She Tsu Yi v. Tsui Ki Ting and Others
Read the full judgment text of HCA 1684/2004 on BabelCite. This High Court CFI judgment was delivered on 5 November 2007.
1. For easy reference, this judgment is divided into the following parts :
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HCA1684/2004 & HCMP3290/2004 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1684 OF 2004 ----------------------- BETWEEN
---------------------------- AND MISCELLANEOUS PROCEEDINGS NO. 3290 OF 2004 -----------------------------
---------------------------- BETWEEN
---------------------------- (HEARD TOGETHER) Before : Hon Poon J in Court Dates of Hearing : 24–26, 29–30 January, 6–7 February and 26 June 2007 Date of Judgment : 5 November 2007 ---------------------------- J U D G M E N T ---------------------------- 1.For easy reference, this judgment is divided into the following parts :
A. THE DISPUTES IN A NUTSHELL 2.Po Tek (the 7th defendant) holds 15% beneficial interest in a development project over 1,500 Chinese mu of land in Nanjing known as南京民營科技園 (“the Project”). That 15% interest is apparently very valuable. It amounted to some RMB18,000,000 as at 31 May 2002 and commanded a dividend of RMB5,376,268 in October 2003. 3.Mr She (the plaintiff) claims that he made an agreement with the Tsui brothers (the 1st and 2nd defendants”) in about May 2002 (“the Agreement”) to jointly participate and/or invest in the 15% interest in the Project via Po Tek. Under the Agreement, Mr She is a 30% shareholder of Po Tek. But the Tsui brothers had wrongfully refused to recognise his shareholder status. They had further wronged Po Tek as directors by divesting its 15% interest in the Project and caused it to be vested in their corporate vehicles, Million Sense (the 3rd defendant) and Vast Land (the 4th defendant) on about 15 August 2003. Mr She now seeks enforcement of the Agreement and various remedies on behalf of Po Tek. 4.The Tsui brothers allege that the Agreement was subject to a pre-condition whereby the parties had to make immediate contribution to the expenses incurred by the Project as at May 2002 in accordance with the anticipated extent of their shareholding in Po Tek (“the Pre-condition”). But Mr She had failed to meet the Pre-condition and had rendered himself not contactable at the material times. They therefore decided to take up the 15% investment without involving Po Tek as they were effectively the only participants in the Project. This explained the transfer of Po Tek’s 15% interest to Million Sense and Vast Land in August 2003. (After the commencement of these actions, Million Sense and Vast Land assigned the 15% interest back to Po Tek on 29 October 2004 : see paragraph 23 below.) The Tsui brothers accordingly deny that Mr She is a 30% shareholder of Po Tek and contend that he has no locus to commence the derivative action for Po Tek. B. Background facts 5.For a better understanding of the issues involved, a brief summary of the background facts leading to the disputes is in order. 6.The Project is principally an investment of the Wu Yi Group in the Mainland. 7.The Group’s ultimate holding company is Fujian Construction Engineering (Group) Corporation (“Fujian CE Group”). It holds中國武夷實業有限公司 (“PRC Wu Yi”), a listed company in the Mainland and Great Margin (the 5th defendant). PRC Wu Yi in turn holds武夷建築有限公司 (“Wu Yi Construction”), the majority shareholder of HK Wu Yi (the 6th defendant). HK Wu Yi is the 65% shareholder of南京武夷房地產開發有限公司 (“Nanjing Wu Yi”). The other shareholders of Nanjing Wu Yi include Million Sense (15%) and Vast Land (5%). 8.The Group’s investment in the Project began with an agreement dated 22 July 2000 made between PRC Wu Yi and南京民營科技園發展有限公司 (“the Project Agreement”). In short, PRC Wu Yi would invest RMB300,000,000 whereas 南京民營would provide the land. 9.The Tsui brothers were involved in the Project at the outset by virtue of a trust agreement dated 10 September 2000 made between PRC Wu Yi, Million Sense and Vast Land (“the 10/9/00 Trust Agreement”). PRC Wu Yi acknowledged in that Trust Agreement that it was to hold on trust 15% of the interest in the Project as to 10% for Million Sense and 5% for Vast Land, including all future interest and dividends. 10.Sometime before April 2002, Fujian CE Group replaced PRC Wu Yi by Great Margin as the investment vehicle in the Project. For that purpose, 南京武寧房地產開發有限公司 (“Nanjing Wu Ning”) was incorporated with a registered capital of US$2,000,000 on 8 April 2002. It was held by Great Margin and PRC Wu Yi as to 99% and 1% respectively. Since its incorporation, Nanjing Wu Ning has held all the interest in the Project. (For easy reference, see the chart showing all the companies concerned at the Appendix to this Judgment.) 11.Of the 99% shareholding that it had in Nanjing Wu Ning, Great Margin held 10% for Million Sense and 5% for Vast Land on trust. In other words, the latter’s 15% interest in the Project remained intact. 12.In or about early May 2002, the Tsui brothers invited Mr She and a Mr Tam Tai Wai, a solicitor, to participate and invest in the 15% interest in the Project through Po Tek, then a shelf company. The parties signed a set of shareholders’ and directors’ resolutions dated 7 May 2002 (“the 1st Set of Resolutions”). Under those resolutions, Po Tek had to contribute US$300,000 to Nanjing Wu Ning, which was 15% of the latter’s registered capital of US$2,000,000. The shareholding of Po Tek was to be distributed among Mr Tusi, Mr Ser (the 2nd defendant), Mr She and Mr Tam as to 30%, 20%, 30% and 20% respectively. They were required to contribute to the US$300,000 in accordance with their shareholding ratio. Mr Tam then in his capacity as the company secretary of Po Tek issued a capital contribution notice to the shareholders (“the 1st Contribution Notice”). 13.Later, Mr Tam withdrew. His 20% share in Po Tek was to be taken up by the Tsui brothers equally. Mr She’s 30% shareholding remained unchanged. On or about 24 May 2002, Mr She and the Tsui brothers then signed another set of shareholders’ and directors’ resolutions, which were all backdated to 7 May 2002 (“the 2nd Set of Resolutions”). The 2nd Set of Resolutions is substantially identical to the 1st Set of Resolutions with the necessary modifications on the ratio of shareholding and the corresponding capital contributions by the parties. The relevant part of the shareholders’ resolutions read :
The board resolution read :
I will return to the meaning of these resolutions in greater detail below. 14.Pursuant to the 2nd Set of Resolutions, Mr Tsui as Po Tek’s director issued a capital contribution notice (“the 2nd Contribution Notice”), which Mr She said he received on 24 May 2002. He then paid his 30% share of capital contribution of HK$702,000 by cheque dated 29 May 2002. The 1st defendant acknowledged receipt in writing on 5 June 2002. The plaintiff had not made any further contribution to Po Tek since then. 15.Separately on 20 May 2002, the Tsui brothers wrote through Million Sense and Vast Land to Great Margin, requesting it to hold their 15% interest in the Project for Po Tek. Great Margin agreed. It then entered into a trust agreement with Po Tek dated 22 May 2002 (“the 22/5/02 Trust Agreement”), agreeing to hold 15% out of the 99% shareholding/interest it held in Nanjing Wu Ning on trust for Po Tek together with all present and future rights to dividends. 16.Shortly thereafter, Great Margin and HK Wu Yi entered into an agreement dated 27 May 2002 whereby Great Margin agreed to transfer all its shares in Nanjing Wu Ning to HK Wu Yi at a price to be assessed by a valuer, subject to the approval of shareholders’ meeting. Nanjing Wu Ning gave its consent for that transfer on 1 June 2002. The valuer produced the valuation report on 7 June 2002. Great Margin and HK Wu Yi then entered into a supplemental agreement dated 26 June 2002 under which Great Margin agreed to transfer all its shares in Nanjing Wu Ning to HK Wu Yi at per the said valuation. 