CHARM MASTER ENTERPRISES LTD v. GRAND T G GOLD HOLDINGS LTD AND ANOTHER

HCA 397/2011

[2024] HKCFI 2847

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 397 OF 2011

________________________

________________________

________________________

J U D G M E N T

________________________

A. INTRODUCTION

1.  The Plaintiff (“Charm Master”)  is the legal holder of two promissory notes, one in the amount of $7.5m (“PN D”), and the other in the amount of $5m (“PN E”), both issued by the 1^st Defendant (“the Company”).  It claims payment of the sums thereunder.

2.  The 2^nd Defendant (“J Thomson”)  counterclaims against Charm Master for payment under PN D and PN E.  It says that whilst the promissory notes were issued in the name of Charm Master, Charm Master was in fact holding the notes on trust for it.

3.  The Company has interpleaded, and paid into court a sum of $12.5m.  The contest therefore is between Charm Master and J Thomson.

B.  THE BACKGROUND

4.  Unless otherwise indicated, the following is not disputed, or is indisputable, and I find them as facts.

B1.  Dramatis personae

5.  SSC Mandarin Mining Investment Ltd (“SSC Mining”)  operated a gold mining business through its non-wholly owned subsidiary.

6.  SSC Mining was wholly owned by SSC Mandarin Holdings (“SSC Holdings”).

7.  Prior to the SPA referred to below, SSC Holdings, in turn was wholly owned by:

7.1  Mr Robin Lee as to 40% (19% directly, 11% through Harreld International Ltd (“Harreld”), and 10% through Rubion International Limited);

7.2  Mr Ng Chee Hung Frederick as to 23% (through Harreld);

7.3  J Thomson as to 20% (13% directly and 7% through Harreld);

7.4  Queen Glory Investment Limited as to 10%; and

7.5  Kudos Group Ltd as to 7%.

8.  After completion of the SPA referred to below, Mr Robin Lee became the sole owner of SSC Holdings, although the exact timing when, and the circumstances in which, this occurred were not explored in the evidence.

9.  Mr Robin Lee was the sole director and chairman of SSC Holdings.

10.  J Thomson was wholly owned by Mr Alvin Leung.  Mr Alvin Leung was also the sole director of J Thomson.

11.  The Company was originally named Espco Technology Holdings Limited.  It was listed on the GEM Board of the Hong Hong Stock Exchange.  Prior to the SPA referred to below, the Company was in the business of designing, manufacturing, trading and distributing desktop personal computer display cards.  The Company was founded by Mr Chan Hing Yin (“Mr HY Chan”).  Prior to the completion of the SPA referred to below, Mr HY Chan owned 61.99% shares in the Company.

B2.  The SPA

12.  By an agreement of 6^th November 2007 (“the SPA”), the Company acquired all the shares in SSC Mining from SSC Holdings at a consideration of $1,212m.  “Consideration” was defined as the consideration payable by the Company to SSC Holdings for the purchase of the shares.  Under the SPA, Clause 3.2 of the SPA provided for the method of payment of the Consideration, which was to comprise a combination of cash, Consideration Shares and Convertible Bonds (both as defined in the SPA), and promissory notes.  In particular, clause 3.2(B)  provided that:

“The [Company] must pay the remaining balance of the Consideration in full to [SSC Holdings] on the Completion date and pay it to [SSC Holdings] or the person designated in writing by [SSC Holdings] in the following manner:

…

(III)    Delivery of Promissory Note A totaling HK$60,000,000…”

13.  “Promissory Note A” was defined in the SPA as the “negotiable promissory note signed by the Purchaser [the Company] to pay the balance of the consideration totaling HK$60,000,000 in accordance with clause 3.2(B)(III), for a period of 18 months (from the date of issue), without interest and with the pledge of shares as Mortgage (see Appendix 7 for the general content and format of Acceptance Note A, but the final content and format must be reasonably confirmed by both the Purchaser [the Company] and the Vendor [SSC Holdings])”.

14.  Appendix 7 contained a draft of the proposed PN A.  It provided that SSC Holdings was to be the holder of the promissory note.

15.  The Long Stop Date under the SPA was 30th April 2008.  If the Conditions Precedent as defined under the SPA could not be fulfilled prior to 12 noon on the Long Stop Date, the SPA would become invalid.

16.  On 18^th December 2007, the Company made a public announcement regarding the entering into of the SPA (“the 18.12.2007 Announcement”).  The transaction constituted a “Very Substantial Acquisition” under the Listing Rules – the Company was to acquire a gold mining business which was substantial in comparison to its original electronics business.

17.  The 18.12.2007 Announcement referred to the payment of the $1,212m consideration, and summarised the key elements of each component of the consideration (including PN A).  The announcement stated that the terms of the promissory notes had been determined based on commercial negotiations between the Company and SSC Holdings.  In respect of PN A, the announcement noted that PN A could be transferred or assigned by its holder to any party other than a connected person in multiples of $1m.  It further stated that “The Company and the Directors will notify the Stock Exchange immediately of any dealing by the connected persons of the Company (other than the Vendor)  in the Promissory Note A from time to time immediately upon the Company being aware of it.”

18.  The 18.12.2007 further explained the reasons for the acquisition.  The Company and its subsidiaries were engaged in the manufacturing, trading and distribution of desktop PC components; there was growing competition in the market for the sale and production of PC components, and declining profitability of the PC components business; the Company’s directors considered that the acquisition would enable the Company and its subsidiaries to broaden its income base, thereby improving the future financial performance and profitability of the group. The then intention was to continue carrying on the existing business of the Company and its subsidiaries after completion of the transaction.

19.  On 28^th March 2008, the Company made a public announcement giving further details of the consideration under the SPA, and giving notice to convene an EGM seeking the Company’s shareholders’ approval to the transaction (“the 28.03.2008 Announcement”). Again, “Promissory Note A” was defined as “the promissory note with a principal sum of HK$60,000,000 to be executed by the Company in favour of the Vendor [SSC Holdings] to settle part of the Consideration”.

20.  On 18^th April 2008, the Company made a public announcement, announcing that its shareholders had approved the acquisition of SSC Mining at the EGM held that day (“the 18.04.2008 Announcement”).  The announcement stated that as at the date of the EGM, no shareholder was interested in the SPA or was required to abstain from voting.

21.  On 8^th April 2008, Charm Master was incorporated in the British Virgin Islands (“the BVI”).

22.  On 18^th April 2008, the Company announced that an EGM of its members had been duly held that day, approving the acquisition of SSC Mining.

23.  On 29^th April 2008, there was a meeting of the members of SSC Holdings, at which it was resolved, inter alia, to approve the payment of the balance of the consideration under the SPA in the manner as set out in the tabled payment instructions (“the Payment Instructions”).  The Payment Instructions provided for the issue of Promissory Note A in the principal amount of $60m to Charm Master as noteholder (“PN A”).

24.  It is J Thomson’s case, but disputed by Charm Master, that there was a further shareholders’ meeting of SSC Holdings on 30th April 2008, at which the issuing of PN A, including the arrangement whereby Charm Master would hold PN A on trust, was further addressed. I will return to this below.

25.  On 30th April 2008:

25.1  the SPA was completed;

25.2  the Payment Instructions were issued and PN A was issued;

25.3  Mr HY Chan’s shareholding in the Company was reduced to 45.68%, although he remained as the single largest and controlling shareholder of the Company (until 8^th September 2008).

26.  It is J Thomson’s case, but disputed by Charm Master, that there was a meeting between Mr Robin Lee and Mr CF Chen on 2^nd May 2008, during which Mr CF Chen signed a document purporting to agree to the trust arrangement in relation to PN A (“the Disputed Trust Confirmation”).  I will return to this below.

B3.  Changes in the Company after completion of the SPA

27.  Mr Robin Lee then took up positions in the Company as follows.

27.1  From 5^th June 2008 to 17^th March 2009, he was an executive director, vice-chairman and the CEO.

27.2  From 18^th March 2009 to 16^th July 2009, he was a non-executive director.

27.3  From 17^th July 2009 to 16^th August 2010, he was an executive director and the CEO.

28.  Mr Alvin Lee also took up positions in the Company.  From 5^th June 2008 to 31^st December 2008, Mr Alvin Leung was an executive director, vice-chairman and Deputy CEO.

29.  On 8^th June 2008, the Company announced the change of its name to its present name Grand TG Gold Holdings Limited.

30.  On 8^th September 2008, Mr HY Chan’s shareholding in the Company was further reduced to 15.88%, although he remained as a substantial shareholder and a connected person of the Company.

