Yi Chun Navigation Inc. v. Lu Wen Yun, Jenny and Another

HCCW 565/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 565 OF 2006

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BETWEEN

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BETWEEN

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(Heard together)

Before: Hon Harris J in Court

Dates of Hearing: 2, 3, 6-10, 13 and 17 December 2010

Date of Judgment: 7 January 2011

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J U D G M E N T

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(1)     Introduction

1.On 11 March 2008 Kwan J ordered that High Court Companies Winding Up No. 565 of 2006 and High Court Action No. 2371 of 2005 be heard together.  In both proceedings the claimant is Yi Chun Navigation Inc (“Yi Chun”).  Its claims relate to the affairs of J&D Industrial (HK) Ltd. (“Company”), which is the 2^nd respondent to the Petition and the 2^nd defendant in the Action.  The 1^st respondent and 1^st defendant in the respective proceedings is Lu Wen Yun, Jenny, who owns 50% of the shares in the Company.  The other 50% are owned by Yi Chun.

2.At the commencement of the trial I was told that the parties had agreed that Madam Lu would buy Yi Chun's shares in the Company. I am not, therefore, required to determine the issues in the Petition.  I am, however, required to determine the Action as the price of the shares is to some degree dependent on the resolution of the issues in the Action.

(2)     Summary of the Claims

3.The Action was commenced by Yi Chun in a personal capacity, as well as derivative capacity on behalf of the Company, against Madam Lu.  In the action Yi Chun claims a declaration that Madam Lu holds 350,000 shares in Orient Overseas (International) Limited (“OOCL”) registered in her name on trust for the Company.  Yi Chun also claims a declaration that Madam Lu holds shares registered in her name in Liyou Industrial (Shenzhen) Co Ltd (“Liyou”) in or about December 2000 on trust for Yi Chun alternatively a declaration that she holds them for the Company.  It also seeks consequential orders for the transfer of the shares and an account of any dividends Madam Lu has received.  If the shares in either company have been disposed of Yi Chun seeks orders that Madam Lu accounts for the proceeds of sale.

4.Yi Chun's claim in respect of the OOCL shares is straightforward.  Madam Lu purchased the shares in 1997 and 1998 with the Company's money and had them registered in her name.  She executed, at the request of the Company, an undated declaration of trust in respect of 50,000 shares in a company described as Orient Overseas Containers Line Limited and a further declaration of trust in respect of 300,000 shares in the same company on 21 September 1998.  The beneficiary was the Company.  The Company says that it was clearly understood that the declarations were intended to refer to shares in the listed company, OOCL, as indicated by the reference to the price of the shares in the declarations.  The name wrongly written in the declarations is that of OOCL's operating subsidiary.  Madam Lu has not suggested that she acquired shares in the operating subsidiary.  Madam Lu signed two audit confirmations admitting that she owed the Company HK$191,000 and HK$81,900 in respect of dividends on the OOCL shares, which Yi Chun says is consistent with its case that she was not the beneficial owner of the shares.

5.The claim in respect of the Liyou shares is more complicated.  On 31 March 1999 the Company advanced US$2,000,037.42 to Liyou (“Advance”). In or about December 2000, Madam Lu converted, without, Yi Chun says, the consent of the Company, US$1,500,000 of the Advance into shares in Liyou, which were registered in her name.  When the Company's accounts for the year ending 2000 were being prepared and Yi Chun became aware of what had taken place Madam Lu was asked to sign a declaration of trust prepared by the Company's auditors, Wong Lam Leung & Kwok CPA Limited (“WLLK”).  Subsequently a copy of the declaration signed by her was delivered to WLLK's office.  Yi Chun accepts that neither WLLK nor it have ever received the original.  It argues that nothing turns on this as the copy is enough to prove the creation of an express trust on the terms of the copy that it does have.  If it is wrong about this it says that as it provided the Advance a rebuttable presumption arises that the shares are held on resulting trust for the Company as the transfer to Madam Lu was gratuitous in the sense that she had not provided the original loan to Liyou that was converted into the capital, which, in the form of the shares, was allotted to her: Lewin on Trusts 18^th Ed at §§9-02 to 9-13.

