MELVIN WAXMAN AND ANOTHER v. LI FEI YU AND ANOTHER

HCA 1972/2012

[2022] HKCFI 3579

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1972 OF 2012

______________

______________

__________________

J U D G M E N T

__________________

A.  Introduction

1.  This is the trial of the disputes between the parties over the ownership of a group of companies which the plaintiffs have referred to as the WDI Group.

2.  Mr Lai Chun Ho appeared for the 1^st and 2^nd plaintiffs (“P1” (or “Melvin”), “P2” (or “Larry”) and collectively “Ps”). Mr Richard Khaw SC leading Ms Bonnie Cheng and Mr Martin Ho appeared for the 1^st and 2^nd defendants (“Frank” or “D1” and “Solut” or “D2” respectively, and collectively “Ds”).

B.  The parties and the companies involved

3.  P1 is a national of the United States and a director and shareholder of a group of companies referred to as the Waxman Group. The Asian base of the Waxman Group is Hong Kong.

4.  P1 has been in the plumbing business for more than 50 years.

5.  P2 is P1’s son. He is also a national of the United States, and has been involved in the business of the Waxman Group as well.

6.  P1 and D1 had been business partners since the 1990s until the deterioration of their relationship leading to, inter alia, this action.

7.  D1 is a PRC national who at the material time performed the day-to-day management of a number of companies, which included:

(a)  Xiamen DaChun Industries Inc. (“DaChun”),

(b)  WDI (Xiamen) Plumbing Industrial Company Limited (“WDI Plumbing”),

(c)  WDI international Inc. (“WDI International (USA)”),

(d)  Swell International Trading Co., Limited (“Swell”),

(e)  WDI International (HK) Limited (“WDI International (HK)”),

(f)  WDI (Xiamen) Technology Company Limited (“WDI Technology”),

(g)  Voreto (Xiamen) Plumbing Technology Company Limited (“Voreto”),

(h)  WDI (Xiamen) Precision Mould & Plastics Company Limited (“WDI Precision”), and

(i)  Solut.

8.  Solut was incorporated on 21 January 2000 in Hong Kong with issued share capital of HK$10,000.00. Its 100% registered shareholder has been D1 since 12 June 2006. It has been a 60.02% registered shareholder of WDI Technology since 26 December 2008.

9.  Closely involved in the matters is another person called Yu Yuebin (“Ben Yu”). Ben Yu is D1’s brother-in-law.

10.  I have named above some of the companies that are relevant to this action. Below are some of their further details:

(a)  DaChun:

(i)  It was incorporated in the Mainland in around 1993;

(ii)  Its registered shareholders have been D1 (55%) and Ben Yu (45%);

(iii)  It has been a registered shareholder of WDI Plumbing (50%);

(b)  WDI Plumbing:

(i)  It is a Chinese-foreign equity joint venture company incorporated in the Mainland on 7 December 1995;

(ii)  Its registered shareholders have been DaChun (50%) and P1 (50%) since incorporation;

(iii)  D1’s and Ben Yu’s shareholding in DaChun therefore made them indirect shareholders of WDI Plumbing in the respective percentage of 27.5% and 22.5%;

(iv)  It and Solut have been respectively a 39.98% and 60.02% registered shareholders of WDI Technology since 26 December 2008;

(c)  WDI International (USA) was incorporated in the USA on 15 May 1997;

(d)  Swell:

(i)  It was incorporated in Hong Kong on 24 May 2000;

(ii)  Its registered shareholders have been D1 (70%) and Alex Lee (30%);

(e)  WDI International (HK):

(i)  It was incorporated in Hong Kong on 22 November 2000[1], with issued share capital of HK$10,000.00;

(ii)  Its registered shareholders have been P1 (30%), P2 (10%), D1 (59%) and Ngai Kam Man (1%) since 29 October 2015;

(iii)  It has been a registered shareholder of WDI Precision (75%) and Voreto (60%) since the incorporation of those two companies;

(f)  WDI Technology:

(i)  It is a Chinese-foreign equity joint venture company incorporated in the Mainland on 28 September 2002 pursuant to a Joint Venture Contract dated 22 August 2002 between WDI Plumbing and Solut[2] (the “Joint Venture Agreement”);

(ii)  Its registered shareholders have after some changes been WDI Plumbing (39.98%) and Solut (60.02%) since 26 December 2008[3];

(iii)  The purpose of and circumstances surrounding its establishment, and the ownership of its equity are at the centre of the disputes in this action;

(g)  Voreto:

(i)  It is a joint venture company incorporated in the Mainland on 21 October 2004 with the Japanese TOTO group;

(ii)  Its registered shareholders are WDI International (HK) (60%) and three companies of the TOTO group (40%). The TOTO group was a third party not related to either Ps or Ds.

(h)  WDI Precision:

(i)  It is a joint venture company incorporated in the Mainland on 18 November 2005 with the Chinese Qinchuan group;

(ii)  Its registered shareholders are WDI International (HK) (75%) and Qinchuan (Xiamen) Mould Company Limited (25%).

11.  Ps have in their pleadings use:

(a)  the term “WDI Beneficial Shareholders” to denote P1, P2, D1 and Ben Yu; and

(b)  the “WDI Group” to denote the following 7 companies, namely DaChun, WDI Plumbing, WDI International (USA), WDI International (HK), WDI Technology, Voreto and WDI Precision. I record that this concept of WDI Group, both in fact and in law, is in dispute.

12.  In this judgment, I will use those same terms to denote the same respective entities. I do so for ease of presentation, as those are the ways Ps use those terms. My adoption of the terms carries no connotation that I have accepted Ps’ case in those regards without analysis.

C.  The pleaded case

13.  The material pleadings are:

(a)  the Amended Statement of Claim of 14 February 2013 (the “ASOC”);

(b)  the Answer to Request for Further and Particulars of the ASOC of 5 June 2017 (the “F&B”);

(c)  the Consolidated and Re-Amended Defence of the 1^st and 2^nd Defendants and Counterclaim of the 1^st Defendant of 19 December 2018 (“RAD&C”); and

(d)  the Consolidated and Re-Amended Reply to the Consolidated and Re-Amended Defence of the 1^st and 2^nd Defendants and Defence to Counterclaim of the 1^st Defendant of 18 February 2019 (“RAR&D”).

14.  The case has been tightly fought. There is little agreement between the parties. The following, some of which being adopted from the parties’ agreed facts, summarize parties’ respective stances.

15.  P1 first became business partners with D1 when they jointly established WDI Plumbing in 1995. A number of other companies were subsequently formed to engage in other aspects of the plumbing business.

16.  In particular, in about August/September 2002, WDI Technology was arranged to be formed as a Sino-foreign joint venture. The initial shareholding was WDI Plumbing 18% and Solut 82%. It was later changed to 39.98% and 60.02% respectively in December 2008.

17.  Ps claim that WDI Technology (as well as other WDI Group companies) was actually beneficially owned by the P1, P2, D1, and Ben Yu (i.e. the WDI Beneficial Shareholders) as to 30%, 10%, 42% and 18% respectively (the “Alleged Agreed Shareholding”) based on a shareholders’ agreement entered into among the parties on or around 5 August 2002 (the “Alleged Shareholders’ Agreement”). D2 only held the shares in WDI Technology for them as a nominee according to the ownership interests in WDI Group.