31.  On 30th September 2009, Mr HY Chan ceased to be the chairman of the board and a director of the Company.

B4.  The Eagle Up SPA and Eagle Lane Deed

32.  On 10^th November 2009, the Company entered into an agreement with Eagle Lane Holdings Limited (“Eagle Lane”), to sell the shares in its wholly owned subsidiary Eagle Up Holdings Limited (“Eagle Up”)  to Eagle Lane for $45m in cash on completion (“the Eagle Up SPA”). Eagle Up was a wholly owned subsidiary of the Company in the business of designing, manufacturing, trading and distributing desktop personal computer display cards.  Eagle Lane was a company wholly owned by Mr HY Chan.

33.  On 29^th January 2010, which was the date of completion of the Eagle Up SPA, the Company entered into a Deed of Release and Assignment with Charm Master and Eagle Lane (“the Eagle Lane Deed”). The Eagle Lane Deed recited that Eagle Lane was indebted to the Company in the amount of $45m pursuant to the Eagle Up SPA, and that Charm Master released as chargee unto Eagle Up the charge over the shares of Eagle Up which had been created on 30th April 2008, to facilitate the completion of the Eagle Up SPA.  The consideration of $45m payable by Eagle Lane under the Eagle Up SPA was settled via the partial redemption of PN A to the extent of $45m.

B5.  PN D and PN E; the current proceedings

34.  After the partial redemption of PN A, the Company issued two replacement promissory notes to Charm Master, each in the sum of $7.5m (“PN C” and “PN D”).

35.  On 31^st March 2010, Mr Robin Lee on behalf of the Company wrote a letter to Charm Master, asking for an extension of the maturity date under PN C to 1^st June 2010.  At the bottom of the letter was a signature, said to be signed on behalf of Charm Master in agreement to the extension. At trial, Mr Chen Chaofan (“Mr CF Chen”), the nephew of Mr HY Chan, said that he signed this document.  

36.  On 30th April 2010, Mr Robin Lee on behalf of the Company wrote a further letter to Charm Master, asking for an extension of the maturity date under PN D to 2^nd July 2010.  At the bottom was a signature similar to the one on the letter of the 31^st March 2010, agreeing on behalf of Charm Master to the extension.

37.  On 1^st June 2010, there was a partial redemption of $2.5m of PN C.  The Company then issued PN E in replacement in favour of Charm Master in the sum of $5m.

38.  On 16^th June 2010, Mr HY Chan passed away.

39.  On 11th November 2010, the trading of the Company’s shares on the Hong Kong Stock Exchange was suspended.

40.  On 5^th January 2011, Charm Master issued two written notices to the Company, one demanding repayment of the $7.5m due under PN D, and one demanding repayment of the $5m due under PN E.  Both notices were signed by a “李美真”, described as the sole director of Charm Master.

41.  On 19^th January 2011, the former solicitors for Charm Master, Messrs Johnny KK Leung (“JKKL”), sent two letters to the Company, demanding repayment of the principal amount of $7.5m under PN D, and $5m under PN E.   

42.  On 7^th March 2011, Charm Master commenced the current proceedings against the Company.

43.  On 12th May 2011, J Thomson sent a letter to the Company, demanding payment of PN D and PN E to it instead of to Charm Master, or an issue of “the definitive certificate” of PN D and PN E to J Thomson.  In the letter, J Thomson stated that it was the 20% registered and beneficial owner of SSC Holdings; that consideration under the SPA was to have been satisfied as to $60m by the issue of PN A; that Charm Master was a special purpose vehicle of SSC Holdings for holding PN A and had not paid any consideration for the issue of PN A, so that PN A was indirectly beneficially owned by J Thomson as to 20% ($12m); that PN A had been replaced by PN D and PN E; and that PN D and PN E constituted the $12m plus $500,000 interest owed to J Thomson.

44.  On 27 September 2011, the former solicitors for J Thomson, Messrs Peter Cheung & Co (“PCC”), wrote to the Company, demanding an issue of “the definitive certificate” of PN D and PN E to J Thomson, or payment of PN D and PN E to J Thomson.  PCC referred to the SSC Holdings shareholders’ resolution of 29^th April 2008 regarding the Company’s issue of PN A to Charm Master.  It was said that Charm Master was the trustee for all the shareholders of SSC Holdings; that no consideration had ever been paid by Charm Master for the issue of PN A; that the Company was aware of the trust arrangement and should have the relevant trust document on hand; that when PN A became due in October 2009, the controlling shareholder Mr Robin Lee, who was also the shareholder of SSC Holdings, agreed to give $500,000 to J Thomson as compensation for delay in payment of PN A, and Mr Robin Lee was to arrange to distribute a $12.5m promissory note to J Thomson directly; that J Thomson had since chased the Company’s directors from time to time; that the Company had issued PN D and PN E2 Charm Master without the knowledge and consent of J Thomson; and that Mr Robin Lee had since left the Company as executive director.

45.  On 30th September 2011, the former solicitors for the Company, Messrs Joseph Chan & Co (“JCC”), wrote to JKKL, enclosing a copy of PCC’s letter of 27^th September 2011, putting to JKKL the allegation that PN D and PN E were issued to Charm Master as trustee for J Thomson, and asking for JKKL’s response thereto.  There was no response to this letter, or at least, none was put before the court.  Notably, Charm Master did not take further substantive steps to progress the proceedings until after 3^rd October 2017, when J Thomson applied to be joined as a second defendant in the current proceedings.

46.  On 30th November 2015, J Thomson wrote a further letter to the Company, referring to PCC’s letter of 27^th September 2011 and subsequent chasers to the Company to recover the amounts under PN D and PN E, and warning that proceedings would be instituted.

47.  On 31^st March 2016, the Company wrote to J Thomson, saying that the board of directors considered that J Thomson was the beneficial owner of the debt under PN D and PN E in the amount of $12.5m and that the Company intended to settle the amount in favour of J Thomson subject to a deed of indemnity to be given by J Thomson to the Company in respect of HCA 397/2011 (that is, the current proceedings).  The letter further referred to J Thomson’s repeated requests for immediate settlement but indicated that because of the Company’s financial difficulties, and to facilitate the resumption in trading of the Company’s shares, the Company would ask J Thomson not to institute any legal proceedings for the time being.

48.  On 8^th July 2016, the Company made a public announcement relating to a number of matters, including a winding up petition presented against the Company in the Cayman Islands by a purported creditor.  J Thomson subsequently took action to oppose the winding up petition in the Cayman Islands.

49.  On 19^th January 2017, the Company made a public announcement to give an update regarding the litigation in the Cayman Islands, and to announce that a winding up petition had been presented against the Company in Hong Kong by another purported creditor.

50.  On 26^th February 2017, the Company announced a fundraising exercise to raise net proceeds of $131m.

51.  On 6^th March 2017, the Company wrote to J Thomson, saying that the board of directors considered that J Thomson was the beneficial owner of the debt under PN D and PN E in the amount of $12.5m and that the Company would settle the debt in favour of J Thomson rather than Charm Master.  Furthermore, the Company had instructed its legal adviser to prepare a deed of indemnity to be sent to J Thomson’s legal advisers once available.

52.  On 10^th April 2017, the Company made a public announcement.  It referred to settlement agreements with the petitioning creditors in relation to the Hong Kong petition and the Cayman Islands petition, and stated that the Hong Kong petition had been dismissed, and that the Cayman Islands petition was to be withdrawn.  The Cayman Islands petition was subsequently withdrawn on 26^th April 2017.

53.  On 9^th May 2017, the Company’s shares resumed trading on the Stock Exchange of Hong Kong.

54.  As mentioned above, on 3^rd October 2017, J Thomson applied to be joined as a second defendant in the current proceedings.  Leave was given on 6^th February 2018.

55.  The Company has paid a sum of $12.5m into court, and on that basis was given leave to interplead in the present proceedings pursuant to the order of DHCJ Raymond Leung SC of 26^th February 2021.

56.  The contest in these proceedings is therefore between Charm Master and J Thomson as to who is entitled to the $12.5m paid into court. The key issue, as formulated by the parties, is whether Charm Master holds PN A, and/or subsequent promissory notes issued by the Company following redemptions of PN A, on trust for J Thomson as a result of the trust arrangement reached on or about 29^th April 2008 as alleged by J Thomson but denied by Charm Master.

C.  THE PARTIES’ CASES

57.  Charm Master says that promissory notes are as good as cash, and that as the holder of PN D and PN E, it is prima facie entitled to payment.  It says that the Company owed Mr HY Chan a sum of $12.5m, as represented by PN D and PN E.