(3)     Summary of the defence

6.Madam Lu's defence to the 2 claims arises from, what she says are, the circumstances in which she and Dr Chen Ching Chih, the owner of Yi Chun, came to be equal shareholders in the Company.  Madam Lu met Dr Chen in the late 1980s.  Madam Lu, like Dr Chen, is Taiwanese.  Dr Chen is a successful and sophisticated businessman with a PhD from the Massachusetts Institute of Technology in economics.  At the time Madam Lu lived in Hong Kong and ran her own travel agency.  Dr Chen's family is the major shareholder in Taiwan's 3^rd largest shipping group: Wan Hai.  It is a listed company.  Dr Chen offered Madam Lu a position as a consultant with the group. The precise reasons why Dr Chen came to offer Madam Lu a job is a matter of some dispute, but it seems broadly common ground that she had the attraction of speaking Cantonese as well as Mandarin, which enabled her to communicate easily with local staff in Hong Kong and also with head office and people on the Mainland.  She was also well connected and had the ability to mix easily with the type of Mainland officials that Wan Hai had to deal with as it developed its business there.  Madam Lu's pleaded case picks up from the time of her employment and in summary is as follows.  She worked for Wan Hai between 1989 and 1996.  Initially she was a senior consultant and then a director of various companies within the group and the person in charge of business in Hong Kong and the Mainland.  She worked under Dr Chen's supervision.  Dr Chen gave her enormous opportunities and support in her career development.  Madam Lu was particularly strong and successful at marketing and exploring business opportunities.  From 1995 Dr Chen and Madam Lu were jointly involved in various business investments.  They included investment in Liyou in 1995, the Company in 1997 and a company called Trans Pacific Lines (“TP”) in 1999.  The Company was intended to be a holding company for a number of investments. Given their respective backgrounds and strengths Dr Chen was to be responsible for financial matters and Madam Lu was to be responsible for marketing and exploring business opportunities. 

7.The Company's issued share capital was HK$23,600,000: paragraph 17 of the Amended Defence.  This was to be “financed by a commission of USD5 million (“the Commission”) payable to Miss Lu for her work at the Wan Hai Group during mid-1989 to 1996 when Miss Lu left the Wan Hai Group to avoid being involved in the conflicts between the top personnel of the Wan Hai Group caused by disputes among the family members of Dr Chen”: paragraph 17 of the Amended Defence of the 1^st Defendant[1].  In paragraph 18 of the Amended Defence it is pleaded “that in late 1996 when she left the Wan Hai Group, it was understood between Dr Chen and her that she would form her own company and it was orally agreed to and promised by Dr Chen that while the Commission would not be paid to Miss Lu up front, Dr Chen would use the Commission to provide for the share capital of the company and other investments of Miss Lu”,  After the Company was formed Madam Lu decided to give half of the shares in the Company to Dr Chen as a gift for his support and guidance while she was at Wan Hai and, if I am reading paragraph 18 of the pleading correctly, in consideration of his future support and assistance in respect of the development of the Company.

8.Liyou was incorporated in the Mainland in 1995 with registered capital of US$5,000,000.  As at 13 June 1995, Madam Lu had paid US$1,500,000 for a 30% interest in Liyou.  This is not in dispute.  In early 1999 Liyou decided to expand and to raise further capital from its shareholders.  At a general meeting on 12 March 1999 the Company resolved to increase its authorised nominal share capital and to issue 23,400,000 further ordinary shares at HK$1 per share.  As a result the total issued share capital of the Company became HK$23,600,000 equivalent to about US$3,000,000.  The financing of the increased capital was to be provided by Dr Chen in accordance with the agreement referred to in paragraph 18 of the Amended Defence.  This left, Madam Lu pleaded, about US$2,000,000 for further investment by her.  In about March 1999, Dr Chen on several occasions requested Madam Lu to invest the remainder in Liyou for financing a warehouse project.  Madam Lu decided to lend the US$2,000,000 to Liyou at the request of Dr Chen.  At the suggestion of Dr Chen this was done by Dr Chen transferring from a securities account US$2,000,000 to the Company, which in turn transferred the money to Liyou. Madam Lu pleaded that the reason Dr Chen gave for this was that it would be difficult for Liyou, which is a Mainland company, to receive money direct from Madam Lu, who is a Taiwanese national, because of Mainland regulations at the time.  Madam Lu left Dr Chen to arrange this.

