Cheung Pui Yuen and Others v. Worldcup Investments Inc. and Others
Read the full judgment text of HCA 1138/2005 on BabelCite. This High Court CFI judgment was delivered on 22 September 2006.
1. On 2 October 2000, at the age of 84, Cheung Kung Hai (CKH) died an immensely rich man. Remarkably, CKH built up his fortune despite the fact that he merely had a primary school education, only spoke Fujianese with limited Cantonese, and could neither read, speak nor write English.
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HCA 1138/2005 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1138 OF 2005 ____________
BETWEEN
____________ Before: Hon Reyes J in Chambers Dates of Hearing: 4-8, 11 & 15 September 2006 Date of Judgment: 22 September 2006 _______________ J U D G M E N T _______________ I. INTRODUCTION 1.On 2 October 2000, at the age of 84, Cheung Kung Hai (CKH) died an immensely rich man. Remarkably, CKH built up his fortune despite the fact that he merely had a primary school education, only spoke Fujianese with limited Cantonese, and could neither read, speak nor write English. 2.In his lifetime, CKH maintained 2 households. One consisted of his wife Lim Bee, his offspring by or adopted with her (Cheung Kwong Wai (deceased), Cheung Chin Chye (deceased), Cheung Theam Siew, Cheung Poh Geak, Cheung Poh Choo, Cheung Yee Ching, Cheung Po Kam, Cheung Poh Luck, Cheung Poh Chit and Cheung Poh Cheuk), and grandchildren of those offspring. The other consisted of his concubine Chin Lan Hong, his offspring by her (Cheung Kee Wee, Cheung Lin Wee, Cheung Ying Wai, Cheung Poh Chuan, Cheung Poh Suan and Cheung Poh Yuen) and grandchildren of those offspring. 3.Lim Bee died in February 1977. Chin Lan Hong, whom CKH took as a concubine in 1947, is now about 80 years old. 4.By his will dated 26 July 1996 CKH appointed Chin Lan Hong, Cheung Kee Wee and Cheung Lin Wee as his executors. Under the will CKH left his estate upon trust for sale. Upon sale, the net proceeds of the estate are to be distributed among surviving members of both CKH’s households in the proportions specified in the will. 5.Questions have arisen as to precisely what assets fall within CKH’s estate for distribution among his heirs. In particular, there is a bitter dispute between CKH’s 2 households about the ownership of 3 Liberian companies (Worldcup, Profit-taking and Doran). 6.In these proceedings, I primarily have to determine whether in 1985 CKH gifted the entire issued share capital of Worldcup and Profit-taking (comprising 500 shares) together with 1 of the 2 issued shares of Doran to Chin Lan Hong. 7.The Liberian companies are the ultimate holding companies of numerous Hong Kong-registered subsidiary companies. Those subsidiaries own substantial assets (including real estate and shares in listed companies). Beneficial ownership of the Liberian companies thus prima facie means beneficial ownership and control of the substantial assets held by the subsidiaries. 8.CKH’s household by Chin Lan Hong (collectively, the Chin faction) contend that Four Pillars (controlled by Kee Wee, Lin Wee and Ying Wai) currently owns Worldcup and 1 share in Doran. They say that Megabest (controlled by Chin Lan Hong) currently owns Profit-taking. 9.It is the Chin faction’s case that CKH transferred the relevant shares (at that time all in bearer form) to Chin Lan Hong in 1985 out of love and affection for her as his wife. In support of this case, the Chin faction points to statutory declarations executed by CKH in 11 January and 10 February 1996. 10.In July 1998 Chin Lan Hong sold the relevant shares (by then no longer in bearer, but in registered form) to Four Pillars for a nominal amount. In October 2002 Four Pillars sold Profit-taking’s 500 shares to Megabest for $8,000,000. 11.The Plaintiffs (who belong to CKH’s household by Lim Bee) deny that CKH intended to transfer any beneficial interest in the Liberian companies or their subsidiaries to Chin Lan Hong in 1985. It is the Plaintiffs’ case that, although CKH may have handed over bearer shares for the Liberian companies to Chin Lan Hong in 1985, he did so purely for safe-keeping purposes. CKH not mean Chin Lan Hong to have more than a bare legal title to those companies. 12.Further, the Plaintiffs say that before and after handing over shares to Chin Lan Hong in 1985 (including the period following his statutory declarations in 1996) CKH behaved as if the Liberian companies and their subsidiaries wholly belonged to him. The Plaintiffs point to such conduct as negativing the 1996 declarations that CKH intended to make a present of beneficial interests in the Liberian companies’ shares to Chin Lan Hong. 13.There never having been any real gift of the Liberian companies’ shares, the Plaintiffs contend that on CKH’s death the beneficial interest in the Liberian companies and their subsidiaries formed part of CKH’s estate. 14.If I find that all or some part of the Liberian companies did not belong to CKH, I have to decide 2 subsidiary issues. 15.The first concerns the beneficial ownership of the assets held by the Liberian companies and their subsidiaries. 16.The second concerns the amounts due from CKH to the Liberian companies at the time of his death. 17.The Chin faction claims that, throughout his life, CKH withdrew substantial sums from the Liberian companies and their subsidiaries. Such sums were in excess (the Chin faction says) of the amounts which CKH injected into those entities. Thus, the Chin faction says that on his death CKH owed Worldcup $76,501,395.13; Profit-taking $22,743,584.78 and Doran $19,409,347.38. 18.The Liberian companies accept that the sums due to them are no longer recoverable because any claim for such debts would be time-barred. They do not now claim anything from CKH’s estate in respect of such debts or any part of them. 19.The Plaintiffs deny that the debt amounts calculated by the Chin faction are correct. The Plaintiffs instead suggest that, on a proper accounting, the Liberian companies or at least some of them are indebted to CKH. II. BACKGROUND 20.This section sets out backgrounds facts on 4 relevant topics. 21.Section A introduces the Liberian companies and their activities both before and after the claimed gift of bearer shares to Chin Lan Hong in 1985. 22.Section B sets out the circumstances surrounding the transfer of bearer shares to Chin Lan Hong in 1985. 