58.  J Thomson says that PN A (for $60m)  formed part of the consideration payable by the Company to SSC Holdings under the SPA.  Mr Robin Lee proposed that Charm Master hold the legal title to PN A on trust for SSC Holdings (or its shareholders).  J Thomson asked that 20% of the interest[1] under PN A be held on trust for it directly, in keeping with its 20% beneficial interest in SSC Holdings.  This amounted to a value of $12m.  PN A was partially redeemed in transactions which J Thomson did not know about or consent to, ultimately resulting in the issue of PN D and PN E with total amount of $12.5m outstanding thereunder.  There was then an agreement between J Thomson and SSC Holdings whereby SSC Holdings agreed that J Thomson could receive the $500,000 due to SSC Holdings under the promissory notes.  Subsequently, the Company agreed and acknowledged that the debt under PN D and PN E in the aggregate of $12.5m would be payable to J Thomson, and requested that J Thomson not institute proceedings against the Company for the time being in view of its financial difficulties.

D.  PRINCIPLES APPLICABLE TO THE ASSESSMENT OF EVIDENCE

D1.  The legal principles relating to assessment of credibility

59.  It will be seen that much turns on whether Charm Master’s or J Thomson’s version of events is accepted.  Both parties called factual witnesses to give evidence.  Charm Master called Mr CF Chen (Mr HY Chan’s nephew)  and Ms Selma Chan (Mr HY Chan’s widow)  to give evidence.  Mr Robin Lee gave evidence pursuant to a writ of subpoena issued on the application of J Thomson.  J Thomson also called Mr Alvin Leung to give evidence.

60.  In assessing such evidence, I have had regard to the principles summarised in Hui Cheung Fai v Daiwa Development Ltd, unreported, HCA 1734/2009, 8 April 2014 at [77] to [83] (DHCJ Eugene Fung SC).  In particular:

60.1  contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

60.2  in deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

60.3  regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence;

60.4  care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character;

60.5  witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.

61.  I have also had regard to the summary of relevant principles made by HH Judge Simon Barker QC in Northampton Borough Council v Cardoza and others [2019] BCC 582:

“36. As to the considerations applicable to evaluating evidence, a useful starting point is Goff J’s (as he then was)  observation as to resolving conflicts of evidence in Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 LL Rep 1 at p.57:

‘… Where there is a conflict of evidence … reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth’.

37. Factors relevant to the evaluation of a witness’s evidence were identified by Lewison J (as he then was)  in Painter v Hutchinson [2007] EWHC 758 (Ch)  at [3] when addressing the unsatisfactory nature of the defendant’s approach to giving evidence. These included: evasive and argumentative answers, tangential speeches avoiding the question, blaming legal advisers for pleading, disclosure and evidence shortcomings, self-contradiction, internal inconsistency, shifting case, new evidence, and selective disclosure. This was not intended to be an exhaustive list, but it is important and very helpful.

38. A useful recent reminder or guidance on the approach to the evidence of factual witnesses, and expanding on the guidance given by Goff J in The Ocean Frost, was given by Leggatt J (as he then was)  in Gestmin SGPS SA v Credit Suisse (UK)  Limited [2013] EWHC 3560 (Comm). After noting that human memory is fallible and that the process of litigation and preparing for trial tends to interfere further with the reliability of human memory, particularly where a lawyer has had a hand in drafting a witness’s evidence and the witness’s memory has been refreshed by reading documents, Leggatt J concluded that the best approach for a judge to adopt at the trial of a commercial case is to base factual findings on documentary evidence and known or probable facts and the inferences to be drawn therefrom. Witness evidence, written and oral, is not without purpose; but, its principal uses are to subject the documentary record to scrutiny and to evaluate the witness’s motivations, personality and working practices.

39. In similar vein, in the recent case of Freemont (Denbigh)  Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch)  reference was made to an article written by Bingham J (as he then was)  entitled “The Judge as Juror: The Judicial Determination of Factual Issues” published in [1985] 38 Current Legal Problems 1-27. Bingham J considered the approach to deciding upon the reliability of a witness’s evidence and regarded the following to be helpful indicators of where the truth lies: the consistency of the witness’s evidence with what is agreed, or clearly shown by other evidence, to have occurred; the internal consistency of a witness’s evidence; and, the consistency of a witness’s evidence with what (s)he has said or deposed on other occasions. Bingham J considered that the credit of a witness in matters not germane to the litigation was of less assistance, and that the demeanour of a witness was on the whole not a reliable pointer to a witness’s honesty.”

62.  I have further borne in mind the reminder of K Yeung J in Siao Miu Hua at [84] that:

“It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie”.

D2.  The legal principles relating to the drawing of adverse inferences

63.  J Thomson says that various adverse inferences ought to be drawn from Charm Master’s failure to call at trial (1)  a witness from JKKL, in particular Mr Simeon Leung, and (2)  Mr Wong Bong Cheung, said to have been the sole director and shareholder of Charm Master from 1^st May 2008 to 31^st March 2010.  In considering whether I should do so, I have had regard to the following principles.

64.  Where a party against whom a prima facie case is established fails, without explanation, to call a witness who might reasonably be expected to give direct evidence on the matters in question, the court may draw adverse inferences against him.  See Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd, unreported, CACV 90-91, 93-96/2012, 17 September 2013 at [106] to [107] (Kwan VP):

“106. The relevant principles are as set out by Brooke LJ in Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340:

“(1)  In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)  If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)  There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4)  If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn.  If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

107. And as Lord Sumption has stated in Prest v Petrodel Resources Ltd [2013] UKSC 34 at §44:

“There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it. For my part I would adopt, with a modification which I shall come to, the more balanced view expressed by Lord Lowry with the support of the rest of the committee in R v IRC, ex parte TC Coombs & Co [1991] 2 AC 283, 300:

‘In our legal system generally, the silence of one party in face of the other party’s evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party’s failure to give evidence (or to give the necessary evidence)  can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified.

Cf Wisniewski v Central Manchester Health Authority [1998] PIQR 324, 340.’ ” ”

65.  It is for the party asking the court to draw an adverse inference to establish:

65.1  that the counter-party might have called a particular person as a witness and that person had material evidence to give on that issue;

65.2  identify the particular inference which the court is invited to draw; and

65.3  explain why such an inference is justified on the basis of other evidence that is before the court.

See Ahuja Investments Ltd v Victorygame Ltd [2021] EWHC 2382 (Ch)  at [25] (HH Judge Hodge QC).

66.  Ultimately, however, the drawing of adverse inferences should not be approached in an overly technical manner, as it comes down to a matter of ordinary rationality.  See Efobi v Royal Mail Group Ltd [2021] UKSC 33, [2021] 1 WLR 3863 at [41] (Lord Leggatt, with whom Lord Hodge, Lord Briggs, Lady Arden and Lord Hamblen agreed):

“The question whether an adverse inference may be drawn from the absence of a witness is sometimes treated as a matter governed by legal criteria, for which the decision of the Court of Appeal in Wisniewski v Central Manchester Health Authority [1998] PIQR P324 is often cited as authority. Without intending to disparage the sensible statements made in that case, I think there is a risk of making overly legal and technical what really is or ought to be just a matter of ordinary rationality. So far as possible, tribunals should be free to draw, or to decline to draw, inferences from the facts of the case before them using their common sense without the need to consult law books when doing so. Whether any positive significance should be attached to the fact that a person has not given evidence depends entirely on the context and particular circumstances. Relevant considerations will naturally include such matters as whether the witness was available to give evidence, what relevant evidence it is reasonable to expect that the witness would have been able to give, what other relevant evidence there was bearing on the point(s)  on which the witness could potentially have given relevant evidence, and the significance of those points in the context of the case as a whole. All these matters are inter-related and how these and any other relevant considerations should be assessed cannot be encapsulated in a set of legal rules.”

E.  WHETHER CHARM MASTER HOLDS PN A AND SUBSEQUENT PROMISSORY NOTES ON TRUST FOR J THOMSON

E1.  The burden of proof

67.  Although Charm Master is the plaintiff in these proceedings, the burden lies on J Thomson, as it accepts, to prove the trust it alleges.

68.  It is undisputed that Charm Master is the holder of PN D and PN E, such that there is a presumption that consideration was given for the promissory notes.[2]

69.  J Thomson says that Charm Master has never explained why it says that it was entitled to PN A in the first place. Charm Master says that such a submission seeks to reverse the burden of proof.