18.  The Alleged Shareholders’ Agreement is defined[4] in §8 of the ASOC, as follows:

“8. By a partly written and partly oral agreement made on or around 5^th August 2002 … [Ps] agreed with [D1] (acting on behalf of himself and [D2]) and [Ben Yu] that:

(1) WDI Plumbing would establish a sino-foreign equity joint venture in China (the “Joint Venture Company”) as the vehicle to purchase a piece of land in the Haicang Xinyang Industrial Zone in the size of approximately 60,000 square metres for the purpose of factory plant setup (that is, the Haicang Factory);

(2) [D1] would procure [D2] to be the foreign investor holding part of the equity in the Joint Venture Company, and the remaining equity would be held by WDI Plumbing.

(3) Both [D2] and WDI Plumbing would hold their equity in WDI Technology as nominees of the WDI Beneficial Shareholders in accordance with the Agreed Shareholding (as defined in sub-paragraph (6) below);

(4) The Joint Venture Company would be beneficially owned by the WDI Beneficial Shareholders in accordance with the Agreed Shareholding (as defined in sub-paragraph (6) below);

(5) The incorporation of the Joint Venture Company, purchase price of the land and setting up the factory plant would be financed initially by:

(a) Loans to the WDI Group in the total sum of US$1,000,000 from the WDI Beneficial Shareholders based on their then ownership interests in WDI Group;

(b) Capital expenditure of US$2,450,000 to be provided by WDI Plumbing; and

(c) US$1,500,000 to be provided by [D1] transferring through [D2].

(6) All the equity and dividend of the companies within the WDI Group, including the Joint Venture Company, after taking into account [D1’s] stated wish to increase his equity interest, would be owned beneficially by the WDI Beneficial Shareholders as to not below 30% for [P1], 10% for [P2] (collectively 40% for [Ps]), 18% for [Ben Yu] and 42% for [D1] (the “Agreed Shareholding”);

(7) On the date for completion of the setup of the Haicang Factory, [D1] would procure [D2] to transfer the equity in the Joint Venture Company to the WDI Beneficial Shareholders in accordance with the Agreed Shareholding.

(8) Thereafter all the shares or equity in each of the companies within the WDI Group would be administered or re-adjusted to achieve the Agreed Shareholding amongst the WDI Beneficial Shareholders.”

19.  Ps claim that the Alleged Shareholders’ Agreement was “partly written and partly oral”, and was “reflected in or evidenced by” 5 documents (the “5 Documents”), which have been identified at §8A of ASOC as:

(a)  The minutes of the WDI Group’s board of directors’ meeting held on 5 August 2002[5] (the “5/8/02 Meeting”, and the “5/8/02 Minutes”);

(b)  An undated “Letter of net equity of shareholders confirmation 股東權益證明書”[6] (the “Letter of Confirmation”);

(c)  An undated “Loan Agreement 借款協議” made in about December 2004 and signed by D1, Ps and Ben Yu[7] (the “Loan Agreement”);

(d)  An undated document entitled “The affiliates of WDI Group — WDI集團下屬全資及控股公司”[8] (the “List of Affiliates”); and

(e)  An Evaluation Report dated 26 May 2007 prepared by Pan‑China (Xiamen) Consulting Corp. (廈門天健諮詢有限公司) on, inter alia, the valuation of the WDI Group[9] (the “Evaluation Report”).

20.  Further and better particulars of the Alleged Shareholders’ Agreement have been provided[10]. It is pleaded inter alia that[11] the terms of the same “were mainly agreed orally and evidenced in writing”, that “[insofar] as the Terms as pleaded in Paragraph 8 are not contained in the [5/8/02 Minutes], they are made orally but evidenced in writing”, and that the “parts of the Terms that were agreed orally were agreed during the WDI Group’s Board of Directors meeting on 5 August 2002.”

21.  Relying on the same factual basis, Ps have pleaded on a further and alternative basis a case based on trust: see §§9 to 9C, 16 and 17 of the ASOC.

22.  Ps therefore claim that D1 has failed to transfer the equity of the companies in WDI Group, including WDI Technology, in accordance with the Alleged Agreed Shareholding. Ds are therefore in breach of the Alleged Shareholders’ Agreement, and/or in breach of the trust.

23.  Ds’ case may be summarized as follows[12]:

(a)  Ever since WDI Plumbing was established (in 1995), the cooperation between P1 and D1 was on the basis that each party’s ownership and interest in the joint venture company would be in proportion to their respective (actual) investments and contributions to the company. The said basis of cooperation between the parties is in accordance with Mainland law governing joint venture companies involving foreign investments;

(b)  Ds do not accept that there was the Alleged Shareholders’ Agreement. The 5/8/02 Meeting was a meeting of the Board of WDI Plumbing. What was discussed by the parties in August 2002 (including what was discussed during the 5/8/02 Meeting) were preliminary in nature. The reference in the 5/8/02 Minutes to the Alleged Agreed Shareholding and the acquisition thereof by the WDI Beneficial Shareholders was upon the “pre-condition”[13] that they must pay in the proportionate portions of the share capital contributions;

(c)  Even if the Alleged Shareholders’ Agreement had existed:

(i)  it would have been of no legal effect under Mainland law (which Ds say is the proper governing law), as any suggestion that the alleged WDI Beneficial Shareholders could acquire shareholding in the so‌‌‌‌-‌‌‌called WDI Group in accordance with the Alleged Agreed Shareholding, irrespective of their (actual) investments and contributions to the company, and any alleged agreement to such effects, are inconsistent with Mainland law;

(ii)  it had been quickly overtaken, replaced and/or superseded by events in late August 2002 (including the Joint Venture Agreement in respect of WDI Technology, which required the registered share capital to be paid in accordance with a prescribed timetable), and then the December 2004 Oral Agreement (as defined in the RAD&C[14]), the 18/11/2008 Agreement (as defined in the RAD&C[15]), and the Agreement relating to WDI[16] (USA) (as defined in the RAD&C[17]);

(iii)  and even if the Alleged Shareholders’ Agreement had not been replaced, P1 and P2 were under the obligations to make further capital contributions in the Alleged Agreed Shareholding[18] and/or the obligation under the December 2004 Oral Agreement, or an implied term to that effect.

24.  D1 has pleaded in addition a Counterclaim against P1. For reasons which I need not go into, Mr Khaw at §32 of his written opening informs this Court that given certain subsequent development, D1 no longer requires any relief under the Counterclaim. At the conclusion of closing submissions on 2 June 2022, I granted D1 leave to discontinue the Counterclaim. I will come back to the question of costs later.

D.  The agreed issues

25.  I set out the list of issues that parties are able to agree upon:

(a)  Whether the parties entered into the alleged Shareholders’ Agreement (as defined in the ASOC) on or around 5 August 2002 and if so what were the terms of such alleged agreement (“Issue#1”);

(b)  If the Shareholders’ Agreement exists, whether the applicable proper law is Mainland law (as contended by Ds) or Hong Kong law (as contended by Ps) (“Issue#2”);

(c)  If Mainland law applies:

(i)  whether and to what extent are the following concepts recognized under Mainland law: (i) trust, in particular, unwritten trust; (ii) beneficial ownership; (iii) fiduciary duty; (iv) group companies (“Issue#3a”);

(ii)  whether and to what extent should any of the above concepts apply in the present case, in particular, whether Ps’ claims on contract and/ or trust and also the relief sought on those bases are sustainable under Mainland law (“Issue#3b”).