23.Section C sets out the circumstances leading to the execution by CKH of statutory declarations in 1996. 24.Section D explains the manner in which the CKH group of companies kept accounts. Here I use the expression “CKH group of companies” merely as a convenient, shorthand way of denoting the collectivity of the Liberian companies, the subsidiaries of the Liberian companies, and companies indisputably owned (in whole or part) by CKH (including companies associated with the Liberian companies). A. The Liberian companies A.1 Worldcup 25.Worldcup was incorporated on 30 August 1984. Its first directors were appointed on 21 September 1984. They were CKH (President), Chin Lan Hong (Secretary) and Corrine Hoh (the wife of Ying Wai) (Treasurer). 26.By October 1984 CKH held all Worldcup’s 500 bearer shares. But he appears never to have detached them from their counterfoils in Worldcup’s share certificate book. The shares each had a par value of US$1.00. 27.Until 2003, none of the Liberian companies had any audited financial statements. In 2003 audited financial statements were prepared by Price Waterhouse for all 3 Liberian companies showing their financial position as at 30 September 2000 (just before CKH’s death). 28.As at 30 September 2000 Worldcup had 14 subsidiaries (including Pearchgold). Those subsidiaries in turn held equity interests in 8 associated companies (such as Pearchgold’s 49.99% interest in E Hing Cheung Realty). 29.Most of those 14 subsidiaries had been acquired by the end of 1984, long before any question over Worldcup’s beneficial ownership arises. The exceptions are Best-O-Best, Karigold and Jollifast. 30.In addition to the 14 subsidiaries just referred to, Worldcup also held Middyland and Chase View. But these 2 companies had been disposed of in 1989 and 1991 respectively. 31.As at September 2000, Worldcup had invested only about $9,000 in its 14 subsidiaries. This low capitalisation cannot account for the substantial acquisition costs of assets held by Worldcup’s subsidiaries. 32.Thus, between its incorporation and September 2000 Worldcup’s subsidiaries had acquired real estate costing $68 million, unlisted shares and debenture stock costing over $22 million and listed shares in Wah Hah Realty costing over $2 million. 33.It appears from investigations by Mr. Grimsdick (the Plaintiffs’ forensic accounting expert) that in almost every case the assets acquired by Worldcup’s subsidiaries came from CKH himself or from a CKH-related company (as opposed to an unconnected third party). A.2 Profit-taking 34.Profit-taking was incorporated on 17 July 1984. Its first directors and officers were the same as those set out above for Worldcup. 35.By the end of September 1984 CKH held all of Profit-taking’s 500 bearer shares (each having a par value of US$1.00). Again CKH never seems to have detached his bearer shares from their counterfoil in Profit-taking’s share certificate book. 36.As at 30 September 2000 Profit-taking had 2 subsidiaries, Crest Bright (incorporated 16 March 1984) and Pullfield (incorporated 8 June 1984). 37.Soon after Crest Bright and Pullfield became subsidiaries of Profit-taking, the 2 companies began to acquire assets. 38.Pullfield bought units in the Peninsula Centre (acquisition cost: $6.2 million) and shares in Wah Ha Realty (acquisition cost: $6.5 million). 39.The Peninsula Centre units were purchased from Galloway (a company owned 49.99% by CKH, 0.01% by Chin Lan Hong, and 50% by CKH’s brother and his wife) for $6,000,600. 40.The Wah Ha Realty shares were bought from various persons, including Kiaw Aik Realty (a CKH-related company), Cheung Poh Suan and CKH. Cheung Poh Suan’s shares were paid for by Speedy Winner (a Worldcup subsidiary) on behalf of Pullfield. CKH’s shares (including shares purchased by CKH on Pullfield’s behalf) were acquired by the end of June 1989 for a total of $2.456 million. 41.Pullfield’s assets generated rental and dividend income up to 30 September 2000. As at 31 March 2000, Pullfield had declared dividends of $9 million and had retained profits of $14.5 million. 42.Over his life, CKH drew some $14.63 million from Pullfield. 43.Crest Bright acquired a one-third interest in Sherrin from CKH. It received dividend income of $12.2 million from Sherrin and in turn declared a dividend of $11.5 million to Profit-taking. Although CKH received some $2.27 million from Crest Bright between 1989 and 1992, it is unclear whether this was intended as full or partial payment for the transfer of Sherrin shares. As at 30 September 2000, it appears that a balance of $2,778,521 remained outstanding to CKH from Crest Bright over 16 years. 44.Profit-taking invested $2,000 in its subsidiaries. Therefore, the company’s capitalisation alone cannot explain its acquisition of significant assets. A.3 Doran 45.Doran was incorporated on 3 December 1984. Its first directors were appointed on 18 March 1985. They were CKH (President), Chin Lan Hong (Secretary) and Lam Wai Ping (Lim Bee’s nephew) (Treasurer). 46.On 18 March 1985 CKH and Chin Lan Hong wrote separately to Doran’s board, requesting that it issue 1 bearer share (par value US$1) to each of them. 47.Doran has 1 subsidiary, Easifast. Easifast has equity interests in a number of associated companies. 48.Doran was most likely incorporated to receive assets assigned to CKH by his adopted son Theam Siew under a settlement dated 18 March 1985. Following the settlement, Theam Siew transferred to Easifast some (but possibly not all) of the assets settled by the March 1985 agreement. 49.Easifast acquired Theam Siew’s assets at a total cost of $171,508 (largely representing stamp duty). 50.The assets received included a 20% interest in a house at 4A South Bay Road, investments in various companies associated with CKH, various unquoted investments and assignments of various shareholder loans. These investments were recorded in Easifast’s records at a nominal value of $1 each. B. The transfer of bearer shares to Chin Lan Hong 51.In early 1984 the CKH group experienced financial difficulty. CKH (who had personally guaranteed the debts of his companies) therefore moved from Hong Kong to Taiwan to avoid creditors. Chin Lan Hong, with whom CKH had been living following the death of Lim Bee, accompanied him. 52.The flat in which CKH and Chin Lan Hong lived in Taipei was smaller than that (7 Black’s Link) in which they had lived in Hong Kong. They had neither driver nor maid in Taiwan, so that Chin Lan Hong took care of the house work on her own. 53.In the 3 years that followed CKH rarely visited Hong Kong. But, since he was only permitted to stay in Taiwan for no more than 2 months’ at a time, he would regularly visit Singapore where he also maintained business interests. 