17.By letter dated 12 August 2003, Million Sense and Vast Land requested HK Wu Yi to cancel the 22/5/02 Trust Agreement, hoping that HK Wu Yi would hold Wu Ning’s shares, as to 10% thereof for Million Sense and, as to 5% thereof, for Vast Land. HK Wu Yi agreed. Great Margin and Po Tek then entered a discharge agreement dated 15 August 2003 to discharge the 22/5/02 Trust Agreement (“the Discharge Agreement”). HK Wu Yi, Million Sense and Vast Land entered into a trust agreement also dated 15 August 2002, whereby HK Wu Yi agreed to hold 10% and 5% of the shares in Nanjing Wu Ning for Million Sense and Vast Land respectively (“the 15/8/03 Trust Agreement”). 18.By virtue of the Discharge Agreement and the 18/8/03 Trust Agreement, Po Tek was divested of its 15% interest in the Project and the same was effectively transferred to Million Sense and Vast Land. 19.On or about 13 October 2003, Great Margin agreed to pay Po Tek RMB5,376,268 as its share in the after tax cash profits derived from the increase in the value of the land (“the Dividend”). On 15 October 2003, Mr Tsui sent a letter dated 10 October 2003 (“the 10/10/03 Letter”) to Mr She (via his secretary, Ms Rainbow Chow (“Ms Chow”), who was previously Mr She’s secretary when he worked for the Wu Yi Group), informing him that Po Tek would receive the Dividend arising from the 1st phase of the Project and invited his opinion on the same. 20.Mr She and Mr Tsui then held a meeting on 27 October 2003 (“the 27/10/03 Meeting”) to discuss the matters but reached no conclusion. Litigations ensued. C. the actions 21.On 20 July 2004, Mr She commenced HCA1684/2004, alleging that he is a 30% shareholder of Po Tek and that he brought the action on behalf of Po Tek. The Tsui brothers, Million Sense, Vast Land and Po Tek did not file any defence until November 2003. What they did in the meantime is this. 22.In or about October 2004, the Tsui Brothers procured the transfer to themselves each one subscriber share of Po Tek and allotted to Mr Tsui one share of Po Tek. So on record, Mr Tsui held two shares and Mr Ser, one. These transactions were all backdated to 18 May 2002. On 18 October 2004, the Tsui brothers registered themselves as the two shareholders and directors of Po Tek. The statutory record of Po Tek in the prescribed forms was then filed with the Companies Registry. 23.On 20 October 2004 and upon legal advice, Po Tek, Million Sense and Vast Land resolved that an assignment be executed by Million Sense and Vast Land in favour of Po Tek whereby they assigned all the rights under the 15/8/03 Trust Agreement to Po Tek. Million Sense and Vast Land later executed an assignment dated 29 October 2004 to that effect (“the 29/10/04 Assignment”). Million Sense and Vast Land then delivered a notice of assignment to HK Wu Yi. So did Po Tek. 24.Having taken all these steps, the Tsui brothers, Million Sense, Vast Land and Po Tek then filed a joint defence dated 1 November 2004. There, it is averred, inter alia, that the plaintiff had no locus to bring the action on behalf of Po Tek because the 1st and 2nd defendants hold and control all its shares. 25.This apparently prompted Mr She to apply successfully for an ex parte interim injunction on 9 November 2002 restraining, inter alia, the Tsui brothers from transferring the plaintiff’s alleged 30% shares in Po Tek to anybody without his written consent; and Po Tek from disposing of the 15% interest in Nanjing Wu Ning. On 12 November 2004, the injunction was ordered to be continued until trial. 26.Then on 23 December 2004, Mr She commenced HCMP3290/2004 against the Tsui brothers and Po Tek, seeking rectification of (1) the register of shareholders of Po Tek pursuant to section 100 of the Companies Ordinance, Cap.32; (b) Po Tek’s register of directors; and (c) consequential relief. While it is necessary for Mr She to commence HCMP3290/2004 under Order 102, rule 3, Rules of the High Court, he craved for more by seeking summary judgment on his status as Po Tek’s shareholder. On 25 May 2005, I dismissed his application for summary judgment with costs. 27.Pursuant to my directions, HCA1684/2004 and HCMP3290/2004 were tried together before me. 28.Shortly before the trial, Great Margin and HK Wu Yi settled the matter with Mr She whereby they agreed to abide by any order that the court may make. They ceased to take any further part in the trial. 29.At the trial, Mr She gave oral evidence. So did Mr Tsui on behalf of himself, Mr Ser, Million Sense, Vast Land and Po Tek. Their witness statements and affirmations filed in HCMP3290/2004 were adopted as evidence-in-chief. The parties called no other witnesses. Senior counsel representing the parties had made lengthy submissions. In this judgment, I will not deal with every point taken by them. Suffice it to say that I have already considered all their submissions in full and with care. D. the main issues arising from the pleadings 30.I now come to the pleadings which define the main issues for determination. 31.As noted, Mr She’s claims are divided into : (a) personal contractual claims; and (b) derivative claims on behalf of Po Tek. 32.On his personal contractual claims, the Agreement is pleaded in this way. It was partly oral and partly in writing. The Agreement provided, among other things, that Po Tek’s shares were distributed among Mr She, Mr Tsui, Mr Ser as to 30%, 40% and 30% respectively; and that the initial capital contribution by Po Tek in the Project would be US$300,000 and there might be a further contribution of RMB3,600,000 by Po Tek to which the parties would contribute in accordance with their respective shareholding in Po Tek. The Agreement, insofar as it was in writing, was evidenced by the 2nd Set of Resolutions. He had duly performed the Agreement but the Tsui brothers had breached the Agreement by, among other things, refusing to procure the requisite allotment of Po Tek’s shares to him and registering themselves as the two shareholders and directors of Po Tek in October 2004. He asked for specific performance of the Agreement and damages in addition to or in lieu of specific performance. 33.On the derivative claims, Mr She’s main complaint is that the Tsui brothers had acted wrongfully as directors of Po Tek by divesting its 15% interest in the Project to Million Sense and Vast Land for their own benefit. The following causes of action are prayed in aid : fraud, conspiracy to injure, breach of fiduciary duties, dishonest assistance and knowing receipt. He claimed on behalf of Po Tek for, inter alia, declaratory relief, account or inquiry and damages. 34.The Tsui brothers’ main defence to Mr She’s personal claims is that there was no binding agreement between them entitling him to be a 30% shareholder of Po Tek. The Agreement was subject to the Pre-condition which is pleaded thus. It was made clear to Mr She as a pre-condition to join in the investment, he had to contribute, in accordance with the anticipated extent of shareholding in Po Tek :
35.As at early May 2002, all the then existing investors in the Project had already contributed a total of about RMB34,000,000 as land fees. However, after his first contribution to the US$300,000, Mr She had rendered himself not contactable and had not evinced any intention to satisfy the Pre-condition relating to the contribution to land fees. They therefore decided to take up the investment without involving Po Tek as they were effectively the only participants in the Project. 36.On the derivative claims, the only substantial defence raised is that Mr She did not have locus standi to bring the claims on behalf of Po Tek as he is not a shareholder. In reply, Mr She raised an alternative case that estoppel (by representation or convention) conferred on him membership of Po Tek. 37.From the pleadings, the following main issues are identified :
