Aspial Investment Ltd and Another v. Mayer Corporation Development International Ltd

CACV 162/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 162 OF 2012

(ON APPEAL FROM HCA NO. 238 OF 2012)

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BETWEEN

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CACV 162/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

(ON APPEAL FROM HCCL NO. 3 OF 2012)

AND BETWEEN

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(Consolidated by Order of the Honourable Mr Justice Reyes
dated 22^nd day of March 2012)

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JUDGMENT

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Hon Fok JA:

1.I have had the benefit of reading in draft the judgment of Barma JA. I respectfully agree with it and for the reasons he gives I too would dismiss this appeal and make the costs order nisi he proposes.

2.I would specifically wish to stress my agreement with the observations of Barma JA regarding the “deemed put” procedure that was adopted in the present case.  Clearly this was done with the laudable objective of saving time, but there are occasions when the Latin adage festina lente (“make haste slowly”) should be kept firmly in mind and expedition duly balanced against diligence.  Here, the adoption of the procedure seems to have contributed to Mayer BVI’s apparent sense of dissatisfaction with the judgment below.  However, this was a procedure which its own counsel urged upon the judge and it was consistent with the minimalist approach which the judge indicated he would take and which Mayer BVI’s counsel supported (thus, for example, refraining from cross-examining Lam on the alleged return of the 47 million shares to Wang).

3.In the circumstances, I would add two observations of my own. First, parties should exercise caution when proposing or endorsing streamlined procedures to ensure that such expediencies as are adopted do not cause them to overlook points which, on mature reflection, they would have wished to take. Secondly, where a party has adopted such expediencies for its own reasons, it will lie ill in its mouth to complain afterwards, in the light of an adverse outcome, that it would have wished to make some other procedural choice.

4.Finally, I would also associate myself with Barma JA’s expression of thanks to counsel for their assistance in this appeal.

Hon Lunn JA:

5.I have had the benefit of reading in draft the judgments of Fok JA and Barma JA.  I too agree with the judgment of Barma JA and for the reasons he gives I would dismiss the appeal and make the costs order nisi he proposes.

6.For my own part, I wish only to endorse the concerns expressed in the other judgments in respect of the use of the so-called “deemed put” procedure, in which factual matters raised in witness statements were deemed to have been put to other witnesses.  In my view, for the reasons identified by Barma JA, that practice is fraught with dangers.  Expedition is a laudable aim in the conduct of a trial, but it seems to me that the objective is better achieved by focused cross-examination on the real issues arising in the case, which focus is to be maintained by a tight judicial rein on proceedings.

Hon Barma JA:

Introduction

7.This is an appeal against the judgment of Reyes J given on 16 July 2012, following the trial on 3 to 6 July 2012 of two consolidated actions – HCA 238/2012 and HCCL 3/2012 – both of which were primarily concerned with establishing the ownership of 200 million shares in a Hong Kong listed company called Mayer Holdings Ltd (“Mayer HK”), represented by two shares certificates for 100 million shares each, which were numbered 70 and 71 respectively.  The rival claimants were Mayer Corporation Development International Ltd (“Mayer BVI”) on the one hand, and two companies called Aspial Investment Ltd (“Aspial”) and Bumper East Ltd (“Bumper”) on the other.

8.Mayer BVI’s case was that it was throughout the owner of the 200 million shares in Mayer HK. Aspial and Bumper, however, asserted that they each acquired 100 million of such shares in January 2012 from a company called Capital Wealth Finance Company Ltd (“Capital Wealth”) for good consideration – HK$10 million in the case of Aspial and HK$10.5 million in the case of Bumper.

How the dispute arose

9.The dispute arose shortly after those sales, when Aspial and Bumper sought to become registered as shareholders in Mayer HK by submitting stamped executed transfer forms in respect of the shares to Mayer HK’s share registrar for processing.  The share registrar refused to register the transfers as Mayer BVI, which was the registered owner of the shares, had in late 2011 reported the certificates as having been lost and had applied for replacement share certificates to be issued to it.

10.On 30 January 2012, Messrs Clifford Chance, the solicitors then acting for Capital Wealth, wrote to the share registrar and Mayer BVI amongst others, setting out details of agreements made between Lam Chin Chun (“Lam”), the Chief Executive Officer of Capital Wealth and Lai Yueh Hsing (“Lai”), the sole director of Mayer BVI, pursuant to which Capital Wealth was, it was alleged, entitled to sell the 200 million Mayer HK shares to Aspial and Bumper[1]. Mayer BVI denied having entered into any agreements with Lam or Capital Wealth to this effect[2].

The procedural history of these actions

11.On 16 February 2012, Aspial and Bumper commenced HCA 238/2012 against Mayer BVI, claiming to be the rightful owners of the 200 million Mayer HK shares represented by certificates number 70 and 71[3].

12.On 13 March 2012, Mayer BVI commenced HCCL 3/2012 against Alliance Financial Intelligence Ltd (“AFIL”), Chan Wai Dune Charles (“Charles Chan”), Lam, Bumper and Aspial, alleging that AFIL was guilty of a breach of its fiduciary duties owed to Mayer BVI in respect of the certificates relating to the 200 million shares (which Mayer BVI said had been deposited with AFIL as custodian), that Charles Chan and Lam dishonestly assisted AFIL in its breaches of fiduciary duty, and that Aspial and Bumper received the share certificates with notice of AFIL’s breaches of fiduciary duty in relation to them (and in consequence could not claim good title to them or the shares they represented)[4].