9.In about late 1992 Madam Lu was informed by Dr Chen that the US$2,000,000 would be capitalised and Madam Lu was allotted shares valued at US$1,500,000.  She says that she is the beneficial owner of these shares.  Madam Lu expressly denies that she signed any declaration of trust in respect of these shares.

10.So far as the OOCL shares are concerned Madam Lu's pleaded case is this.  In or about August 2001 at Dr Chen's direction the Company sold its 10% shareholding in TP to Yi Chun.  Before the sale Yi Chun was already the major shareholder of TP owning 68.925% of its shares.  At about that time Madam Lu was entitled to a bonus of US$200,000 payable by TP for her work as a director of TP.  Before the sale of the shares, Dr Chen acting on behalf of TP agreed to give Madam Lu 350,000 shares in OOCL, which were worth about US$200,000, in lieu of the bonus due to her.

11.In or about 2001 Dr Chen wished to raise substantial funds from banks for Yi Chun.  In order to facilitate the fund raising he wished to present Yi Chun as having a more diversified portfolio of investments than it, in fact, had.  Dr Chen requested Madam Lu to sign a declaration of trust in respect of the OOCL shares in favour of the Company. In reliance on Dr Chen's assurance that this was to be done only to give the impression that Yi Chun had a more diversified portfolio of investments, Madam Lu signed a declaration of trust in respect of 300,000 shares in OOCL, which had been prepared by WLLK.  The declaration does not reflect the true position as to beneficial ownership of the shares.  Dr Chen subsequently asked Madam Lu to sign other declarations of trust.  She refused and denies in paragraph 43 signing any other declarations of trust or the 2 audit confirmation letters prepared by WLLK apparently acknowledging that she did so.

12.It is not expressly pleaded in the Amended Defence that the declarations of trust and audit confirmations referred to in the Re-Amended Statement of Claim are forgeries.  The evidence filed in the High Court Action does not directly address the above issues.  The parties rely on the affirmations and affidavits filed in the Winding Up Proceedings.  In paragraph 39 of her first affirmation Madam Lu states unequivocally “that I have never signed the two Deeds of Trust or the two confirmation letters as referred to in paragraph 14(b) of the Re-Amended Petition, nor have I had any notice of them until they were recently disclosed as exhibits by the Petitioner in other court proceedings.”  In respect of the Liyou shares Madam Lu goes further.  In paragraph 45 she says she has never signed any Declaration of Trust as alleged.  She requests to see the original (which neither party, so they say, has) and that she would not hesitate to take legal action if the document is a “fraud”.  In paragraph 46 Madam Lu says “I should point out that there is no lack of record for Chen or his staff to forge my signature in documents concerning Liyou.” 

13.On 21 May 2008 Kwan J gave leave for Yi Chun to serve an expert's report on the authenticity of the disputed documents identified in the Respondent's Notice dated 6 May 2008 and leave to Madam Lu to serve one in response.  The Respondent's Notice refers to 3 documents.  These are an undated OOCL declaration of trust, apparently signed by Madam Lu, stating that 50,000 shares in Orient Overseas Containers Line Limited purchased in 1998 are held by Madam Lu on trust for the Company.  A declaration of trust dated 21 September 1998, apparently signed by Madam Lu, stating that 300,000 shares in Orient Overseas Containers Line Limited market price per share of $4.15 at end of year 31 December 1997 were held on trust by her for the Company.  A declaration of trust dated 1 December 2000, apparently signed by Madam Lu, stating that she held US$1,500,000 worth of shares in Liyou on trust for Yi Chun.

14.The implication of Madam Lu's case, certainly at May 2008, was that the signatures appearing to be hers on the disputed documents are forgeries.  Certainly her case is couched in her affirmation in unequivocal language.  She does not say that she cannot recall whether or not she signed them; she says quite definitely that she did not.  So far as the signatures are concerned, as I understood her evidence before me, she accepts that they look like her signature.  She does not suggest, in other words, that they are poor copies applied by somebody who was signing on her behalf.  This suggests that if the signatures are not genuine they have been made by somebody who was consciously trying to make them look authentic. 

15.In order to explain why shares apparently acquired with Yi Chun or the Company's money belong to her Madam Lu relies on a number of agreements that she says she made with Dr Chen.  First, the agreement in respect of the bonus earned while she worked for Wan Hai.  Secondly, the agreement she says was made for the payment of a bonus for her work as a director of TP.  Thirdly, the agreement that the declaration of trust signed in respect of the OOCL shares was a sham.  In none of these cases are there any documents signed by Yi Chun or the Company acknowledging the alleged agreements or supporting Madam Lu's case.