I will first look at Mr She’s personal contractual claims. E. the personal contractual claims E.1. Was the Agreement subject to the Pre-condition? 38.The parties hotly disputed if the Agreement was subject to the Pre-condition. 39.In considering the evidence pertaining to the parties’ cases on the Pre-condition, I will consider the following matters in turn :
E.1.a. The nature of the RMB3,600,000—incurred expenses or future capital requirement? 40.The Pre-condition is based on the allegation that the RMB3,600,000 was immediately payable because it came from the incurred expenses into the Project prior to 7 May 2002. This entails a closer examination of the nature of the RMB3,600,000. 41.Mr Tsui advanced three versions in support of his allegation that the RMB3,600,000 were incurred expenses, relying respectively on (a) the RMB15,400,000; (b) the RMB40,000,000 and (c) the RMB5,390,000. I will examine these versions in turn. 42.Mr Tsui’s first version can be found in his 2nd affirmation dated 15 March 2005. It was repeated in his witness statement dated 9 September 2005 thus :
In re-examination, Mr Tsui said that he knew in or about October 2002 that Million Sense and Vast Land were made responsible for the said sum of RMB5,390,000 out of the RMB15,400,000 loans to Nanjing Wu Ning. 43.This version based on RMB15,400,000 is difficult to accept. For one thing, the sum inconsistent with the pleaded case that about RMB34,000,000 had been incurred as land fees. And for another, it cannot possibly stand because the RMB3,600,000 could not have been immediately payable as of 7 May 2002 when Mr Tsui’s proposal was only subsequently confirmed by Nanjing Wu Yi in the latter half of 2002 and the exact figure of RMB5,390,000, instead of RMB3,600,000, was confirmed even later in October 2002. When cross-examined, Mr Tsui effectively abandoned this version by blaming his former solicitors for imprecise drafting of paragraph 19 of his witness statement. In my view, this is but a lame excuse that he made up when he was cornered. 44.Mr Tsui’s second version of how RMB3,600,000 was made in his oral testimony. He attempted to abide by his pleaded case and said that the land fees incurred by the Project by March 2002 was RMB34,000,000. But he went on to say, for the first time in these proceedings, that there was an extra RMB6,000,000 being pre-setting up expenditure over and above the land fees. Thus the total came to RMB40,000,000. From this the registered capital of US2,000,000, that is, RMB16,000,000 had to be deducted, leaving RMB24,000,000. And 15% of RMB24,000,000, which Po Tek had to contribute according to its shareholding in the Project, would be RMB3,600,000. 45.According to this version, two sums were involved : (a) RMB34,000,000 as land fees and (b) RMB6,000,000 as pre-setting up expenditure. 46.I first consider the alleged land fees of RMB34,000,000. 47.The sudden of increase of land fees from RMB15,400,000 to RMB34,000,000 is not referable anywhere in the pleadings, the 1st defendant’s affirmations or witness statement. Why? No satisfactory explanation has been offered. 48.In support of his allegation that the land fees incurred was RMB34,000,000, Mr Tsui relied on a document entitled “土地付款情況” issued purportedly on behalf of Nanjing Wu Ning on 3 March 2005 (“the Payment Status”). According to the Payment Status, the land fees incurred up to March 2002 was RMB34,000,000, which came from PRC Wu Yi (including Million Sense and Vast Land) in four batches between January 2001 and February 2002. 49.Mr Tsui admitted that the Payment Status was obtained for the purpose of litigation. It is therefore not a contemporaneous document evidencing the payments making up the RMB34,000,000. If those payments had in fact been made, contemporaneous documents evidencing the same should exist and be readily available. But none has been adduced to corroborate the figures in the Payment Status. The absence of such supporting documents casts considerable doubt on the veracity of the Payment Status. 50.Further, the Payment Status does not sit well with the Project Agreement. Under Clause 2 of the Project Agreement, about 200 mu of land would be granted every year for the Project. The land fee at the time was RMB110,000 per mu. According to Mr Tsui’s oral evidence, the land fee remained at the same rate before the execution of the 15/8/03 Agreement. If the land fees incurred up to March 2002 was RMB34,000,000, then the Project would have received about 310 mu of land by then. If by the end of 2002, the Project had already received 672 mu of land, then within about nine months since March 2002, the Project obtained a further 361 mu of land. This is apparently inconsistent with the quantity of land to be granted annually under Clause 2 of the Project Agreement. More importantly, if the Project had already received 672 mu of land by the end of 2002, a total of RMB110,000 x 672 = RMB73,920,000 would have been incurred as land fees by the end of 2002. However, according to the Payment Status, by the end of 2002, the land fees incurred was RMB52,300,000, much less than RMB73,920,000. The glaring discrepancy is not explained. 51.I find the Payment Status dubious. I will not attach any weight to it. 52.Even assuming that the land fees incurred by March 2002 were RMB34,000,000, it does not support Mr Tsui’s evidence that the RMB3,600,000 represented Po Tek’s share of expenses incurred. This brings me to the alleged pre-setting up expenditure of RMB6,000,000. 53.The figure of RMB6,000,000 never appeared before, whether in pleadings, Mr Tsui’s affirmations or witness statement. It only came about for the first time in his oral testimony. When cross-examined, Mr Tsui said that the breakdown constituting the sum was of small figures that needed not to be mentioned. He even said that the pre-setting up expenditure was merely an estimation. In my view, he was obviously making it up in order to fill up the gap between the RMB34,000,000 as land fees pleaded and the RMB40,000,000 as alleged in court. For without the RMB6,000,000, he could not say that the RMB3,600,000 was 15% of the outstanding incurred expenses that needed to be contributed immediately as of 7 May 2002. 54.One further difficulty of this version is this. Mr Tsui said that part of the land fees of RMB34,000,000 was paid out of the registered capital of US$2,000,000 (= RMB16,000,000). After deducting US$2,000,000 from RMB40,000,000, a balance of RMB24,000,000 is left. And 15% of RMB24,000,000 is RMB3,600,000. The allegation that US$2,000,000 was utilised as part payment of the land fees is not borne out by the evidence before me. It is also in stark contradiction with Mr Tsui’s own evidence when he said the RMB34,000,000 came from the RMB15,400,000 lent by PRC Wu Yi and other loans by Nanjing Wu Yi. It is also contradicted by the Payment Status that he sought to rely on. According to the Payment Status, the RMB34,000,000 was incurred by February 2002, which was before the incorporation of Nanjing Wu Ning in April 2002 and before any possible capital injection to it. The RMB34,000,000 land fees could not have been paid out of the US$2,000,000 registered capital. 55.For the above reasons, this version based on RMB4,000,000, consisted of RMB34,000,000 land fees and RMB6,000,000 pre-setting up expenses, must be rejected. 56.Mr Tsui’s final version was based on the alleged contribution of RMB5,390,000 into the Project by him and Mr Ser through Million Sense and Vast Land. The thrust of his evidence is that both US$300,000 and RMB3,600,000 were immediately payable because they had already been incurred by them in the form of the RMB5,900,000. But that is not enough. Mr Tsui needed to further prove that the RMB5,900,000 was related to RMB3,600,000 but has failed for a number of reasons. 