13.On 22 March 2012, Reyes J ordered that HCA 238/2012 and HCCL 3/2012 should be consolidated[5]. On 5 April 2013, at a hearing relating to an application for interlocutory injunctive relief in relation to the 200 million shares, Mayer BVI, Aspial and Bumper asked for a speedy trial, as the dispute involved a large and significant shareholding in a listed company (the 200 million shares representing just under 35% of Mayer HK’s issued share capital).  Reyes J thereupon gave directions[6] to enable the matter to be tried quickly, setting out a timetable leading to trial dates in early July 2012, some three months later.  Although AFIL, Charles Chan and Lam were not present at the hearing on 5 April 2013, they appear to have accepted that it was desirable for there to be a speedy trial, and complied with the directions that had been given.

14.Pursuant to that timetable, pleadings were closed on 18 May 2012 and witness statements exchanged on 20 June 2012, just two weeks before the trial was to commence.

15.The trial itself was conducted over four days, from 3 to 6 July 2012, with a number of measures being adopted to ensure that it did not overrun its allotted period.  These included a direction (given at the 5 April 2012 hearing) that witnesses’ statements should stand as their evidence in chief, a course which was followed at the trial, without objection from any party, and the adoption of a practice (proposed by leading counsel for Mayer BVI) which was described as “deemed put” by which matters mentioned in a witness’ statement were deemed to have been put to other witnesses upon whose evidence they impacted, so that it would not be necessary for every specific matter to be put to each witness, subject (as the judge stated) to an overriding requirement of fairness.

Other proceedings between the parties/related parties

16.It is also relevant to note that the consolidated proceedings were not the only proceedings between the parties. There are four other actions involving various combinations of parties, each of which includes one or more of the parties to these proceedings or parties related to them, and some of which involve other parties as well.  These are:-

(1)   HCA 64/2012, in which Mayer HK sues various parties including Lam as the 5^th defendant in relation to an agreement by Mayer HK to invest in a port project in Vietnam introduced by Lam;

(2)   HCA 522/2012, in which Capital Wealth sues Mayer HK for repayment of an alleged loan of HK$10 million;

(3)   HCA 524/2012, in which Capital Wealth sues Mayer HK for repayment of an alleged loan of HK$5.5 million; and

(4)   HCA 686/2012, in which Capital Wealth sues Lai, Tommy Chan (Mayer HK’s company secretary), Wang Ing Jye (“Wang”) (who featured as a witness for Mayer BVI in these proceedings) and other defendants for repayment of various loans allegedly advanced to the defendants, these being:-

(a)   a loan of HK$4 million to Lai and/or Wang;

(b)   a loan of HK$49.295 million odd to Lai and/or Tommy Chan and/or Wang and/or the 4^th defendant in the proceedings, which was advanced by a combination of money and shares in Mayer HK; and

(c)   a loan of HK$7.75 million to Lai and/or Wang and/or the 5^th defendant in the proceedings.

17.The second loan mentioned in relation to HCA 686/2012 was alleged to have been advanced by a combination of cash and Mayer HK shares.  Included amongst the Mayer HK shares were some 47 million shares which featured in these proceedings, as I shall explain below.  The ownership of these 47 million shares was therefore an issue in both these proceedings and in HCA 686/2012.

The “minimalist approach” adopted by the judge

18.When the trial of these proceedings commenced in July 2012, HCA 686/2012 was still in its very early stages, no defence having yet been filed[7]. Being aware of HCA 686/2012, and the other proceedings mentioned in paragraph 12 above, the judge was understandably anxious to avoid unnecessarily making findings in these proceedings which might impinge upon findings which another judge might be called upon to make in those other proceedings.  He therefore indicated, in the course of the trial below, that he proposed to adopt a “minimalist approach” to these proceedings, by determining and dealing with only those issues that were necessary for him to deal with in order to resolve the proceedings which were before him[8]. This course, too, was one that all the parties assented to.

The issues dividing the parties

19.As I have mentioned, the key issue with which Reyes J had to deal in these proceedings was who was entitled to the 200 million Mayer HK shares represented by certificates numbers 70 and 71.  The factual background to this dispute was complicated, and was summarised in some detail (in my view, entirely accurately) by the judge in his judgment[9]. I gratefully adopt that summary, and do not propose to restate it here, but will refer (as necessary) to relevant parts of that background when considering the criticisms levelled at the judgment by Ms Teresa Cheng SC, leading counsel for Mayer BVI in this appeal (but who did not appear for Mayer BVI below[10]).

20.Having set out the factual background, Reyes J referred[11] to the need for expedition and the desirability of limiting his findings to those matters that were necessary to the determination of the relatively narrow issue in these proceedings, noting (as I have pointed out) that these were matters to which all the parties had (through their counsel) assented.

21.Although the ultimate issue for determination by Reyes J was the relatively narrow one of to whom the 200 million Mayer HK shares belonged, the parties’ respective cases as to this were irreconcilably different.

22.The case of all the respondents was that:-

(1)   In about the first half of 2009, Mayer BVI and Lai wished to sell shares in Mayer HK, consisting of 300 million shares held by Mayer BVI and 100 million shares held by Lai (through nominees), as they were in need of funds.

(2)   With this in mind, Lai was introduced by Charles Chan (an accountant whose firm was the auditor of Mayer HK) to Lam (who was described as being well connected in the corporate finance field).

