Bold Shine Investment Ltd v. Zheng Deli also known as Cheang Lei and Another
Read the full judgment text of HCA 1676/2011 on BabelCite. This High Court CFI judgment was delivered on 10 June 2013.
1. The plaintiff is a Hong Kong company incorporated on 2 April 1992. The nominal and issued share capital was 10,000 shares and 2 shares respectively. The defendant and Luo Bing Kun (“ Luo ”), who were the first directors, each held 1 share.
Cites 8 cases
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HCA 1676/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1676 OF 2011 _________________________ BETWEEN
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_______________ D E C I S I O N _______________ I. BACKGROUND 1.The plaintiff is a Hong Kong company incorporated on 2 April 1992. The nominal and issued share capital was 10,000 shares and 2 shares respectively. The defendant and Luo Bing Kun (“Luo”), who were the first directors, each held 1 share. 2.Chen Zhuhui (“Chen”) was appointed as director with effect from 1 January 1994. On 11 August 1998, 9,998 shares were allotted to Luo (4,499 shares), the defendant (999 shares) and Chen (4,500 shares). On 4 September 2000, Fong Biao Wen (“Fong”) was appointed as director. On 19 September 2000, Chen’s 4,500 shares were transferred to Fong. With effect from 18 April 2002, Chen ceased to be a director and the defendant was removed as a director. 3.At present, the plaintiff’s directors are Luo and Fong, and the shareholders are Luo, Fong and the defendant. The defendant still holds 10% of the shareholding. 4.Prior to his conviction pursuant to “刑事判決書” by the People’s Court of Foshan City, Nanhai District, Guangdong Province dated 3 April 2004 (“PRC Judgment”), the defendant had been in custody since 20 September 2001. By the PRC Judgment, he was sentenced to inter alia a term of imprisonment for 20 years. Since the defendant’s prior detention would be counted as part of his sentence, in practical terms his prison sentence commenced from 20 September 2001 until 25 September 2021. He is now serving his prison sentence in Gaoming, Foshan City, Guangdong Province, Mainland China. 5.The present action concerns a property known as Flat D on 7th Floor and Car Park No 9 on Ground Floor (of Block 3) Mandarin Court, Nos 142&144 Argyle Street, Kowloon (“Property”). The defendant was/is the registered owner of the Property. 6.The main issue in the present action is whether the Property was/is beneficially owned by the plaintiff or the defendant, which issue essentially turns on the question of who funded the purchase of the Property. II. UNDISPUTED FACTS (a) Purchase of the Property 7.Cheng Chun Wing and Lee Fong Fong (“Vendors”) as vendors and the defendant as purchaser entered into a provisional agreement for sale and purchase dated 30 July 1992 (“PASP”) and a formal agreement for sale and purchase dated 6 August 1992 (“FASP”) in respect of the Property. 8.Under the PASP and the FASP, the purchase price of the Property was HK$4,999,000.00 (“Price”) to be paid as follows:
9.Under the PASP and the FASP, the agent’s fee or commission payable by the purchaser to Fu Ching Realty Company was HK$50,000.00 (“Commission”). 10.By an Assignment dated 14 September 1992 and registered with the Land Registry on 26 September 1992, the Vendors formally assigned the Property to the defendant who became and still remains as the registered owner of the Property. 11.For the relevant conveyancing transaction, the solicitors for the Vendors were Messrs Paul Kwong & Co (“PKC”), and the solicitors for the purchaser were Messrs Phyllis KY Kwong & Co (“PKYKC”). 12.The stamp duty payable for the FASP (“Stamp Duty”) and the costs and disbursements of PKYKC (“Legal Fees”) were HK$137,472.00 and HK$31,260.00 respectively. 13.Thus, the sums payable in relation to the purchase of the Property were as follows:
(b) Initial Deposit 14.The PASP stated that the Initial Deposit was paid by cheque no 438560 drawn on the Bank of East Asia Limited (“BEA”). The FASP confirmed that the Initial Deposit had been paid to the Vendors directly before the signing of the FASP. (c) Further Deposit 15.The Further Deposit was paid to PKC by cheque no 274231 dated 5 August 1992 drawn on the bank account of the defendant and Luo with the BEA (“Joint Account”). (d) Stamp Duty 16.The Stamp Duty was paid by cheque no 274233 in the sum of HK$137,472.00 drawn on the BEA. By a receipt dated 5 August 1992, PKYKC acknowledged payment of the Stamp Duty (by such cheque) from the defendant and Luo. Mr Chow, counsel of the plaintiff, accepted that cheque no 274233 was drawn on the Joint Account. (e) Balance 17.The completion statement for the Property stated that the sum payable upon completion was HK$4,530,360.00 being (a) the Legal Fees and (b) the Price less the Initial and Further Deposits (ie the Balance). 18.The plaintiff’s voucher record dated 8 September 1992 (“Voucher Record”) stated that (a) cheque no 436902 was for “purchase of office” in the sum of HK$4,499,100.00 and (b) cheque no 436903 was for legal fees in the sum of HK$31,260.00. Handwritten notations of (i) “翠華” (ie Mandarin Court where the Property was situated as seen in the PASP) and (ii) payment from the plaintiff’s bank account with the BEA (“Company Account”) to PKYKC for the purchase of “Mandarin Court” property (collectively, “Voucher Notations”) were found on the copy Voucher Record exhibited to Fong’s affirmation filed on 14 November 2012. It is unclear when the Voucher Notations were made given the “received” stamp dated 4 September 1998 on the copy Voucher Record. 19.The plaintiff issued cheque no 436902 dated 8 September 1992 in the sum of HK$4,499,120.00 in favour of “鄺家賢律師 or bearer” drawn on the Company Account. The relevant bank statement dated 30 September 1992 (“Bank Statement”) showed that such cheque was cleared by cash withdrawal on 8 September 1992. 20.The Balance was paid to PKYKC by cashier order no 638687 in the sum of HK$4,499,100.00 dated 9 September 1992. PKYKC issued a receipt dated 9 September 1992 that acknowledged inter alia such fact. (f) Legal Fees 21.PKYKC’s bill no B0434 dated 9 September 1991 addressed to the defendant in relation to the Property was settled by cheque no 436903 dated 8 September 1992 drawn on the Company Account (as evidenced by PKYKC’s receipt dated 9 September 1992 in paragraph 20 above and the copy Voucher Record and the Bank Statement referred to in paragraphs 18‑19 above). (g) Commission 22.The plaintiff claimed they paid HK$50,000.00 to Fu Ching Realty Company on 9 September 1992 in settlement of the Commission, but this is denied by the defendant. III. PLAINTIFF’S CLAIM AND ORDER 14 APPLICATION 23.The plaintiff claimed the Price, Stamp Duty, Commission and Legal Fees were paid by them and/or by the defendant and Luo on their behalf, so the plaintiff were/are the beneficial owner (and entitled to recover possession) of the Property by operation of the principle of resulting trust. 24.The plaintiff further claimed that after the defendant was removed as director they were unable to contact him to execute documents for transfer of legal title of the Property back to them. So on 3 October 2011, they commenced the present action against the defendant for inter alia the following reliefs:
25.On 15 November 2012, the plaintiff issued a summons for summary judgment (“Summons”) to seek the reliefs set out in (a), (b), (f) and (g) of the above paragraph and also the following reliefs:
26.At the hearing on 9 May 2013 before me (“Hearing”), I granted leave for the plaintiff to amend the Summons so that it referred to the Amended Statement of Claim rather than to the Statement of Claim (“Amended Summons”). Mr Chang, counsel for the defendant, confirmed he would not take issue over the absence of further supporting affirmation by the plaintiff to verify the claim pleaded in the Amended Statement of Claim. 27.At the Hearing, I also granted leave for the plaintiff to withdraw the relief sought in Amended Summons set out in paragraph 25(b) above. 28.The plaintiff filed two affirmations of Fong on 14 November 2012 and 20 March 2013 respectively and the affirmation of Luo on 18 March 2013 in support of the Amended Summons. The defendant filed the affidavit of his solicitor Sousa Richard Alvaro (“Sousa”) on 14 February 2013 in opposition. IV. LEGAL PRINCIPLES ON SUMMARY JUDGMENT 29.Mr Chow and Mr Chang had no essential quarrel over the legal principles on applications for summary judgment. A plaintiff may invoke the procedure under Order 14 of the RHC where there is no valid defence to his claim or otherwise a triable issue. The rationale is set out in Hong Kong Civil Procedure 2013 Vol 1, para 14/4/1 at p 247:
30.In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155, Godfrey J noted it was not appropriate to embark on a mini‑trial of the action on affidavit evidence. The court should ask itself the question whether what the defendant says is credible or believable. If so, he must have leave to defend; if not, the plaintiff is entitled to summary judgment. 31.Hong Kong Civil Procedure 2013 Vol 1, para 14/4/9 at pp 251 goes on to say that:
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V. LEGAL PRINCIPLES ON RESULTING TRUST 32.Mr Chow submitted it is trite that where a person contributes to the purchase price of property in name of another, the law will presume that the property is held by the person to whom it is held under a resulting trust in favour of the person who provided the money for its purchase proportional to his contribution (see Lee Tso Fong v Kwok Wai Sun [2008] 4 HKLRD 270, 274 and Snell’s Equity (32nd ed) para 25‑004 at pp 753‑754). 33.Mr Chang submitted that the burden rests on the person seeking to show that the beneficial ownership is different from the legal ownership; in other words, it is for the non‑owner to show that he has any interest at all, and if so what that interest is (see Stack v Dowden [2007] 2 AC 432, 439 and 454). 34.Neither counsel disputes each other’s contention as set out in paragraphs 32‑33 above. VI. MISCELLANEOUS ISSUES 35.The Statement of Claim was served on 24 August 2012. Prior to the Summons issued on 15 November 2012, the defendant had not filed and served his Defence or applied for extension of time to do so. At the initial hearing of the Summons on 28 November 2012, DHCJ Seagroatt ordered the defendant to file and serve his Defence and Counterclaim, if any, within 28 days thereof, but the defendant still failed to do so. Mr Chow submitted that such conduct by the defendant was reminiscent of one who had no defence. 36.I note that even though the defendant was imprisoned in Mainland China since 2001, he promptly instructed solicitors to file acknowledgment of service on 13 September 2012. It is true he did not file a Defence thereafter, but such fact was overtaken by the plaintiff’s issuance of the Summons on 15 November 2012. In usual circumstances, a defendant need not file any Defence pending disposal of a summary judgment application. But at the initial hearing of the Summons, DHCJ Seagroatt adjourned such Summons and gave directions (a) for the defendant to file and serve his Defence and Counterclaim, if any, within 28 days, (b) for the plaintiff to file and serve their Reply and Defence to Counterclaim, if any, within 14 days thereafter, and (c) for the parties to serve their respective List of Documents within 28 days thereafter. 37.Thereafter, the defendant applied by summons dated 27 December 2012 for extension of time to file his pleading due to his hospitalisation during prison custody (“Time Summons”). According to Master Ho’s notes of the hearing of the Time Summons on 4 January 2013, he granted general extension of time for the defendant to file his pleading pending the determination of such application. At the substantive hearing of the Time Summons before me on 24 January 2013, I extended time generally for the defendant to file/serve his Defence until further directions to be made upon the disposal of the Summons or until further order, whichever would be earlier. 38.I am not persuaded that the above procedural chronology suggests feet dragging by the defendant from which one necessarily infers absence of any viable defence. Ultimately, the question remains whether the affidavit in opposition raises a credible or believable defence, or a triable issue. 39.Mr Chow next submitted that Sousa’s affidavit is defective as an affidavit in opposition since it was not sworn by the person with the most direct knowledge of the matters deposed (see Hong Kong Civil Procedure 2013 Vol 1 para 41/5/4 at p 816). Mr Chow complained that no draft Defence was annexed to Sousa’s affidavit, and it was unclear (and the court would be unable to verify) how much of its contents were actually based on the defendant’s instructions. Mr Chow suggested that the admissibility of Sousa’s affidavit was questionable, and in any event no weight should be placed on the matters stated therein. 40.There is no dispute that Sousa had no personal knowledge of the matters deposed in his affidavit. But whilst it may be useful for a draft Defence to be prepared and exhibited to the affidavit in opposition to inform the other party and the court of the essence of the defence contentions that the defendant intends to put forward, I do not consider it to be a necessary prerequisite without which a defendant cannot mount any successful resistance against an Order 14 application. It is sufficient if a credible or believable defence or a triable issue is raised in the affidavit in opposition. 41.Sousa in his affidavit frankly acknowledged that in usual circumstances the affidavit in opposition would be made by the defendant, but he claimed that the defendant could not do so here because of his imprisonment. Sousa stated that he recently visited the defendant in prison, and took instructions from him to make the affidavit in opposition. 