(d)  If Hong Kong law applies, whether the facts of this case give rise to any contract, trust or fiduciary duty as alleged by Ps and/or justify the relief sought by Ps, in respect of the equity in the companies allegedly forming the WDI Group (“Issue#4”);

(e)  Whether the parties entered into any of the following alleged agreements as to the ownership and entitlement to dividends of companies allegedly forming the WDI Group, whether individually or collectively, and whether such agreement(s) replaced or superseded the alleged Shareholders’ Agreement in any event:

(i)  the December 2004 Oral Agreement (“Issue#5a”);

(ii)  the 18/11/2008 Agreement (“Issue#5b”); and

(iii)  the Agreement relating to WDI (USA) (“Issue#5c”).

(f)  If so, what were the terms of the alleged agreement(s) (“Issue#6”)?

(g)  Were Ds in breach of the alleged Shareholders’ Agreement (“Issue#7”)?

(h)  Were Ps in breach of the December 2004 Oral Agreement, the 18/11/2008 Agreement and the Agreement relating to WDI (USA) (“Issue#8”)?

26.  Relevant to the issues to be tried I record this:

(a)  Immediately before the expert engaged by Ps (Professor Lin Feng) commenced his evidence, Mr Lai informed this Court that in light of the joint opinion of the experts that the 5 Documents do not yet constitute an effective trust under Mainland law, Ps would not be pursuing the trust claim under Mainland law. The implications of the above are that if this court is to find that Mainland law applies, Ps could only succeed as a matter of contract; and

(b)  Consequential upon Ds’ abandonment of their Counterclaim, Issue#5c and the part of Issue#8 in relation to Agreement relating to WDI (USA) are no longer relevant[19].

E.  The witnesses

27.  On facts:

(a)  Ps have called two witnesses. They are:

(i)  P1, who has made two witness statements, of 28 August 2017 (“MW/WS1”) and 18 February 2019 (“MW/WS2”); and

(ii)  P2, who has made one witness statement of 28 August 2017 (“LW/WS”);

(b)  Ds have also called two factual witnesses. They are:

(i)  D1, who has given two witness statements, of 28 August 2017 (“FL/WS1”) and 18 December 2018 (“FL/WS2”); and

(ii)  Madam Weng Yunfang (“Weng”), who has given one witness statement of 28 August 2017(“Weng/WS”). Weng was at the material time an accounts clerk under the employ of Swell. Her evidence relates to fund-flow;

(c)  On Mainland law:

(i)  Parties have been granted leave to adduce expert evidence on the following two issues:

“(1) The legality and validity of any purported agreement or trust arrangement regarding the beneficial ownership of shares in various companies established in the PRC alleged to be part of the ‘WDI Group’ in the [ASOC] allegedly contained in or evidenced by [the 5 Documents] under the laws and regulations of the PRC, including but not limited to PRC Company Law (including the laws and regulations governing joint venture companies involving foreign investments), PRC Contract Law and PRC Trust Law; (“Mainland Law Issue#1”) and

(2) Under the PRC laws governing the formation and validity of a joint venture company (“JVC”) involving foreign investments:-

(a) whether the shareholding must be on the basis of actual investment or contribution to the JVC (“the said Basis”) (“Mainland Law Issue#2(a)”); and

(b) whether any purported agreement or trust as to a beneficial interest not on the said Basis, i.e. irrespective of actual investment or contribution to the JVC, is in accordance with the PRC law, including PRC Trust Law and PRC Contract Law (“Mainland Law Issue#2(b)”).”

(ii)  Pursuant to the leave granted, each side has called one expert on Mainland law;

(iii)  Ps have called Professor Lin Feng (“Prof Lin”), who has prepared a report dated 20 December 2017 (“Prof Lin/Report”)[20];

(iv)  Ds have called Professor Xiao Wei (“Prof Xiao”), who has prepared a report of 26 January 2018[21];

(v)  Prof Lin and Prof Xiao have together prepared a joint report, which is dated 7 March 2018[22].

F.  Credibility of witnesses

F.1.  The relevant considerations and principles

28.  The existence or otherwise of the Alleged Shareholders’ Agreement is central to Ps’ claims.

29.  Ps’ case is that the Alleged Shareholders’ Agreement was partly written and partly oral.

30.  The core of Ds’ defences are that the Alleged Shareholders’ Agreement did not exist, and in any event it, even if once existed, had been replaced and superseded.

31.  Hence, despite the large amount of documents adduced (which Mr Lai has described as voluminous), the credibility of the factual issues called remains very much in issue.

32.  The relevant principles and considerations relevant to credibility are not in dispute.

33.  I have been cited Zhangjiagang Boya Trading Co., Ltd v ASD (HK) Ltd [2020] HKCFI 2845 at §28, Taishin International Bank Co., Ltd v QFI Ltd [2020] HKCFI 2116 at §14, Progetto Jewellery Company Ltd v Lau Chiu Ying [2020] HKCFI 209 at §30, and Goldbay Fortis Ltd v Asia Allied Infrastructure Holdings Ltd [2021] HKCFI 1684 at §73. Given the lapse of time since the occurrence of the relevant events, Mr Lai highlights the importance of contemporaneous documents – Cheng Fu Wan v Cheng Lok Yee [2021] HKCFI 1881 at §27.

34.  The above cases are not controversial, which I have considered and will apply.

35.  I set out below my findings on the credibility of the factual witnesses called. I state for the record that before reaching my findings set out below, I have considered all the relevant evidence and materials in the round (even though some of them will not be expressly stated).

F.2.  P1’s credibility

36.  I consider first of all P1’s credibility.

37.  P1 gave evidence via video link. With him while giving evidence was his assistant Ms Susan Small. She was there to assist P1 with the physical location of documents in the course of examination.

38.  For the reasons set out below, I find that P1 is neither an honest or reliable witness.

39.  Important aspects of P1’s evidence are against common and commercial sense, and are inherently most improbable:

(a)  The core of P1’s evidence in relation to the formation of the Alleged Shareholders’ Agreement may be summarized as follows. P1’s, D1’s and Ben Yu’s original shareholding in WDI Plumbing was 50%, 27.5% (55% in DaChun, which in turn held 50% in WDI Plumbing) and 22.5% (45% in DaChun, which in turn held 50% in WDI Plumbing). D1 had kept asking to have his equity in WDI Plumbing increased, and kept making threat that he would withdraw certain production lines of WDI Group, which would harm the company. P1 decided that in order to make peace with him, he decided to give up 10% in WDI Plumbing, Ben Yu to give up 4.5%, so that the new shareholding of P1, D1 and Ben Yu would be 40%, 42% and 18%. That would apply across the board to the entire WDI Group, and would be so irrespective of whether all the WDI Beneficial Shareholders subsequently made pro rata capital contribution into WDI Technology, and that both Solut and WDI Plumbing would hold their equity in WDI Technology as nominees of the WDI Beneficial Shareholders;

(b)  An important plank of P1’s evidence and case is therefore that the equity percentage in WDI Group owned by each of the WDI Beneficiary Shareholders pursuant to the Alleged Agreed Shareholding was to be divorced from the actual amount of capital contributions which they would each put in. He confirmed that much in the course of cross-examination:

“Q. Now, Mr Waxman, are you now telling us that given what was stated in the minutes of the meeting held on 5 August 2002 regardless of what subsequently happened to the capital contribution for WDI Technology you and Larry would, in any event, be holding 40 per cent, correct?