(3)   Following discussions between Lai and Lam, it was orally agreed between them by the beginning of June 2009 that:-

(a)   Lam (or Capital Wealth) was authorised to sell the 400 million shares for at least HK$100 million within 1 year, with any excess over that amount to be retained by Capital Wealth as a reward for its services.

(b)   Lam (or Capital Wealth) was to deposit the sum of HK$50 million with AFIL as “promise money” (this being paid on 3 June 2009), while Mayer BVI was to deposit 200 million of its Mayer HK shares with AFIL (this being done on 19 June 2009).

(c)    Lam was to locate buyers for Mayer BVI’s remaining 100 million shares in Mayer HK though securities firms in Hong Kong (which it is said Lam did by 23 or 24 June 2009, when a buyer was sourced through GF Securities Ltd for 100 million Mayer HK shares at a total price of HK$55 million).

(d)   Lai’s 100 million Mayer HK shares would be placed with Lam for Lam to look for purchasers for them (but in the event, Lai only delivered to Lam, through Tommy Chan, 99 million shares represented by seven share certificates in the names of various nominees on 19 June 2009 – although Tommy Chan told Lam that a share certificate for the remaining 1 million shares would be delivered after sub-division of another certificate held by Lai, this never happened).

(4)   This agreement was referred to before us as “the 1^st Oral Agreement”.

(5)   Because Mayer BVI and Lai were in need of funds, Lai sought the release of the “promise money” to them on or shortly before 24 June 2009.  As arrangements had by then been made for the sale of 100 million Mayer HK shares for HK$55 million (a sale which was completed on the market on 25 June 2009), Lam suggested that a further HK$45 million should be released out of the promise money.  Following discussions between Lam and Lai (through Charles Chan as an intermediary), it was agreed on 24 June 2009 that:-

(a)   HK$45 million out of the “promise money” would be released by AFIL to Lai/Mayer BVI, subject to the deduction therefrom of AFIL’s service charge of HK$2.5 million (in the event, a total of HK$42.5 million was paid to various individuals on 24 and 25 June 2009, in accordance with a list provided by Flora Kao, who worked for Lai (according to Lai, as his personal assistant) and was married to Lai’s nephew).

(b)   The share certificates numbered 70 and 71 would be released to Lam for him to dispose of as he thought fit.

(c)    The remaining HK$5 million of the “promise money” would be released back to Lam/Capital Wealth.

(6)   This later agreement was referred to before us as the “2^nd Oral Agreement”.

23.On the other hand, the case of Mayer BVI was that:-

(1)   Lam was introduced to Lai by Charles Chan, who suggested that Mayer HK could benefit from Lam’s experience and ability to introduce business opportunities to it so as to improve its financial performance.  Following on this introduction, Lam did in fact bring investments in Vietnam (which form the subject matter of HCA 64/2012) and Argentina to the attention of Mayer HK.

(2)   Charles Chan also suggested that Mayer BVI should deposit 200 million of its shares in Mayer HK with AFIL, on the basis that this would be convenient if Mayer BVI should subsequently decide to dispose of such shareholding, or part of it.  It was for this purpose (and not the purposes of the alleged 1^st Oral Agreement) that Mayer BVI deposited the share certificates in respect of such shares with AFIL, under the terms of a written Share Custodian Agreement between Mayer BVI and AFIL pursuant to which the share certificates could only be released or disposed of on the written resolution of Mayer BVI, and the proceeds of sale thereof were to be paid to Mayer BVI.

(3)   Mayer BVI did not, as at June 2009, wish to dispose of the whole of its 300 million shares in Mayer HK.  Rather, it only had in mind to dispose of 100 million such shares if a buyer could be found at a suitable price – in the event, it was decided (as evidenced by a resolution of Mayer BVI’s parent company in Taiwan) that 100 million shares should be sold at a price of HK$55 million odd.

(4)   There was no arrangement to sell 100 million shares in Mayer HK belonging to Lai personally.

(5)   Mayer BVI and Lai had not entered into either the 1^st Oral Agreement or the 2^nd Oral Agreement with Lam/Capital Wealth, and accordingly, AFIL should not have released the share certificates relating to the 200 million shares to Lam, who had no right to dispose of them to Aspial and Bumper.

24.In relation to the 99 million Mayer HK shares delivered on 19 June 2009, Mayer BVI’s case was that these did not belong to Lai. Instead, it was said that these 99 million shares were deposited by Wang with AFIL (having been delivered to the managing director of AFIL, Ku Siu Fun Alex (“Ku”) by Wang), and that they were held by AFIL under the terms of a Share Custodian Agreement between Wang and AFIL (which I shall refer to as “Wang’s Share Custodian Agreement”) the terms of which were broadly identical to those of the Share Custodian Agreement between Mayer BVI and AFIL, for the purpose of being sold by Charles Chan on behalf of investors whom Wang represented, at a price of not less than HK$1 per share.  The payment by AFIL of HK$42.5 million in accordance with the instruction sheet provided by Flora Kao was said to be an advance payment by Charles Chan of the anticipated sale proceeds of such shares.

The decision below

25.Having read the statements of the witnesses, and having heard their evidence, the judge found in favour of the respondents, finding that the 1^st and 2^nd Oral Agreements had indeed been made, and rejecting the case put forward by Mayer BVI.  In particular, as regards Wang’s Share Custodian Agreement, the judge concluded that he “[could not] regard that Agreement as authentic”[12] and that it was “on the balance of probability … a fake”[13].