(4)     Yi Chun's response to Madam Lu's defence

16.Yi Chun's response to Madam Lu's case is simple.  Dr Chen did not make any agreements to pay Madam Lu a bonus either in respect of her employment at Wan Hai or in respect of her directorship at TP. It says that it is ridiculous to suggest that Madam Lu would have become entitled to a bonus of anything like US$5,000,000 or that Yi Chun needed a declaration of trust in respect of the OOCL shares to support an application for a banking facility.  Yi Chun emphasises that Madam Lu has produced no documents nor independent evidence to support either assertion.  It is also incomprehensible, it says, that somebody in Dr Chen's position would have procured forgeries with all the attendant risks for what by his standards are relatively modest amounts.

(5)     Handwriting

17.I had directed at the pre-trial review service of sequential opening written submissions by both parties.  Madam Lu was represented at the trial by Mr. Denis Yu, who appeared with Kevin Pun.  Their written submissions barely ran to 2 pages.  The submissions dealt with the authenticity issue in fairly neutral terms.  Mr. Yu's closing submissions were even more ambivalent on the issue of authenticity.  During his oral submissions I asked him if it would be fair to describe Madam Lu's case as putting Yi Chun to strict proof.  Mr. Yu said yes.  In relation to Liyou I pressed Mr. Yu a little further and he accepted that Madam Lu's case, at least as he felt able to submit it to me having heard the evidence, amounted to her not being sure if she had signed the declaration of trust or not.  I think that Mr. Yu put his client's case very fairly and properly given the state of the evidence by the end of the trial.  The reason why Mr. Yu's submissions were circumspect in relation to authenticity was in part, I think it reasonable to assume, because of the expert evidence that was adduced at trial.

18.As I have already mentioned directions had been made by Kwan J for expert evidence in relation to the authenticity issue.  Yi Chun called Dr. Steven Strach, who produced 2 reports dated 6 June 2008 and 28 November 2008 respectively.  By the time he came to give evidence he had also seen a better copy of the declaration of trust in respect of the Liyou shares.  His conclusions were, first, that it is highly probable that the signature on the undated OOCL declaration of trust was written by the writer of the specimen signatures that he had been given (those of Madam Lu), secondly, it is highly probable that the signature on the OOCL declaration of trust dated 21 September 1998 was written by the writer of the specimen signatures and, thirdly, that he was less confident that the signature on the Liyou declaration of trust dated 1 December 2000 was made by the writer of the specimen signatures, because he had not seen the original signature only a photocopy, but he thought that there was reasonably strong prima facie evidence that it was.  Dr Strach's conclusions were reached applying conventional techniques for the analysis of questioned signatures.  He was not cross-examined at all on his opinion on the authenticity of the 3 signatures.

19.Madam Lu called Mr. Shum Lau.  He produced one short report dated 9 February 2009.  His conclusions were, first, that the signature on the undated OOCL declaration of trust was a simulation, secondly, that the signature on the OOCL declaration of trust dated 21 September 1998 was a simulation and thirdly, that he could not express a view on the authenticity of the signature on the Liyou declaration of trust dated 1 December 2000.

20.Mr. Shum most recently gave evidence before Deputy Judge To, as he then was, in early 2009 in Leung Yuk Lin & others v Karson Oten Fan, Karno HCA 900 & 945 of 2006 (unreported judgment 15 July 2009).  Mr. Shum was called to give evidence on behalf of the defendant. Deputy Judge To said of him in paragraph 29 of his judgment “He was Fan's handwriting expert called in at the eleventh hour.  His methodology and approach was out of line with prevailing practice and was of questionable validity.  His analysis was superficial.  I give no weight to his evidence.” I have reached a similar view and conclusion.  I found Mr. Shum's evidence so obscure that I asked for a transcript as I could not follow it and take notes at the same time.  The following gives a flavour of his evidence:

“Court: Is this methodology commonly used or commonly understood, or is it unique to you?

A. I mean this methodology until now is not published.

Court: Now I see.

A. And I'm going to do it when I'm getting five years more older. I'm now 83.

Court: Yes, right.  I wouldn't leave it too long.  Now, but obviously, it follows from what you've just said that this isn't a peer-reviewed methodology.”