A. Correct.

Q. So you would not agree that the amount of further capital contribution by Frank Li would ever affect your shareholding and Larry’s shareholding, correct?

A. Correct.”

(c)  An agreement that shareholders’ equity-holding would be divorced from the amount of actual capital contribution is against commercial sense. The existence of such an agreement is inherently most unlikely;

(d)  The inherent likelihood of P1’s evidence gets worse when other evidence is considered;

(e)  P1 agreed that during the 5/8/02 Meeting, the concept of the WDI Group as a group was not discussed;

(f)  Mr Lai submits that the parties had prior to 5 August 2002 regarded WDI Plumbing, WDI International (USA), WDI International (HK) and DaChun as belonging to the same informal group of companies[23]. When delivering his closing submissions, Mr Lai further relied on the Feasibility Study of Voreto which used the term “威迪亞集團”[24];

(g)  The existence of such an understanding and its factual basis has not been pleaded[25]. The evidence as to what companies were understood to have been among it is also unclear;

(h)  I note further that 2 of the 7 companies now pleaded to be amongst the WDI Group (i.e. Voreto and WDI Precision) had not even been formed by the time of the 5/8/02 Meeting. Mr Lai in this regard relies on P1’s oral evidence during re-examination to the effect that any subsidiary companies to be formed would also be amongst the WDI Group, which evidence I reject as being inherently most improbable;

(i)  I have also considered the Feasibility Study of Voreto[26] and the List of Affiliates[27] which contained references to the concept of WDI Group. However, the former was prepared in August 2004, and the latter is of dubious evidential value as P1 testified that he had never seen it before. Further, the Evaluation Report prepared in May 2007 continued to describe the “WDI Group” as a fictional group;

(j)  I have further considered the “Planning Memorandum For WDI Tech Aquire [sic.] WDI Plumbing”[28]. But therein, it was a merger that was discussed, rather than the formation of a WDI Group;

(k)  In any event, and even assuming that there had been some sort of prior understanding of the concept of WDI Group, it is in my view inherently most improbable that during the 5/8/02 Meeting, the concept of WDI Group and its membership (especially in relation to any company yet to be formed) were not specifically discussed and confirmed;

(l)  The information available to the parties during the 5/8/02 Meeting was limited. The amount to be invested by D1 had not been confirmed (stated in the 5/8/02 Minutes as being “approximately USD1.5M”). There was no agreed account in front of the meeting. The formation of the joint venture company required approval from the authorities. The size of the land to be purchased had not been confirmed (described as being “approximately 60,000 square meters”). There was no valuation of the land. There was no feasibility study on the building of a factory on the land. There was no enquiry as to whether building of factory would be approved;

(m)  There is dispute as to when such information had become available to the parties. Mr Lai relies on a document dated 7 August 2002[29] (the “7/8/02 Document”) that was submitted for the incorporation of WDI Technology, where the registered share capital was stated to be USD8 million and the required investment was stated to be USD20 million. That however does not affect the inherent improbability of P1’s evidence suggesting that a binding agreement with the Alleged Agreed Shareholding was agreed upon during the 5/8/02 Meeting despite the absence of the information during that meeting;

(n)  Subsequent documents submitted to the authorities in relation to WDI Technology[30] recorded that Solut was to pay USD6.56 million (82% of the registered share capital of USD8 million), and WDI Plumbing only USD1.44 million (18%). During cross-examination, P1 accepted that he was aware of them. The percentages were at variance with the Alleged Agreed Shareholding. P1 had however raised no question as to the variance. His evidence is that whatever happened, no matter how much Solut would be paying, he did not care, and he together with his son would still be having not less than 40%;

(o)  The alleged use of Solut and WDI Technology as nominees to hold the equities for the WDI Beneficial Shareholders is also an important plank of P1’s evidence. But P1 himself is a foreign national. He has given no reasonable explanations as to why he did not act as the foreign investor himself, but would have to go through the alleged nominee arrangements involving inter alia Solut. He claims[31] that D1 had told him that the nominee arrangements would enable WDI Technology to qualify for favourable terms of land acquisition and tax exemption. He however failed to give specifics when he was questioned about the details of those alleged benefits;

(p)  I find such core aspects of P1’s evidence inherently improbable, if not incredible.

40.  P1’s allegation of forgery in respect of the Joint Venture Agreement, and his evidence that he had never seen it before cross-examination, are clearly lies:

(a)  In the course of his cross-examination, P1 was referred to the Joint Venture Agreement. It was dated 22 August 2002;

(b)  Article 9 of the same states that:

“Capital contributions from [WDI Plumbing] and [Solut] amount to USD 8 million in total, of which [WDI Plumbing] contributes USD 1.44 million by investing mechanical equipment and cash, accounting for 18% of the registered capital, and of which [Solut] contributes USD 6.56 million by investment of spot exchange[32] accounting for 82% of the registered capital.”[33]

(c)  The percentage of contribution was different from the Alleged Agreed Shareholding, which variance can be regarded as being inconsistent with Ps’ case;

(d)  When being cross-examined, initially on the English translation of the same[34], P1 volunteered the evidence that there was no signature on the document, and that he had prepared with him copies of his passport which showed that he was in fact not in China on 22 August 2002;

(e)  His attention was then directed to the Chinese original[35] which does have on it his signature[36]. At that stage, P1 claimed that his signature was a forgery, and that he had never seen the Joint Venture Agreement until that night[37]. In the course of his evidence during that session, he repeated and emphasized a number of times that he had never seen the Joint Venture Agreement until the time Mr Khaw cross-examined him on it;

(f)  His evidence that he had never seen the Joint Venture Agreement until that night is in my view clearly a lie:

(i)  Copies of both the Joint Venture Agreement and the translation were first disclosed by Ps in their List of Documents of 8 February 2017;

(ii)  Ps themselves in their RAR&D at §8.3 refer to it;

(iii)  In MW/WS1 at §48, P1 refers to and produces as attachments the Joint Venture Agreement and the English translation;

(iv)  Ps have never challenged the authenticity of the Joint Venture Agreement before, whether on the face of pleadings or by notice of non-admission;

(v)  Applications had been made in the Mainland in related legal proceedings in his name for verification of that document[38];

(vi)  He clearly would have seen and read it before cross-examination;

(vii)  Further, it is obvious that P1 intended on challenging the authenticity of the Joint Venture Agreement during his testimony. He came prepared with copies of his passport to try to make good the point. He accepted that he became aware of the point some one and a half years ago when he ordered further investigation on the facts of the case;

(viii)  For him to nonetheless claim that he had never seen the Joint Venture Agreement until the time when he was cross-examined on it is entirely unbelievable, and can only be a lie.