26.In coming to these conclusions, the judge approached the matter by considering seven issues (which had been suggested by Mr Litton, who appeared for Aspial and Bumper at the trial and on this appeal).  These were:-

(1)   Did Mayer BVI enter into an agreement with Capital Wealth in or about May/June 2009 relating to the sale of 300 million shares held by Mayer BVI in Mayer HK and (if so) what were the terms of that agreement?  The judge concluded that such an agreement had indeed been entered into and was on the terms of the 1^st Oral Agreement (although at the end of the section of his judgment dealing with this issue[14], he stated that such agreement involved the sale by Lam of Mayer BVI’s 300 million shares in Mayer HK at a price of HK$100 million).

(2)   What were the terms of the Share Custodian Agreement entered into on 19 June 2009 between AFIL and Mayer BVI in respect of the latter’s 200 million Mayer HK shares?  The judge dealt with this issue by concluding that the terms of that agreement were as stated in the Agreement, but said that such terms were not inconsistent with the 1^st Oral Agreement having been made.

(3)   Did Wang enter into (a) a Share Custodian Agreement with AFIL on 19 June 2009 for 99 million Mayer HK shares and (b) an agreement with Charles Chan to sell those shares on behalf of 7 individual investors? As to this issue, the judge rejected the story advanced by Wang and held that no such Share Custodian Agreement had been entered into, and no such agreement for the sale of the 99 million shares had been made.

(4)   Was the Custodian Agreement between Mayer BVI and AFIL superseded by a further agreement among Capital Wealth, Mayer BVI and AFIL on 24 June 2009 relating to the 200 million Mayer HK shares and (if so) what were the terms of that further agreement?  On these questions, the judge concluded that the Share Custodian Agreement between Mayer BVI and AFIL was indeed superseded by a further agreement between the entities referred to, namely the 2^nd Oral Agreement.

(5)   Was there a breach of the Custodian Agreement and/or breach of trust by AFIL in releasing certificates 70 and 71 to Capital Wealth on 24 June 2009?  In the light of his conclusions on the first four questions, the judge concluded that there had not been any such breaches.

(6)   If there was a breach of trust by the release of certificates 70 and 71 by AFIL to Capital Wealth on 24 June 2009, did Charles Chan and Lam dishonestly assist in the breach?  Having regard to his conclusion in respect of the previous issue, the judge also answered this question in the negative.

(7)   Did Bumper and/or Aspial receive certificates 70 and 71 with actual or constructive knowledge of a breach of trust by AFIL or Lam?  Again, in the light of his determination in relation to the preceding two issues, the judge answered this question in the negative.

Mayer BVI’s application to adduce further evidence on appeal

27.At the beginning of this appeal, Ms Cheng made an application to adduce further evidence, consisting of two handwriting experts’ reports which tended to suggest that Wang’s Share Custodian Agreement (which the judge had found on the balance of probabilities to be a fake) might in fact be genuine, as the signature on it purporting to be Ku’s was (in the opinion of the experts) likely to be genuine, rather than a forgery (as had been alleged by Ku when he was cross-examined in relation to this document).  For the reasons given in the Judgment of Fok JA, we dismissed that application, and the appeal proceeded without reference to such evidence.

The nature of the appeal

28.In support of the appeal, Ms Cheng contended that Reyes J had been wrong to reject Mayer HK’s case, and to find that the 1^st and 2^nd Oral Agreements had been made.  The appeal is therefore one against the judge’s findings of fact, which he made having had the opportunity to consider the evidence laid before him, and having assessed the credibility of the witnesses who appeared at the trial.  It is one which can only succeed if Mayer BVI is able to show that the judge was plainly wrong in making the findings which he did[15].

Did the judge ask himself the right questions?

29.Ms Cheng’s first major criticism of the judgment was to suggest that the judge had asked himself the wrong questions by framing the debate in terms of the seven issues put forward by Mr Litton.  She suggested that by doing so, the judge had lost sight of the bigger picture, which required him to consider whether or not the 1^st and 2^nd Oral Agreements had in fact been made, and had instead adopted an over-compartmentalised approach which had led him into error.

30.I do not think that this criticism is justified.  The seven questions were clearly formulated with a view to assisting the judge in reaching the conclusions that he needed to reach in order to resolve the differences between the rival cases and thus to dispose of the proceedings.

31.Thus, the first two questions were clearly directed towards determining whether the 1^st Oral Agreement had in fact been made (as the respondents contended), or whether Mayer BVI’s case should be preferred.  The first question directed itself towards the facts and evidence in relation to the respective cases of the two sides (treating all the respondents as being, for these purposes, on the same side of the divide), while the second focused on a particular aspect of that question, by asking whether the terms of the Share Custodian Agreement between Mayer BVI and AFIL were such as to negative the existence of an agreement along the lines of the 1^st Oral Agreement.  It is, I think, clear from the way in which the judge dealt with the second issue that he had very much in mind the point that was being made by Mayer BVI.

32.The third question was directed towards assisting the judge to come to a conclusion as to both the 1^st and 2^nd Oral Agreements – if Wang’s Share Custodian Agreement were genuine, and Wang had indeed deposited the 99 million shares for the purpose of having them sold on behalf of his clients by Charles Chan, this would go a long way in negativing the existence of the 1^st Oral Agreement (since there would not be any shares belonging to Lai supplied for sale, contrary to the case being advanced that Lam had agreed to procure the sale of a total of 400 million Mayer HK shares for not less than HK$100 million).  It would also militate against the existence of the 2^nd Oral Agreement, for the payment of the HK$42.5 million would then be referable to the shares to be sold for Wang’s clients, and not to the balance payable to Mayer BVI/Lai in respect of the 400 million shares owned by them (300 million and 100 million respectively) which they were to receive earlier than intended under the 1^st Oral Agreement.