70.  I remind myself that it is not for Charm Master to prove that it gave consideration for any of the promissory notes.  In any event, J Thomson does not challenge the validity of the notes for want of consideration.  What I understand J Thomson to be saying is simply that there is no reason which can explain why Charm Master held PN A beneficially, as opposed to holding on trust, and that this is a matter I should take into account when considering whether J Thomson has discharged its burden of proof.

71.  It also follows that I do not agree that J Thomson’s plea that Charm Master had no beneficial interest in, and did not pay, any of the consideration payable under the Transaction (under the SPA)  is not a defective plea.[3]  J Thomson’s submission is simply part and parcel of its case that PN A was issued to Charm Master to be held on trust rather than in its own right.

E2.  How PN A came to be issued in the name of Charm Master

72.  As referred to above, cl.3.2(B)  of the SPA provided that part of the consideration payable to SSC Holdings for the sale of SSC Mining was to be satisfied by the delivery of PN A.  The draft PN A had provided for SSC Holdings to be the holder of the promissory note.  However, PN A eventually came to be issued in the name of Charm Master, pursuant to the Payment Instructions approved at the SSC Holdings shareholders’ meeting of 29^th April 2008.  J Thomson’s account of how this came to be about is as follows.

73.  Mr Alvin Leung’s evidence was that at the SSC Holdings shareholders’ meeting of 29^th April 2008, Mr Robin Lee told the meeting that he had been contacted by Mr HY Chan who had said that one of his friends was in financial difficulty and needed to show proof of funds in the amount of $60m to overcome certain financial difficulties, and that helping his friend was his first priority.  In order not to delay completion under the SPA, or affect his relationship with Mr HY Chan, Mr Robin Lee had agreed that PN A would be issued in the name of Mr HY Chan’s friend’s company, Charm Master, which would hold PN A as trustee.  The shareholders were agreeable to this arrangement, although Mr Alvin Leung requested that 20% of the face value of PN A was to be held on trust for J Thomson directly (rather than for SSC Holdings). Mr Alvin Leung says that this was because he was aware that Mr Robin Lee had incurred a large amount of personal debt, and he (Mr Alvin Lee)  was afraid that Mr Robin Lee might somehow try to use SSC Holdings’ funds for his own purposes. Mr Alvin Leung says that his request was similar to the arrangement under the Payment Instructions for part of the consideration to be distributed directly to SSC Holdings’ shareholders (the Consideration Shares and the Convertible Bonds).

74.  Mr Alvin Leung further explained that the $60m payable under PN A represented less than 5% of the total consideration the transaction under the SPA.  The deadline for fulfilment of the conditions precedent under the SPA was 30th April 2008, and to avoid the transaction falling through, Mr Alvin Leung agreed with the proposal of issuing PN A in the name of Charm Master.

75.  Mr Alvin Leung said that after Mr Robin Lee showed him a copy of the minutes of the meeting of 29^th April 2008, he expressed concern to Mr Robin Lee that the trust arrangement had not been expressly spelled out in the minutes.  He therefore requested that a further meeting be held for this purpose.  This was how the meeting of 30th April 2008 came to be held, and the minutes prepared.  Those minutes referred to the resolutions of 29^th April 2008 and the fact that PN A was to be issued to Charm Master notwithstanding the fact that it had never paid any consideration for this, and recorded a resolution that:

“…out of HK$60,000,000 of the Note A, (i)  HK$48,000,000 be ear-marked and allocated for [SSC Holdings’] other use and as may the Chairman [Mr Robin Lee] instruct Charm Master from time to time; (ii)  the reaming balance of the Note A of HK$12,000,000 be distributed to [J Thomson], which is in proportion to J Thomson’s 20% beneficial shareholding interest in [SSC Holdings], and THAT Charm Master be appointed as trustee of J Thomson to hold the Note A to the extent of HK$12,000,000 upon trust for and on behalf of J Thomson, and in the event that the Note A is subdivided or replaced by any other promissory note(s)  (“Replacement Notes”)  in future due to whatever reason, such HK$12,000,000 and the beneficial ownership of the Replacement Notes should continue to be belonged to J Thomson and Charm Master should continue to act as trustee to J Thomson in respect of the Replacement Notes until J Thomson confirmed in writing receipt of the said HK$12,000,000 beneficially owned by it.”

76.  Mr Alvin Leung says that after he studied the minutes, he told Mr Robin Lee he had no further comments, and the Payment Instructions could be issued.  The Payment Instructions dated 30th April 2008 were then issued, instructing the Company to issue PN A to Charm Master.

77.  Mr Alvin Leung’s evidence was the subject of vigorous cross-examination.  Having considered the criticisms made of that evidence, I have nevertheless concluded that I accept his account of events as set out in the preceding paragraphs, as I will now proceed to explain. Before I do so, I should first briefly mention Mr Robin Lee’s evidence.

78.  Mr Robin Lee gave evidence which had some overlap with that of Mr Alvin Leung, for example as both of them attended the meeting on 29^th April 2008.  However, Mr Robin Lee’s evidence also dealt with a number of other matters with which Mr Alvin Leung had no involvement, such as the discussions with Mr HY Chan about helping Mr HY Chan’s friend, and Mr HY Chan’s meeting with Mr CF Chen on 2^nd May 2008 at which the Disputed Trust Confirmation was signed.  Mr Robin Lee had also earlier made a statutory declaration 13 March 2019 (“the Statutory Declaration”)  declaring the truth of his letter of the same date addressed to the board of directors of the Company (“Lee’s Statutory Declaration Letter”).  Lee’s Statutory Declaration Letter in turn contained a number of exhibits, including an unsigned version of the Disputed Trust Confirmation.

E2.1  Mr HY Chan’s request to issue PN A in the name of Charm Master

79.  Mr Alvin Leung was asked as to whether he had explored how PN A could help Charm Master to overcome its financial difficulty.  He said that he did not explore the matter; his understanding was that putting forward proof of funds would enable a person to borrow from a financial institution perhaps for a short term loan; such proofs were not uncommon in the financial world.  It was then put to him that putting PN A in the name of Charm Master would be misleading the financial institution in question as the funds would not (on J Thomson’s case)  belong to Charm Master. Mr Alvin Leung answered that this was not his concern.  Rather, what he was concerned about was (1)  the risk that the arrangement might be considered to be some form of illegal kickback to Mr HY Chan to complete the SPA, and (2)  the risk that refusing Mr HY Chan’s request would scupper the transaction.  In relation to (1), this was why Mr Alvin Leung was concerned to make clear that PN A was being held on trust for SSC Holdings and J Thomson and not for Mr HY Chan.  In relation to (2), he took the view that there were ways in which Mr HY Chan could back out from the transaction, for example by alleging that the due diligence requirements had not been satisfied, so that looking at the whole picture, it was better to accede to Mr HY Chan’s request given that PN A only constituted 5% of the whole consideration.

80.  Counsel for Charm Master, Mr Anthony Cheung (appearing with Mr Lee Siu Him), challenged the credibility of this part of Mr Alvin Leung’s evidence by reason of the fact that Mr Alvin Leung did not mention Mr HY Chan’s request for assistance until his third witness statement of 27^th May 2022.  To my mind, however, and leaving aside ethical judgments, Mr Alvin Leung’s concern about the propriety of the arrangement is consistent with his reticence in his first statement as to the circumstances in which Mr Robin Lee proposed that PN A the issued in the name of Charm Master, and his euphemism in saying that this was “for ease of convenience”.

81.  It seems to me that Mr Alvin Leung’s account is entirely plausible.  All along, the arrangement had been that PN A was to be issued in the name of SSC Holdings and this was reflected in the public announcements made by the Company as well – it will be recalled that the public announcement that the Company’s shareholders had approved the transaction was made on 18^th April 2008 and it was not suggested at the time that any change had been made to the terms on which PN A was to be issued.

82.  As counsel for J Thomson, Mr Charles Manzoni SC (leading Ms Natalie So)  observed, something must have happened between that time and 30th April 2008 that caused SSC Holdings to direct that PN A be issued to Charm Master instead.  The 18.12.2007 Announcement, 28.03.2008 Announcement and 18.04.2008 Announcement by the Company all stated that no shareholder had a material interest in the transaction, so that it is inherently unlikely that the reason for issuing PN A to Charm Master was for the purpose of providing a secret profit to Mr HY Chan, at least in the absence of any evidence suggesting that this was the case.