A. Yes.

Q. Well, I think just on the question of your methodology, I mean the only thing I am going to suggest to you is that it is not a conventional methodology, it's not one which is recognized by experts in this particular field, do you accept that?

“Q. Well, this methodology will be accepted by most literates who can write. I am not concerned with other experts. The literates, they came, pick up the writing instrument, they can do it and if they can prove that, they will find that to be correct.

Q. Right.

A. So it is not up to the expert – other experts of high ranking to say, “Ah, Mr Shum, you are right, your methodology is right.” So I think – but my book was published in about 5 years, together with Chinese experts. But I am fully aware if this was published, if my book was published, the criminals will take advantage of it.

Q. I see. So you don't accept – basically, you don't accept that the views of the scientific community or the community of other experts in the field has any relevance to your methodology, to your view – to the views that you take as to your – the accuracy or otherwise of your methodology.

A. My methodology is that if I have revealed these, my methodologies in court here, sooner or later, I think everyone knows.

Q. I see.”

21.It was for sometime unclear how exactly Mr. Shum had examined some of the specimen signatures he had used, which were taken from documents filed at the Companies Registry.  It transpired that what he did was to open a pdf document, shrink the image, print out the shrunken image and then magnify the shrunken image in order to examine it.

“Court: So what you are telling me is you were examining a shrunken image.

A. Yes.

Court: So you weren't examining an accurate reproduction of the original.

A. No, you are right.

Court: So you think it's a – your methodology involves shrinking the original so things look – of course lines will look darker if you shrink them, Mr Shum.

A. Yes, I shrink it. I examined it by enlargement but putting a magnifier in front, between, so that I can see all the lines clear.

Court: So you shrink the original.

A. Yes.

Court: And then you magnify the shrunk…

A. You magnify the…

Court: Mr Shum, isn't it…

A. Yes.

Court: All right.”

22.It seems to me that this is obviously to distort the image that is being used as the specimen and is unreliable when it comes to assessing the characteristics of the specimen.  Mr. Shum did not seem able to grasp this.

23.There may have been a time when Mr. Shum was able to contribute usefully to disputes concerning forensic evidence including some aspects of handwriting.  However, on the evidence of his performance in the present case I think it is unsafe for him to continue to give expert evidence concerning disputed signatures.

24.Evidence by experts on the authenticity of signatures may assist the court determining such issues, but it is only one aspect of the process.  Generally factual evidence is more important and the starting point in this case is in my view a consideration of whether or not Madam Lu has adduced credible evidence of the agreements to pay her bonuses both in respect of her employment at Wan Hai and also her directorship at TP and the alleged agreement in respect of the declaration of trust in respect of the OOCL shares.

(6)     The 3 agreements

25.As I have already noted Madam Lu has not produced any documents recording any agreements to pay her a bonus of any sort prior to her commencing work, during her employment or at the time of its termination.  On the contrary when she left Wan Hai she signed a termination letter confirming that her final payment was full and final.  She accepts that she did not get any bonus during her employment other than a 13 month payment. The alleged bonus is out of all proportion to her salary and benefits, which at their highest totalled just over HK$70,000 per month.  It seems to me inherently unlikely that anybody would have agreed to pay her such a large sum.  In paragraph 17 of the Amended Defence it is left unclear who had agreed to pay her US$5,000,000.  In Mr. Yu's closing he submitted that it was Dr Chen, but no credible reason has been advanced for him agreeing to personally pay her such a large sum.  When Madam Lu came to give evidence she told a story different from that in her affirmation.  Rather than an agreement to pay a bonus made at the time she left Wan Hai it had become an agreement made prior to her joining Wan Hai, which seems even more unlikely particularly if, as appears to be the case, it is suggested that Dr Chen was agreeing to pay her personally.  Madam Lu for the first time in cross-examination suggested that a record of this agreement (prior to her commencing work) had been made in the form of a note, but that it had disappeared along with other documents when sometime later Raymond Chan caused her private locked draw at the Company's office to be forced open when Madam Lu was out of the office in order to obtain access to documents, which were urgently needed.