33.The fourth question (to which the third question was, as I have pointed out, also relevant) clearly went to the existence (or otherwise) of the 2^nd Oral Agreement.

34.Thus, between them, the first four questions provided the basis on which the judge could (as he did) resolve the question of which side was to be believed.  The remaining questions provided the framework against which he could decide whether or not particular respondents were liable to Mayer BVI on the bases pleaded by it.

35.I therefore do not think that it can be said that the judge approached the matter in the wrong way, so as to vitiate his findings.  As Mr Edward Chan SC, appearing for Lam, put it, if one were to omit the seven questions as headings in the judgment below, and look at the judgment fairly as a whole, it was apparent that the judgment dealt with the key questions that needed to be determined.

Whether the judge should have accepted Wang’s evidence

36.Ms Cheng also placed much reliance on a suggestion that the judge had failed to deal adequately with the evidence of Wang, in particular, his evidence that he had had returned to him share certificates in respect of 47 million of the 99 million shares which he said he had deposited with AFIL on 19 June 2009[16].  The relevance of this evidence is readily apparent.  If the fact that Wang had in his possession such share certificates meant that they had been returned to him, this would suggest (perhaps cogently) that Wang’s evidence as to his having handed over 99 million Mayer HK shares to AFIL was true, and consequently that the respondents’ case as to the 1^st and 2^nd Oral Agreements was not to be credited.  This was, in fact, a point that had been stressed by leading counsel for Mayer BVI at the trial – in both his written and oral closing submissions, he urged upon the judge the importance of this point, suggesting that Wang’s ability to produce the share certificates at the trial gave the lie to the case advanced by AFIL, Chan, Lam, Aspial and Bumper.

37.The judge dealt with this point in the judgment, stating[17] that he did not see how this point improved the credibility of Wang, with whose evidence the judge was plainly unimpressed, given that there was an alternative account of how the certificates representing the 47 million shares reached Lai and, presumably through him, Wang.

38.The judge had earlier in his judgment[18] explained why he did not find Wang a credible witness, and was disinclined to accept his evidence about his delivery of 99 million Mayer HK shares to AFIL and the entry into of Wang’s Share Custodian Agreement.  The judge identified seven factors which were, to his mind, indicators that Wang’s evidence should not be accepted.  These were:-

(1)   The inherent unlikelihood that seven individual customers should all have approached Wang just at that time, asking him to assist them in selling shares in Mayer HK, and that they should approach him (when he admittedly had no expertise in selling shares in Hong Kong) rather than stockbrokers in Hong Kong.

(2)   The implausibility of the suggestion that Charles Chan, who was neither a stockbroker nor a moneylender, should be prepared to put up HK$42.5 million as an advance payment for the sale of the 99 million shares at a price which, having regard to the recent history of trading in Mayer HK’s shares (which were very thinly traded, and had for some time ranged between HK$0.52 and HK$0.64), was plainly optimistic.

(3)   Obscurities as to how the amount of the alleged deposit/advance payment was arrived at.

(4)   The fact that it appeared that only 52 million of the 99 million shares were eventually sold, but that these sales were not allocated equitably amongst the seven alleged clients of Wang, but were attributed, without any clear rationale, to just three of them.

(5)   The fact that the payees who received the HK$42.5 million did not correspond with either the registered or (alleged) beneficial owners of the shares, according to Wang.

(6)   The fact that the HK$42.5 million was not divided pro rata amongst the seven alleged clients of Wang, or in any other way that reflected their respective shareholdings in Mayer HK.

(7)   The failure of Wang to produce, despite being asked to do so, any documentation to demonstrate that the remittances had been accounted for to his seven supposed clients.

39.To my mind, these are compelling reasons to harbour grave doubt about the veracity of the account put forward by Wang. Against them, the only factor in favour of Wang’s story was the fact that he had the remaining share certificates in his possession.  However, like the judge, I do not think that this factor is sufficient to outweigh the points against Wang’s contentions being true.

40.In this connection, it is relevant to bear in mind a number of points as to how Wang’s evidence arose, how it was dealt with at the trial, and other matters bearing on his account.

41.Although Wang’s Share Custodian Agreement had been disclosed earlier (and had provoked demands from the respondents for an explanation of its provenance and relevance), it (and the suggestion that the 99 million shares were supplied by Wang and were not owned by Lai) had not been referred to in Mayer BVI’s pleaded case.  The first time that Wang’s evidence came to light was when his witness statement was filed two weeks prior to the trial.  There was therefore no real opportunity for the other parties to respond to it by way of witness statements from their own witnesses.

42.At the trial, the question of whether the 47 million shares represented by the certificates in Wang’s possession had been returned to him (thus suggesting that they had been supplied by him in the first place) was not really explored with any of the witnesses – it was not a subject on which either Wang or the witnesses for the respondents were examined (there being virtually no examination in chief) or cross-examined. Although counsel for Mayer BVI appeared, during cross-examination of Lam, to be moving towards a line of questioning relating to these 47 million shares (asking questions in relation to the 99 million shares deposited on 19 June 2009), when the judge observed that it would be undesirable to trespass on the subject matter of HCA 686/2012 (so far as it could be avoided), counsel agreed, and thereafter did not return to this subject.