41.  P1’s evidence in respect of the fund-flow is self-conflicting and incredible:

(a)  With proof of flow and the beneficial ownership of the funds involved, parties’ percentage contributions can be worked out;

(b)  Fund-flow evidence is in the above sense important in the present case, which can be used to corroborate (or contradict) parties’ respective cases;

(c)  As I have recorded above, Weng’s evidence relates to fund-flow. Amongst other matters:

(i)  She has traced the payments by Solut of the paid-up capital of WDI Technology;

(ii)  The total sum paid was HK$6,560,000, representing 82% of the registered capital of USD8 million at the material time;

(iii)  That sum comprised 3 main sums:

(1)  USD984,000 paid on 22 November 2022;

(2)  8 sums[39] in the total amount of USD2,456,000 paid between 25 December 2003 and 16 December 2004; and

(3)  USD3,120,000 paid on 28 December 2004 (which Weng calls “Payment (10)”);

(iv)  Her evidence is that the capital contribution by Solut in the total sum of USD6,560,000 were all borne and met by Swell, D1’s personal company. USD6,560,000 represented 82% of the registered capital of WDI Technology. On the other hand, the sums of USD800,000 and USD200,000 paid by P1 and P2 had subsequently been repaid to them;

(d)  Weng’s evidence on fund-flow, if accepted, and as submitted by Mr Khaw[40], contradict Ps’ case on the alleged nominee arrangement;

(e)  When cross-examined on the evidence in relation to fund-flow, P1 claimed that he had not read Weng/WS until he testified:

(i)  His evidence originally was contradictory as to when he first read Weng/WS. As one stage, he claimed that when he made MW/WS2, he had the chance to study Weng/WS. Then he claimed that he only read it when he testified. Ultimately, he confirmed in clear terms that he had not read Weng/WS until he testified, and his lawyers had not shown him a copy beforehand;

(ii)  For him to say that he had not seen or read Weng/WS is totally incredible;

(iii)  MW/WS2 was specifically prepared to answer FL/WS2;

(iv)  D1 in his FL/WS2 specifically refers to and places reliance upon Weng/WS;

(v)  It is totally incredible for P1 to now claim that he had not considered Weng/WS;

(vi)  In the course of cross-examination, P1 kept repeating that Weng was only a low ranking account clerk and had no place in giving evidence on such important matters, that there was no business between Swell and WDI Group, and it was D1 controlling everything, that what Weng says in her statement have not been audited, that he does not trust any of them, and that the contents are false and wrong;

(vii)  But then when he was asked as to why he did not approach Tracy Chan, the Chief Financial Officer of WDI group of companies, he then claimed that Tracy Chan worked for D1, and that she would have difficulty giving Ps what they needed;

(viii)  He claimed that he had tried to obtain bank statement from the Headquarters of the Xiamen bank, but was told that they could not, and that D1 would sue them unless they are ordered by a court order to do the same;

(ix)  None of such attempts have been dealt with in his witness statements;

(x)  In my view, P1 tried to deny knowledge of Weng/WS as it contains evidence on fund-flow which he has not explained in MW/WS2, and which has no evidence in reply;

(f)  Specifically in respect of the sum of USD984,000:

(i)  Weng’s evidence is that it was from Swell to D2, and D2 to WDI Technology. She supports her evidence with accounting documents;

(ii)  P1’s allegations in relation to the source of the funds for that sum have been inconsistent;

(iii)  In MW/WS1[41], P1 claims that “seed fund in the sum of US$984,000 provided by Frank acting on behalf of WDI Plumbing on 19 November 2002. Frank however caused it to be made in the name of [Solut]”;

(iv)  The term “seed fund” appears also in §§49.2 and 49.3 of MW/WS1 in respect of the other sums. However, during cross-examination, he said that the term was not his creation, that he did not know where it came from, that he had no idea about its meaning, and it was just a terms used by his lawyers;

(v)  Then, in MW/WS2[42], P1 claims that the source of that sum “should be attributed to WDI Plumbing as such payment was for Frank’s acquisition of additional shares in WDI Plumbing.” Apart from referring again to the concept of “seed fund”[43], no basis has been offered in support of his assertion;

(vi)  Then, when under cross-examination, he gave for the first time the evidence that that sum of USD984,000 was from bonuses that was paid to D1 by WDI Plumbing, and that the money did not come out of D1’s pocket;

(vii)  That answer does not assist P1 at all, as bonuses paid by WDI Plumbing to D1 would presumably become his personal fund, which support Ds’ case that the sum of USD984,000 was in fact funded by D1 personally;

(viii)  In the “Record of Investment From [D2] to WDI Technology”[44] said to have been prepared by Tracy Chan (“Record of Investment”), D1 is stated to be the source of that sum;

(g)  Specifically in respect of the sums of USD2,456,000 and USD3,120,000:

(i)  In Weng/WS[45], Weng says that:

“8. The repayment of Payments (2) to (9) …

(1) On 7^th March 2005, Swell remitted a sum of US$2,867,860.60 to the XIB account no. 9850313000012 of WDI (USA) (i.e. the said Offshore Account). Such remittance was recorded in the Payment Advice of XIB dated 7^th March 2005, a copy of which is exhibited hereto as ‘WYF-2’[46].

(2) Out of the said sum of US$2,867,860.60 paid by Swell to the said Offshore Account[47], the sum of US$2,456,000.00 was the repayment by Swell on behalf of Solut of Payments (2) to (9) in the total sum of US$2,456,000.00 transferred from the said Offshore Account to Solut.

9. Payment (10) – US$3,120,000.00:-

(1) On 22^nd December 2004, Swell remitted a sum of US$3,120,000.00 to the XIB Account No. 9850313000144 of Solut. Such remittance was recorded in the Payment Advice no. 120031 of XIB dated 22^nd December 2004 (see D107).

(2) On 27^th December 2004, Solut paid the sum of US$3,120,000.00 to WDI Technology by cheque. Such payment was recorded in the following documents (see D107) …”

(ii)  Weng concludes that Payments (2) and (9) had been repaid in full by Swell, and that Payment (10) was funded by Swell;

(iii)  P1 claimed that he first knew about payment from Swell when he read Weng/WS, and that he was surprised by it;

(iv)  He claimed that the involvement of Swell had not been authorized by any board resolution, and that the whole idea of using Swell was D1’s idea and was fraudulent;

(v)  But the involvement of Swell was not just mentioned in Weng/WS, but also in D1’s witness statement – see FL/WS1 at §§29(2) and (3)[48];

(vi)  “Schedule 1 (the Flow of Financial Contribution to WDI Technology (as of December 2004))” attached to Ps’ own RAR&D itself makes reference to the involvement of Swell. At the Explanatory Note 6[49] thereof, it is suggested that “WDI (USA) transferred the loaned funds to Swell so that on papers it was Swell who injected the funds into [D2]. Swell was only acting as a funding conduit for WDI Plumbing”;

(vii)  There is no document in support of those assertions by Ps;

(viii)  At paragraph 5(1) of MW/WS2[50], P1 says that:

“I note that Frank is trying to allege that the said offshore account of WDI (USA) actually contains certain proceeds and funds from WDI Technology. The truth of the matter, as I have repeatedly stated in the pleadings and as deposed hereinbelow, the payment of US$2,456,000 by WDI (USA) in tranches to Solut (HK) was actually made on behalf of WDI Plumbing:-

a. Larry and I remitted the loan principal to WDI (USA) pursuant to the Loan Agreement, and it was unknown how Ben Yu and Frank made up their portions.

b. WDI (USA) then remitted the funds originated from the shareholder’s loan to Swell, which was controlled by Frank.

c. Swell then remitted the funds in the total of US$3,120,000 to Solut (HK), which then injected the loaned funds into WDI Technology as nominee of the WDI Group.”