54.Chin Lan Hong in contrast would come to Hong Kong more frequently to run errands, typically to buy goods not available at the time in Taiwan. During those visits, she would also stop by the CKH group offices in the Dominion Centre (Wanchai) as necessary to sign corporate documents. 55.In March 1985 CKH and Chin Lan Hong travelled to Singapore to sign the settlement agreement with Theam Siew. 56.According to Chin Lan Hong’s witness statement, shortly thereafter upon her return to Taiwan with CKH:
57.Chin Lan Hong later inspected the suitcase. She found that it contained share certificates, company books, company seals and cheque books. However, because she does not understand English, she did not know to which companies the documents she found related. Nonetheless, she says that she was aware that “whoever held the shares would be considered as owner of the shares”. 58.With the improvement of their business, CKH and Chin Lan Hong returned to Hong Kong in 1987 or 1988. They then lived in a succession of homes: first at Sha Tin, then at 4A South Bay Road, and later at 4D Grenville House. 59.Initially, Chin Lan Hong kept custody of the suitcase. But when Poh Choo moved from Singapore back to Hong Kong to live at 4A South Bay Road, Chin Lan Hong gave the suitcase to Kee Wee for safekeeping. By this time, there were strong feelings and much tension between the Lim Bee and Chin factions of the family. Chin Lan Hong appears to have handed the suitcase to Kee Wee to forestall the possibility of the suitcase’s contents falling into Poh Choo’s hands. 60.Once in his custody, Kee Wee inspected the suitcase’s contents more closely. 61.He found that the suitcase contained the following: the share certificate books of all 3 Liberian companies; 3 common seals; some green books (which were most likely the statutory/minute books of the Liberian companies); loose minutes relating to the Liberian companies, and the share certificate books and cheque books of around 10 Hong Kong companies (including Baltifield, Crest Bright, Pearchgold, Rival Base, Pullfield, Speedy Winner). 62.Kee Wee kept the suitcase in his home at 1C Grenville House. 63.After CKH and Chin Lan Hong moved to 4D Grenville House, Chin Lan Hong asked for the suitcase back. Chin Lan Hong then emptied the contents into a chest in her walk-in wardrobe at 4D Grenville House. 64.I note that, when giving her oral evidence before me, Chin Lan Hong’s recollection was vague and unclear. I do not think that this is simply because she was 80 years of age. 65.Although nominally the secretary and a director of the Liberian companies, it was clear that she did not have any clear grasp of the scope and extent of their activities and those of their subsidiaries or associated companies. Plainly, she was not actively involved at all in the affairs of the Liberian companies, their subsidiaries or associated companies at any time from 1984 onwards. Those affairs were firmly under the management and control of CKH until at least 1996 when he was diagnosed as having a brain tumour. 66.My impression was that Chin Lan Hong would simply sign documents as instructed by her sons, husband and possibly staff of the CKH group as when and instructed. The documents, often in English, might possibly be explained or interpreted to her before she was asked to sign. But I doubt that she had any real understanding even of what was being explained or interpreted to her. Certainly, she seems to have had no idea of even the superficial details of any corporate transaction. C. The statutory declarations of 1996 67.In late 1995 Chin Lan Hong heard from a close friend about how a family had been cheated through a transfer of their shares without their knowledge. Worried that the same might happen with the shares formerly kept in the suitcase, Chin Lan Hong asked Lin Wee to check the shares in her wardrobe at 4D Grenville House. 68.Lin Wee reported that, save for the share certificates of Doran, everything was intact. Chin Lan Hong informed Kee Wee. He searched 4A South Bay but could not find the Doran shares there. 69.Lin Wee then contacted Grace Fung, then of Messrs. Fung & Liu, for advice on how the family could best protect itself in relation to the bearer shares. Grace Fung had previously handled work for CKH. Such work had included attending in Singapore when the settlement agreement with Theam Siew was executed in March 1985. Both CKH and Chin Lan Hong were well-known to Grace Fung. 70.Chin Lan Hong and Lin Wee visited Grace Fung at her offices on 4 January 2006. Neither Chin Lan Hong nor Grace Fung can remember what was discussed at that time. Lin Wee, on the other hand, did not give evidence. 71.Nonetheless, Grace Fung was certain that she was told that the statutory books of Worldcup and Profit-taking had been lost. This is corroborated by a file note recording that Grace Fung’s secretary ordered replacement statutory books. 72.Whatever was said, one result of the 4 January 2006 meeting was that on 11 January 1996 CKH, Chin Lan Hong and Lin Wee attended at Grace Fung’s office. 73.Two transactions were then carried out. 74.First, the bearer shares of Profit-taking and Worldcup (still attached to their counterfoil in the share certificate books) were cancelled and replaced by registered shares in the 2 companies. CKH and Chin Lan Hong signed documents in support of this act (such as board minutes). 75.Second, CKH signed an English statutory declaration recording the following in respect of the shares of Worldcup and Profit-taking:
76.The declarations were interpreted to CKH. In addition, the declarations were witnessed by Sandy Tang, a solicitor at Fung & Liu. 77.A second outcome of the 4 January 2006 meeting was that on 10 February 2006 CKH, Chin Lan Hong and Lin Wee again attended at Grace Fung’s office to deal with Doran. 78.On 10 February 1996 various documents were signed by CKH and Chin Lan Hong. 79.Both executed English statutory declarations recording that each had recently discovered that their one share in Doran had been lost. The gist of the declarations was explained to them in Cantonese. 80.Both signed documents as Doran directors authorising the issue of 2 replacement bearer shares. 81.Both further signed documents cancelling those 2 replacement shares and causing 2 registered shares to be issued in their stead. 82.Apart from the 4 and 11 January and 10 February 1996 encounters just described, Grace Fung did not have any other relevant meetings with members of the CKH family about the Liberian companies. 83.Grace Fung recalls that, either on 11 January or 10 February 2006, Chin Lan Hong:
84.It appears that on 10 February 1996 Doran’s statutory and minute books were missing or lost. This is because, according to Connie Lui, in 1998 Kee Wee asked Mandy Cheung and her (both of whom were working at the CKH group’s secretarial services department) to order replacement books. 85.On 3 July 1998 CKH and Chin Lan Hong executed minutes of the Liberian companies approving the transfer of Chin Lan Hong’s shares in the latter 3 companies to Four Pillars. Kee Wee brought copies of the minutes to his parents’ home for their signature. D. The CKH group’s accounts 86.From their incorporation to the time of CKH’s death, none of the Liberian companies maintained accounting records. During the same period, the Liberian companies did not have their own bank accounts. 87.But the subsidiaries of the Liberian companies did keep accounting records, at least in the form of general ledgers and journal and adjustment vouchers. Those subsidiaries which had bank accounts also kept cash books. 88.There are 2 remarkable features to the accounts kept by the subsidiaries. 89.The first feature is the systematic use of “accounting intermediaries” in the recording of transactions. 90.Suppose that Subsidiary X of a Liberian company lends money to Subsidiary Y. 91.One would expect that loan to be recorded in X’s and Y’s books. One might further suppose that the current account between X and Y maintained in their respective books would show a credit in X’s favour relative to Y. 92.But loans were not recorded in this straightforward manner in the subsidiary accounts. Instead, a loan from X to Y might be recorded in X’s books as (say) a loan from X to CKH and in Y’s books as a loan from CKH to Y. X’s books would show a debit in favour of CKH’s current account with X, while Y’s books would show a credit in favour of CKH’s current account with Y. This would be the case even though CKH was not a counter-party to the loan transaction and in fact had nothing to do with the loan from X to Y. CKH’s name would simply be used as an “accounting intermediate” or dummy cipher. 93.I have thus far restricted my example to a transaction between 2 subsidiaries of a Liberian company. But use of CKH’s name as accounting intermediate was not limited to transactions between subsidiaries of a Liberian company. 94.CKH’s current account was used as an intermediate in the recording of transactions between subsidiaries on one Liberian company and another or even between subsidiaries of one Liberian company and an associated company within the CKH group. Nor was CKH necessarily the only name used as an accounting intermediary. It appears that companies within the CKH group, including subsidiaries of the Liberian companies, were themselves used as dummy ciphers. 95.The consequence is that, to determine how much CKH actually owed at the time of his death to any particular Liberian company and its subsidiaries, it would at least be necessary to strip out all transactions in which CKH’s name was merely used as a dummy cipher. 96.Here I agree with Mr. Grimsdick that the use of the accounting intermediate system to record transactions does not give a true and fair view of a given company’s affairs. In particular, the system might show a company as being owed money by CKH whereas in actual fact money would be owing by Y. 97.That might possibly not matter if the entire CKH group (including the Liberian companies and their subsidiaries) were beneficially owned (not just controlled) by the same person. However, what happens if (say) an outside investor wishes to acquire an interest within a group company. The intending purchaser would then rely at his peril on the books of his target company. Such books could show an asset in the form of a debt owed to the company by W (a solvent company with substantial assets) when in fact the actual debtor is Y (a shell company with no assets). 98.At trial, Mr. Raymond Chu (who has had charge of the accounting for the CKH group since 1995) explained that the accounting intermediate system had been in use before he joined the group. Since it would be too complicated to unravel the system which was already in place, Mr. Chu said that he simply maintained the same system after he took over. 99.Mr. Chu also sought to justify the use of the accounting intermediate system by suggesting that it simplified the number of current accounts to be opened in the books of the CKH group. 100.I would merely comment here that I do not think that the system simplifies the accounts. Even if (which I doubt) the system means that fewer entries need to be made in accounting books, it can hardly simplify a company’s accounts. It cannot simplify if it does not give a fair picture of a company’s affairs, but instead obscures the true position of a company’s finances. 101.The second feature is what the accounts show when transactions to which CKH was a genuine counter-party are examined. 102.In general the accounts establish that from 1984 (when the Liberian companies were incorporated) onwards, CKH drew money from the subsidiaries of the Liberian companies as and when he wished. He continued to do this until just before his death, long after the transfer of the Liberian companies’ bearer shares to Chin Lan Hong in 1985. 103.At times, the subsidiaries’ accounts appear to set-off amounts drawn by CKH against the value of assets injected by him into a relevant company. But it is far from clear whether this was systematically done. There are few documents to establish the extent to which set-offs took place. In any event, the subsidiaries do not seem to have made any or any significant attempt to claim CKH’s drawings back from him during his lifetime. III. DISCUSSION A. Main issue: Ownership of Liberian companies A.1 Chin Lan Hong evidence’s of the 1985 share transfer 104.On the basis of Chin Lan Hong’s evidence of what happened in Taiwan in 1985, I cannot conclude that CKH intended to make a gift to her of bearer shares in any of the Liberian companies. 