid RMB38,060,000 to the authority direct lest the land might be resumed. 55.On about 2 July 1994, the 1st defendant came to Hong Kong again to complete the transfer of the shares in Kenson. He went to the office of Messrs Ho & Wong to sign the instrument of transfer and the sold and bought notes for the 9,000 shares transferred by the plaintiff. The plaintiff also executed the Declaration of Trust. The original share certificates for the shares held by the plaintiff and Mr Tong were all cancelled. Kenson then issued share certificates for 9,000 shares in the name of the 1st defendant and 1,000 in the name of the plaintiff. Since then, these new shares certificates have been kept with BOCGD to date. 56.After the transfer of the shares in Kenson had been completed, BOCGD made further loans to Jade Peak, Yi An and Kenson including :
57.Until early 1996, a total of about RMB949,518,000 had been advanced by BOCGD to the companies operated by the plaintiff. Further, up until end of 2000, BOCGD had advanced to Beijing Gaoyi for the Project a total of HK$306,772,340.67 (after deducting partial repayment). 58.On 14 October 1997, the plaintiff wrote a fax letter to BOCGD (“the Letter”), stating that he had made available US$90 million and would go to BOCGD’s office on or before 20 October 1997 to discuss the matters about repayment of loans and recovering the shares in Kenson. But the plaintiff failed to turn up as promised. 59.By the end of 1997, BOCGD was unable to contact the plaintiff. From the operations of Kenson and Beijing Gaoyi, BOCGD began to suspect that he might have breached his duties as a director. Accordingly, he was removed as Kenson’s director by special resolution dated 15 April 1998. 60.Before the 1st defendant left BOCGD’s employ and in early August 1998, BOCGD instructed Messrs Robert CC Ip & Co., a law firm in Hong Kong to prepare an instrument of transfer for the 9,000 shares in Kenson to another vice-president of BOCGD, Mr Zhang Jian You and a resignation notice as director of Kenson. The 1st defendant duly signed those documents. BOCGD also appointed Mr Zhang to be Kenson’s director with effect from 10 August 1998. 61.The transfer of the 9,000 shares was not completed because the instrument of transfer was not stamped. However, the 1st defendant is always willing to transfer the shares as directed by BOCGD. B. The 3rd defendant’s evidence 62.The 3rd defendant’s evidence is summarised below. 63.In the latter part of 1998, BOCGD instructed her to handle Kenson’s affairs. She confirmed the 1st defendant’s evidence on the proposed transfer of the 9,000 shares by him to Mr Zhang. Messrs Robert CC Ip & Co. requested a financial statement of Kenson for the purpose of stamping the instrument of transfer. However, the account of Beijing Gaoyi, while under the plaintiff’s management, was not clear. No financial statement could be prepared. It was not possible to stamp the instrument. The transfer of the 9,000 shares was therefore suspended. 64.Since 1997, BOCGD had sold the shares in Beijing Gaoyi to Henderson Group for US$95 million. In her cross-examination, the 3rd defendant had been asked questions if the debts due from the plaintiff’s companies had been thereby discharged. She said it was not the case. She also explained, with reference to a schedule prepared by her, the outstanding amounts and confirmed them to be those as stated in the defence and counterclaim and repeated in the 1st defendant’s evidence : see paragraph 57 above. C. The 4th defendant’s evidence 65.In essence, the 4th defendant said that he did not have any personal knowledge of the matters pertaining to the transfer of the shares to the 1st defendant. However, he maintained that but for his status as an employee of BOCGD, the 1st defendant would not have asked him and he would not have agreed to become a director of Kenson in May 1995. ASSESSING The EVIDENCE 66.This case turns essentially on the credibility of the witnesses and the veracity of the parties’ evidence. I have carefully considered all the evidence with the benefit of counsel’s able submissions. For the purpose of this judgment, I do not propose to deal with every single point taken by counsel, although I must stress that I have already considered them all. I believe it will be sufficient to just deal with the main points arising from their submissions. THE PLAINTIFF’S CASE UNSATISFACTORY 67.In my view, the plaintiff’s evidence is highly unsatisfactory in a number of material aspects. A. Why go public? 