83.  Mr Cheung also submitted that Mr Robin Lee’s evidence about Mr HY Chan’s request was riddled with inconsistencies, illogicalities and was inherently improbable.  For example, whilst in Lee’s Statutory Declaration Letter, Mr Robin Lee had said that one of his “good friends” was in financial difficulty, in cross examination, he said that it was Mr HY Chan’s “relative” was in financial difficulty; he failed to ask how the alleged fund proof would help the friend; he did not take steps to verify Charm Master’s identity.  I agree with Mr Manzoni that insofar as there were discrepancies in Mr Robin Lee’s evidence on this point, this is perhaps not surprising given the passage of time.  Furthermore, as Mr Robin Lee explained, he had a similar concern to that of Mr Alvin Leung, namely, that completion of the SPA might be jeopardised if Mr HY Chan’s request was not entertained.  As I have said, I accept this as plausible.  In such circumstances, whether or not the assistance was for a friend or relative, whether or not providing PN A to a friend or relative would really assist him, and who exactly was behind Charm Master, were all of secondary importance, so that whether Mr Robin Lee probed these matters at the time or subsequently remembered the details accurately does not really affect the main thrust of his evidence about Mr HY Chan’s request.

E2.2  The SSC Holdings shareholders’ meeting of 29^th April 2008

84.  As mentioned earlier, on 29^th April 2008, the shareholders of SSC Holdings approved the Payment Instructions which provided for the issue of PN A to Charm Master.

85.  Mr Alvin Leung’s evidence was that the trust arrangement was raised at the meeting of 29^th April 2008, in that it was approved at the meeting, although he was not sure whether it was discussed as the meeting was not a long one and was for approving the transaction, payment instructions and so on.  He could not remember whether or not the notice convening the meeting had referred to the proposal that Charm Master would be appointed to hold PN A, or to the trust arrangement.

86.  Mr Cheung’s criticism of the evidence in relation to the meeting of 29^th April 2008 was not so much directed at Mr Alvin Leung’s evidence, but at Mr Robin Lee’s.  Mr Cheung submitted that Mr Robin Lee’s evidence was full of inconsistencies and inherent improbabilities as to (1)  whether the trust arrangement was discussed and agreed with Mr HY Chan before the meeting, (2)  whether it was mentioned in the notice or circular for the meeting, and (3)  whether it was discussed at the meeting.

87.  It is true that Mr Robin Lee gave rather confused evidence as to whether or not the trust arrangement was mentioned in the notice convening the meeting.  Initially, he could not remember whether he issued the notice of meeting first, or had his discussion with Mr HY Chan (about the issue of PN A in Charm Master’s name)  first.  What he said was that he could be sure about was that the discussion with Mr HY Chan took place before the 29^th April 2008 meeting.  He then thought that the discussion took place before he sent out the notice, and he agreed as a matter of logic that this meant that the notice would have referred to the trust arrangement. When he was reminded of his evidence the next day, Mr Robin Lee said that the trust arrangement had been verbally mentioned, but he could not remember whether it was mentioned in the notice.  He said that he was confused by the questioning.  Shortly afterwards, he said that he supposed the trust arrangement had not been discussed at the meeting of 29^th April 2008 (since it was only SSC Holdings and J Thomson which would be affected by PN A as the other shareholders were going to convert their interests into trading shares of the Company and drop out of the picture), and this was why the 30th April 2008 meeting had to be hurriedly arranged.

88.  I have reviewed this part of Mr Robin Lee’s evidence again.  I agree that it is confused and somewhat self-inconsistent.  It is one of the examples from Mr Robin Lee’s evidence which has led me to scrutinise his evidence carefully when considering whether it should be accepted. However, it does not follow that it makes Mr Alvin Leung’s evidence (that the trust arrangement was discussed at the meeting)  unreliable.

E2.3  The SSC Holdings shareholders’ meeting of 30th April 2008

89.  Mr Cheung put to the witnesses the question of why, if Mr Alvin Leung considered that the minutes of the meeting of 29^th April 2008 failed to sufficiently reflect the trust arrangement, the minutes were not simply amended, rather than arranging for a further meeting on 30th April 2008.  Mr Alvin Leung’s explanation was that amendment of the minutes would have been one possible way of proceeding.  However, the minutes had already been sent out to other parties, and amending them would have given rise to confusion.  Furthermore, the minutes were a necessary formality for the completion of the SPA on 30th April 2008, and had to be sent to external parties such as the share registrar for preparation of new share certificates, and amendments could have caused delay and confusion.

90.  Mr Cheung did not really have any criticism of this evidence.[4] His point was that the minutes could have been amended, and the fact that they were not amended, together with a number of other factors, supported the case put to the witnesses that the meeting of 30th April 2008 never in fact took place and the minutes were created years later for the purpose of the litigation.

91.  Those other factors[5] were (1)  the late disclosure of the minutes of the meeting of 30th April 2008, (2)  the omission to record the waiver of short notice in the minutes, (3)  Mr Robin Lee’s evidence on the one hand that the trust arrangement had been discussed many times, but on the other hand his evidence that it was put in writing for the first time in the minutes of 30th April 2008, and (4)  Mr Robin Lee’s evidence that adding a few words to the Payment Instructions to indicate that Charm Master was holding PN A on trust would cause delay due to scrutiny by the Stock Exchange (which was said to be inexplicable as the same delay would have been caused by the addition of the minutes of 30th April 2008 to the completion documents).

92.  I agree that the late production of the minutes of 30th April 2008[6] gives rise to some suspicion, particularly as Mr Robin Lee claimed in Lee’s Statutory Declaration Letter that during his term of office at the Company he noted that the documents relating to the trust arrangement, which included these minutes, had been annexed to the Company’s board minutes and contained in its minutes book, and as Mr Alvin Leung said that he thought that he had been given a copy of the minutes but was unable to locate them subsequently.  When pressed on this, Mr Alvin Leung frankly acknowledged that the documents were important and he ought to have kept them properly, but the simple fact was that he had lost them.  He did also point out the importance of the documents had to be looked at in the context that that this was a relatively small part of the overall interest he received pursuant to the transaction.

93.  However, overall, the factors relied on by Mr Cheung are equally consistent with the minutes of 30th April 2008 having being prepared contemporaneously in haste and (as described by Mr Alvin Leung)  not very professionally by Mr Robin Lee’s staff.

93.1  J Thomson would not have needed to locate the document until it became aware of the commencement of the current proceedings in 2011 at the earliest; at the time, its solicitors PCC had written to the Company’s solicitors JCC alleging the trust arrangement; JCC had then put the allegation to Charm Master’s solicitors JKKL but no response was given, and the action stalled until 2017 when J Thomson applied to be joined; in the interim, there would not have been any pressing need to refer to the document.

93.2  Whilst the minutes did not refer to a waiver of short notice, Mr Robin Lee’s evidence was that the shareholders had been consulted and they consented to the short notice, and there is no evidence of any of the shareholders having complained afterwards.

93.3  The fact that the trust arrangement had been discussed many times but only appeared in writing in the minutes of the 30th April 2008 meeting is not indicative of falsity.  Mr Alvin Leung’s evidence was that the whole point of the 30th April 2008 meeting was to make the record clear as he considered that it had not yet been sufficiently clearly recorded.

93.4  As regards amendment of the Payment Instructions, it is entirely plausible that Mr Robin Lee and Mr Alvin Leung would have wanted to avoid any complications arising out of a reference to a trust in the Payment Instructions, a document which would be scrutinised by the Stock Exchange.

94.  In such circumstances, I do not agree that the factors relied on by Mr Cheung point, on the balance of probabilities, to the 30th April 2008 meeting having never taken place and the minutes of the meeting having been fabricated for the purpose of the litigation. I accept Mr Alvin Leung’s evidence that he saw the minutes of 30th April 2008 at the time and was satisfied with them before the Payment Instructions were issued.

E2.4  The Disputed Trust Confirmation of 2^nd May 2008

95.  Mr Alvin Leung seemed to be unsure as to whether he received a copy of any declaration of trust from Mr Robin Lee shortly after it was supposed to have been signed on 2^nd May 2008 by Mr CF Chen. He said that he was unable to find it when he looked for it, although Mr Robin Lee had told him that he had provided a copy to him.

96.  Mr Alvin Leung was not present at the meeting said to have taken place on 2^nd May 2008 between Mr Robin Lee and Mr CF Chen, so his evidence does not shed light on whether Mr Robin Lee’s account or Mr CF Chen’s account of the matter is correct.

97.  Mr Robin Lee’s evidence is that he met Mr CF Chen in Hong Kong, together with Mr HY Chan.  He said that the meeting was a short one.  Mr HY Chan explained the contents of the Disputed Trust Confirmation to Mr CF Chen.  Mr CF Chen signed the document. 