57.First, it is not their pleaded case that the RMB5,390,000 was paid pursuant to the their obligation to contribute their share of the RMB3,600,000 under the Pre-condition. The absence of such a plea is inexplicable. 58.Second, according to paragraph 19 of Mr Tsui’s witness statement, the RMB5,390,000 was part of the RMB15,400,000. But he said in court that the land fees incurred was RMB34,000,000, instead of RMB15,400,000. He further said that RMB15,400,000 formed part of the RMB34,000,000. So, his latest account is the RMB5,390,000 was part of RMB15,400,000 which in turn formed part of RMB34,000,000. 59.This new allegation is not mentioned before. It is inconsistent with the Payment Status in three aspects. According to the Payment Status, the RMB34,000,000 came in four batches from PRC Wu Yi. The RMB15,400,000 never featured at all. Further, the RMB34,000,000 was paid in full by 4 February2002. But according to paragraph 19 of Mr Tsui’s witness statement, the RMB15,400,000 was advanced in about late April 2002, some two months later. It could not have formed part of the RMB34,000,000. Finally, the RMB34,000,000 was advanced by PRC Wu Yi. How could it be said that it include the RMB15,400,000 advanced by Nanjing Wu Yi? It is not borne out by the evidence before me. 60.Third, Mr Tsui placed much emphasis on the requirement to make pro-rata contributions by the Project’s shareholders. But whether the land fees were RMB15,400,000 or RMB34,000,000, the RMB5,390,000 cannot be the 15% pro-rata contributions by Million Sense and Vast Land at all. The arithmetic simply does not fit. To deal with this problem, his counsel, Mr Duncan, SC submitted that the contribution by the Tsui brothers were pro-rata because PRC WU Yi might have contributed more, although Mr Tsui did not know about it. So the Tsui brothers effectively contended through their counsel that they do not know exactly the contributions towards land fees and expenses were. This self-inconsistent contention must be rejected. 61.Fourth, it is Mr Tsui’s own evidence that all the alleged contributions to Nanjing Wu Ning were in fact loans from shareholders, which included the alleged contributions of RMB5,390,000 by Million Sense and Vast Land. Nanjing Wu Ning had already repaid the loans in full with interest. That being the case, the so-called contributions were, putting Mr Tsui’s evidence at its highest, shareholders’ loans to Nanjing Wu Ning, which had been repaid in full subsequently. And I so find. It does not support the Tsui brothers’ allegation that it was the payment by them of their share of the RMB3,600,000, thus rendering Mr She’s portion of the same immediately payable as of 7 May 2002. 62.Finally, there is the 10/10/03 Letter. Written by Mr Tsui, it read :
63.Three points arose from the 10/10/03 Letter which contradicted Mr Tsui’s evidence on the Pre-condition. First, Nanjing Wu Ning did not call its shareholders to contribute to the RMB3,600,000. Second, nobody, including the Tsui brothers, Million Sense and Vast Land, contributed towards the Project’s capital over and above the US$300,000. Third, the Project was financed by loans arranged by its majority shareholder. (I will return to this Letter when I consider the parties’ conduct.) 64.Having rejected Mr Tsui’s evidence, I next turn to Mr She’s evidence on the nature of the RMB3,600,000 : the sum represented Po Tek’s share of the future capital requirement of Nanjing Wu Ning. 65.Mr She’s case is well supported by contemporaneous evidence. Under Clause 2 of the Project Agreement (22 July 2000), the total registered capital of Nanjing Wu Ning was envisaged to be RMB40,000,000. However, when Nanjing Wu Ning was incorporated (8 April 2002), its initial paid-up capital turned out to be US$2,000,000, which was equivalent to RMB16,000,000. That remained the case until August 2005. It follows that as at 7 May 2002, a total of RMB24,000,000 remained to be the uncalled registered capital of Nanjing Wu Ning, which its shareholders, upon request, needed to contribute pro-rata to its interest in the Project. Po Tek, which held 15% in the Project, had to contribute 15% of RMB24,000,000, which is exactly RMB3,600,000. Thus the RMB3,600,000 was part and parcel of the capital structure of Nanjing Wu Ning contemplated in the Project Agreement, which was not immediately payable then. 66.Under cross-examination, Mr Tsui was asked to comment why the uncalled capital requirement of the Project happened to be RMB3,600,000. He said it was a mere coincidence. This feeble reply must be rejected. 67.I find that the RMB3,600,000 was as at 7 May 2002 Po Tek’s share of the uncalled capital requirement of Nanjing Wu Ning. E.1.b. The oral discussions of the parties 68.The next factor that I consider is the oral discussions of the parties before the signing of the 1st and 2nd Set of Resolutions. 69.It is common ground that the parties had some oral discussions before signing the 1st and 2nd Set of Resolutions. There is a minor difference between Mr She and Mr Tsui as to who approached whom for the investment. Mr She said that it was Mr Ser who contacted him. Mr Tsui said it was Mr She who approached him and his brother. This minor difference in my view is insignificant. If need be, I will accept Mr She’s version of the event. It is consistent with the undisputed fact that the investment into the Project through Po Tek was sizable and the Tsui brothers were then looking for other investors to participate. 70.The major difference between the parties is what was said during the oral discussions. 71.Mr She’s evidence is that on 7 May 2002, Mr She, the Tsui brothers and Mr Tam met at HK Wu Yi’s office. That was the only meeting that they had. During the meeting, they agreed to participate in the Project. All of the four of them would hold 15% share of the Project via Po Tek in the ratio of 30%, 30%, 20% and 20% as to Mr She, Mr Tsui, Mr Ser and Mr Tam respectively. They would all be appointed directors. Mr Tam was chosen as the company secretary. They all had to contribute proportionately to US$300,000, which was 15% of the registered capital of US2,000,000 of the Project. At that meeting, Mr Tsui also told Mr She that there was a possibility that they would be asked to contribute towards RMB3,600,000, which was 15% of the would-be further capital contribution of RMB24,000,000. Mr She signed the 1st Set of Resolutions because they were an accurate record of the meeting. Later, Mr Tsui told Mr She that Mr Tam had opted out of the Project and that there would be change in the ratio of the shareholding which would become 4:3:3 as among Mr Tsui, Mr She and Mr Ser. Mr She told Mr Tsui that it did not matter because there was no change in his shareholding. Thus Mr She signed the 2nd Set of Resolutions on or about 24 May 2002. He did so because they were in accordance with the discussions and the only change was the withdrawal of Mr Tam. 72.Mr Duncan, SC, counsel for Mr Tsui, submitted that Mr She’s evidence was too simple to be true. He was referring to his evidence as to how he signed the 1st and 2nd Set of Resolutions after some telephone conversations and one meeting only. But it is common ground that Mr She had known the Tsui brothers for some 20 years and that they had all worked for the Wu Yi Group for considerable time. Mr She also said that he had been dealing with the Wu Yi Group in the real estate business for more than 20 years and made profits from other similar projects. He missed one opportunity to make lucrative profit because he sold his shares in Nanjing Wu Yi to the Tsui brothers just before its first declaration of dividends after many years of investment. Thus he wanted to make up his loss by the Project. I find that explanation reasonable and accept it. 73.Mr Duncan further submitted that it defies belief that Mr She as a seasoned businessman would have plunged into the Project without ascertaining the details including Po Tek’s financial commitment. In support, Mr Duncan referred to the 10/9/00 Trust Agreement and the 22/5/02 Trust Agreement, which Mr Tsui said he had shown a copy to Mr She during the discussions. He submitted that Po Tek’s financial commitment contemplated there was open-ended. In my view, whether or not Po Tek’s financial commitment was open-ended or whether there was discussion on this aspect is beside the point. For even if there were discussions about the financial commitment of Po Tek, the evidence clearly shows that the only financial obligation that Po Tek needed to fulfil immediately there and then was to contribute to Nanjing Wu Ning’s registered capital of US$2,000,000. The discussions did not alter the nature of the RMB3,600,000, which was uncalled capital requirement and not incurred expenses. 