68.It is common ground that the scheme alleged by the plaintiff would constitute a serious breach of the 1st defendant’s employment with BOCGD, a state-owned enterprise. Common sense dictates that such a scheme must be kept in secret as far as possible. Otherwise, the 1st defendant would be readily exposed. It might jeopardize not only his position but also the progress of the Project. Both the plaintiff and the 1st defendant were aware of the risk. And according to the plaintiff, the 1st defendant was quite “risk adverse”. In the circumstances, I fail to see why the plaintiff and the 1st defendant would agree to and in fact did register the 9,000 shares in the 1st defendant’s name. Why would they take such a huge risk of revealing in public record the 1st defendant’s involvement in Kenson? B. Risk not addressed 69.To address the risk of exposure, the plaintiff alleged that he and the 1st defendant agreed that the plaintiff would first purchase all the shares in his name and then transferred most of the shares to the 1st defendant. But the fact remains that 9,000 shares were still registered in the 1st defendant’s name. It does not address the exposure risk at all. The plaintiff’s purported explanation does not make any sense. C. Scheme self-contradictory 70.The scheme is self-contradictory. As observed above, it should be kept secret. But if that were the case, it would defeat the very purpose of putting up the 1st defendant as the “owner” of Kenson. If it were not kept secret, it would expose the 1st defendant and might jeopardize the Project. D. All or 9,000 shares? 71.The tenor of the plaintiff’s evidence in his first witness statement is that only 9,000 shares were to be transferred to the 1st defendant. As to the balance of the 1,000 shares, he could not recall when, why and how the Declaration of Trust was executed. He must have implied that he is both the registered and beneficial owner of the 1,000 shares. In his oral testimony, the plaintiff alleged that the parties had agreed to transfer all the 10,000 shares to the 1st defendant to be held by him on trust. This is of course inconsistent with his witness statement. 72.Mr Yuen submits that if the plaintiff’s story were true, it would not be necessary to put up the 1st defendant as the sole owner of Kenson. It would be sufficient if he looked like a co-owner with the plaintiff. The change of his evidence from 9,000 shares to all shares is just an attempt by the plaintiff to explain in the box why he had executed the Declaration of Trust. I agree entirely. E. No need for the Declaration of Trust 73.On the evidence before me, there is simply no credible reason at all why the plaintiff had to execute the Declaration of Trust. If his version of the events were true, the plaintiff should have asked the 1st defendant to execute a declaration of trust instead. F. No declaration of trust by the 1st defendant 74.The plaintiff did not ask the 1st defendant to execute any declaration of trust for the 9,000 shares in his favour. His explanations can be found in paragraph 21 of his witness statement (quoted in paragraph 32 above). I shall not repeat them here. Suffice to say that I have considered them carefully. They are just lame explanations. For example, a declaration of trust would not turn the transfer of the shares into a gift as alleged. By any token, investment in Kenson (and through Kenson in the Project) was significant. It is extremely surprising indeed that the plaintiff, an experienced businessman, would take such a huge risk by relying purely on his trust in the 1st defendant’s “personal integrity and ability”. If the defendant had any integrity, he should not have agreed to the plaintiff’s suggestion in the first place. The plaintiff ought to have done something more to protect his interest. INCONSISTENT WITH SUBSEQUENT CONDUCT 75.Further, the plaintiff’s case does not sit well with the parties’ subsequent conduct. A. Appointing other BOCGD’s staff as Kenson’s directors 76.As noted above, the 4th defendant was appointed as Kenson’s director in May 1995. Under cross-examination, the plaintiff admitted that before the appointment, the 1st defendant called him and he raised no objection. This is telling. First, why would the 1st defendant appoint the 4th defendant, another employee of BOCGD to Kenson’s board? That would definitely expose him. Second, the 1st defendant was not