98.  In Lee’s Statutory Declaration Letter, Mr Robin Lee had said that Charm Master had signed a declaration of trust in favour of J Thomson, the original of which he had lost, and that he had then released PN A to Mr CF Chen under cover of a letter dated 2^nd May 2008. The impression given by the description in Lee’s Statutory Declaration Letter was that there were two documents with different contents, one being a covering letter and one being a declaration of trust.  The letter was exhibited to Lee’s Statutory Declaration Letter.  The name of SSC Holdings was at the top, followed by the date of 2^nd May 2008, and it then stated “To: Charm Master Enterprises Limited”.  What then followed was in the form of a letter, signed by Mr Robin Lee for and on behalf of SSC Holdings,[7] setting out the trust arrangement in relation to PN A, with $48m belonging to SSC Holdings and $12m belonging to J Thomson and Charm Master agreeing to act as trustee in respect of J Thomson.

99.  In the cross-examination of Mr Robin Lee, it transpired that what he had referred to as the declaration of trust was in fact the same document, albeit that at the bottom right corner of the letter, the words “Confirmed and accepted by: Charm Master Enterprises Limited”, and a horizontal line thereunder, had been printed, and a signature looking something like “chenf” or “chencf” had been signed on the line.[8]  This is the document which I have referred to above as “the Disputed Trust Confirmation.”

100.  The cross-examination of Mr Robin Lee on this topic proceeded on the premise that it was absurd for there to have been two different versions[9] of the same document, one with just Mr Robin Lee’s signature on behalf of SSC Holdings, and the other purportedly countersigned by someone on behalf of Charm Master as a confirmation and acceptance.  My initial impression of Mr Robin Lee’s evidence on this topic was that it was unclear and confusing.  However, having reviewed it again, it seems to me that what he was consistently saying was that prior to the meeting of 2^nd May 2008, he had the version of the Disputed Trust Confirmation which had (only)  his signature on it (and not Charm Master’s confirmatory signature), and he gave a copy to Mr HY Chan in advance of the meeting; and then he took along to the meeting also the version of the document which was for Mr CF Chen to sign (so that it would have borne the printed words “Confirmed and accepted by: Charm Master Enterprises Limited”, and the horizontal line thereunder).  Thus, when Mr Cheung put to him that he would not have had these two versions, Mr Robin Lee said that he did not understand, and did not agree: “It’s very normal, beforehand you need to tell Mr Chan, “Mr Chan on 2^nd May we will need to discuss these things”, and when you send him the document, what would be the problem? And then on 2^nd you brought along the [document with the printed words and line] to add the signature.  I don’t understand [Mr Cheung’s proposition that Mr Robin Lee would not have had both the document without the printed words and line and also the document with the printed words and line]”.

101.  I now turn to Mr CF Chen’s evidence about the Disputed Trust Confirmation.

102.  Mr CF Chen’s evidence was that Mr HY Chan, who was his uncle and had a very good relationship with Mr CF Chen’s father, asked him to help sign some documents.  Mr CF Chen said that he agreed to do so as he trusted Mr HY Chan.  Mr HY Chan then took some documents to Mr CF Chen’s office in Shenzhen.  The documents were in English and Mr CF Chen did not understand them, nor did Mr HY Chan explain them to him.  Mr CF Chen always signed his name in Chinese, but for these documents, he signed them in English, “Chencf”, as Mr HY Chan asked him to sign in English.  The signature was one which he made up for Mr HY Chan.  Afterwards, Mr HY Chan took away the documents without giving any copies to Mr CF Chen.  There was a second occasion on which Mr HY Chan asked Mr CF Chen to sign documents, which was similar to the first occasion.  There was a further occasion, when Mr HY Chan was unwell, at which another uncle took documents to Mr CF Chen in Shenzhen to sign, saying that the request was on behalf of Mr HY Chan.  Again, Mr CF Chen signed them.

103.  Mr CF Chen said that he never went to Hong Kong to sign any documents for Mr HY Chan, and he never attended any meetings as a representative of Mr HY Chan’s companies.

104.  As regards the Disputed Trust Confirmation, he thought that it had not been signed by him, as (he said)  the signature was “very different” from the other signatures which he felt he did sign.  Furthermore, he was told by Charm Master’s lawyers that he had ceased to be Charm Master’s shareholder and director on 2^nd May 2008 (he had not known that he was Charm Master’s shareholder and director from 30th April 2008 to 1^st May 2008 and 1^st April to 3^rd November 2010 until Charm Master’s lawyers explained this to him in these proceedings; he did not know why Mr HY Chan replaced him with Mr Wong Bong Cheung on 1^st May 2008 and why Mr HY Chan reinstated him, replacing Mr Wong Bong Cheung, on 1^st April 2010).

105.  When asked what it was about the signature on the Disputed Trust Confirmation which led him to think that it was not his signature, Mr CF Chen said that it was because there was no connecting stroke between the last two letters “c” and “f”, whereas he connected them when signing. However, he was then shown a number of documents which he had previously claimed to have signed, in which the last two letters “c” and “f” were not connected.  He then said that he was not sure that they were his signatures.

106.  I find that Mr CF Chen was simply unable to tell whether or not any of the signatures purporting to be his – whether on the Disputed Trust Confirmation or any other documents appearing in this action – were made by him.  Moreover, the way in which he claimed to know that the signature on the Disputed Trust Confirmation was not his was shown to be plainly incorrect, even though in his witness statement he said that he had studied all the documents in detail in order to try to differentiate between those he signed and those he did not sign.[10]  I am therefore not willing to place credence on his evidence about whether he signed the Disputed Trust Confirmation in the absence of corroborating evidence.

107.  Mr Cheung submitted that it would be unfair to reject Mr CF Chen’s evidence when he was not challenged on his evidence that he never went to Hong Kong to sign documents for Mr HY Chan.  However, as I have just explained, I do not consider that Mr CF Chen’s evidence to be reliable on this issue without corroboration.  In any event, it is not correct to say that Mr CF Chen was not challenged about this.  It was put to him that (1)  he was given a copy of the minutes of the SSC Holdings’ shareholders’ meeting of 30th April 2008 at a meeting on 2^nd May 2008, to which he said he did not remember, (2)  at the meeting on 2^nd May 2008, he confirmed receipt of those minutes and accepted the appointment as trustee, on behalf of Charm Master, to which he said he did not know, (3)  at the meeting on 2^nd May 2008, he signed the Disputed Trust Confirmation, to which he said he did not remember. I note from Mr CF Chen’s witness statement that he had sought to suggest that one of the reasons why he considered that the Disputed Trust Confirmation was not signed by him was because he never attended meetings or signed documents as a representative of Mr HY Chan’s foreign companies, he never went to Hong Kong to sign documents for Mr HY Chan, and that he was not in Hong Kong on 2^nd May 2008.[11]  In such circumstances, Mr CF Chen was alive to the disputed issue of fact of whether he had signed the Disputed Trust Confirmation, and was given sufficient opportunity to deny that he did so by reason of the fact that he was not in Hong Kong on 2^nd May 2008 or that he had never attended meetings or signed documents as a representative of Mr HY Chan’s foreign companies (but he did not do so).

108.  Mr Cheung also submitted that the fact that Mr CF Chen was no longer a director of Charm Master on 2^nd May 2008, having been replaced by Mr Wong Bong Cheung[12] on that day, showed that it was inherently improbable that Mr CF Chen represented Charm Master on 2^nd May 2008.  However, Mr CF Chen did not even know that he had at one point been Charm Master’s shareholder and director, or that he had been replaced on 1^st May 2008; furthermore, on Charm Master’s own case, Mr HY Chan was the one who was ultimately behind Charm Master.  One can therefore not read very much into the change of directors.  Insofar as it may be thought that Mr CF Chen’s replacement casts doubt on the question of his authority, Mr Cheung did not really seek to dispute Mr Manzoni’s submission that as far as SSC Holdings and Mr Robin Lee were concerned, Mr CF Chen had apparent authority to represent Charm Master.

109.  Having considered the witnesses’ evidence, I accept that the Disputed Trust Confirmation was signed, contemporaneously, on 2^nd May 2008, by Mr CF Chen.

E4.  The Eagle Up transaction and the partial redemptions of PN A and PN C

110.  It will be remembered that on 10^th November 2009, the Company entered into an agreement to sell the shares in its subsidiary Eagle Up to Mr HY Chan’s company.  This was effectively a sale of the computer display cards business to Mr HY Chan.  On completion of the Eagle Up SPA on 29^th January 2010, Eagle Lane paid the consideration by the partial redemption of PN A to the extent of $45m.