74.In my view, Mr She’s evidence on the parties’ discussions is straightforward, consistent with the nature of RMB3,600,000 and is not shaken under cross-examination. I accept his evidence. 75.On the other hand, I am unable to accept Mr Tsui’s evidence. 76.Mr Tsui said that there were four to five meetings and discussions abut the possible investment in the Project in April and May 2002. During those meetings, Mr She and he discussed the details of the Project. Mr Tsui gave Mr She details about the nature and finance of the Project. He told Mr She that RMB34,000,000 had already been spent on other the 1st stage expenses and that the aggregate of RMB40,000,000 had to be met by the registered capital of US$2,000,000 and the balance of RMB24,000,000. He also made it clear to Mr She that he had to make firstly a contribution towards his share of the paid up registered capital, that is, US$2,000,000 and secondly, a contribution which reflected his share of RMB24,000,000 straightway before he was able to become a participant in the Project. Mr Tsui insisted on the Pre-condition because the money had already been paid by PRC Wu Yi, Million Sense and Vast Land. He remained adamant that before Mr She paid his share of the two sums, there was no legally binding agreement on the Tsui brothers to proceed with Mr She on the Project. They and Mr She signed the 1st and 2nd Set of Resolutions with this understanding. To sum up, Mr Tsui said in cross-examination, if money was paid, there would be a conclusion and if no money was paid, there would be no conclusion. 77.Mr Tsui was basically rehearsing his allegation that the RMB3,600,000 was immediately payable because it was incurred expenses. He then added that he had told Mr She the same during the oral discussions. His allegation on the nature of the RMB3,600,000 is unfounded. So is his evidence on the oral discussions. I reject it without hesitation. 78.Accordingly, I find that during the discussions preceding the signing of the 1st and 2nd Set of Resolutions, Mr Tsui had not laid down the Pre-condition at all. E.1.c. Plain reading of the Resolutions 79.The third factor that I take into account is the plain meaning of the 2nd Set of Resolutions. I have already set out the terms in full in paragraph 12 above and will not repeat them here. 80.On a plain and proper reading of the Resolutions :
81.The call for any further contribution was a stipulated event that would take place after 7 May 2002. This is entirely consistent with the fact that the RMB3,600,000 represented the uncalled capital requirement of Nanjing Wu Ning which remained uncalled by then. 82.Indeed, had the RMB3,600,000 been immediately payable, I see no reason why it was not so stipulated in the Resolutions. It was Mr Tsui’s evidence that he insisted that it as part of the Pre-condition. Yet he, who drafted the Resolutions, did not see fit to so describe it in the Resolutions. He gave the lame excuse that he simply copied it from the 1st Set of Resolutions which were prepared by Mr Tam. I have no hesitation rejecting it. Given its importance, I see no reason why Mr Tam, a solicitor, and Mr Tsui, a seasoned businessman, would have omitted the Pre-condition in either the 1st or 2nd Set of Resolutions. 83.The Pre-condition also files in the face of resolution 3 of the shareholders’ resolutions, which stipulated that if a shareholder failed to contribute on time, the required payment should be advanced by the remaining shareholders. Plainly, the effect of resolution 3 is that a failure to contribute to the US$300,000 and RMB3,600,000 would amount to a default of the Agreement, not that the Agreement never came into existence. Further, the consequence of default would be a dilution of shareholding of the defaulting shareholder. If there were no shareholding upon full compliance of the Pre-condition, there can be no dilution of any shareholding at all. Finally, if the Agreement was not immediately binding on 7 May 2002 but would only become so unless and until all contributions were made, there would be no agreement between the parties, hence no shareholder, nor any default. Resolution 3 makes no common or commercial sense at all unless the Agreement is valid and binding as of 7 May 2002. 84.Mr Tsui said in his oral testimony that resolution 3 applied not to the US$300,000 or RMB3,600,000 but to some future contributions. I have no doubt that it is simply an artificial reading created by him in to bolster his case on the Pre-condition. It contradicts the plain reading of resolution 3 and must be rejected. 85.In my view, the Pre-condition cannot possibly stand against the plain reading of the 2nd Set of Resolutions. 86.To complete the discussion, I need to briefly deal with two points raised by Mr Duncan on the 2nd Set of Resolutions. He first said that it was not a complete or accurate record of the parties’ discussions. This submission is obviously based on Mr Tsui’s version of what took place during the discussions. I have already rejected his evidence. This point must fail. Mr Duncan next submitted that the 2nd Set of Resolutions has not been pleaded as the constituting the Agreement. This is incorrect : see paragraph 9 of the Amended Statement of Claim. E.1.d. Conduct of the parties 87.The fourth factor is the conduct of the parties after the signing of the Resolutions. 88.First, the Tsui brothers executed the 22/5/02 Trust Agreement as directors on behalf of Po Tek. If the Agreement was subject to the Pre-condition, it is inconceivable that they would activate Po Tek and nominate Po Tek as the beneficiary and execute the Trust Agreement. Mr Tsui said he executed the Trust Agreement without all monies paid up because Great Margin threatened that unless the Trust Agreement was signed, the 15% shares would not be granted. This excuse of being pressurized into executing the Trust Agreement did not hold water. The 15% shares had already been granted to Million Sense and Vast Land. Even without the execution of the Trust Agreement, the 15% shares would not be affected at all. They would sit safely with Million Sense and Vast Land. Were their case on the Pre-condition true, the Tsui brothers should not have executed the Trust Agreement thereby transferring the 15% to Po Tek. They should have waited for Mr She to fully comply with the Pre-condition first. 