42.I accept that preferably the affidavit in opposition should be prepared by the person with the most direct knowledge. But it must not be forgotten that the defendant is imprisoned in Mainland China, and Sousa has sworn he had visited the defendant to obtain instructions and his affidavit is “based on [the defendant’s] instructions”. In such circumstances, I do not agree that Sousa’s affidavit should be ignored either as inadmissible evidence or evidence upon which the court should place no weight at all. For the purpose of the Amended Summons, the proper approach is for the court to take note that the affidavit in opposition was not made by the defendant personally, but at the same time bear in mind the practical reality and context in which such affidavit was made. VII. ISSUES 43.It is the defendant’s case that he wholly funded the purchase of the Property with his own monies which he placed in the Company Account and/or the Joint Account, and that he set up the plaintiff to facilitate his business partnership with Luo. 44.The plaintiff agreed that the Property was purchased with funds paid out from the Company Account and/or the Joint Account, but claimed that the funds in such bank accounts came from a subordinate entity of the Nanhai Government, Mainland China (“Nanhai Entity”) for investment purpose, and that the plaintiff company was a government‑owned investment vehicle beneficially owned by the Nanhai Entity. 45.The Amended Summons raises the following issues:
If the defendant is able to raise a triable issue or credible/believable defence in respect of the above issues, then he should be entitled to leave to defend the plaintiff’s claim. 46.The defendant also raises subsidiary issues, eg the apparent delay by the plaintiff since the acquisition of the Property in making the present claim, and the plaintiff’s failure to explain their alleged inability to contact the defendant when he was in fact imprisoned in Nanhai, Mainland China since April 2001. VIII. PLAINTIFF AND SOURCE OF FUNDS (a) Defendant’s case 47.The defendant claimed that in/about 1986 he left military services in Mainland China to work at “廣州技術開發區”. In 1989, he resigned and began his own business in property development in Guangzhou under the name of Da Ming Company (presumably “廣州大明房地產開發有限公司” as referred to in the PRC Judgment, “DM Guangzhou”). In 1990, his business moved into Macau, and he set up a company known as Lai Meng Investment Limited (presumably “澳門麗明投資置業有限公司” as referred to in the PRC Judgment) which later changed its name to Da Ming (Holdings) Limited (presumably “澳門大明(集團)有限公司” as referred to in the PRC Judgment, “DM Macau”). The other shareholders of DM Macau were Luo, Chen and a couple who were Macanese residents in order to satisfy the then requirement for establishing a company in Macau, ie having at least one Macanese resident as named shareholder. 48.In April 1992, the defendant incorporated the plaintiff to act as sales agent in Hong Kong for a property development project in Guangzhou named Pearl Garden (presumably “明珠花園項目” as referred to in the PRC Judgment, “PG Project”). Luo joined the PG Project as the defendant’s business partner, and they each held 1 share of the plaintiff. The defendant who came from Mainland China viewed the plaintiff as a shell company (or, as Mr Chang put it, his alter ego) to facilitate his business partnership with Luo. 49.By the time of purchase of the Property, Luo and the defendant had already opened the Joint Account. The defendant said that even though he could not exactly recall, the Company Account was probably opened after the opening the Joint Account. 50.Not long after the plaintiff was incorporated, the defendant and Luo discussed about each of them purchasing a property in Hong Kong for residential purpose. The defendant decided to purchase the Property and entered into the PASP using his funds which he placed in either the Joint Account or the Company Account. 51.At that time, Luo had not yet purchased any property. The defendant could not remember the exact reason for this, but it could have been because Luo was unable to provide sufficient funds (since most of his monies were tied up in business ventures in Macau). Luo eventually transferred funds to Hong Kong (probably into the Company Account and/or the Joint Account) at/about the end of 1992 or the early part of 1993. As a result, in/about February 1993 Luo used funds from the Company Account and/or the Joint Account to purchase a property known as Flat B, 7th floor, Block 4, Balwin Court, Nos 154‑156 Argyle Street, Kowloon (“Luo’s Property”). 52.The defendant and Luo promoted the PG Project. At the beginning of 1994, Chen (who was not involved in the plaintiff and/or the PG Project) was appointed as a director of the plaintiff to facilitate his coming to Hong Kong. 53.As a result of problems arising in/about 1997 or early 1998, there was a meeting on 23 March 1998 at the Guangzhou offices of DM Guangzhou attended by the defendant, Luo and Chen to clear up the financial position between the defendant and Luo. At the meeting, it was clarified that Luo’s Property actually belonged to Luo even though it was conveyed into the name of the plaintiff’s staff Yu Cho Sing. It also appeared that Luo had allowed Chen to use the address of Luo’s Property as his address in the Companies Registry records. 54.Shortly after such meeting, the defendant was detained in Mainland China. He was subsequently released in/about December 1999. Since the matters amongst the defendant, Luo and Chen had not been cleared up, they had another meeting on/about 30 March 2000 to discuss matters in relation to DM Guangzhou and DM Macau. The minutes of such meeting are known as the “2000 Minutes” below. Such minutes referred to “香港大明公司” which the defendant claimed referred to the plaintiff since “… the Chinese name of the Plaintiff as appearing in the Companies Registry also contain the characters “大明”.” 55.It appeared from the 2000 Minutes that (a) such minutes were initialled/signed at various places by the defendant, Luo and Chen, (b) some of the projects named therein involved substantial sums of money paid by the defendant in his personal capacity which clearly showed he had funds to pay for the purchase of the Property, and (c) the sales agency relating to the PG Project had ceased and there was no further need for the plaintiff’s continued existence. 56.Thereafter, the defendant was again arrested in Mainland China. On/about 20 September 2001, he was sentenced to imprisonment and he remained in prison since. The defendant claimed he was sentenced on 20 September 2001 and not 3 April 2004. 