(ix)  When those paragraphs were put to him, he said that “I don’t agree with this at all.” He even said that those statements (which are in his own witness statement) were “incorrect and fraudulent”. He then repeated again his objection as to the lack of any board approval in respect of the involvement of Swell, and that the whole idea of Swell’s involvement was fraudulent. He maintained that an audit should be carried out, and if one had been, it would show that Ds’ case was misleading or fraudulent;

(x)  None however had been carried out;

(h)  In the Record of Investment said to have been prepared by Tracy Chan:

(i)  in respect of Payments (2) to (9), there was no reference that they were from WDI Plumbing until P1 made on it his handwritten notes;

(ii)  the source of the sum of USD3,120,000 (Payment (10)) is said to be “Si Wei International”. When first asked about that name, P1 said that he knew that that was the Chinese name of Swell. Subsequently in the course of further cross-examination, he retracted that answer and claimed that he did not know that;

(iii)  He agreed with the suggestion put to him that he put in all those handwriting notes on the Record of Investment as self-serving statements to support his claim.

(i)  It is convenient to deal with here Mr Lai’s submissions at §66 of his written closing. He submits that it “is irrelevant for Frank to assert that Swell had subsequently repaid the relevant sum to the Offshore Account”, and that “[even] if Frank subsequently did repay the sum back to the Offshore Account, this could not re-write the agreement among the parties”. I do not accept this submissions of Mr Lai’s. The repayment of Payments (2) to (9) is relevant, and is inconsistent with Ps’ case that the capitalization of WDI Technology was to be funded by the profits of the WDI Group. I also do not accept Mr Lai’s submissions[51] based on the maximum outstanding due between Swell and WDI International (USA), that there “were significant doubts” about the purpose of the payment of the sum of USD2,867,860.60. Weng’s evidence was that there was another voucher which WYF-2 should be read together with, and that she had not produced the other one because it was prepared for the purpose of adjustment, but not for the official fund-flow. Her evidence has not been contradicted;

(j)  P1’s evidence in relation to the capitalization of WDI Technology is self-conflicting, and is utterly incredible when he (1) he disowned part of his statements as being “incorrect and fraudulent”, (2) sought to brush aside Weng’s evidence by claiming that he had not seen her statement before, and (3) when he disclaimed prior knowledge of the involvement of Swell. His evidence is not supported by accounting documents, and is at variance with the fund-flow demonstrated by the accounting documents produced by Weng.

42.  Absence of any demand by P1 for transfer of equities:

(a)  Ps’ pleaded case is that on the date for completion of the setup of the Haicang Factory, D1 would procure D2 to transfer the equity in the WDI Technology to the WDI Beneficial Shareholders in accordance with the Alleged Agreed Shareholding. In MW/WS1[52], he claims that “Frank told us that … the legal ownership of the Joint Venture Company would be corrected to reflect the ownership interests in the WDI Beneficial Shareholders in the WDI Group once the new factory in the Haicang Industrial Zone was completed”;

(b)  The Haicang Factory was completed in late 2004 or early 2005;

(c)  There was however no record of any demand from the date of completion till 2011. The oral demands alleged by P1 in the course of cross-examination do not appear in his witness statements;

(d)  The absence of any recorded demand for such a prolonged period is in my view incredible had the Alleged Shareholders’ Agreement existed.

43.  When considering P1’s credibility, I have also considered the documents relied upon by Mr Lai, the main ones being as follows. For the reasons set out below, I find that P1’s evidence is not corroborated by contemporaneous documents and events:

(a)  First and foremost, it is the 5/8/02 Minutes:

(i)  I have covered above some of the problems in relation to that document;

(ii)  It does not contain the entire Alleged Shareholders’ Agreement as pleaded;

(iii)  The intended investment from D1 of USD1.5 million was stated to be an approximate figure. Apart from that sum, there is no reference of any injection by anybody else (compare with §8(5) of the ASOC). Available information during the 5/8/02 Meeting was in fact very limited;

(iv)  It does not say that the shareholders’ equity-holding would be divorced from the amount of actual capital contribution. It rather says that “The shareholders percentage structure will be adjusted …”;

(v)  The alleged nominee arrangement is not expressly spelt out;

(vi)  The concept of WDI Group was not discussed during the meeting. The membership of WDI Group was not spelt out. Two of the companies now said to be part of WDI Group had not even been formed. I do not accept Mr Lai submissions that the term WDI used in 5/8/02 Minutes could only have meant “WDI Group”;

(vii)  Mr Lai submits that it was intended that there shall be a split between legal and beneficial shareholdings in the WDI Group of companies. He relies on the following words in the 5/8/02 Minutes, that “the legal company documents is just for getting favourable land price and any preferential tax policies” (§3), and that “The company documents will be shown that …” (§2). In my view, those words are far removed from any proof or indication of the nominee arrangement. It is particular so when the concept of WDI Group as a group was not discussed during the meeting, and the unexplained feature as to why P1 or P2 could not have been the foreign investor to establish the joint venture enterprise, and that a nominee should be used;

(viii)  The contents of 5/8/02 Minutes are in my view inconsistent with Ps’ case that the “parts of the Terms that were agreed orally were agreed during the WDI Group’s Board of Directors meeting on 5 August 2002”.

(b)  The List of Affiliates:

(i)  The List of Affiliates is one of the 5 Documents;

(ii)  It is undated;

(iii)  Yet, in his oral evidence, P1 said that he had never seen it before the time when he was cross-examined on it;

(c)  The Letter of Confirmation:

(i)  This is another of the 5 Documents;

(ii)  P1’s evidence in relation to the Letter of Confirmation is self-contradictory and inherently improbable;

(iii)  In MW/WS1[53], he describes the circumstances leading to the execution of the Letter of Confirmation as follows:

“In or about November 2004 I had a meeting with Frank in Xiamen, the PRC (the “Nov 2004 Meeting”). At the Nov 2004 Meeting, Frank told me that WDI Technology required an additional capital of approximately US$3 million. I had no problem with further capital being put into WDI Technology. However, I had concerns that my shares and Larry’s shares in WDI Technology and/or the WDI Group may be diluted in the process by Frank. I therefore insisted that Frank must sign a letter confirming that the percentage in total net equity in the WDI Group of Frank, me, Larry and Ben Yu would be in accordance with the Agreed Shareholding.”

(iv)  During cross-examination, it was suggested to P1 that if the Alleged Shareholders’ Agreement had been agreed upon so that the percentage shareholding would be divorced from the actual contributions, there would have been nothing for him to be concerned about. In response, P1 gave a long answer about his version on how D1 had constantly been making threat that unless his percentage shareholding in WDI Plumbing be permitted to be increased, he would withdraw some production lines, in which case the interest of the company would be affected, and that ultimately, he (P1) agreed to give up 10%, so that D1 could go up to 42%. None of those however appears in his witness statements;

(v)  P1 accepted that the Letter of Confirmation was prepared upon his instructions, which he “insisted that Frank must sign”. It should also be noted that his and P2’s percentage equity-holding stated therein were stated to be “30%” and “10%” respectively, but not “not below” those percentages, as it is alleged to have agreed;

(vi)  He accepted that at that time when that Letter of Confirmation was signed, WDI Group had not been formed into a legal entity, and that that term was only used loosely and casually;

(vii)  Despite that above, he repeated the alleged agreement that his and P2’s equity shareholding would be independent of the amount of actual contributions, which I find inherently improbable;

(viii)  I accept Mr Khaw’s submissions that the Letter of Confirmation was self-serving;

(ix)  I note that D1 has signed the same. But the circumstances in which he says he signed it are very different, which circumstances I will come to.