89.Second, if the sum of RMB3,600,000 was immediately payable as of 7 May 2002, it defies common sense that both the 1st and 2nd Contribution Notices did not call for contribution of the same but was only restricted to US$300,000. It is simply inexplicable that the two sums, both being payable immediately, were not treated the same. 90.In his cross-examination, Mr Tsui said that he did not know why the RMB3,600,000 was not included in the 1st Contribution Notice because it was Mr Tam who drafted it. I can see no reason why Mr Tam, a solicitor, could have omitted to include it if the sum was in fact immediately payable. Mr Tsui admitted that he was the one who drafted the 2nd Contribution Notice. When pressed why he did not put in the requirement to contribute RMB3,600,000 immediately there, he said it slipped his mind for he simply copied from the 1st Contribution Notice. Mr Duncan submitted that it is understandable. I cannot agree. It is simply incredible for such an important requirement to have slipped his mind. Even if it had slipped his mind, Mr Tsui must have realized the omission when he only received from Mr She HK$702,000 in response to the 2nd Contribution Notice. But Mr Tsui did nothing to rectify the omission by, say, issuing a fresh contribution notice to him. This is unbelievable. 91.In my view, the absence of the sum of RMB3,600,000 in both the 1st and 2nd Contribution Notices shows that there was no Pre-condition at all. 92.Third, it was Mr Tsui who wrote the 10/10/03 Letter. The Letter makes sense only if the Agreement was binding and not conditional. For why would Mr Tsui asked Mr She’s opinion as to the Dividend if Mr She was not a shareholder of Po Tek? Mr Tsui’s case is that he supplied the information to Mr She not because he was a shareholder but just in case that he was still interested to re-invest in Po Tek, he might wish to have such information. This explanation does not sit well with the contents of the Letter. It is clearly an afterthought, which must be rejected. 93.Fourth, had the Agreement not been formed, it is quite inconceivable that Mr Tsui needed to entertain Mr She at the 27/10/03 Meeting. During the Meeting, Mr Tsui hand Mr She documents relating to the distribution of the Dividend and signed a written reassurance prepared by Mr She in Chinese, confirming to him that Po Tek was not sold. Why did Mr Tsui do all these if Mr She was not a shareholder? 94.Mr Tsui said he did all these because he gave Mr She a new offer : since Mr She did not make contribution to the RMB3,600,000, he would grant Mr She 10% or at most 15% shares in Po Tek. This “new offer” theory was never mentioned in this witness statement of affirmations. It is inconsistent with the contents of the written reassurance. By that time, Po Tek had already lost all its 15% interest in the Project because of the Discharge Agreement and the 15/8/03 Trust Agreement. What was the point of offering Mr She any percentage in Po Tek? I have no doubt that Mr Tsui made it up as he went along. 95.Fifth, it is the Tsui brothers’ case that Mr She’s inaction and lack of interest in the progress of the Project meant that he did not regard the Agreement binding. But as explained by Mr She, the Project was a real development project that would extend up to four years. He needed not check into it everyday. Further, he had not been informed to pay any further contribution. (I will return to this aspect of the evidence in a moment.) I accept his explanation. 96.Finally, Mr Tsui relied on his attempt to refund Mr She by cheque his contribution made in May 2002 with interest on 22 August 2003. I fail to see how it supports his case on the Pre-condition. In any event, at the time when he drew up the cheque, Mr Tsui already knew that Po Tek would be entitled to the distribution of the Dividend. It was more consistent with his unlawful attempt to remove Mr She from Po Tek, with a view to depriving him of his lawful entitlement to the benefit of the Dividend and indeed any future benefit that might generate from Po Tek’s interest in the Project. E.1.e. How the defence of the Pre-condition emerged 97.I come to the final factor, which is how the defence on Pre-condition emerged. 98.The Pre-condition is the Tsui brothers’ principal defence. If their case on the Pre-condition were true, it must have been available to them ever since the present disputes had arisen. And they should have put it forward as their defence at the first available opportunity. That they did not do. This is incredible. 99.The Tsui brothers had given no substantial reply in the pre-action correspondence where Mr She asserted his entitlement to 30% of Po Tek’s shares. Mr Tsui explained that as at the time he was too busy dealing with a project in Beijing, he had no time to reply. I find that excuse unbelievable. 100.Even if the Tusi brothers were too busy to deal with the pre-action correspondence, one would reasonably expect them to raise the Pre-condition as their defence right after the commencement of the present proceedings. That is however not the case. The Defence was filed on 1 November 2004. While it was pleaded that Mr She is not a shareholder of Po Tek, it did not mention the Pre-condition at all. Nor was the Pre-condition mentioned in his 1st affirmation filed on 21 February 2005 in HCMP3290/2004 where Mr She sought summary judgment on his shareholder status. It was only in Mr Tsui’s 2nd affirmation filed on 15 March 2005 that he referred to the payment of Mr She’s share towards the RMB3,600,000 as a pre-requisite in joining the investment via Po Tek. And later the Amended Defence was filed on 20 March 2006 to introduce the plea that the contribution to the RMB3,600,000 formed part of the Pre-condition. 101.How the defence of the Pre-condition emerged in these proceedings, in my view, demonstrates beyond doubt that it is just an afterthought created by the Tsui brothers after the commencement of legal proceedings by Mr She. E.1.f. Conclusion 102.The Tsui brothers’ case on the Pre-condition is highly unsatisfactory. It is plagued with contradictions, self-inconsistencies, inexplicable features and inherent improbabilities. It must be rejected. The evidence overwhelmingly shows that the Pre-condition simply did not exist. And I so find. I further find that the Agreement was a legally binding one and that pursuant to the same, Mr She is and was at all material times a 30% shareholder of Po Tek. E.2. Had Mr She breached the Pre-condition? 103.The next issue is whether Mr She had breached the Pre-condition. In light of my finding on the Pre-condition, this issue does not arise. So the Tsui brothers’ complaint that Mr She had rendered himself not contactable and hence evinced an intention not to fulfil the Pre-condition is irrelevant. I will however deal with the evidence pertaining to this complaint because whether Mr She had so conducted himself may have a bearing on the question if specific performance of the Agreement should be granted. 104.It is Mr Tsui’s evidence that he had tried to contact Mr She without success. I find it difficult to accept his allegation for the following reasons. 105.First, I reject Mr Tsui’s allegation that Mr She had emigrated to the US at the material times because it was self-inconsistent. He first said in paragraph 26 of his witness statement that he learnt from the staff of HK Wu Yi that Mr She might have been emigrated overseas. Then he said in his oral testimony that Mr She told him personally that he had migrated overseas. In any event, I accept Mr She’s evidence that he merely stayed in the US for about one month in December 2002. 106.Second, I find it quite improbable that with some 20 years of business and personal contact, the Tsui brothers did not know of Mr She’s various contact details in Hong Kong, the Mainland and the US. 107.Third, Mr Tsui admitted that he knew that Mr She at the material times spent most of his time in Quanzhou, Fujina. There is no suggestion that he had no means to contact him there. 108.Fourth, Mr Tsui said that in August 2003, he asked Mr Tam to contact Mr Tam and give the cheque for the refund. Mr Tam was able to contact Mr She who was then in the US. It is incredible that it did not occur to Mr Tsui to contact Mr She through Mr Tam. 109.Fifth, Mr Tsui faxed the receipts of Po Tek’s contribution to Mr She on 11 June 2002. Why did Mr Tsui not contact him through the same fax number again? Under cross-examination, Mr Tsui said he had failed to locate the receipt. But somehow he was able to locate it after the commencement of these proceedings. Plainly, he is making it up as he went along. 