57.The defendant was removed as a director of the plaintiff in April 2002 during his imprisonment. The 9,998 shares purportedly allotted in August 1998 had the effect of diluting his shareholding in the plaintiff, but he (who was then imprisoned) had not been given notice of and did not attend the meeting for allotting such shares. Further, when Fong received 4,500 shares of the plaintiff on/around 2 April 2001, the defendant was still a director of the plaintiff but he could not remember ever having received any notice of meeting or attending any such meeting regarding the purported transfer of the shares. 58.The defendant claimed he funded the entire purchase of the Property. He denied that the plaintiff was a company set up in Hong Kong with funds of the Nanhai Government or that he was at all material times a cadre or official working for the Nanhai Government. All the companies that the defendant had set up in Mainland China, Macau and Hong Kong (including the plaintiff) had nothing to do with the Nanhai Government or any other government agency or organisation in Mainland China. (b) Plaintiff’s case 59.According to Luo, he and the defendant were cadres or officials of the Nanhai Entity, which funded/established and hence beneficially owned various government‑owned investment vehicles/ companies in Macau, Guangdong and Hong Kong. For ease of operation, the Nanhai Entity would send cadres or officials to manage such government‑owned enterprises, and authorise them to hold shares/assets of such enterprises on their behalf. 60.The plaintiff was one such overseas government‑owned investment enterprise, and its main business was to invest in Hong Kong properties. The defendant and Luo were not business partners, but were assigned by the Nanhai Entity to be shareholders/directors to take charge of and manage the plaintiff. Neither of them made any contribution to the capital for the formation of the plaintiff. Indeed, they could not afford to do so because each of them only earned a few hundred RMB a month as cadre or official. The plaintiff was beneficially owned by the Nanhai Entity which was the source of their capital and funds. Such funds were made available to the plaintiff by the Nanhai Entity by deposit into the Company Account and/or the Joint Account for the defendant and Luo to make investments on their behalf. Luo confirmed all the capital and/or funds in the plaintiff were injected by the Nanhai Entity (including the funds used to acquire the Property). 61.In the defendant’s record of interview (“訊問筆錄”) during the criminal investigation by Nanhai City Public Security Bureau dated 23 April 1998 (“Interview Record”), the defendant stated as follows:
Luo said (a) the property referred to in the Interview Record should be the Property because the defendant only held the Property (and not any property at Flat B or C on 7th Floor, No 142 Argyle Street) in his name, and (b) the source of funds as referred to in the Interview Record should be from the Nanhai Entity through the plaintiff. The plaintiff claimed that the above discrepancies were due to the defendant’s mistaken recollection, but the main thrust of such record was supportive of the plaintiff’s position that the defendant never paid for the Property with his own monies. 62.Luo claimed that on 1 January 1994 the Nanhai Entity sent another cadre or official Chen to be a director of the plaintiff. As explained above, 9,998 shares were allotted in November 1998, and thereafter Luo, the defendant and Chen respectively held 4,500, 4,500 and 1,000 shares in the plaintiff. 63.Luo said that in/about 2000 the defendant and Chen were investigated for fraud against various companies set up with funds by the Nanhai Government. It was discovered that the defendant had misused the powers granted to him by the Nanhai Entity to commit fraud with respect to their assets. 64.As a result, on 4 September 2000 Chen resigned and Fong was appointed as director of the plaintiff. The Nanhai Government arranged for their cadre or official Fong to replace Chen and to assist Luo to manage the plaintiff. The Nanhai Government also caused Chen to transfer his entire shareholding in the plaintiff (ie 4,500 shares) to Fong on/about 19 September 2000. On/about 18 April 2002, the defendant was removed as a director. Luo said that since he and Fong constituted the majority shareholders of the plaintiff, the Nanhai Government did not make further arrangements in relation to the defendant’s shareholding in the plaintiff. 65.On 23 July 2003, the People's Procuratorate of Foshan City Nanhai District prosecuted inter alia the defendant for fraud and other crimes. On 3 April 2004, they were convicted by the People’s Court of Foshan City, Nanhai District, Guangdong Province. 66.Luo considered the minutes of the meeting on 23 March 1998 (“1998 Minutes”) and the 2000 Minutes relied on by the defendant, which were minutes of shareholders’ meetings of DM Macau and not of the plaintiff (as shown by the cover letter to 2000 Minutes), to be irrelevant. He claimed that DM Macau was another overseas investment company similar to the plaintiff that was funded by the Nanhai Entity. 67.Luo recalled that the meeting recorded in the 2000 Minutes was convened by the defendant who was then on bail during the investigation by the Public Security Bureau against him for fraud. When Luo arrived at the meeting, Chen was already there. The defendant distributed the pre‑written 2000 Minutes to Luo and Chen and asked them to countersign such minutes. But upon reading the 2000 Minutes, Luo realised the defendant intended to transfer and deal with assets of the Nanhai Entity without their authorisation. Luo thought such acts were in excess of their authority and would cast suspicion upon them of becoming involved in the defendant’s fraudulent conduct that was under investigation. But whilst Luo did not wish to indirectly support the defendant’s unclear motive, he also wished to avoid direct confrontation, so he signed the 2000 Minutes at the defendant’s direction but deliberately added the following at the last page next to his signature: “以上待清算核實後進一步確認”. Luo said the contents of the 2000 Minutes had not been verified before or after the meeting. (c) Discussion 68.The plaintiff and the defendant adopt diametrically opposite stance on the question of the source of funds in respect of the monies in the Company Account and/or Joint Account. The plaintiff claimed that not only did the monies in the Company Account belonged to them, the monies in the Joint Account (in the name of the defendant and Luo and not in the name of the plaintiff) also belonged to them. On the other hand, the defendant claimed the monies in both accounts (including the Company Account) belonged to him. 69.In support of their contentions, the plaintiff claimed the source of the monies in the Company Account and/or the Joint Account (which they said belonged to them) was from the Nanhai Entity, and both the defendant and Luo were merely cadres or officials of the Nanhai Entity earning a modest income and therefore could not have afforded to set up and inject funds into the plaintiff and/or purchase the Property. 