supposed to take part in Kenson’s management. Why did he need to appoint a further director? Third, why would the plaintiff agree to the appointment? The 1st and 4th defendant could, if they so wished, take over the daily operations and management of Kenson. That would not serve the plaintiff’s interest at all. 77.Other than the 4th defendant, BOCGD had appointed other staff members, namely, Mr Zhang and the 3rd defendant, to Kenson’s board since the shares had been transferred to the 1st defendant. In my view, their appointments indicated that BOCGD was taking steps to take over Kensons’ management. It is consistent with the defendant’s case but not the plaintiff’s. B. BOCGD’s knowledge of the transfer 78.BOCGD was aware of the fact that Kenson’s shares were registered in the 1st defendant’s name. In an internal report dated 16 April 1996, it was clearly stated that the 1st defendant held 99% of the shares in Kenson and that the plaintiff held 1% on behalf of the 1st defendant. The percentages were wrong. But no doubt BOCGD knew that the 1st defendant held a majority of the shares in Kenson and the plaintiff held the balance on trust for him. 79.In the minutes of a meeting held on 14 November 1996, where the plaintiff attended with BOCGD’s personnel, it was clearly stated that BOCGD was both a creditor and boss of Kenson. This showed that BOCGD regarded itself as the owner of Kenson. This was possible only if the 1st defendant was holding the shares in Kenson for BOCGD. In his oral testimony, the plaintiff said that the minutes did not accurately reflected what was discussed at the meeting. But he had not raised it with BOCGD because it was not a big problem. I do not find his explanation satisfactory. If his story were true, it would be a big problem to say that BOCGD was Kenson’s owner. C. Depositing the share certificates with BOCGD 80.It is not in dispute that all the share certificates of Kenson’s shares have been deposited with BOCGD. If the 1st defendant is a bare trustee for the plaintiff, it defies common sense that the plaintiff would agree to give the certificates to BOCGD. 81.The plaintiff alleged that the 1st defendant initially had dealings with the plaintiff which he wanted to hide from BOCGD. The original intention was that the Project would be sold quickly. When that was not possible and the plaintiff’s companied began to default on the loans, the 1st defendant must have realized that he was in a delicate position and hence revealed to some of his colleagues that he held the shares in Kenson as security for BOCGD. BOCGD then somehow took over the shares. 82.I am unable to accept the above allegations. Given the fact that it would be a serious breach of his employment, there is no reason why the 1st defendant would disclose his involvement in Kenson to his colleagues at BOCGD. This would only expose his wrongful acts. He could have simply transferred the shares back to the plaintiff. Alternatively, the plaintiff could have asked the 1st defendant to do so. In this regard, the plaintiff said in his oral testimony that he did call the 1st defendant once in 1997 after the Mainland Proceedings had been commenced. But apparently he was content to accept the 1st defendant’s advice to wait for the outcome of the Mainland Proceedings. This is hardly convincing. The plaintiff ought to have pressed for the return of the shares, failing which, he should have taken further actions, including legal proceedings. 83.The above allegations are in fact an attack on BOCGD’s integrity and conduct. When they became aware of the 1st defendant’s wrongful act, they did not take any action against him. Instead, they seized the opportunity to take advantage of the plaintiff by taking over the shares. There is simply no evidence before me to support, directly or by way of inference, such a serious attack on BOCGD. D. Submissions in the Mainland Proceedings 84.In the submissions advanced on behalf of Jade Peak and Yi An in the Mainland Proceedings, it was admitted that BOCGD had Kenson’s shares as security for the subject loans. 