110.Sixth, the Tsui brothers’ pleaded case was that Mr She’s only contact address was the HK Wu Yi office in Hong Kong. But Mr Tsui admitted under cross-examination that he was aware of the address of Mr She’s own company, Wealthy Channel Development Limited. He even once directed Ms Chow to contact Mr She at that address. When pressed why he did not contact Mr She at that address again, he said he did not know what business the plaintiff was carrying on there. Clearly, he made it up as he went along. 111.Seventh, Mr Tsui was eventually able to contact Mr She on the phone after August 2003 without difficulty. He has failed to explain why suddenly after months of unsuccessful attempts, he was able to do so. (The parties’ evidence on what was said over the telephone conversation differs. What was said is however of marginal significance. I will not dwell on details. Essentially, it was Mr She’s words against Mr Tsui’s. And for reasons stated, I find Mr Tsui a poor and unreliable witness. I reject his evidence and accept Mr She’s.) 112.In the circumstances, I find that Mr She had not rendered himself not contactable. On the contrary, I find that it was the Tsui brothers who had deliberately not contacted him. The reason is obvious. They wanted to wrongfully oust Mr She from Po Tek. E.3. Breaches of the Agreement by the Tsui brothers 113.The Tsui brothers had clearly acted in breach of the Agreement by wrongfully refusing to cause the one subscriber share to be transferred to Mr She, to cause Po Tek to issue 2,999 shares to him and to register him as a 30% shareholder of Po Tek and by the conduct as set out in paragraph 21 above. And I so find. E.4. Relief 114.Mr She sought specific performance of the Agreement. 115.Specific performance is a remedy available in equity to compel a person actually to perform a contractual obligation. Traditionally, specific performance would not be ordered where damages were an adequate remedy. More recent authorities suggest that the question is not whether damages are an adequate remedy, but whether specific performance will do more perfect and complete justice than an award of damages : see the discussion in Chitty on Contracts, 29th Edn, Vol.1, paragraph 27–004 at pp.1522–1523. 116.In the present case, under the traditional approach, damages are plainly not an adequate remedy. For one thing, damages are difficult if not impossible to quantify. For another, the benefits that Mr She may be able to derive from his 30% shareholding in Po Tek will not be adequately compensated by damages. Under the more recent approach, specific performance will certainly do more perfect and complete justice than an award of damages for the same reasons. 117.Mr Duncan opposed specific performance by taking the following points. 118.First, Mr She had not performed the Pre-condition. This submission must fail because the Pre-condition simply did not exist. 119.Second, Mr She must show that he had performed all the contractual obligations which he ought previously to have performed and is ready and willing to perform his future obligations under the Agreement : Chappell v. Times Newspaper Ltd [1975] 1 WLR 482, per Lord Denning at p.502. But he had failed to do so. 120.Again, this submission is misconceived. As to the past obligation, Mr She had already paid HK$702,000 being his share of contribution to the US$300,000. Mr Duncan disputed that he was willing to make the contribution because Mr Tsui alleged that Mr She paid on 5 June 2002 after seeing some proof that Million Sense and Vast Land had made payments into the Project. This alleged lateness was never an issue before. How can it become one now? As to the future obligation, there was never any call to Mr She for further contributions. How can it be said that he was not ready and willing to perform? Mr Duncan said he was not by relying on the alleged inaction and lack of interest on his part. Reliance is however misplaced in light of my finding in paragraph 95 above. Mr Duncan also relied on the allegation that Mr She had rendered himself not contactable. This likewise must fail in light of my finding in paragraph 112 above. 121.I accept Mr She’s evidence and find that he is and was at all material times ready and willing to perform his obligations under the Agreement. 122.The third point that Mr Duncan relied on relates to the so-called “further open-ended contributions” by the Tsui brothers via Million Sense and Vast Land, which included the RMB5,390,000. This must be rejected for two reasons. First, the Agreement did not provide for an open-ended contributions as alleged. And I so find. Even Mr Duncan conceded that those alleged contributions were not terms of the Agreement. He only said that they were within the parties’ contemplation. Again Mr Duncan must be relying on Mr Tsui’s evidence on the oral discussions prior to the signing of the 1st and 2nd Sets of Resolutions, which I have already rejected. In any event, I fail to see how those alleged contributions could assist the Tsui brothers’ case if they did not form part of the Agreement. Second, those alleged contributions were, on Mr Tsui’s own admission, shareholders’ loans, which had been fully repaid by Nanjing Wu Ning subsequently. They were not contributions as such. 123.For the above reasons, I will enter judgment for Mr She for :
124.I next turn to the derivative claims brought by Mr She on behalf of Po Tek against the Tsui brothers and their corporate vehicles. F. The derivative claims F.1. Did Mr She have the locus standi to bring the derivative claims? 125.It is trite that equity looks on that as done which ought to be done. As to its application on contracts, see Snell’s Equity, 31st Edn, at §5–25 :
126.I have already ordered that specific performance for the Agreement in favour of Mr She. In my view, all necessary formalities be carried out to register him as a 30% shareholder of Po Tek are treated in equity as if they had been performed when they ought to have been performed back in May 2002. Mr She is deemed in equity to be a registered shareholder of Po Tek and hence had the locus standi when he commenced HCA1684/2004 in July 2004. F.2. Estoppel 127.Mr She’s alternative case that estoppel confers on him membership of Po Tek does not arise for determination. F.3. Any breach of fiduciary duties by the Tsui brothers? 128.I next turn to the various wrongs allegedly committed against Po Tek by the Tsui brothers and their corporate vehicles. I will begin with the complaints against the Tsui brothers personally. 129.The first complaint is that the Tsui brothers had acted in breach of their fiduciary duties as directors of Po Tek. 130.It is a breach of fiduciary duties for directors to misappropriate the company’s assets and transfer the same to their own corporate vehicles, thereby causing loss to the company : Bishopsgate Investment Management Ltd (In Liquidation) v. Maxwell (No. 2) [1994] 1 All ER 261, per Hoffmann LJ (as he then was) at p.264j–265f. 131.Here, the Tsui brothers executed the Discharge Agreement and the 15/8/03 Trust Agreement without any board resolution authorising the same. The effect of those Agreements is beyond doubt. Po Tek is divested of its 15% interest in the Project when the same was effectively transferred to Million Sense and Vast Land at nil consideration. This is prima facie a breach of their fiduciary duties as directors of Po Tek. 132.The Tsui brothers have the burden to justify the propriety of their conduct. For that purpose, they advanced two explanations. 