70.However, the plaintiff in Luo’s and Fong’s affirmations did not even identify the Nanhai Entity save to allege that it was a subordinate entity of the Nanhai Government. As Mr Chang submitted, the plaintiff produced no supporting evidence of their affiliation with the Nanhai Entity or the Nanhai Government, or that it was an investment vehicle of the Nanhai Entity. There is no document to show that the defendant, Luo and Fong were cadres and/or officials of the Nanhai Entity and/or what their respective income was at the material time. Further, the plaintiff did not identify or particularise (let alone provide documentary support of) the injection of funds into the plaintiff by the Nanhai Entity by deposit of monies into the Company Account and/or the Joint Account or otherwise. No paper trail of any transfer of monies from the Nanhai Entity to the plaintiff and/or no subsequent written confirmation of such injection of funds by the Nanhai Entity was provided. Still further, no explanation was given by the plaintiff as to why injection of monies into the plaintiff by the Nanhai Entity was placed in both the Joint Account and the Company Account and not just in the Company Account, especially when it was said that the plaintiff was set up for the purpose of making property investments in Hong Kong. Indeed, the plaintiff did not explain why the Property was acquired in the sole name of the defendant when (a) the plaintiff was set up as an investment vehicle of the Nanhai Entity, and (b) even the Joint Account was opened in the name of both the defendant and Luo. 71.In respect of the Interview Record, even though the plaintiff claimed that what the defendant said at the interview (see paragraph 61 above) concerning the property in Argyle Street, Hong Kong (which, according to the plaintiff, should refer to the Property) contradicted the defendant’s case, the Interview Record does not aid the plaintiff’s case in the sense that the defendant stated the source of funds for acquiring such property originated from DM Macau and not the Nanhai Entity as alleged by the plaintiff, and that such property was beneficially owned by DM Macau. 72.In my view, question therefore arises from the Interview Record as to whether (as the plaintiff alleged) the defendant was mistaken as to:
I am also of the view that these questions can only be resolved upon assessing the evidence at trial, and that they are not amenable for summary determination under the Order 14 procedure. 73.Nevertheless, Mr Chow submitted that irrespective whether the Interview Record supported the plaintiff’s case, it refuted the defendant’s case that he paid for the Property with his own monies. 74.The defendant claimed he set up DM Macau to carry on business in Macau, and he later set up the plaintiff to facilitate his business partnership with Luo. He further claimed that both he and Luo decided to each purchase a property in Hong Kong by transfer of their respective funds from their business ventures in Macau to the Company Account and/or the Joint Account for such purpose. The defendant further claimed he purchased the Property before Luo purchased his since Luo was only able to transfer monies from his business ventures in Macau to the Company Account and/or the Joint Account in 1993. 75.This, of course, does not sit well with the Interview Record in which it was suggested that the property referred therein (which, according to the plaintiff, meant the Property) was an asset of DM Macau purchased by using DM Macau’s monies and by “borrowing” the name of the defendant (see paragraph 61 above). Nevertheless, the defendant’s statement in the Interview Record also does not support the plaintiff’s case that the Property was purchased with the plaintiff’s own monies sourced from the Nanhai Entity. In my view, this is a matter for trial. 76.The above also brings into focus the role played by DM Macau and the relationship amongst DM Macau, DM Guangzhou, and the plaintiff. It is the defendant’s case that he set up his own property development business in Guangzhou (ie DM Guangzhou) and he later extended his business to Macau (ie DM Macau), and still later he incorporated the plaintiff. He claimed that he and Luo were shareholders and directors of DM Macau and the plaintiff, and that DM Macau and the plaintiff facilitated his business partnership with Luo. The defendant further claimed that although Chen was appointed as a director of the plaintiff he was not involved in the plaintiff or in the PG Project of which the plaintiff was the sales agent, and that Chen’s directorship was to facilitate his coming to Hong Kong. 77.In short, the defendant said his source of funds for the purchase of the Property was the monies he made from his businesses in Guangzhou and Macau. The defendant claimed that such assertion was supported by the 1998 and 2000 Minutes, especially by the latter minutes that were countersigned by the defendant, Luo and Chen (who were also directors of the plaintiff) and referred to various projects that involved substantial sums of monies paid by the defendant in his personal capacity (which in turn showed he had funds to pay for the purchase of the Property and which undermined the plaintiff’s claim that DM Macau and/or the plaintiff were government‑owned investment vehicles). 78.I do not think, as Mr Chow suggested, that the 1998 and 2000 Minutes can be lightly brushed aside merely because they are minutes of meetings of DM Macau. If the parties involved in such meetings were also directors and/or shareholders of the plaintiff, and further if the discussion touched on funds injected into the plaintiff and/or the acquisition of the Property, then one needs to consider the relevance of such minutes to the issues in the present action. 79.However, I am not persuaded that the 1998 Minutes are of any direct assistance since they made reference to Luo’s Property and not the Property, and they specified that further account and inquiry should be undertaken. 80.It is true that the 2000 Minutes stated that various projects were the defendant’s personal investments, eg “澳門巴坡沙大馬路“大明閣”項目” and “竹灣項目”, and that income from other projects would be shared amongst the defendant, Luo and Chen, eg DM Guangzhou’s “售樓撻訂收入”. There were also suggestions as to the ownership of DM Guangzhou and “廣州大華物業公司” (ie belonging to Chen and the defendant since they invested in those companies and would consider sharing with Luo after turning a profit) as well as “河南大明” and “青島大明” (ie belonging to the defendant but with manuscript notation “查訪後，視乎誰投入的錢”). 81.In respect of “香港大明公司” (which the defendant claimed to be the plaintiff), paragraph 3 of the 2000 Minutes provides as follows:
On the same page, there was a manuscript notation as follows: “注: [Chen]指出,香港大明收益的餘額港幣2000萬,不應只[the defendant]和[Luo]分配,應視為三人共分配。” 82.Paragraph 8 of the 2000 Minutes goes on to state as follows:
83.Whilst the above provisions in the 2000 Minutes do not directly address on the source of funds in respect of the Property, and indeed those provisions made clear that the ownership and/or distribution of the properties in relation to “香港大明公司” were pending accounts and inquiry as to the investments made by various parties, the 2000 Minutes made no mention of the Nanhai Entity as the source of funds for the named companies (including DM Macau and/or the plaintiff) and/or the Property. But, on the other hand, clause 3 of the 2000 Minutes also does not suggest that the plaintiff’s source of funds directly originated from the defendant. It is unclear what is meant by DM Guangzhou “港幣資金通過香港大明所進行過調劑” or the income of HK$12 million that “廣州大中公司轉讓給[Luo]和王基” belonged to the defendant and Chen. In my view, these are matters for trial. 84.Luo played down the weight of the 2000 Minutes by saying that he disagreed with the contents, but to avoid direct confrontation he signed such minutes and added in manuscript at the end the following: “以上待清算核實進一步確認”. 85.In the PRC Judgment (see p 14), Luo gave evidence of what happened in March 2000 (ie shortly before the meeting on 30 March 2000 which resulted in the 2000 Minutes):
At p 15 of the PRC udgment, Chen also gave evidence as follows:
The PRC Judgment (p 20) held that “上述證據經庭審查證屬實，本院予以確認”. 86.It is clear from the above that there appears to be another meeting amongst the shareholders of DM Macau shortly (ie about a week) before the meeting which resulted in the 2000 Minutes. The extracts from the PRC Judgment in above paragraph also suggest that the contents of the minutes of that earlier meeting do not conform with Luo’s and Chen’s understanding of the actual position. In my view, this means that the viability of the plaintiff’s and the defendant’s respective contentions as to the validity and/or meaning of the 2000 Minutes (and in particular the purpose and meaning to be attached to the notation made by Luo on the 2000 Minutes – see paragraph 84 above) must be looked at in the context of a wider factual matrix, and it is insufficient to simply scrutinise the 2000 Minutes themselves. Further, even though Luo’s and Chen’s evidence was accepted in the PRC Judgment, Mr Chow confirmed at the Hearing that the plaintiff would not rely on the principle of res judicata or issue estoppel on the basis of the findings and verdict in the PRC Judgment, but would only argue on the strength of the PRC Judgment that the defendant’s case was incredible. In my view, given what has been set out in the 2000 Minutes as well as the explanation put forward by Luo against the background of the evidence and findings in the PRC Judgment, such dispute of fact should and needs to be resolved at trial. 87.Mr Chow placed strong emphasis on the findings in the PRC Judgment to say that the defendant’s case was not credible. I note from the PRC Judgment that the defendant in those proceedings claimed inter alia that:
88.In respect of the source of funds for DM Macau, DM Guangzhou and various projects involving DM Macau, the PRC Judgment made various findings. These findings were made and discussed in various parts of the PRC Judgment (eg pp 6‑12) but the essence of such findings can be found at pp 21‑23 as follows:
89.Further, the PRC Judgment at p 55 made the following findings:
90.It is on the strength of the above findings in the PRC Judgment that Mr Chow submitted that the defendant’s allegations as to the source of funds (ie his own businesses in Guangzhou and Macau) have been refuted by the People’s Court, and hence they are incredible and unbelievable. However, Mr Chow fell shy of saying that the res judicata and/or issue estoppel principles apply to the PRC Judgment. In the circumstances, there plainly remains a dispute of fact between the parties over the source of funds albeit the defendant relies on the 1998 and 2000 Minutes (which contents appear to suggest that the shareholders of DM Macau consider various projects as personal investments rather than investments by the Nanhai Government) to challenge the plaintiff’s case and the plaintiff relies on Luo’s explanation and the findings in the PRC Judgment to refute the defendant’s contrary contention. 91.I agree with Mr Chang that the above rival contentions between the plaintiff and the defendant should be resolved by trial since it is inappropriate to conduct a mini-trial on affidavits for the purpose of making findings of fact (see Pacific Electric Wire & Cable Co Ltd vHarmutty Ltd [2009] 3 HKLRD 94, 98). IX. PURCHASE OF THE PROPERTY (a) Defendant’s case 92.It was the defendant’s case that he funded the purchase of the Property with funds that came from the Company Account and the Joint Account where he placed his own funds. Mr Chang submitted that save for the Legal Fees where there was evidence to show that it was settled by a cheque issued by the plaintiff, there was no credible or concrete proof that the plaintiff provided the funds for the remaining 5 items. 93.Mr Chang argued that no copy of cheque no 438560 allegedly for the Initial Deposit was produced. There was nothing to show where this cheque came from, and the plaintiff merely assumed from the cheque number and amount recited in the PASP that such amount was paid. But the payer of such cheque was not identified, and there was no evidence that the Initial Deposit was paid using funds from the Company Account. 94.Likewise for the Commission, the only information was that such sum was payable (although it must have been paid), but there was no information as to how it was paid (ie whether or not by cheque) or from which account. The Commission was referred to in the PASP, and the plaintiff adduced no evidence of their payment of the same. 95.There is no dispute that the Further Deposit and Stamp Duty were paid by cheques from the Joint Account. The defendant claimed that such funds did not come from the Company Account or the plaintiff. Mr Chang submitted that although the plaintiff invited the court to accept Luo’s bare assertion that the monies in the Joint Account were received and held for the benefit of the plaintiff, the court clearly could not do so without testing Luo’s evidence at trial. 96.In respect of the Balance, cheque no 436902 drawn from the Company Account was cleared upon presentment. Mr Chang submitted that upon taking a closer look, the plaintiff’s case in respect of this item (in the light of the evidence) made absolutely no sense. The Statement of Claim pleaded that the plaintiff paid a sum of HK$4,999,120.00 to PKYKC on 8 September 1992 by way of cheque no 436902 drawn on the BEA to settle the Balance. But in the Amended Statement of Claim, the plaintiff suddenly changed their case: they claimed that instead of paying PKYKC by cheque no 436902, they paid the Balance by cashier order no 638687 purchased by cheque no 436902. The plaintiff did not explain its change of case, particular when its director Fong signed statements of truth vouching for the accuracy and truthfulness of both the Statement of Claim and the Amended Statement of Claim. 