85.To counter the effect of such submissions, the plaintiff took two points. He first tried to distance himself from such submissions by alleging that he disagreed with them. This I have no hesitation to reject. No reasonable legal advisers would have advanced such submissions without first taking proper instructions from their clients. And the instructions, most likely than not, must have come from the person having control of the companies, that is, the plaintiff himself. In my view, the plaintiff just changed his story when it suited him most. 86.The plaintiff next contended that in the Mainland Proceedings, BOCGD denied the existence of such security. This is incorrect. On a proper reading of the Mainland judgments, BOCGD was only contending that that the claims for the debts against Jade Peak and Yi An were separate from the security over the Kenson shares. BOCGD did not deny the existence of the security. E. Enforcing the security 87.Since 1997, BOCGD had taken steps to enforce the security over the Kenson shares by selling the shares in Beijing Gaoyi to the Henderson group. BOCGD was no doubt asserting and enforcing its rights as a secured creditor. F. The plaintiff’s own proposal 88.By the Letter, the plaintiff proposed to BOCGD to recover the shares in Kenson by paying US$90 million on 20 October 1997. If his story were true, why would he make such a proposal? He explained in his oral testimony that once BOCGD sued Jade Peak (in August 1997), he assumed that BOCGD, who by that time had been told by the 1st defendant that he held the Kenson shares, would take control of the Project. There was little he could do about it. This explanation is hardly convincing. And I have no hesitation to reject it. Rejecting the plaintiff’s case 89.For the above reasons, I do not find the plaintiff a reliable or credible witness. Accordingly, I reject his version of the events. Attacks on the defendant’s CASE 90.I now turn to the defendant’s evidence. Mr Harris attacks their evidence on several fronts. A. The 1st defendant’s connection 91.Mr Harris submits that the 1st defendant was probably well connected with various influential figures as alleged by the plaintiff. I accept the 1st defendant’s evidence in this regard and find no substance in the plaintiff’s allegation. B. Lack of documents 92.Mr Harris complains that there is an extraordinary lack of contemporaneous documents evidencing the defendants’ version. There is no record showing (1) the agreement between BOCGD and the plaintiff, and (2) BOCGD appointing the 1st defendant to hold the shares as its nominee. Mr Harris also queries why (1) no formal agreement was executed to effectuate the transfer of the Kenson shares as security; and (2) no declaration of trust had been executed by the 1st defendant. 93.The absence of the above documents appears to be abnormal by usual banking practice. However, it must be considered in the context. As I have pointed above, there were internal documents of BOCGD supporting the defendant’s version : see paragraphs 78 and 79 above. Even the plaintiff’s own documentary evidence, namely, the Letter and the submissions made on behalf of Jade Peak and Yi An which contained the admission that the shares in Kenson had been pledged to BOCGD, supports the defendants’ case. So does the subsequent conduct of the parties. In the circumstances, the absence of the above documents, though somewhat unusual, is of little significance. C. Kenson shares not referred to in loan documents 94.Mr Harris submits that all the loans to Jade Peak and Yi An were all documented. But the fact that Kenson shares were held as security was not mentioned at all. Quite to the contrary, the security for the loan made in April 1994 (US$11 million) was the land certificate of the Project. Mr Harris submits that the Kenson shares as security flies in the face of BOCGD’s documents. 95.As I understand the tenor of the 1st defendant’s evidence, BOCGD took the Kenson shares as additional security of the loans advanced to the plaintiff’s companies. And the way in which the security would be given was quite independent of the loans documentation. Accordingly, it is not necessary to refer to the Kenson shares as security in any of the loan documents. D. Why not some other form of security? 96.Mr Harries queries why the alleged security took such a form as alleged by the 1st defendant. A share mortgage could be effected instead. It is, in my view, a mere commercial decision by BOCGD. Although it may appear somewhat unusual, nothing adverse can be made out of it. E. Why appointing the 1st defendant? 97.Mr Harris submits that there is no convincing reason why Shun Ming could not be used as BOCGD’s trustee. Shun Ming had a presence in Hong Kong. Mr Xu, its general manager, was also present in Hong Kong at the time. No reason had been offered as to why it was the 1st defendant who was chosen to be the trustee. The explanation that the 1st defendant was chosen because he could travel to Hong Kong to execute the necessary documents is unconvincing. 