(d)  The Loan Agreement:

(i)  It is another of the 5 Documents;

(ii)  On the face of the Loan Agreement, there is a table which sets out the amounts of loan which Ps, D1 and Ben Yu (together with his wife) had each actually made (“Loan Actual”), the amount of the loans which each of them should respectively make according to the stated proportion (“Proportion”[54], and “Loan Quota”), and the differences in relation to each of them (“Variance”);

(iii)  The recording of Loan Actual, Loan Quota and Variance suggests that Ps, D1 and Ben Yu were expected to make loans in proportion to the Proportion;

(iv)  That table also shows that D1 had made loan beyond the Loan Quota;

(v)  To explain the amount of loans D1 had made, P1 in MW/WS1[55] claims that “At that time, Frank personally owed me money and therefore, he agreed with me that he should contribute more than his loan quota”;

(vi)  No particulars of that alleged agreement have been offered. Further, when that sentence in MW/WS1 was put to him during cross-examination, he answered “incorrect”, and said twice that “I don’t recall Frank Li owing me money”;

(vii)  I do not accept Mr Lai’s submission that the recording of Loan Quota in the Loan Agreement was “neutral in the sense that it was not mandatory in nature”[56]. That submission further does not address the more fundamental query as to why Loan Quota, Loan Actual and Variance are recorded if parties’ equity shareholdings were to be independent of their contributions;

(e)  The Evaluation Report:

(i)  This is another of the 5 Documents;

(ii)  It was prepared by Pan-China (Xiamen) Consulting Corp. in May 2007. Their instructions were to “carry out an evaluation of WDI Group and [Swell]”[57]. That was done for the purpose of the then intended listing;

(iii)  However, therein, “WDI Group” remained described as a “fictional group of enterprises”[58], and that the listing never took place;

(iv)  Mr Khaw submits[59] that the Evaluation Report is against Ps’ case as it shows[60], according to the “Evaluation Results after Taking Value Increase of the Land into Consideration” set out therein, that Ps’ share would be reduced to only 15%[61]. It also excludes DaChun from the fictional group;

(v)  P1 disagreed with the contents of that report. He had instructed another entity to carry out another evaluation[62]. No such other report has however been produced;

(vi)  Mr Lai refers and relies on the following part of the Evaluation Report[63], that:

“According to the actual shareholders’ agreement among shareholders of WDI and Swell International, percentages of shares respectively held by shareholders are as follows:

The percentages of shares held respectively by shareholders of WDI are 42% for Frank Li,18% for Ben Yu, 30% for Melvin Waxman, 10% for Larry Waxman.”

(vii)  The mere reference of the Alleged Agreed Shareholding however in my view does not evident the existence of the Alleged Shareholders’ Agreement, or P1’s evidence and insistence that parties’ equity shareholdings was to be independent of the actual contributions. Such mere reference adds little to the 5/8/02 Minutes;

(viii)  Further, the parts of the Evaluation Report which follows the sentences cited by Mr Lai, should also be considered, which refer to certain “stipulations in Shareholders’ Agreement of WDI (to be specified)”, certain adjustments to the percentage shareholding as a result, and the Evaluation Results mentioned above (which are different from the Alleged Agreed Shareholding);

(ix)  In the absence of further explanations on the contents of the Evaluation Report, and on the evidence before me, I accept Mr Khaw’s submissions that the Evaluation Report is actually inconsistent with P1’s evidence and against his case;

(f)  The “Investment Certificate and share structure confirmation”[64] (the “Investment Certificate”):

(i)  That Investment Certificate[65] has not been formally discovered and produced. It is not one of the 5 Documents. It was first referred to by and attached to a letter dated 31 March 2020 from Ps solicitors to Ds’. It was said therein to be relevant, and proposed be included in the trial bundle. It had not, whether before or after that letter, been covered by any list of documents;

(ii)  On the 5^th day of the trial, the admissibility of that document was first raised with this court. Mr Khaw objected to its inclusion, but agreed to deal with it on a de bene esse basis;

(iii)  In his written reply[66], Mr Khaw reiterates his complaints, that the document was produced late, without proper disclosure, got included in the trial bundle on the pretext that it was attached to a letter between solicitors, that such late productions is unfair, and that Ds’ witnesses have been deprived of a proper chance to respond to it in their statements. He submits that whist Ds have agreed to have the document considered on a de bene esse basis, it is necessary to bear in mind the context in which the document found its way into the trial bundles;

(iv)  The Investment Certificate contains a lot of figures. But due to the late disclosure, there is no evidence amongst the witness statement which go to explain them;

(v)  On the other hand, as Mr Khaw has submitted[67], the combined total asset value of “WDI Plumbing, WDI [International] (HK) and WDI [International] (USA))” stated therein was only USD3,748,251, which was insufficient to pay the USD8 million registered capital required for WDI Technology, which contradicts P1’s evidence and case that he and P2 had contributed through WDI Plumbing;

(vi)  In my view, the reference in the Investment Certificate to the Alleged Agreed Shareholding, and in particular when considered in the light of all evidence as and other documents as discussed above, is at best equivocal as to the existence of the Alleged Shareholders’ Agreement;

(vii)  Having considered the evidence and the circumstances in which the same was produced, I have decided to allow production of the Investment Certificate, but conclude that it does not take Ps’ case far;

(g)  The Board Resolution dated 18 November 2008 of WDI Technology[68]:

(i)  That Resolution approved the capital change mentioned in §10(f) above;

(ii)  I note that the Alleged Shareholders’ Agreement was not reflected in the contents of the Resolution;

(iii)  I note also P1’s oral evidence, that when cross-examined on the discussions in November 2008 leading to that Resolution, P1 gave the following answer:

“Q. So you agree that according to what was discussed in November 2008, the shareholding of the shareholders of WDI Technology would be adjusted according to their respective contributions, correct?

A. Correct.”

(iv)  I note also the absence of any recorded demand therein for any transfer of equities despite the fact that the Haicang Factory had been completed nearly 4 years ago;

(v)  I accept Mr Khaw’s submissions that that is incredible if the Alleged Shareholders’ Agreement in fact existed;

(h)  Distribution of dividends in 2009 and 2010, and the related emails[69]:

(i)  Mr Lai submits[70] that dividends of the WDI Group were distributed according to the Alleged Agreed Shareholding for the financial years of 2008 and 2009. He relies on the related emails;

(ii)  However, in the course of cross-examination, P1 accepted that those dividends were based on Ps’ 40% ownership in WDI International (HK). In particular, when he was asked as to whether “dividends at that time were paid out on the basis of the 40 per cent of your shareholding and also Larry’s shareholding because that was your shareholding in WDI Hong Kong”, his answer was “correct”.

44.  I have also carefully observed P1’s demeanor as a witness. He failed to give direct answers. He from time to time engaged in monologues, saying whatever he had prepared and wanted to say irrespective of the questions. Whenever faced with questions which he was not able to answer, he simply kept asking the questions to be repeated, and attacked the questions as being irrelevant. He was both evasive and belligerent as a witness.