97.Mr Chang asked the court to note the timing of the plaintiff’s amendments (11 March 2013) made only after Sousa’s affidavit in opposition was filed (14 February 2013), which affidavit set out his analysis based on the evidence that the Balance could not have been paid by cheque no 436902 as the plaintiff alleged, but rather it was more likely to have been settled by cashier order no 638678 as stated in the receipt issued by PKYKC dated 9 September 1992. Mr Chang submitted that it was beyond doubt that it was Sousa’s affidavit that prompted the plaintiff to patch up their case by amending the Statement of Claim. 98.However, Mr Chang submitted that the new version put forward by the plaintiff was wholly incredible. The amount of the Balance in the sum of HK$4,499,100.00 (as evident from the PASP, the FASP and the completion statement) and the amount of cheque no 436902 in the sum of HK$4,499,120.00 were discrepant, and cheque no 436902 could not have been used to purchase cashier order no 638678 since the payee of the Cheque was “鄺家賢律師 or bearer”. 99.Mr Chang submitted that if cheque no 436902 was withdrawn in cash, there would not have been any need to name the payee on the face of the cheque. In such circumstances, the plaintiff’s latest version of events meant that PKYKC must have first cleared cheque no 436902, deposited the funds into the Company Account and then withdrew such funds from the Company Account to buy cashier order no 638678 that was made payable to PKYKC yet again, which made no sense at all. 100.Although PKYKC’s receipt stated the Balance was paid by cashier order no 638678, this did not mean that the funds used to acquire the cashier order originated from the plaintiff. Mr Chang submitted that the plaintiff could not link cheque no 436902 to cashier order no 638678 without PKYKC twice getting paid for the same amount as analysed in the above paragraph, which was “ludicrous”. In the premises, the defendant suggested that the plaintiff advanced a wholly incredible case in respect of its purported funding of the Balance. To say the least, there was no evidence that the plaintiff was the source of such funds. 101.Further, although the bank statement of the Company Account showed that cheque no 436902 had been cashed and paid out, the receipt by PKYKC showed that the Balance was paid by cashier order in the sum of HK$4,499,100.00 which amount tallied with the amount stated in the PASP, the FASP and the completion statement and not with amount of cheque no 436902. Mr Chang submitted that since the Balance was paid by the cashier order and the bank statement of the Company Account did not show any other withdrawal entry for the sum of HK$4,499,100.00 which might have been used to purchase the cashier order, the monies used to pay the Balance did not come from the Company Account. Further, the Voucher Record stated that cheque no 436902 in the sum of HK$4,499,120.00 was for “purchase of office”, which suggested that such cheque was used for some other purpose. It was not known how the Voucher Notations came to be written on the copy Voucher Record. Hence, the defendant claimed the Balance was not funded and/or paid directly by the plaintiff. These matters happened more than 20 years ago, so the defendant could not be absolutely sure, but he believed the funds for purchasing cashier order no 638687 which in turn was used to pay the Balance came from the Joint Account. 102.In respect of the Legal Fees, the funds for cheque no 436903 in settlement thereof came from the Company Account. But the defendant reiterated that all the funds in the Company Account and/or the Joint Account at the time were provided by him and hence were his funds. 103.The defendant said that all of the disclosed cheques were signed by the defendant and Luo, so both directors of the plaintiff were well aware of these payments and must have known they were for the purchase of a property in the name of the defendant. Mr Chang submitted that Luo agreed to and signed the cheques to facilitate the purchase of the Property in the name of the defendant, so the only conclusion must be that Luo was willing to do so because he must have known that these were payments made out of funds provided by the defendant in order to purchase the Property for the defendant’s own benefit. 104.The defendant therefore contended that he had a good defence to the plaintiff’s claim because it was he who provided all the funds for the purchase of the Property. (b) Plaintiff’s case 105.As regards the defendant’s allegation that all monies in the Company Account and the Joint Account were provided by the defendant, Mr Chow submitted that it was a bare assertion unsupported by evidence:
(c) Discussion 106.Given my conclusion in Part VIII above, it is unnecessary for me to make a determination on the above submissions. This is because the plaintiff’s case is that the Price was paid by various payments out of the Company Account and/or the Joint Account, and I have found there is a triable issue as to the source of the funds in such accounts (ie whether such monies came from the Nanhai Entity or belonged to the defendant). 107.However, for the purpose of completeness, I will deal with this briefly. I will concentrate on the Initial Deposit, Further Deposit and the Balance which go to the Price. In my view, Mr Chang is right in saying that at the very least there is little evidence to show that the Initial Deposit came from either the Joint Account or the Company Account. Mr Chow urged the court to draw an inference, but interestingly cheque no 438560 for the Initial Deposit (a) has a later number than cheques no 436902 (allegedly in relation to the Balance) and no 436903 (for payment of the Legal Fees) drawn on the Company Account for payments subsequent to the Initial Deposit, and (b) is quite different from the number sequence of cheques from the Joint Account, eg cheques nos 274231 and 274233 respectively for the Further Deposit and the Stamp Duty. This raises a question as to whether the Initial Deposit was paid out of the Company Account and/or the Joint Account at all. 108.As regards the Balance, I am not persuaded that the scenario suggested by Mr Chang in paragraphs 98‑99 above is necessarily the only option. There is always the possibility that cheque no 436902 being a bearer cheque was used to purchase the cashier order as suggested by the plaintiff and the bank charges of HK$20.00 were included in the cheque amount. The question is whether the court can be sure this is the only possibility, and there is no arguable contention otherwise. 109.In this respect, the contemporary record made by the plaintiff in the Voucher Record that cheque no 436902 was for purchase of an office raises concern. Plainly the Property is residential premises and not an office. The Voucher Notations refer to “Mandarin Court” and payment to PKYKC, but there is no evidence before me as to when such notations were made (see paragraph 18 above). More significantly, the defendant stated in the Interview Record (which was disclosed by the plaintiff) as follows:
110.The Interview Record suggests that the identified office premises were purchased in 1992 in the name of the defendant and Luo. The defendant claimed that such premises were entered into the company’s voucher records as company asset. Question immediately arises as to whether or not the Voucher Record’s reference to purchase of office premises in fact refers to the acquisition of such office premises at “新東海商業中心” in the Interview Record. It therefore follows that question also arises as to whether cheque no 436902 was intended for the Balance (as the plaintiff suggested) or for the acquisition (also in 1992) of the office premises at “新東海商業中心”. In my view, this plainly raises a triable issue that needs to be resolved at trial. 111.In light of the above, there is no need for me to go further to consider the payments for the Stamp Duty, Commission and Legal Fees, and Mr Chow’s submissions in paragraph 105(b) above. VIII. CONTACTING THE PLAINTIFF (a) Defendant’s case 112.Sousa in his affidavit claimed that the plaintiff had not explained why they were not able to contact the defendant to execute documents to transfer the legal title of the Property back to the plaintiff when the defendant had been imprisoned since April 2001. The defendant claimed it was surprising and unbelievable that Fong as a public officer of the Nanhai Government would not know of the defendant’s conviction and his subsequent detention in prison due to such conviction given that the defendant was convicted in the People’s Court in Nanhai District. Fong also did not provide any explanation why the plaintiff was suddenly able to locate the defendant to commence the present action. It was suggested that Fong was not entirely forthcoming. (b) Discussion 113.It is true that Fong did not offer an explanation in his affirmations. However, this forms part and parcel of the argument on the question of delay (if any), and will be discussed in Part X below. IX. DELAY (a) Defendant’s case 114.Mr Chang submitted there had been a long delay of about 20 years between 1992 when the Property was acquired and put under the defendant’s name and 2011 when the plaintiff issued the present action to seek recovery of the Property from the defendant. 115.Luo was one of the first two directors and shareholders of the plaintiff (the other being the defendant) after the plaintiff was incorporated on 2 April 1992. Luo, however, did not explain why the Property was put under the defendant’s name (when according to him it was supposed to be purchased as an investment for the Nanhai Government with their funds). Nor did he explain why the plaintiff took no action to recover the Property from the defendant until almost 20 years later. 116.Mr Chang submitted that the wholly unexplained inactivity and gross delay in taking any recovery steps for the Property greatly militates against the plaintiff’s claim that the defendant was not the true owner of the Property. In such circumstances, the court must view the plaintiff’s claim against the defendant with the greatest circumspection. (b) Plaintiff’s case 117.Mr Chow accepted that Luo’s and Fong’s evidence did not give any explanation for the delay even though there was no limitation issue. However, he argued that the objective facts would go a long way to explain the time that had been taken to bring the present action. 118.Mr Chow submitted that the Interview Record showed that the defendant was under investigation for fraud in 1998, and the PRC Judgment showed that he was convicted in 2004. According to the Amended Statement of Claim, the plaintiff was struck off the register of companies in December 2005, and Fong and Luo applied in December 2009 to restore the name of the plaintiff to the register of companies. The plaintiff was so restored in April 2010, and in October 2011 the present proceedings were commenced. (c) Discussion 119.It will be noted that Fong became a shareholder and director of the plaintiff in 2000. According to the PRC Judgment, he also took over the shareholding in DM Macau from Chen in 2000. The PRC Judgment also showed that Luo was involved in DM Macau. In the circumstances, both Luo and Fong should have known that the defendant had been under investigation since at least 2000 and later convicted for fraud in 2004. Indeed, Luo was a witness in the criminal proceedings that led to the PRC Judgment. Little or no explanation is forthcoming as to why Luo and/or Fong (or indeed the Nanhai Entity) allowed the plaintiff to become struck off the register of companies, and why they waited for 4 years before applying to restore the plaintiff. Whilst the absence of explanation for such delay of itself may not amount to an arguable defence, it lends weight to the conclusion that the relevant factual matrix needs to be considered in determining the factual disputes between the parties. XI. CONCLUSION 120.I agree with Mr Chang that there are features in this case that require resolution by trial, and that the defendant has raised triable issues of fact that cannot be resolved in a summary way (see Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262, 268‑268 and Comprehensive Auto Restoration Limited v Lee Seng Siew CACV 159/2012 (unreported, 30 May 2013) at paras 12‑14 and 23). However, I am not persuaded that I should dismiss the Amended Summons as there are also matters in the defendant’s case that need to be canvassed. Mr Chang on behalf of the defendant offered not to dispose of the Property until final determination of the present action. I believe this is an appropriate offer in order to preserve the status quo pending the final determination at trial. It is also not onerous since I am given to understand that the plaintiff has registered the writ of summons against the Property at the Land Registry. 121.I therefore grant an order that conditional upon the defendant not to sell, transfer, assign, charge, dispose of or otherwise deal with the Property or any part thereof until the final determination of this action, leave to defend be granted to the defendant. I also grant a costs order nisi that costs of the Amended Summons (including all cost reserved, if any) be costs in the cause.
Mr Tony Chow, instructed by CL Chow & Macksion Chan, for the plaintiff Mr Jonathan Chang, instructed by Chan, Lau & Wai, for the defendant |
Cases cited in this judgment
Further hearings and rulings under HCA 1676/2011