43.It was, however, known to all the parties and the judge that it was the case of Capital Wealth in HCA 686/2012 that these 47 million shares formed part of the disbursement of a loan made by Capital Wealth to Lai and/or Tommy Chan and/or Wang and/or another defendant in those proceedings.  There was also evidence from Lam at the trial that the shares had been handed to Tommy Chan.

44.In these circumstances, the evidence as to the true provenance of the 47 million shares was, at best, wholly inconclusive, and it is not surprising that the judge should have concluded that the fact that Wang had the share certificates in his possession did not require him to accept Wang’s evidence, given the factors which the judge had already identified as casting grave doubts upon it.

45.I therefore do not regard this point as one which demonstrates that the judge’s approach was flawed.

Whether the judge erred as to the subject matter of the 1^st Oral Agreement

46.Ms Cheng further suggested that the judge’s judgment was flawed because he had made a fundamental error in relation to the 1^st Oral Agreement, by finding[19] that it related to Mayer BVI’s 300 million shares in Mayer HK, and not to those shares, plus 100 million shares beneficially owned by Mr Lai, as the respondents had alleged in their pleadings.

47.I do not think that the judgment, fairly read, discloses such an error on the judge’s part, although I would accept that paragraph 136 of the judgment is not entirely happily worded.

48.The first question is worded so as to relate to Mayer BVI’s 300 million Mayer HK shares.  As Mr Litton pointed out, the wording of the question was his, and was designed to focus attention on the shares with which the proceedings below were concerned – those owned by Mayer BVI.  The shares allegedly beneficially owned by Lai, although part of the subject matter of the 1^st Oral Agreement, did not form part of the subject matter with which the proceedings were most immediately concerned.

49.It seems to me that, read fairly and as a whole, the judgment shows that the judge had not somehow forgotten about the 100 million shares that were said to have been beneficially owned by Lai, or that he had really concluded that the 1^st Oral Agreement did not include those shares.  This, I think, is apparent from a number of passages in the judgment, not least paragraph 113 (where the judge accurately set out the respondents’ case as to the 1^st Oral Agreement), and paragraphs 130 and 131 (by which the judge indicated that he was well aware that the 99 million shares were an important part of the case on the 1^st Oral Agreement, but indicated that he would deal with them more fully when considering the third question, which related more directly to the competing case of Mayer BVI based on Wang’s evidence).  Further, it seems to me that the attention devoted to the third question also illustrates that the judge was well aware of its importance to the proceedings, and hence that the 1^st Oral Agreement related to 400 million Mayer HK shares.

50.Set against these passages, I do not think that paragraph 136 of the judgment represents as fundamental an error on the judge’s part as Ms Cheng has suggested.  It correctly states that the agreement related to Mayer BVI’s 300 million shares (reflecting the formulation of the question) – the only error is the statement that such shares were to be sold for at least HK$100 million (whereas that was the minimum price to be achieved for the whole of the shares to be sold – Mayer BVI’s 300 million shares and Lai’s 100 million shares).  That is, in my view, a minor error, and it does not vitiate the judge’s overall conclusion.

Change in ownership of Mayer HK

51.Ms Cheng further argued that, if the respondents were right as to the 2^nd Oral Agreement, the effect was that upon payment of the HK$42.5 million out of the promise money, Lam was to be free to sell the remaining Mayer HK shares essentially for his own (or Capital Wealth’s) account.  In those circumstances, Ms Cheng submitted, Lam (or Capital Wealth) would become the beneficial owner of (at least) the 200 million Mayer HK shares represented by certificates numbers 70 and 71.  This meant that Lam/Capital Wealth would have been obliged to make a general offer for the rest of Mayer HK’s shares (since 200 million shares represented more than 30% of Mayer HK’s issued share capital), and that thereafter, the change in control of Mayer HK should have been reflected in its annual reports and accounts.  But neither of these things happened.  Therefore, Ms Cheng reasoned, the 2^nd Oral Agreement could not have been made.

52.With respect, the flaw in this argument is evident.  Leaving aside the fact that Lam’s evidence was that he did not regard himself as having acquired beneficial ownership of the Mayer HK shares in his possession (which the judge accepted, although regarding it as a somewhat eccentric understanding of the position), it simply does not follow that because a person might come under obligations (such as that requiring the making of a general offer), he will necessarily comply with them.  While this might expose him to possible action by the relevant authorities, it does not necessarily mean that the transaction did not take place.  This was, at best, a factor that the judge could have had regard to in considering where the overall balance of the evidence lay, and I do not think that he can be faulted for concluding that it did not affect his overall conclusions.

Absence of bought and sold notes

53.Another point of which much was made in support of the appeal was the absence of bought and sold notes in respect of the 200 million shares which were the subject matter of these proceedings. Again, I do not think that it is a point that can bear the weight that was sought to be placed on it.  It is true that there were no signed bought and sold notes, but there were signed instruments of transfer on the back of the share certificates concerned.  These were clearly evidence from which the judge could find that Mayer BVI had the intention to sell the shares concerned (an intention which was in fact confirmed by Lai in cross-examination[20]).  Further, it is clear that stamp duty was paid on the transfers to Aspial and Bumper, which indicates that bought and sold notes were not required for stamping.  Moreover, the reason given for refusal of registration of the transfers was not that there were no bought and sold notes, but that there had been a prior report by Mayer BVI that the share certificates had been lost, and an application for their replacement.  The fact that bought and sold notes appear to have been prepared in respect of the 99 million shares deposited later does not, I think, take matters any further.