111.  Mr Cheung’s submission was that since the Company did not object to this partial redemption, and indeed proceeded to issue PN C and PN D to Charm Master, this contradicted the allegation that PN A, and then PN C and PN D, were held on trust rather than in its own right.

112.  However, I agree with Mr Manzoni that the fact that Charm Master partially redeemed PN A does not amount to an explanation as to why it was entitled to PN A in the first place.  As to why PN A was partially redeemed for the payment of the consideration under the Eagle Up SPA, Mr Robin Lee’s evidence was that the funds came out of SSC Holdings’ entitlement under PN A (SSC Holdings being Mr Robin Lee’s company at that time), and was essentially a loan from him to Mr HY Chan to enable him to acquire Eagle Up’s business.  PN A was replaced by PN C and PN D.  Mr Robin Lee went on to explain that on about 1^st June 2010, a further $2.5m was redeemed out of SSC Holdings’ entitlement under PN C and paid to Charm Master, and the balance of PN C was replaced by PN E; this was also to have been repaid by Mr HY Chan to SSC Holdings, but then he suddenly and unexpectedly passed away a week later on 16^th June 2010.

113.  Mr Cheung challenged the veracity of this piece of evidence on the grounds that there was no documentary evidence of the loan or Mr HY Chan’s or Charm Master’s promise to repay the funds.  Mr Robin Lee’s explanation was that Mr HY Chan’s death was sudden and unexpected so that nothing was documented.  In submissions, Mr Cheung argued that there still remained no documentary evidence after Mr HY Chan’s death and it was not until a letter of 26^th March 2018 from Mr Robin Lee, SSC Holdings and SSC Mandarin Group Limited (“SSC Group”)  that a demand was made for repayment of the $47.5m; furthermore, Mr Cheung argued that the letter was a demand on behalf of Mr Robin Lee, SSC Holdings and SSC Group, whereas in Lee’s Statutory Declaration Letter, Mr Robin Lee had said that the repayment was to be to SSC Holdings.  However, delay appears to have been a feature of not only Mr Robin Lee’s claim but also Charm Master’s and J Thomson, so that not much can be read into this.  As to the discrepancy in the identity of the creditors, this is of no particular significance, given that SSC Holdings and SSC Group were Mr Robin Lee’s companies, even if it might not be accurate to say that PN A was held on trust for SSC Group or Mr Robin Lee.

114.  Mr Cheung also challenged the veracity of Mr Robin Lee’s evidence about Mr HY Chan’s promise to repay as Mr Alvin Leung never mentioned it.  However, Mr Robin Lee’s evidence is that the arrangement was between him and Mr HY Chan.  It therefore would not have affected the $12m which J Thomson says was held on trust for it.  It is therefore not surprising that Mr Alvin Leung was not privy to the arrangement.

E5.  Debt owed to Mr HY Chan; illegality

115.  Ms Selma Chan’s evidence was that her late husband Mr HY Chan had told her that the Company owed him $12.5m as comprised in two promissory notes (PN D and PN E).  She was unable to say why the Company might have owed Mr HY Chan money.  She did not know why Charm Master held PN A.  Her evidence was therefore of very little assistance to the resolution of the issues before the court.

116.  Ms Selma Chan did say that when Mr HY Chan was ill in the hospital, he told her that a listed company owed him money, and that the file and the documents were with Lawyer Leung – Mr Johnny KK Leung of JKKL – and that Lawyer Leung was responsible for dealing with it for him.  Lawyer Leung had also briefly explained to Ms Selma Chan about money collected by Charm Master being passed to her.  Ms Selma Chan acknowledged that she was the person who caused Charm Master to start the action.  I note that Mr Johnny KK Leung was not, however, called to give evidence to shed light on what he knew about the Company apparently owing Mr HY Chan money.  I consider that Ms Selma Chan’s vague evidence that the Company owed Mr HY Chan money carries little weight in the absence of corroborating evidence from the witness who supposedly knew about the matter.[13]

117.  Insofar as there may be a reason why Charm Master might have been beneficially entitled to PN A (and the subsequent promissory notes), this involves the implication that Mr HY Chan was taking an illegal kickback for the purchase of SSC Mining under the SPA, using Charm Master as the means for receiving it.  Mr Manzoni’s submission was that there was no basis to make such a serious allegation of wrongdoing when there was no corroborating evidence to do so, and indeed when Mr HY Chan, as a director of the Company, had declared in its public announcements that he had no interest in the transaction.

118.  Mr Cheung submitted that there was no merit in this submission, since there was no basis for suggesting that Mr HY Chan was interested in Charm Master at the relevant time.  As Mr Manzoni pointed out, this is not correct, as Mr CF Chen’s evidence was that when he asked Mr HY Chan what the documents to be signed by him were about, Mr HY Chan said that they were related to his foreign company, and the documents exhibited by Mr CF Chen as being documents which he considered he had signed for Mr HY Chan were documents relating to Charm Master.[14]

119.  Mr Cheung also submitted that in any event, J Thomson’s case of illegality has not been properly pleaded.  I agree with Mr Manzoni that there was no need for J Thomson to plead any case of illegality, because J Thomson is not advancing a positive case that Charm Master is not entitled to claim under the promissory notes by reason of illegality.

E6.  Lee’s Statutory Declaration Letter

120.  In cross-examination, Mr Robin Lee said that he was asked to make the Statutory Declaration by the then chairman of the Company, who wanted to repay the Company’s debt to the right person, and get the Company’s trading suspension lifted; he told Mr Robin Lee that there would be lawyers to assist him in dealing with it together.  Mr Robin Lee said that he wrote Lee’s Statutory Declaration Letter together with the Company; he provided the contents and the Company assisted him with the details and tidying up.  He wrote the letter with the assistance of some of the documents kept at SSC Holdings (and not documents of either Charm Master or J Thomson).

121.  As Mr Cheung demonstrated, and as is apparent, the wording of some parts of Lee’s Statutory Declaration Letter are strikingly similar to parts of J Thomson’s Defence and Counterclaim (which predated Lee’s Statutory Declaration Letter).  Mr Manzoni acknowledged that it did indeed appear that part of the letter had been copied.  He did not dispute that the Company’s lawyers had a copy of J Thomson’s Defence and Counterclaim at the time and were assisting Mr Robin Lee in preparing the Statutory Declaration. I accept his submission that whilst Mr Robin Lee overstated his role in preparing the document, it does not follow that its contents are untrue.  I bear in mind that Mr Robin Lee is not a member or director of J Thomson and does not have a financial interest in the outcome of these proceedings.

E7.  Requests for extension; demands for payment

122.  Mr Cheung submitted that it was significant that the Company, through letters signed by Mr Robin Lee as director, asked Charm Master for extensions of time for repayment of the promissory notes, without asking or notifying J Thomson (30th October 2009 for PN A, 31^st March 2010 for PN C, and 30th April 2010 for PN D).  Similarly, it was significant that the Company’s former solicitors Messrs DS Cheung & Co had written to JKKL (Charm Master’s former solicitors)  on 4^th June 2010 recording that their respective clients had reached agreement as to payment of PN C.  The submission was that Charm Master was dealing with the PN in its own right rather than as trustee.

123.  It seems to me that not much can be read into these letters.  No matter whether Charm Master was acting in its own right or as trustee, it would have been the proper party to be dealing with requests for extension of time and agreements for payment, given that it was the holder of the promissory notes.

E8.  Changes in J Thomson’s case

124.  Mr Cheung submitted that there had been a number of changes in J Thomson’s case and that this undermines the credibility of its case that PN A was to be held on trust.  I refer to a few of the more important examples relied on by Mr Cheung.

125.  J Thomson’s letter of 12th May 2011 to the Company asserted that since J Thomson was a 20% owner of SSC Holdings, it indirectly beneficially owned PN A as to 20%.  Mr Cheung submitted that there was no basis for this assertion, as the shareholder of a company does not own the company’s assets.  Mr Alvin Leung was cross-examined about this and also as to why the letter referred to Charm Master as a special purpose vehicle of SSC Holdings to hold PN A, rather than a trust arrangement.  His explanation was that he had had a meeting with Mr Lee Shing, then a director of the Company, indicating that he would sue the Company.  Mr Lee Shing had asked Mr Alvin Leung not to do so as the Company’s operational costs were being supported by him; he was aware of the debt owed to J Thomson and the Company would repay it, but since there had so far been no documentary demand, asked Mr Alvin Leung to write a simple letter of demand.  Mr Alvin Leung considered that he should write the letter in terms which Mr Lee Shing, a businessman and non-lawyer from mainland China, would understand, rather than lecturing him about legal principles.  This seems plausible.