26.In relation to the alleged agreement to pay her a bonus for her work as a director of TP Madam Lu's case is also problematic. The only document that refers to this matter is an email dated 15 August 2001. This is from Dr Chen to Madam Lu.  It makes reference to funding of the Company.  Dr Chen says that he had difficulty in providing further funding to the Company “However, I will try to pay dividend to you from TPL soon.  It will be 10% of your investment, or US$200,000”.  This, Dr Chen says, was clearly a reference to a payment of a share dividend by TP to the Company, which owned shares in it.  On the email is a manuscript note, apparently written by Madam Lu's assistant Victor Ching, and signed by her.  Mr. Ching was not party to any conversation between Dr Chen and Madam Lu at the time the agreement was reached.  He wrote it on her instructions.  The note says:

“Dear Jenny,

I do not why you hang up my telephone. As I told you before, the US$2.00 million loan you booked as your loan to Li You is funds supplies by Yi Chun to Li You through your Company. Thus, it is not a loan from you, but an investment from Yi Chun.

Please check with Raymond and your accountant, as Raymond is preparing an assignment from J&D to Yi Chun for this amount.

As for any new loan from Yi Chun to J&D, all my projects are now losing money, and we do not expect to you any funds to lend to J&D until at least the end of this year, or sometime in November.

However, I will try to pay dividend to you from TPL soon.  It will be 10% of your investment, or USD200,000.”

27.Madam Lu says that the note reflects an agreement reached in a conversation with Dr Chen.  He denies this.  I do not accept Madam Lu's story.  As with most of Madam Lu's evidence when tested by cross-examination it became increasingly unconvincing.  Mr. Lam, who appeared for Yi Chun with Ms. Sabrina Ho, pointed out to her that Dr Chen's email referred to the payment of a dividend not a bonus.  Madam Lu initially replied that she did not know the difference between a dividend and a bonus.  When pressed by me on this she then changed her mind, a result clearly of her recognising that I did not believe her first answer.  When asked how Mr. Ching knew what to write initially she said he could hear the conversation.   She then changed her mind.  My impression was that it dawned on her that as the conversation must have been on the telephone and Mr. Ching was not present this would quickly be shown to be untrue.  When she was asked about the lack of a written record of an agreement to pay a bonus, Madam Lu complained about being deprived of documents from TPL, which might have recorded the discussions. This had not previously been mentioned in evidence and was not put to Dr Chen. In my view this was an example, of which there were others, of Madam Lu making up her evidence as she went along to suit her case.  Another example in the context of this issue was her suggestion for the first time in cross-examination, that she had provided the money to purchase the OOCL shares, which is inconsistent with her pleaded case, which, although not expressly admitting that the shares were purchased with the Company's money, as is pleaded in the Re-Amended Statement of Claim, does not specifically deny it and is couched in terms which tacitly admit it.

28.It may be that Madam Lu had got it into her head that she should be paid some kind of bonus, but I do not accept that Dr Chen ever agreed this.  I am supported in this conclusion by my views in respect of the third agreement which Madam Lu asserts and which is necessary to support her case, which relates to the execution of the declarations of trust over the OOCL shares.  Assuming that Madam Lu's story about the bonus is true she needs to explain why she subsequently agreed to sign the declarations of trust.  Her pleaded case was that she did so in order to facilitate fund raising by Yi Chun.  She suggests that the arrangement was intended to allow Yi Chun to present itself as having a more diversified portfolio of investments than was the case.  This seems unlikely as the shares were worth about HK$1,200,000 and Madam Lu has adduced no evidence to support her suggestion that she understood that Yi Chun or Dr Chen were having difficulty in raising the finance that they required.  During cross-examination Madam Lu embarked on another embellishment of the evidence in her affirmation stating that the declaration of trust was also necessary to enhance Wan Hai's balance sheet, which given that in 2002 Wan Hai had consolidated net assets of HK$7,200,000,000, is nonsensical.  Clearly Wan Hai would not have needed the declaration in order to raise finance and I find that this was yet another example of Madam Lu making up evidence during cross-examination in an attempt to bolster her case.

29.So far as the audit confirmation letters are concerned Madam Lu simply says that she did not sign them.

30.Before dealing with the question of the authenticity of the 3 declarations of trust I shall deal briefly with the witnesses called by Yi Chun and how Mr Yu challenged their evidence in an attempt to support Madam Lu's case.