The involvement of Mr Zhang

54.Ms Cheng also focussed on part of Lam’s evidence in which he said that he had, prior to entering into the 1^st Oral Agreement, located a potential investor (a Mr Zhang) who expressed interest in acquiring the 400 million Mayer HK shares for HK$120 million.  The judge regarded the involvement of Mr Zhang as a peripheral issue which did not logically impinge on the question of whether or not there was in fact an agreement between Lam and Lai along the lines of the 1^st Oral Agreement.  I think that this was right – it seems to me that the involvement of Mr Zhang was no more than background to the making of the 1^st Oral Agreement, and as such was not of significant weight in assessing whether or not that agreement had been made.

Other points taken by Mayer BVI on existence of the 1^st and 2^nd Oral Agreements

55.Mayer BVI took a number of further points which, it suggested, pointed to the conclusion that the judge had erred in his conclusion that the 1^st and 2^nd Oral Agreements had in fact been made.  However, in my view, none of these points (even if well-founded) is sufficiently compelling to call for this Court to come to a different view to that reached by the judge.  I shall deal with these points (which were helpfully set out in two flow charts provided to us by Ms Cheng setting out in diagrammatic form her client’s complaints about the judgment) as briefly as possible below:-

(1)   In relation to the 1^st Oral Agreement:-

(a)   It was suggested that undue weight was given by the judge to the payment by Lam of HK$50 million to AFIL.  This was the amount of the “promise money” which Lam said had been agreed to be provided by him.  The point was made that the letter from AFIL to Lam dated 3 June 2009 recording this payment was not sent to Mayer BVI.  That may be so, but as the judge observed, the fact of the payment was not open to serious dispute, and no alternative explanation for it had been advanced.  In those circumstances, it was clearly a matter on which the judge was entitled to place weight.

(b)   It was next suggested that the treatment of the 99 million shares revealed that the transaction was a highly uncommercial one, in that it did not appear that Lam had kept the 99 million shares, or their sale proceeds, when he was entitled to do so – it was argued that Lam had allowed the sale proceeds of the 52 million of such shares as were sold to be paid to Wang, and had returned the remaining 47 million shares to Wang.  It was also pointed out that Lam did not chase after the remaining 1 million Mayer HK shares which were not delivered.  The point as to the 47 million unsold shares has already been dealt with.  As for the proceeds of the 52 million shares said to have been sold, Wang’s evidence appeared to be that this was paid as to HK$42.5 million in June 2009, and as to the balance in various payments thereafter. However, given the judge’s finding that the HK$42.5 million was in fact payment to Mayer BVI/Wang as part of the 2^nd Oral Agreement, it cannot be said that Wang was able to establish that he was in fact paid such proceeds.  Further, there was little evidence as to when and how the balance of the proceeds of sale were supposedly paid to Wang.  It therefore cannot be said that this factor was in fact made out.  As to the 1 million remaining shares, their value was relatively small, and (as was suggested for the respondents) may simply have been overlooked as being not worth pursuing after relations between the parties had soured.  In the circumstances, this point does not appear to me to be a good one.

(c)    Various points were made as to whether or not there was in fact any arrangement with Mr Zhang.  However, as I have pointed out, this was at best a peripheral matter, and not one of central relevance to the questions which the judge had to decide.

(d)   It was also suggested that the terms of the Share Custodian Agreement between Mayer BVI and AFIL were inconsistent with the 1^st Oral Agreement.  I would respectfully agree with the judge that they were not, for the reasons given by him[21].  In any event, as the judge pointed out, the Share Custodian Agreement could be varied, as he found it had been by the 2^nd Oral Agreement[22].

(e)    Finally, it was suggested that Mayer BVI did not in fact intend to sell the 200 million Mayer HK shares represented by the two share certificates. A number of points in relation to this argument, such as the absence of bought and sold notes and the terms of the Share Custodian Agreement have already been dealt with above.  A minor point that was made in this connection was the suggestion that had it been intended to sell the shares (and indeed, had they been effectively disposed of by way of the 2^nd Oral Agreement), Lai would not have taken part in a trip to Argentina to explore investment opportunities for Mayer HK – this was, however met by it being pointed out that Lai remained throughout an executive director of Mayer HK, and as such there was nothing surprising in his involvement in such matters.

(2)   In relation to the 2^nd Oral Agreement:-

(a)   The complaint as to the rejection of Wang’s evidence as to the 99 million shares has already been considered.

(b)   It was also suggested that contemporaneous documentary evidence did not support the existence of the 2^nd Oral Agreement. However, the absence of bought and sold notes has already been dealt with, as has the failure to record Lam/Capital Wealth as the controlling shareholder of Mayer HK in that company’s annual reports and accounts.  While it is true that there was no documentary evidence to support the contention that AFIL was entitled to a fee of HK$2.5 million, this seems to me to be a minor point, and a matter on which the judge was entitled to make the finding that he did (i.e. to accept that there had probably been such an agreement).  Finally, in relation to a suggestion that AFIL’s letter to Mayer BVI dated 24 June 2009 setting out the manner in which the HK$42.5 million had been disbursed (in accordance with the instructions on the sheet of paper provided by Flora Kao) was a fabrication, because it contained as an enclosure a document which was dated 25 June 2009 was, in my view, sufficiently dealt with by the judge in the judgment, where he accepted the evidence of the respondents’ witnesses in relation to this matter[23].