133.First, Mr Duncan submitted that the Tsui brothers mistakenly thought that the Agreement was not binding with Mr She at the time. The implication is that they thought they were quite entitled to execute the Discharge Agreement and 15/8/03 Trust Agreement because Po Tek was, according to their mistaken understanding, effectively their own corporate vehicle. 134.I reject this submission because the Tsui brothers could not have been so mistaken. As I have observed above, their case on the Pre-condition is but an afterthought. I have no doubt and find that they were fully aware that the Agreement was binding as from May 2002. In any event, as a matter of law, their subjective belief that they were not breaching their fiduciary duties as directors is simply immaterial. 135.Second, Mr Tsui justified the transfer of Po Tek’s interest in the Project thus. He said a Mr Huang Li-man of Great Margin (“Mr Huang”) urged the Tsui brothers to execute the 15/8/03 Trust Agreement quickly. Mr Tsui told him that Po Tek was then unregistered because of some internal disputes. Mr Huang then said Po Tek, as an unregistered company, could not enter into the Trust Agreement. He then suggested that Million Sense and Vast Land (instead of Po Tek, the true beneficial owner of the 15% interest) should execute the Trust Agreement and then the Trui brothers and Mr She could resolve the internal issues among themselves. 136.This justification is mentioned for the first time in these proceedings. It does not sit well with Mr Tsui’s pleaded case that when Mr She had rendered himself not contactable, the Tsui brothers decided to take up the investment in the Project without involving Po Tek. The reason implied was that they considered Mr She had dropped out already. The allegation that Mr Huang refused to execute the 15/8/03 Agreement because Po Tek was unregistered is also contradicted by the fact that the 22/5/02 Trust Agreement made with Po Tek was executed by Mr Huang on behalf of Great Margin. I have no doubt that this justification is yet another recent fabrication by Mr Tsui in his oral testimony. He made it up in order to shift the blame to Mr Huang. I reject it. For completeness, I would add that it is in any event hardly a justification for transferring Po Tek the 15% interest to Million Sense and Vast Land at nil consideration at all. 137.For these reasons, I find that the Tsui brothers had breached their fiduciary duties as directors of Po Tek. F4. Had the Tsui brothers committed fraud against Po Tek? 138.The next complaint against the Tsui brothers is that they had committed fraud against Po Tek by depriving it of its 15% interest in the Project for their own benefit. 139.The relevant legal principles are well summarized in Sheridan on Fraud in Equity, at pp.114–115 thus :
140.Here, the Tsui brothers had acted in fragrant breach of their fiduciary duties they owed as directors to Po Tek by wrongfully depriving it of the 15% interest for their own personal benefit. They have, I find, committed a fraud on Po Tek. 141.Mr Wong, SC, counsel of Mr She, made references to other instances of fraud. Those matters have not been pleaded to support the complaint of fraud. That being the case and in light of my finding in the preceding paragraph, I will not deal with them. F.5. Any dishonest assistance by Million Sense and Vast Land? 142.I now turn to the complaints against Millions Sense and Vast Land. 143.The first complaint is that Million Sense and Vast Land had dishonestly assisted the Tsui brothers in their breach of fiduciary duties towards Po Tek. 144.For present purposes, the following summary of the relevant principles in Snell’s Equity, 31st Edn, at pp.692–693 is sufficient :
145.Here, there can be no dispute that Million Sense and Vast Land are corporate vehicles of the Tsui brothers. Indeed, it was admitted in the Re-Amended Defence that the Tsui brothers owned and controlled Million Sense and Vast Land. Further, Million Sense and Vast Land also had knowledge of Po Tek’s 15% interest in the Project : see the letter they wrote to Great Margin on 20 May 2002 stating that they decided to withdraw from the Project and be replaced by Po Tek. They also admitted to HK Wu Yi that they would procure the Discharge Agreement : see their letter to HK Wu Yi dated 12 August 2003. 146.Applying the relevant legal principles, I find that Million Sense and Vast Land had assisted the Tsui brothers in the breach of their fiduciary duties towards Po Tek and they had done so dishonestly. F.6. Any knowing receipt by Million Sense and Vast Land? 147.The next complaint against Million Sense and Vast Land is that they had knowingly received Po Tek’s 15% interest in the Project. 148.The applicable legal principles can be found in El Ajou v. Dolland Land Holdings [1994] 2 All ER 685 at p.700, per Hoffmann JL :
149.Here, all the three requirements are established. The execution of the Discharge Agreement constituted a clear disposal of Po Tek’s 15% interest by the Tsui brothers in breach their fiduciary duties. The corresponding execution of the 15/8/03 Trust Agreement constituted a clear beneficial receipt by Million Sense and Vast Land of assets which were traceable as representing that of Po Tek. Million Sense and Vast Land also had knowledge that the interest they received was traceable to a breach of fiduciary duty because the Tsui brothers were at all material times their directing mind. 150.I find that Million Sense and Vast Land had knowingly received Po Tek’s 15% interest in the Project. F.7. Any conspiracy to injure Po Tek? 151.Finally, I come to the complaint of conspiracy that involves all the Tsui brothers, Millions Sense and Vast Land. Mr She contended that they had conspired together to injure Po Tek’s interest. 152.The law on conspiracy to injure is well established. In Lonrho Plc v. Al-Fayed (No. 1) [1992] 1 AC 448, Lord Bridge said at p.465H–466A :
153.Further, where unlawful means were used to injure the plaintiff, the conspirators would be liable even if the injury was not the predominated motive of their actions : per Lord Bridge at p. 467D–E. 154.Applying the above principles, I find that unlawful means had been used to cause injury to Po Tek. Those means were breach of fiduciary duties and fraud by the Tsui brothers’, dishonest assistance of such breach and knowing receipt by Million Sense and Vast Land. I further find that the Tsui brothers, Million Sense and Vast Land had acted in concert and in agreement. Million Sense and Vast Land were corporate vehicles of the Tsui brothers, who were the controlling minds behind the whole scheme by which Po Tek’s 15% interest in the Project was wrongfully transferred to Million Sense. Plainly, those concerted actions were directed at Po Tek with the obvious intention to injure it. This intention is evidenced by the fact that it could be reasonably foreseen that those concerted action would cause loss to Po Tek. (They in fact succeeded when Po Tek lost all of its 15% interest in the Project on 15 August 2003.) 155.For these reasons, I find that the Tsui brothers, Million Sense and Vast Land are all guilty of the conspiracy complained of. F.8. Relief 156.On the derivative claims, I will order that judgment be entered for Po Tek for :
G. Costs 157.Finally, costs should follow the event. I will make an order nisi that Mr She shall have the costs of both HCA1684/2004 and HCMP3290/2004, including all costs reserved, to be taxed if not agreed.
Mr Ronny Wong, SC leading Mr William Wong, instructed by Messrs Siao, Wen and Leung, for the Plaintiff in HCA1684/2004 and HCMP3290/2004 Mr Peter Duncan, SC leading Mr Alan Ng and Ms Jane Ho, instructed by Messrs Y.C. Lee, Pang & Kwok, for the 1st to 4th and 7th Defendants in HCA1684/2004 and Defendants in HCMP3290/2004
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Further hearings and rulings under HCA 1684/2004