(7)     Yi Chun's evidence

31.Yi Chun filed affirmations by 4 witnesses.  Mr. Yu only required 3 witnesses to be called for cross-examination as the evidence of the fourth, Yeung Tat Wing, only concerned the transfer of US$2,000,000 from a securities account with Wako Securities to the Company on or about 16 March 1999.  The 3 witnesses who were called were Dr Chen Ching Chih, Chan Yu Man, Raymond and Fung Ho Yin.

32.The most important of the 3 witnesses was Dr Chen.  Dr Chen is a highly educated and successful businessman.  He is a former chairman of Wan Hai, which is a substantial publicly listed company in Taiwan. He gave evidence in English.  Mr. Yu's attack on his evidence stemmed in large part from Dr Chen's own acceptance that when Madam Lu left Wan Hai he had agreed to assist her in establishing her own business.  Dr Chen says that Madam Lu left Wan Hai because the board had terminated her directorship and it became untenable for her to continue as an employee, because of the resultant loss of status.  Dr Chen said that Madam Lu had been useful to him during her time at Wan Hai.  Her ability to speak Cantonese had allowed her to play a useful liaison role in the Hong Kong office and she had been effective at building relationships with Mainland officials as Wan Hai developed its business there during the 1990s.  When she left he decided to help her start a new business by providing some seed capital.  He offered US$500,000.  He characterised this in evidence before me as venture capital.

33.Mr Yu points out that even on Dr Chen's own case what actually happened was different from what he says was discussed.  First, the initial injection of capital was only HK$200,000 and then when it was increased it was substantially more than US$500,000: approximately US$3,000,000 of which half was registered in Madam Lu's name and treated as fully paid although she had contributed nothing.  This Mr Yu argued is explained by an email dated 5 August 2001 to Mr. Fung of WLLK, which seems to acknowledge that although Dr Chen or Yi Chun had paid for the shares allotted to Madam Lu the shares were not to be treated as being held on trust for Yi Chun.  The reason Dr Chen gave in the email was that the capital contributions made in respect of her shares “was giving to Jenny for her help in Wan Hai HK as we asked her to leave, and promised to help her”.  This is inconsistent with what Dr Chen says he originally agreed.

34.It does not seem to me that this type of forensic point is of much assistance in determining whether or not Madam Lu has proved any of the 3 agreements relied on by her and ultimately whether or not she signed the 3 declarations of trust.  Generally I found all 3 of Yi Chun's witnesses straightforward and credible and supportive of Yi Chun's case, which is straightforward and consistent with the contemporaneous documents, such as they are.  Madam Lu in contrast I found an unreliable and untrustworthy witness advancing an unlikely case.  I have already pointed out aspects of her case that are inherently doubtful and given examples of her propensity for embellishing her evidence.  I will give some more examples of what I have concluded was simply dishonest evidence given to support a dishonest case.

35.Madam Lu claimed that her written and spoken English was poor and that she could not understand the kind of documents that she was regularly asked to sign.  She said that she relied heavily on her assistant Victor Ching, who drafted emails and letters for her.  I accept that Mr. Ching probably did draft much of Madam Lu's correspondence, although I note in passing that he could give no direct evidence in relation to any of the matters which I have to determine, but I do not accept that her command of English was as poor as she so firmly asserted.  During her evidence it was obvious that she understood the questions that were being put to her even when they were relatively complex.  This was demonstrated by her habit of answering the questions before they were interpreted.  During her evidence when dealing with a particular document and the timing of its execution she told me that she had been in England at the relevant time undertaking a computer course in English for, I was subsequently told by Mr. Ching, about 2 months.  It is also apparent from the documentary evidence that she had regular dealings with English speaking lawyers and with overseas business people with whom there is nothing to suggest she had difficulty in communicating.  Her evidence in relation to the standard of her English seemed to be intended to create the impression that she was naive and exploitable by a sophisticated businessman such as Dr Chen.  However, this impression conflicts with other parts of her evidence in which she sought to present herself as a successful and well connected businesswoman, who had contributed so substantially to Wan Hai that she had become entitled to a massive bonus.

36.As can be seen from the declarations of trust they vary in length and Madam Lu's signature appears on them at different points on the page.  In the case of the OOCL documents the signatures are about half way down the page.  During part of her evidence Madam Lu, with it seemed to me the intention of setting up an argument that even if she had signed the pieces of paper they had been blank at the time, told me that she was frequently asked to sign blank sheets.  When it was pointed out to her that her signature was placed at materially different places on the paper she replied that she was also asked to sign at different points on different blank pieces of paper.  Presumably this was intended to suggest that she was being asked to produce a series of different blank sheets which could be used depending on the length of the documents that were subsequently produced.  I find this evidence to be a lie.