105.According to her witness statement (quoted above), CKH handed the suitcase to Chin Lan Hong telling her that it “contained important and valuable documents which he wanted [her] to own”. CKH apparently said nothing else. He did not, for example, enumerate what was in the suitcase. Nor did he explain that, as far as Doran was concerned, he only meant her to hold 1 share in that company. 106.Apart from a suggestion by Mr. Edward Chan SC (appearing for the Liberian companies, Four Pillars and Megabest) in closing submission, it has never been suggested by the Chin faction that CKH intended to give the whole beneficial interest in Doran to Chin Lan Hong. Indeed, that CKH never in fact intended in 1985 to gift Doran completely is confirmed by Grace Fung’s recollection of CKH’s response to Chin Lan Hong’s joking remark in 1996. 107.We know from Kee Wee’s evidence that Doran’s share certificate book would have been in the suitcase at the time when CKH handed it to her. 108.It is true that Kee Wee did not inspect the contents of the suitcase until much later. But there is no suggestion that, before handing the suitcase to Kee Wee’s custody, Chin Lan Hong added anything to it or ever left it out of her care. Thus, the Doran share certificate book could not have later been placed among the suitcase’s contents. The share certificate book must have been in the suitcase from the start. 109.Now, given CKH’s known intention in relation to Doran as confirmed in 1996 before Grace Fung, it is unlikely that he meant a mere handing over the suitcase (including Doran’s share book), without further explanation to Chin Lan Hong, to confer ownership over the Doran shares. 110.If he did not mean to transfer a beneficial interest in Doran, it is hard to see how (absent words by CKH to Chin Lan Hong about Worldcup and Profit-taking specifically) CKH can be taken to have intended to transfer the beneficial interest in Worldcup and Profit-taking either. 111.Chin Lan Hong’s witness statement suggests that all CKH told her was that he wanted her to “own” the documents in the suitcase. But, if made by CKH, such statement would contradict Grace Fung’s evidence of CKH’s intention to retain an interest in at least 1 Doran share. 112.While I accept that it is possible that CKH could say one thing in 1985 and another in 1996, it seems more likely that Chin Lan Hong’s witness statement as to what CKH said in 1985 is inaccurate. 113.In other words, as between Grace Fung’s recollection of CKH’s rejoinder to Chin Lan Hong in 1996 and Chin Lan Hong’s recollection of what was said in Taiwan in 1985, I believe that the former is more reliable. 114.Grace Fung frankly admitted that she did not remember much of what happened in January and February 1996. 115.But when her recollection of Chin Lan Hong’s joke and CKH’s response was challenged by Ms. Gladys Li SC (acting for the Plaintiffs), she stuck to her account. She recollected that detail (Grace Fung said in examination-in-chief) because:
116.In contrast, in the witness box, China Lan Hong was vague and oblivious to the detail of any transaction. Her standard response to a question would be that she either did not know or could not remember. 117.Indeed, in reply, to Ms. Li’s suggestion that Chin Lan Hong had signed her witness statement “without a proper understanding of its contents”, she replied: “I’m not too sure. I don’t know.” Although in re-examination Mr. Chan attempted to claw back a little in relation to that answer, it seems to me that the damage to Chin Lan Hong’s credibility was done. 118.The result is that on the important question of what (if anything) CKH actually said when he handed the suitcase to Chin Lan Hong in 1985, I cannot rely on what is said in Chin Lan Hong’s witness statement. 119.I alluded to Mr. Chan’s suggestion in closing submission that, for all we know, CKH may have gifted Doran to Chin Lan Hong in 1985 and Chin Lan Hong then given it back to him before January 1996. There is absolutely no evidence to support that submission. The Chin faction’s pleading makes no mention of such possibility and Chin Lan Hong’s witness statement is silent on any gift-back. In those circumstances, Mr. Chan’s suggestion must be rejected. 120.In summary, of the 2 persons present at the time of the purported gift, only Chin Lan Hong is still alive. If all the Court had as evidence of what transpired in 1985 was her witness statement, in my judgment that would be an insufficient basis on which to conclude that a gift of the beneficial interest in any bearer shares had actually been made to her. A.2 The 1996 statutory declarations as evidence 121.But Chin Lan Hong’s witness statement is not the only evidence of CKH’s intention in relation to the Liberian company shares. There are also the statutory declarations which CKH signed in 1996. 122.In my view, the declarations relating to Worldcup and Profit-taking must be conclusive on CKH’s intention to make a gift of the beneficial interests in those companies to Chin Lan Hong. Those declarations are categorical in their terms. They state that, the relevant gifts having been made, CKH has “no further right or interest in the Shares”. 123.Thus, as pieces of evidence, the declarations perform 2 functions. 124.First, they declare CKH’s intention to make a gift of Worldcup and Profit-taking shares in 1985. 125.Second, in any event, even if was no effective gift of shares in 1985 for whatever reason, CKH was acknowledging that as at January 1996 he regarded himself as having made an effective gift in 1985. As at January 1996, he was accepting that he retained no interest in the Worldcup and Profit-taking shares. 126.Ms. Li submits that, as CKH was afflicted by a brain tumour in 1996, it is possible that he did not fully comprehend the implications of the statutory declarations. 127.I am not persuaded by the submission. 128.The evidence of Dr. Edmund Woo is that the tumour affecting CKH’s brain would most likely have impaired his eyesight and locomotion. But (according to Dr. Woo) CKH’s cognitive faculties would probably still be functioning properly, even though naturally (CKH then being about 80) his memory might not be as retentive as before. 129.Grace Fung interpreted the declarations to CKH before their execution. CKH must have comprehended her interpretation. There is nothing to suggest that CKH failed to realise what he was signing or did not recognise the subject matter of the declarations, Worldcup and Profit-taking. 