98.In my view, it is again a commercial decision made by BOCGD at the time. Mr Harris’s criticism is unwarranted. F. The Agreement prepared by the plaintiff’s solicitors 99.Mr Harris submits that it is unsatisfactory that BOCGD would simply leave the preparation of the Agreement to the plaintiff’s solicitors. Again, it was a commercial decision of BOCGD. I also accept the 1st defendant’s evidence that they considered that the transfer of the shares in Kenson to be a sufficient protection. It was therefore not necessary to instruct BOCGD’s own lawyers to prepare the Agreement. G. BOCGD taking no part in these proceedings 100.Mr Harris submits that BOCGD did not take any step to discharge the injunction or to take part in these proceedings. Such conduct is inconsistent with its stance. 101.Mr Yuen queries if BOCGD could successfully discharged the injunction when the court would mostly likely preserve the status quo until trial. I agree. Mr Yun also submits that it would be a waste of costs for BOCGD to join in these proceedings. Their stance is made known to the parties and the court. All the witnesses have been authorized by BOCGD to given evidence on its behalf. The conduct of the proceedings would just be the same. Again, I agree. H. Enforcement of the security 102.Mr Harris submits that BOCGD has been coy in providing the information of the sale of Beijing Gaoyi to the Henderson. He said that the plaintiff was only able to find out the sale much later. This is factually incorrect. According to the Letter, the plaintiff was by October 1997 aware of the sale but had apparently taken no step to stop BOCGD from doing so. I. Any loan outstanding? 103.Mr Harris finally submits that the sale proceeds arising from the sale to Henderson group should be enough to discharge all the debts owed by the plaintiffs’ companies. Thus, BOCGD is not entitled to retain the shares. I note that the amount of indebtedness due from the plaintiff’s companies has been put in issue by the pleadings. But it is not the plaintiff’s pleaded case that the indebtedness had been discharged so that, even on the defendants’ case, BOCGD could no longer retain the shares in Kenson. In the absence of a proper plea, this point is not open to the plaintiff. 104.More importantly, the 3rd defendant has explained in her oral testimony that this was simply not the case. Mr Harris complains that BOCGD has failed to disclose the necessary documents in support of the contention that the loans are outstanding as pleaded. The schedule relied on by the 3rd defendant is self-serving. Adverse inferences should therefore be drawn against the defendants and BOCGD. I note these points but on the evidence before me, there is nothing to contradict the 3rd defendant, who is obviously in a position to give evidence on these matters, or her schedule. She has not been shaken under cross-examination either. I accept her evidence. This complaint must fail. Accepting the defendant’s evidence 105.I have carefully considered and evaluated the defendants’ evidence. I find each of them credible and reliable. I note that there are certain inconsistencies in the 1st defendant’s evidence. But they are minor and do not affect his overall credibility. On a balance of probabilities, I accept their version of the events. It is well supported by the available documentary evidence and the parties’ subsequent conduct. Conclusion 106.For the above reasons, I find that BOCGD is the beneficial owner of all the shares in Kenson. 107.I will therefore dismiss the plaintiff’s claim. I will enter judgment in favour of the 1st defendant’s counterclaim and order that the plaintiff do transfer the 1,000 shares in Kenson registered in his name to the 1st defendant or any person as he may direct. 108.I see no reason why costs should not follow the event. I will therefore make an order nisi that the plaintiff do pay the defendants the costs of the entire action, to be taxed if not agreed.
Mr Jonathan Harris and Mr Jose-Antonio Maurellet, instructed by Messrs William K.W. Leung & Co., for the Plaintiff Mr Rimsky Yuen, SC and Mr C.W. Ling, instructed by Messrs Robert C.C. Ip & Co., for the 1st to 4th Defendants |
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