37.Madam Lu also gave evidence about a meeting on 9 August 2002 with KK Leung and Anthony Fung of WLLK, which was also attended by Victor Ching, at which she was asked to sign the declaration of trust in respect of the Liyou shares.  She said that she did not know what was to be discussed at the meeting and that WLLK refused to explain the purpose of the declaration of trust.  Madam Lu says that she objected so violently to being asked to sign a document, which WLLK refused to explain, that she tore up the document during the meeting; a version of events supported by Mr. Ching.  In her affirmation evidence she also makes a general complaint about WLLK's unwillingness to provide her with corporate documentation, an allegation which they deny.

38.During her cross-examination Madam Lu accepted that KK Leung, the partner responsible at WLLK for the Company's affairs, was the husband of a good friend of hers, a Catherine Hung, who is apparently, or was at the time, a director of Cheung Kong.  Madam Lu accepts she introduced Mr. Leung and his firm to Dr Chen.  I agree with Mr. Lam's submission that it is very difficult to believe that in these circumstances WLLK would have refused to explain the declaration of trust or that Madam Lu would have theatrically torn it up.  What also suggests that Madam Lu's evidence is fabricated is that WLLK had sent Mr. Ching an email before the meeting expressly stating that they wished to discuss the Liyou Advance and “whether it was transferred as personal share capital investment in Li You in 2000”.  I do not accept that she did not know what the meeting was called to discuss.  I also do not accept that if she and Mr. Ching had any doubt about why she was being asked to sign the declaration of trust WLLK would have refused to explain it.  I also accept that it is odd that if such mistrust existed between WLLK and Madam Lu at this stage, that she would have signed, either on 9 August or shortly thereafter, the year 2000 accounts for the Company, which clearly reflected the effect of the Liyou declaration of trust. Mr. Fung said, and I accept his evidence and reject that of Madam Lu and Mr. Ching, that he has no recollection of Madam Lu tearing up the declaration of trust, although he says quite candidly he cannot recall the details of the meeting or how WLLK came to receive a copy of the signed declaration of trust.

Conclusion

39.My impression of Madam Lu is that she is the type of person who, having persuaded herself that she is entitled to something, has no qualms about making up a story to support her perceived entitlement and that this is what she has done in the present case.  She has produced no credible evidence that she did not sign the three declarations of trust or that the OOCL declarations of trust were intended as a sham.  It seems clear to me that the OOCL declarations of trust were intended to refer to shares in OOCL and not Orient Overseas Containers Line Limited, and that this was understood by Madam Lu.  I, therefore, find that Madam Lu holds 350,000 shares in OOCL on trust for the Company and the shares, which she acquired as a result of the capitalisation of the loan of US$1,500,000 to Liyou, on trust for Yi Chun.

40.At the end of the trial I told the parties, to which they had no objection, that I would hear further submissions on precisely what order I should make in the Winding Up Action when I had handed down this judgment.  I direct that Yi Chun file and serve the terms of its proposed order in both actions within 7 clear days of the handing down of this judgment and Madam Lu file and serve any comments or proposed amendments thereto within 3 clear days thereafter.

41.Madam Lu has shown scant regard for the truth in her evidence before this court and has made unwarranted and serious allegations of dishonesty against Yi Chun.  In these circumstances I think it appropriate that she should pay the costs of both actions on an indemnity basis with a certificate for 2 counsel. 

Mr Doulgas Lam & Ms Sabrina Ho, instructed by Messrs Holman Fenwick Willan, for the Petitioner (in HCCW 565/2006) & the Plaintiff (in HCA 2371/2005)

Mr Denis Yu & Mr Kevin Pun, instructed by Messrs Stephen Lo & P Y Tse, for the 1^st Respondent (in HCCW 565/2006) & the 1^st Defendant (in HCA 2371/2005)

The 2^nd Respondent (in HCCW 565/2006) & the 2^nd Defendant (in HCA 2371/2005): J&D Industrial (HK) Limited, in person, Absent

The Official Receiver – excused from attendance

Please refer to CACV90/2011 for the relevant appeal(s) to the Court of Appeal.