(c)    The suggestion that it was not inherently probable that the 2^nd Oral Agreement was concluded on 24 June 2009 because (i) the sale of the 100 million Mayer HK shares owned by Mayer BVI for HK$55 million took place only on the next day and (ii) there was no evidence that Mayer BVI was desperate for funds is not, in my view, a compelling reason to reject the respondents’ case as to the 2^nd Oral Agreement.  It was Lam’s evidence that the share sale in respect of the 100 million shares through GF Securities Ltd, although executed on 25 June 2009 had been arranged in advance, an explanation which seems plausible, particularly having regard to the large quantity of shares sold in comparison with the very limited turnover in Mayer HK shares on the market in the weeks and months prior to 25 June 2009.  As to the question of how urgently Mayer BVI was in need of money, this was a matter where the parties’ evidence conflicted, and it was, I think, open to the judge to prefer the respondents’ case.

(d)   It was suggested also that the evidence as to the making of the 2^nd Oral Agreement was not particularly convincing, and that it was odd that there should have been no direct communications between Ku of AFIL on the one hand, and Lai or Lam on the other (the respondents’ case being that communications were coordinated through Charles Chan).  Even if there may be something in this point, it is but one factor in the overall evidence which the judge considered, and is not a sufficient basis for overturning his finding.

(e)    Further, it was suggested that the respondents had failed to prove that Lai was authorised to enter into the 2^nd Oral Agreement, that none of the HK$42.5 million was paid to Mayer BVI, and that Mayer BVI’s parent company in Taiwan had not instructed or approved the making of the agreement.  However, even assuming for present purposes that the burden of establishing Lai’s authority lay with the respondents, it must be borne in mind that Lai was the sole director of Mayer BVI, and would therefore ostensibly be authorised to act for it.  As to the HK$42.5 million, there would be no reason for AFIL to think that Flora Kao, Lai’s personal assistant, was not authorised to deliver the instructions concerned.  Additionally, given that the Mayer HK shares were owned by Mayer BVI and not its parent company, I do not see that it was necessary for the parent company’s approval or instructions to have been obtained.

The Amy So principle

56.Finally, Ms Cheng contended that judge had erred in an important respect by failing to require the witnesses to give their evidence-in-chief in the traditional way, by oral examination rather than by treating their witness statements as their evidence-in-chief. There is nothing in this point.  Although it is open to a judge to require evidence-in-chief to be given orally without reference to witness statements in cases in which (as here) there is a sharp divide in the cases advanced by the opposing parties, such a course is not one which must invariably be followed in such situations.  In the present case, all the parties pressed upon the judge the need for expedition in dealing with their dispute, and agreed (and certainly did not object) to the course which the judge adopted.  The judge clearly did not think it essential to have evidence in chief elicited by oral examination, and was able to make the necessary findings to dispose of the matter without it.  Having assented (through its counsel) to the course adopted, it is not now open to Mayer BVI to seek to suggest that some other course should have been taken, and that the failure to do so was one which strikes at the heart of the judge’s findings[24].

Conclusion and disposition

57.In my view, none of the criticisms directed at the judgment could justify this court in overturning the judge’s factual findings and the conclusions which he reached.  On the contrary, for the reasons explained by the judge, there was ample evidence on the basis of which he was justified in making those findings and disposing of these proceedings as he did.  The appeal must therefore be dismissed.

58.So far as costs are concerned, these should follow the event, and I would therefore make an order nisi that the appellant is to pay the costs of each set of respondents, in each case with a certificate for two counsel.

The notion of “deemed put”

59.I would also wish to make a comment on the approach of “deemed put” that was advocated by counsel for Mayer BVI below, and apparently adopted by the judge.  While I can see that there may have been, in this case, reason for expedition and attempting to keep the trial on course to finish within the time allotted for it, it seems to me that the adoption of a practice whereby all matters raised in a witness statement which impact upon the evidence to be given by other witnesses are to be deemed to have been put to such other witnesses (subject only to some overriding requirement of fairness to be determined by the judge hearing the matter) is one which is fraught with potential difficulties.  This will particularly be the case where (as here) the evidence of the witnesses is given by their witness statements, which are not responsive to the evidence of other witnesses, and where there is limited, if any, oral evidence in chief in which matters raised by the other witnesses are dealt with.  It seems to me that it would be preferable, in almost every case, for important aspects of a party’s case to be specifically put to the witnesses on whose evidence they may impact, so as to afford such witnesses a full and fair opportunity to comment on, or respond to, those matters.

60.Finally, it remains for me to thank all counsel for their industry and assistance, which rendered this factually complicated case much easier to follow and deal with.

Ms Teresa Cheng SC & Mr Adrian Lai, instructed by K & L Gates, for the Defendant in HCA 238/2012 and the Plaintiff in HCCL 3/2012 / Appellant

Mr Simon Chiu & Mr Timothy Wong, instructed by Hastings & Co., for the 1^st & 2^nd Defendants in HCCL 3/2012 / 1^st & 2^nd Respondents

Mr Edward Chan SC & Mr Lee Tung Ming, instructed by Fred Kan & Co., for the 3^rd Defendant in HCCL 3/2012 / 3^rd Respondent

Mr John Litton, Mr Fredrick H F Chan & Mr Eric Chow, instructed by Samuel L.C. Yang & Co., for the 1^st & 2^nd Plaintiffs in HCA 238/2012 and the 4^th & 5^th Defendants in HCCL 3/2012 / 4^th & 5^th Respondents

(I) Please refer to FAMP2/2013 for the relevant appeal(s) to the Court of Final Appeal. (II) Please refer to FACV17/2013 for the relevant appeal(s) to the Court of Final Appeal.