130.Ms. Li suggests that Grace Fung ought to have interpreted the declarations to CKH outside of Chin Lan Hong’s presence. Grace Fung cannot remember precisely what she did in January 1996. Assume, however, that she did not do as Ms. Li suggests. I do not think that such a failure would affect my conclusion. 131.CKH was a shrewd and respected businessman. He did not amass his great wealth by being pushed around. There is simply no evidence supporting a contention that, in signing the declarations of January and February 1996, he was subject to undue influence from Chin Lan Hong or anyone else. 132.As for Doran, there is no statutory declaration acknowledging the gift of 1 share to Chin Lan Hong. 133.But CKH signed a Doran board minute authorising the issue of a registered share to Chin Lan Hong. He also signed the registered share issued to Chin Lan Hong. 134.Such conduct on 10 February 1996, when coupled with similar conduct on 11 January 1996 in relation to the shares of Worldcup and Profit-taking, suggests that CKH must also have intended the beneficial ownership in the 1 Doran registered share issued to vest in Chin Lan Hong. 135.This conclusion is supported by the joke relating to CKH’s retention of 1 share which Grace Fung recounted in her evidence. 136.In summary, on the basis of the 1996 declarations, I conclude that CKH did intend to give away the beneficial ownership in Worldcup, Profit-taking and in 1 Doran share. Whether or not there was an effective gift of bearer shares in 1985, by 1996 CKH acknowledged his intention to make a gift. Acting accordingly, CKH then caused registered (as opposed to bearer) shares in the Liberian companies to be issued to Chin Lan Hong in 1996. A.3 Evaluation of miscellaneous factors as evidence 137.Both Ms. Li and Mr. Chan directed my attention to pieces of evidence which (they submitted) supported the cases of the Lim Bee or Chin factions on ownership of the Liberian companies. In this sub-section, I propose to comment on the principal pieces of evidence relied on by each side. In my view, the pieces of evidence are largely equivocal and of minimal probation value. A.3.1 Connie Lui’s handwritten charts 138.In order to keep track of companies within the group (especially which subsidiary or associate was held by which company or person), Connie Lui prepared charts for her internal use. These charts showed CKH holding 100% interests in the Liberian companies. Connie Lui’s evidence was that she relied on “office hearsay”, especially from her superior (Betty Sen), for the latter conclusion. 139.Betty Sen received the incorporation documents for Worldcup and Profit-taking in 1984 when they were originally prepared by Messrs. Deacons (solicitors). She may have then formed the view, correctly, that the companies were beneficially owned by CKH. 140.But it is unknown whether Betty Sen periodically referred to CKH to update her understanding of the beneficial ownership of the Liberian companies. For example, there is no evidence that Betty Sen sought confirmation from CKH in 1985 or afterwards about the ownership of the Liberian companies. If she did, there is no evidence as to what (if any) reply CKH made. 141.There is no evidence as to how Betty Sen formed her views on Doran’s ownership. 142.Accordingly, I am not much assisted by Connie Lui’s handwritten charts. The assertion in the charts that CKH owned 100% of the Liberian companies depends for its validity on when and how Betty Sen arrived at such a conclusion. As to that, there is just no material on which the Court can form any meaningful view. A.3.2 CKH’s disclosure of interest forms 143.Under the Securities (Disclosure of Interests) Ordinance (Cap.396) (in force at the relevant time) directors of listed companies must disclose certain beneficial share interests held by them in such listed companies or their associated companies. 144.In September 1991, CKH as chairman of Wah Ha Realty (a listed company) disclosed beneficial interests held by him in shares of companies associated with Wah Ha. In particular, CKH disclosed that he held interests in E Hing Cheung Realty, Fu Kung San Realty and Wing Tung Hing Realty. 145.Such disclosures would only be right, if CKH is regarded as the beneficial owner of Worldcup and Doran. This is because the relevant shares in the Wah Ha associated companies would have been those registered in the names of Pearchgold and Easifast. 146.On the other hand, Chin Lan Hong (a director of Wah Ha Realty) only disclosed an interest in Wing Tung Hing Realty over the same period. 147.Connie Lui’s evidence is that the disclosure forms which CKH and Chin Lan Hong signed were prepared by the CKH group secretarial services department. The forms were drafted by Connie Lui and finalised by Betty Sen. 148.At best then, CKH’s disclosure form reflects the views of Betty Sen of the beneficial ownership of Doran and Worldcup in 1991. Those views may have been mistaken. As already noted, there is no evidence as to how she formed her views and whether she regularly checked their accuracy. 149.Disclosure forms having been prepared, CKH and Chin Lan Hong were presented with them by the CKH group secretarial department. CKH and Chin Lan Hong would be told that they needed to sign their respective forms in order to comply with the law. The forms (which were in English) may or may not have been interpreted to them in any detail. 150.In all likelihood CKH and Chin Lan Hong (neither of whom read English) would simply have signed in those circumstances without too carefully considering the accuracy of the information contained. They would probably have taken the word of the secretarial department that the forms were correct. 151.I therefore do not attach much weight to the disclosure forms when set against the statutory declarations signed by CKH in 1996. A.3.3 CKH group accounts 152.The 2 key features of the CKH group accounts noted above could possibly point towards CKH owning the Liberian companies and their subsidiaries beneficially. 153.Such ownership would explain why CKH could draw money as and when he pleased from whichever Liberian company subsidiary might conveniently serve the purpose. It would also explain why the relevant companies did not claim back CKH’s drawings of funds in his lifetime. 154.Further, the subsidiaries’ use of accounting intermediates in the recording of debits and credits would be consonant with a beneficial ownership in all the Liberian companies and their subsidiaries being vested in CKH alone. In such case, it may not strictly matter which company owed which company how much. 155.But I do not regard the accounts as decisively establishing CKH’s beneficial ownership. 156.Mr. Chan has drawn my attention to Overseas Trust Bank Ltd. v. Lee See Ching John [1999] 3 HKC 197. 157.There a father had over his lifetime deposited substantial amounts into bank accounts in his son’s name. The father, however, could operate his son’s accounts. Consequently, he could withdraw deposited monies from the accounts as he pleased. 158.The Court of Appeal (Mortimer VP, Godfrey and Rogers JJA) nonetheless held that there had been a gift of the deposits by the father to the son. 159.Godfrey JA stated (at 203H):
