JIAN YU QIANG v. LI SHI LIANG AND OTHERS

HCA 459/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 459 OF 2003

____________

____________

__________________________________

REASONS  FOR  DECISION

__________________________________

1. This is an application by the Plaintiff to restrain the 1st Defendant until trial or further order from disposing of or charging 9,000 shares which the latter holds in the 2nd Defendant company. It is, in effect, an application to continue the interim inter partes injunction granted by Deputy High Court Judge Anthony Cheung on the 16 May 2003. For some reason, not entirely clear, the Plaintiff took out two summonses to achieve the same object.

2. The judgment of His Honour Judge Cheung sets out the background to this litigation particularly in relation to the injunction sought and it is not necessary for me to repeat it. It is sufficient if I summarise the position in the following form. The Plaintiff transferred his shareholding of 9,000 shares in the said company to the Defendant as trustee, the Plaintiff remaining the beneficiary. A further 1,000 shares being the balance of the issued share capital were also to be transferred to the 1st Defendant by an agreement in May 1994.

3. The Plaintiff's case is that the shares are held on trust for him and that he fears disposal of these shares, or some other dealing, which will, or might affect the value of his interest in them to his prejudice. He has a substantive action in being which includes a claim to the shares.

4. The Defendant's case, on the other hand, is that he does in fact hold the shares on trust as nominee but for the Bank of China in Guangdong, not for the Plaintiff himself. He asserts, as the basis for this, a loan, or series of loans to the company Yu Feng, of which the Plaintiff is the controlling shareholder.

5. The history of this shareholding and of the agreements is "shot through" with contradictions and inconsistencies and it is of course impossible to resolve these within the context of this application. Furthermore it is not appropriate that I should endeavour to do so. Nonetheless it is necessary to set these out as part of the background against which I made my decision.

6. Although both parties contend that the 1st Defendant holds the shares on trust they are in conflict as to the beneficiary. The documents evidencing the share transfer are inconsistent with both contentions. They clearly show that there was consideration of $10,000 ($9,000) for the transfer of the 10,000 (9,000) shares to the 1st Defendant. Nothing in the documents suggests that the 1st Defendant was to hold them on trust for any beneficiary.

7. Although it is clear, and undisputed that the company Yu Feng received substantial loans from the Bank of China, these were secured by way of mortgage and further mortgage on land purchased as an asset and for the purposes of a joint venture known as the Beijing Project. All these loan agreements secured by way of such mortgage were signed by the Bank of China except the one in April 1994. The Defendant contends that the real security for this loan, though otherwise expressed in the wording of the agreement, was the shareholding subsequently held by the 1st Defendant. There is not one document produced which supports this purported change of security.

8. In fact the Plaintiff did not acquire the shares until December 1993. The agreement to transfer them to the 1st Defendant was not until 31 May 1994 and on 2 July 1994 the actual date of transfer the Plaintiff also declared himself trustee in respect of 1,000 shares in the 2nd Defendant company for the benefit of the 1st Defendant.

9. No documentation has been produced by the 1st Defendant to support this contention that he holds the shares as bare trustee for the Bank of China as security for the loan. It has been argued that noneless that must be the reasonable inference. I do not agree. The actual transfer does not bear an inference of any trusteeship let alone one for the bank, and the mere fact that the bank did not sign the agreement for the April loan certainly could not by any stretch of logic give rise to such an inference.

10. Somewhat belatedly Mr Ling, for the 1st Defendant, was instructed by his solicitor, that the 1st Defendant had signed blank transfer forms in favour of the Bank of China in respect of all shareholdings in his name as trustee for the Bank of China. Neither the 1st Defendant nor the Bank of China through any representative, was present in Court to give such instructions. I can only assume that Mr Ling's instructing solicitors had been in possession of such information as the basis for such an instruction, before the hearing.

11. Such information had emerged as a result of my comment that since it was now conceded that the 1st Defendant had ceased to be employed by the Bank of China in or about 1999, it seemed odd that he had continued as the nominee of the Bank in respect of the shareholding, a position which he must have occupied by virtue of his then employment as servant or agent of the Bank. Accordingly I was somewhat cynical as to the source and reliability of the information for which in any event, no documentary support had been produced.

12. It remained therefore of significance that Judge Cheung had reserved the position to enable the Bank of China to apply to discharge the injunction. It has made no such application. It has not sought to intervene in any respect. Almost one month has elapsed since Judge Cheung's decision. The only material produced - and that at the very last minute of the 1st Defendant's case at this hearing - is a faxed document, purportedly from the Bank of China. It is inconsequential and raises more questions than answers. I find it difficult to accept that communications with the Bank of China in Guangdong are so difficult as to make it impossible or inconvenient to produce documents to support the 1st Defendant's case. Mr Ling's instructing solicitor makes it clear in a late affirmation that although he represents the 1st Defendant (and all other Defendants in this action) his instructions in fact come from the Bank of China, which is his client.

13. Despite all these oddities, and indeed the delay on the part of the Plaintiff which he explains in the most general terms but which I am prepared to accept for the purpose of these proceedings, I will grant the injunction sought with the caveat in favour of the Bank of China which Mr Maurellet, for the Plaintiff, concedes, and which was provided for by Judge Cheung. I have grave reservations as so what actually occurred in respect of the share transactions but the 1st Defendant concedes that he holds them as trustee, albeit for the Bank of China. There is absolutely no credible support, as yet, for that contention.

14. The balance of convenience is in the Plaintiff's favour. The order I make will occasion no prejudice to the 1st Defendant or any other interested party. The position is no different to that advanced before Judge Cheung save that the Bank's potential role is even more nebulous. It is right that the current position of the disputed shareholding should be preserved pending trial or other order.