126.  Mr Alvin Leung further said that because of Mr Lee Shing’s request to withhold repayment demands against the Company, the financial difficulties experienced by the Company at the time, his relationship with Mr Lee Shing, and his consideration that pressing further might result in an empty judgment against the Company, he (Mr Alvin Leung)  agreed to stop pressing for repayment for the time being, and this was the reason for J Thomson’s delay in formally claiming against the Company.  Again, this seems plausible.  Mr Alvin Leung says that he resumed his requests for repayment after learning in June 2015 from various public announcements that the Stock Exchange was considering the cancellation of the Company’s listing and that some of the shareholders sought to remove certain directors of the Company, including Mr Lee Shing.  Thus, on 30th November 2015, J Thomson wrote to the Company to ask for payment again.  It also took steps to oppose the winding up of the Company in the Cayman Islands, entering a Notice of Appearance in the Grand Court of the Cayman Islands on 18^th May 2016 on the basis that it was a creditor to whom the Company owed $12.5m.  By letters of 25^th July 2016 and 9^th September 2016 to the Company, it also indicated support for the Company’s proposal to resume trading on the Stock Exchange by agreeing to participate in the debt capitalisation exercise of the Company.  (In contrast, Charm Master did neither of these things.)   In other words, the fact that J Thomson refrained for a while from initiating proceedings against the Company did not amount to an abandonment of its position that it was a creditor of the Company.

127.  PCC’s letter of 27^th September 2011 to the Company referred to SSC Holdings shareholders’ resolution of 29^th April 2008, saying that SSC Holdings had instructed the Company to issue PN A to Charm Master as trustee for “all the shareholders” of SSC Holdings.  Mr Cheung submitted that J Thomson was thereby asserting that the trust was for all the shareholders of SSC Holdings, which was inconsistent with its previous allegation that it indirectly owned PN A.  However, whilst the details differed, the substance of J Thomson’s case remained the same.

128.  It was said that PCC’s letter disclosed for the first time the minutes of 29^th April 2008 but did not mention the meeting of 30th April 2008 or the meeting of 2^nd May 2008, which were only referred to in J Thomson’s Defence and Counterclaim dated 16^th March 2018, and even then, details of the 2^nd May 2008 were meeting not given.  Then came the letter from Mr Robin Lee and his companies SSC Group and SSC Holdings of 26^th March 2018, which described the beneficiaries of the trust as being “us”, namely Mr Robin Lee and the two companies (which were therefore said to be different from what had been claimed before), and that the amount of $48m due to them took priority over the $12m due to J Thomson, which had not been asserted before.  Then came Lee’s Statutory Declaration Letter, which mentioned for the first time Mr HY Chan’s request for a favour to assist his friend, and further details of the 2^nd May 2008 meeting. It was only in Mr Alvin Leung’s witness statement of 18^th June 2019 that the Disputed Trust Declaration was produced.  Then came J Thomson’s Re-Amended Defence and Counterclaim of 27^th May 2022, which described the $48m under PN A as being held on trust for SSC Holdings alone rather than SSC Holdings and its shareholders.  Then it was only in Mr Alvin Leung’s third witness statement of 27^th May 2022 that he mentioned that Mr Robin Leung had told him about Mr HY Chan’s request for a favour prior to the SSC Holdings shareholders’ meeting of 29^th April 2008.  It was said that all of these matters showed that the claim of a trust arrangement was only an afterthought, and a poorly thought out one at that.

129.  Whilst it was indeed the case that the story of what happened only emerged in dribs and drabs, and that over the years there were differences between Mr Robin Lee’s account and Mr Alvin Leung’s account, the substance of their explanations were by and large consistent both with each other and over time.  It was just that neither of them explained the entire story upfront, and that there were minor inaccuracies or inconsistencies in their accounts.

E9.  Subsequent promissory notes

130.  It will be recalled that after the partial redemption of PN A, the Company issued PN C and PN D in replacement, each in the sum of $7.5m. Then, on 1^st June 2010, shortly before Mr HY Chan passed away, there was a partial redemption of $2.5m of PN C, and the Company then issued PN E in replacement in favour of Charm Master in the sum of $5m.

131.  The total outstanding under PN D and PN E is $12.5m, which is $500,000 more than the $12m to which J Thomson had said it was entitled under PN A.

132.  Mr Alvin Leung’s evidence about this was some time prior to 12th May 2011, he had a conversation with Mr Robin Lee, in which he expressed concern that J Thomson had not been paid all along.  Mr Robin Lee, acting on behalf of SSC Holdings, agreed that the $500,000 which was owed by the Company to SSC Holdings should be paid to J Thomson instead.  Mr Robin Lee confirmed this in his oral evidence.  It was put to Mr Alvin Leung that since PN A was not interest-bearing, there was not really such an agreement with Mr Robin Lee, and the $500,000 was simply to make J Thomson’s claim tally with the amount outstanding under PN D and PN E.  Mr Alvin Leung denied this and explained that although the maturity date of PN A was 30th October 2009, he did not get paid.  He considered that this was Mr Robin Lee’s responsibility and he asked for compensation, and this was the compensation which Mr Robin Lee agreed to give Mr Alvin Leung.  Mr Alvin Leung further said that this was why the Company’s letters of 31^st March 2016 and 6^th March 2017 acknowledged a debt to J Thomson in the amount of $12.5m.

133.  I accept Mr Alvin Leung’s explanation as to why J Thomson seeks repayment of the entire amount under PN D and PN E from the Company.

E10.  Conclusion as to whether Charm Master holds PN A and subsequent promissory notes on trust for J Thomson

134.  I therefore accept that PN A was issued in the name of Charm Master because of Mr HY Chan’s request for assistance in showing proof of funds, that the minutes of SSC Holdings shareholders’ meetings of 29^th of April 2008 and 30th April 2008 were documents created contemporaneously, and that the Disputed Trust Confirmation of 2^nd May 2008 was signed by Mr CF Chen on 2^nd May 2008.

135.  I agree with Mr Manzoni that the contemporaneous documentary evidence carries the greatest weight.  In this regard, the SPA and the Company’s public announcements about the transaction thereunder – both of which are undeniably contemporaneous documents – indicated that PN A was to form part of the consideration payable by the Company to SSC Holdings (and not to any connected person of the Company).  The minutes of the SSC Holdings shareholders’ meeting on 29^th April 2008 and the Payment Instructions approved indicate that PN A was to be issued to Charm Master, and the minutes of the SSC Holdings shareholders’ meeting on 30th April 2008 (which I accept were contemporaneously created)  explain that Charm Master was to hold PN A on trust for SSC Holdings as to 80%, and J Thomson as to 20%.  The Disputed Trust Confirmation further confirmed the arrangement.

136.  I further agree with Mr Manzoni that the evidence relied on by Charm Master relates to events that happened after the events of late April and early May 2008, so that they carry less weight.  Whilst Charm Master was able to point to a number of inconsistencies and unsatisfactory aspects of that evidence which did not sit well with J Thomson’s case, these were of relatively less significance in the overall balance. 

137.  I find that Charm Master held PN A on trust as to 20% for J Thomson, and that PN D and PN E now represent that interest of $12m, together with an amount of $500,000 which SSC Holdings agreed would be paid by the Company to J Thomson for the delay in J Thomson’s recovery of the amounts owed to it.

F.  CONSEQUENCES OF THE FINDING OF TRUST

138.  On the pleadings, there are a number of further issues between the parties, such as whether Charm Master acted in breach of trust in asserting that it, rather than J Thomson, was the beneficial owner of the promissory notes; whether Charm Master held the chose in action under the promissory notes on some sort of constructive trust for J Thomson; and whether Charm Master has been unjustly enriched in having been vested with the legal title to PN D and PN E.  In the light of my findings above, I agree with Mr Manzoni that there is no need to consider these alternative claims, and I do not understand Mr Cheung to be suggesting otherwise.

G.  DISPOSITION

139.  J Thomson succeeds in its counterclaim against Charm Master, so that the amount of $12.5m paid into court by the Company pursuant to paragraph 1 of the order of DHCJ Raymond Leung of 26^th February 2021 should be paid out to J Thomson.  Charm Master’s claim against the Company is dismissed.

140.  I further make a costs order nisi that the costs of and occasioned by J Thomson’s counterclaim be paid by Charm Master to J Thomson, and that the costs of and occasioned by Charm Master’s claim against the Company be paid by Charm Master to the Company, both with certificate for two counsel, to be taxed if not agreed.