160.Rogers JA stated (at 209E):
161.In light of Overseas Trust, I cannot infer from CKH’s mere treatment of company funds as his own that no gift was intended. 162.I bear in mind that the members of both CKH’s households treated CKH as the family patriarch. 163.In keeping with Chinese tradition, this meant that no one from either household questioned CKH’s conduct in his lifetime. That CKH could freely draw funds from the Liberian companies’ subsidiaries might thus simply have been a consequence of the deference shown to him by members of the family (especially Chin Lan Hong). 164.In those premises, it would be unsafe for me to conclude from the state of the CKH group accounts and CKH’s drawings that, contrary to the clear terms of the 1996 statutory declarations, CKH actually made no gift of shares to Chin Lan Hong. 165.Finally, on the CKH group accounts, I note that Mr. Grimsdick attempted to draw inferences about the beneficial ownership of subsidiary companies from ledger entries in the accounts. 166.I do not think that such entries can be any certain guide. The entries are equivocal. No entry unambiguously identifies CKH as the beneficial shareholder of any Liberian company. 167.Even if there were such entries, their accuracy would depend on the circumstances in which they came to be made. There is no evidence of those circumstances. A.3.4 Board minutes of 3 July 1998 168.By these minutes CKH approved the transfer of shares in the 3 Liberian companies from Chin Lan Hong to Four Pillars. 169.By this time CKH had had one operation (on 27 January 1997) to remove his brain tumour. He would shortly have another operation (on 13 August 1998). His mental state in July 1998 is therefore unclear on the evidence. Dr. Woo’s evidence, for instance, was confined to CKH’s intellectual capacities in 1996. 170.CKH’s signing of the minutes may be some corroborative evidence of an acceptance by him that the Liberian company shares held by Chin Lan Hong were hers to do as she pleased. But, given some doubt about CKH’s state of mind at the time, I do not regard the July 1998 minutes as any strong pointer on their own. A.3.5 Doran’s 1998 dividend 171.Doran declared a dividend of $23.4 million in 1998. CKH assigned his dividend entitlement of $11.7 million to Chin Lan Hong. There is some evidence that Chin Lan Hong ultimately received her half of the dividend. 172.I cannot deduce much from this about whether CKH did or did not intend to make a gift of Doran’s 1 share to Chin Lan Hong in 1985. The $11.7 million dividend may indeed have been paid to Chin Lan Hong because she was beneficially entitled to 1 Doran share. Equally, it may have been paid to her simply because she was registered in Doran’s books as holding 1 share. B. Subsidiary issue 1: Ownership of assets of Liberian companies and subsidiaries 173.As a matter of first impression, the assets of a given Liberian company or subsidiary belong to that company. The assets would have been injected into the subsidiaries as loan capital. 174.Apart from a general assertion that all assets injected into the subsidiaries are held on behalf of the estate, no particular case has been pleaded that some identified asset injected into a given company is held on resulting trust for CKH’s estate for some special reason. 175.The trial itself concentrated on the beneficial ownership of the Liberian companies’ shares. 176.There has been no serious investigation during trial into whether any specific shares or real property originally injected by CKH into a subsidiary is somehow held on resulting trust for the estate. 177.No significant evidence has been led to the effect that, at the time of some injection, CKH only intended a given company to hold the injected asset on resulting trust. 178.Such evidence as has been adduced (primarily through Mr. Grimsdick’s expert reports and their appendices) indicates that in some (but not necessarily all) cases where assets have been injected into a subsidiary by CKH, the injection has been treated in the relevant subsidiary’s accounts as a loan from CKH. 179.In those cases, the amount credited as owing to CKH in a relevant account may or may not have represented the true market value of the asset injected. Certain assets, for instance, appear to have been acquired from CKH by various subsidiaries at an undervalue. 180.Sometimes (but not invariably) the amounts credited to CKH were offset against his drawings. 181.On the available evidence, I cannot conclude that any particular asset is held by some given subsidiary on trust for CKH’s estate. 182.Consider this issue from another angle as submitted by Mr. Chan. 183.Assume that at the time of injection the subsidiaries were intended to hold injected assets on resulting trust for CKH. 184.As I have found, CKH then gifted shares in the Liberian holding companies of the subsidiaries to Chin Lan Hong. The inference must be that CKH likewise intended any beneficial interests he held in the subsidiaries’ assets to pass with the Liberian shares to Chin Lan Hong. 185.If CKH meant his entire interest in the Liberian shares (and thereby in the shares of the subsidiaries) to pass to Chin Lan Hong, it would be odd if at the same time he were still presumed to retain equitable interests in the subsidiaries’ assets. What (one asks rhetorically) would have been the point of giving away the Liberian holding company shares in the first place? 186.In that light, I seriously doubt that, following the gift to Chin Lan Hong, CKH held onto any beneficial interests which he might conceivably have had in the assets of the subsidiaries. 187.In her closing submissions, Ms. Li has appended a list of assets which she contends are held on behalf of CKH’s estate. She says that, due to the inadequacy of discovery by the Chin faction, Mr. Grimsdick has not been able to come to any firm conclusion about the funding of the scheduled assets. She argues that, if it is not to be frustrated, this part of the inquiry should be adjourned. 188.There must be some end to litigation. The hearing before me was intended to canvass the main issue and the 2 subsidiary issues set out in the Introduction to this Judgment. If the Plaintiffs had a case on any particular asset or assets, the hearing just concluded before me would have been the time to advance the relevant facts concerning such asset or assets. 189.No application was made at the outset to adjourn the hearing of any particular issue. Nor was any application made seeking better discovery from the Liberian companies or the executors (who were joined as parties so that discovery could be obtained from them). Indeed, it is not clear to me precisely what discovery would be relevant towards discerning CKH’s intention in relation to a particular asset injection at a given time. 190.Accordingly, in my judgment, it would be wrong now to adjourn the determination of this subsidiary issue. I decline to do so. C. Subsidiary issue 2: The disputed debt 191.As pointed out above, in order to determine the amount due from CKH to the Liberian companies and their subsidiaries, it would be necessary to strip out all transactions in which CKH’s name was used as an accounting intermediary. 192.The amounts claimed by the Chin faction to be due from CKH to the Liberian companies did not strip out all relevant accounting intermediary transactions. 193.For example, in numerous transactions between the Liberian companies’ subsidiaries and associated companies in the CKH group, CKH was used as an accounting intermediary. CKH played no part in such transactions. But those transactions were not stripped out in calculating the debts said by the Chin faction to be due from CKH. 194.Mr. Grimsdick performed most of the necessary stripping, subject only to a threshold. By threshold, I mean that as a matter of practicality, Mr. Grimsdick did not consider transactions below certain specified amounts. It would have been time-consuming to have investigated such smaller transactions. Mr. Grimsdick’s stripped-down figures therefore require minor adjustment to take account of transactions below the threshold. 195.Mr. Allen (the Chin faction’s expert) essentially accepted Mr. Grimsdick’s methodology. But Mr. Allen did not himself perform the necessary calculations. 196.Subject to the threshold, Mr. Grimsdick concluded that the following amounts were due from CKH to:
197.These are significantly lower than the debts originally claimed by the Liberian companies (and now acknowledged by them to be time-barred). Even if transactions below Mr. Grimsdick’s threshold lead to increases in the size of the debts, the maximum adjustments would be no more than an additional $12,237,625 for Worldcup, $486,660 for Profit-taking, and $121,859 for Doran. One would still not reach the debt amounts originally claimed against the estate. 198.Given the above, it follows that the sums originally claimed by the Liberian companies as debts due from CKH must be wrong. 199.Mr. Grimsdick, however, went on to suggest that certain drawing by CKH from the Liberian companies’ subsidiaries were actually payments to CKH “in the nature of a dividend”. 200.If these quasi-dividend payments are taken into account, Mr. Grimsdick arrives at the following result:
201.There is no documentary evidence supporting Mr. Grimsdick’s suggestion that certain drawings should be treated as dividend payments. There are no declarations of dividend, board minutes or ledger entries characterising the relevant payments as dividends. 202.Consequently, I reject this part of Mr. Grimsdick’s analysis. 203.The end result is that CKH owed the Liberian companies and their subsidiaries much less than the amounts originally claimed by them. 204.However, Mr. Chan has stated in Court that, as against CKH’s estate, the Liberian companies, Four Pillars and Megabest do not intend to claim any amounts due. Any claims to the outstanding debt due by CKH to the Liberian companies and their subsidiaries are thus waived by the Chin faction. This is either because the debts are time-barred or because the cost and consequences of claiming the debts against the estate do not make the exercise worthwhile. 205.In those premises, no part of the amounts originally claimed by the Liberian companies and their subsidiaries is now enforceable against CKH’s estate. 206.Ms. Li submits that I should confine myself to the narrow question of how much (if anything) was owed by CKH to the Liberian companies alone. This is because the issue as framed literally only refers to the Liberian companies. 207.In my view, this would be too pedantic an approach. 208.It was obvious that the amounts originally claimed by the Liberian companies from CKH’s estate did not only include amounts due to the Liberian companies. Amounts alleged to be due to the subsidiaries were also plainly encompassed. As far as I can see, the parties reasonably approached the subsidiary issue of disputed debt in that spirit. 209.It would therefore be wrong for me to duck the broad issue squarely raised before this Court, by confining myself to a narrow reading of the issue of disputed debts. IV. CONCLUSION 210.There will be Declarations as follows:
211.There will be a Costs Order nisi as follows:
212.I propose the foregoing order because in my view the Chin faction’s contentions have largely prevailed. Even on the disputed debt, the Chin faction has long been saying that much of the debt has been time-barred and has ceased to be a practical issue. Nonetheless, I do not think it would be fair for the Plaintiffs alone to bear the costs of this inquiry. This is because, if the Plaintiffs had succeeded, the Lim Bee side of CKH’s family would have benefited. 213.There will be liberty to apply.
Ms. Gladys Li, SC and Mr. Malcolm Lim, instructed by Messrs Hammonds for the Plaintiffs Mr. Edward Chan, SC and Mr. Damian Wong, instructed by Messrs Cheung, Tong & Rosa for the 1st to 5th Defendants Plaintiffs appeal allowed and Executors appeal dismissed: see CACV389/2006 dated 5 September 2007 |
Cases cited in this judgment