45.  Mr Lai sets outs some “General Observations about the Witnesses” in Annex I to his written closing. He deals with P1 in three short paragraphs. He submits that he is “an honest and straightforward witness”, and submits that his evidence is “overwhelmingly more consistent with contemporaneous documents and events”. For the reasons set out above, I reject those submissions.

46.  I have considered whether the lapse of time may have anything to do with the quality of P1’s evidence. But given the analysis above, and in particular the inherent improbabilities involved and the clear lies which I find P1 has made, lapse of time could not have been a material factor.

47.  In conclusion, I find P1 not to be an honest or reliable witness. I find that he is prepared to say and deny anything that suits him, irrespectively of the truth or otherwise of the same. His evidence is further not corroborated by contemporaneous conducts and documents.

F.3.  P2’s credibility

48.  As I have recorded above, P2 has given one witness statement.

49.  The contents of P2’s only statement, comprising 30 pages and 87 paragraphs, are materially identical with those of MW/WS1. In most paragraphs, they are word for word the same. In some cases, they contain even the same typographic errors. Most of the differences between the two statements involve changes from words like “Larry and I” as appear in MW/WS1 to “Melvin and I” in LW/WS”.

50.  As Mr Khaw has pointed out, even in respect of those events where P2 was not present, notably the 5/8/02 Meeting, the contents of the statement are still materially the same.

51.  I have pointed out above that, in the context of the Loan Agreement, in order to explain the amount of loans D1 had made, P1 in MW/WS1[71] claims that “At that time, Frank personally owed me money and therefore, he agreed with me that he should contribute more than his loan quota”.

52.  In LW/WS at §47, in the same context, the exact sentence appears. On the face of those statements, one cannot tell whether that was the result of copy and paste, or whether D1 was alleged to have personally owed both P1 and P2 money, and that he agreed with both of them to contribute more.

53.  P2 was cross-examined on that. He said he could not recall how much D1 allegedly owed him, and that as his witness statement did not say, he could not recall. He said that he stood by his statement. When he was further asked as to whether he had checked the truth or otherwise of what he stated there before giving his statement, he gave the most evasive answer that “I may have checked, I cannot recall if I checked”.

54.  In the context of the Letter of Confirmation, his evidence, according to §24 of LW/WS[72], is (except the change from “me” to “Melvin” and vice versa) identical to that of his father’s, that “I therefore insisted that Frank must sign a letter confirming that the percentage in total net equity in the WDI Group of Frank, Melvin, me and Ben Yu would be in accordance with the Agreed Shareholding.” Yet, during cross-examination, when initially asked whether he had so insisted, he said that was not his recollection, and that it was not his style of doing business to demand. But then, when he was shown his statement, he changed his evidence and said that “I would agree we insisted, yes.”

55.  In the context of the fund-flow evidence, I have mentioned above P1’s evidence in §§49.1, 49.2 and 49.3 of MW/WS1 about “seed fund”, and that during cross-examination, P1 in effect disowned that term, saying that he did not know where it came from, that he had no idea about its meaning, and that it was just a term used by his lawyers. Yet, at §45 of LW/WS[73], P2 recited word for word §§49.1, 49.2 and 49.3 of MW/WS1 as what he had been told by P1. P1 and P2 cannot both be telling the truth.

56.  His evidence as to whether he had queried D1 as to whether he or P1 could be the foreign investor for the establishment of the joint venture is also most evasive, and does not appear in this witness statement.

57.  In Au Yeung Pui Chun v Cheng Wing Sang [2021] HKCFI 463, large parts of the statements of two of the witnesses called by the plaintiff were identical. G Lam J (as he then was) remarked that feature as being “striking”. His Lordship in §§31 to 34 of the judgment cited a number of authorities, both local and from other jurisdictions, which deprecated that practice. Such degree of similarity between the statements or affidavits of 2 witnesses substantially devalues the weight to be given to either, to the point that neither can be treated as reflecting a genuine individual recollection of events as distinct from a collective reconstruction of them – see In the matter of Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789, per Black J at §18.

58.  I have considered Chan Chung Yee v Chan Wah Cho Joe [2018] HKCFI 611 which Mr Lai has cited to me. At §37, whilst Deputy Judge A To did suggest that the assertions in witness statements are expected to be corroborative of the calling party’s evidence and similar to the same, the learned Deputy Judge also observed that “[w]hether a witness statement is the product of copy and paste from another witness’ statement is easy to tell.” In the present case, LW/WS is clearly the product of copy and paste.

59.  In the present case, given the material identity between the contents of MW/WS1 and LW/WS, I find that P2 is prepared to adopt as his evidence whatever appear in MW/WS1, irrespective of their truth (or otherwise), and irrespective of whether he has any personal knowledge of the same. He is also evasive as a witness. I find that he is not an honest and reliable witness who gives evidence according to his independent recollection and documents available to him, but is prepared to say whatever (in MW/WS1 or otherwise) to assist P1’s and his case. I am unable to attach any weight to his evidence.

F.4.  Weng’s credibility

60.  I have outlined above Weng’s evidence on fund-flow. She has produced the relevant account documents in support.

61.  I repeat my discussion above[74] in relation to the existence of another voucher which WYF-2 should be read together with, and that she had not produced the other one because it was prepared for the purpose of adjustment, but not for the official fund-flow. Her evidence has not been contradicted. I accept the same.

62.  Mr Lai criticizes Weng’s evidence as being “second-hand”[75]. In my view, her evidence is based on and supported by the accounting documents she has produced. There is no contrary evidence adduced by Ps. Her evidence is reliable.

63.  I find her to be both an honest and reliable witness.

F.5.  D1’s credibility

64.  I find that D1 is forthcoming as a witness. He is forthcoming as a witness, and his evidence straight-forward.

65.  In respect of the 5/8/02 Meeting and the 5/8/02 Minutes, given the lack of material information at that time, I find that his evidence that the discussions were preliminary in nature inherently credible. He also says[76] that the shareholders percentage had not been fixed and agreed, and that while Ps wanted to have at least 40% and Ben Yu at least 18%, “it goes without saying that [P1] and [P2] … and Ben Yu would have to make the proportionate amount of capital contributions for them to attain the desired shareholding percentage.” I find that that accords with commercial sense, inherent probable, and credible.

66.  D1 says[77] that “shortly before 22^nd August 2002”, he discussed about the size of the capital and investment required to set out WDI Technology. Mr Lai criticized that evidence as being “incredible and false” given the existence of the 7/8/02 Document. The alleged discrepancy in time is not substantial, and is in my view not material.

67.  His evidence is consistent with the contents of the Joint Venture Agreement, which P1 has tried to brush aside as being a forgery (which attempt, as I have found above, is clearly a lie).

68.  Mr Lai submits that D1’s evidence that any Alleged Shareholders’ Agreement would in any event have been superseded is contradicted by the Investment Certificate. I am unable to accept that submission. I have set out my observations on that document, which I repeat.

69.  D1’s evidence and versions of evidence are supported by the fund-flow evidence in relation to the capitalization of WDI Technology between 22 November 2002 and 28 December 2004 – see the table at §28 of FL/WS1, the table at §5 of Weng/WS, and Weng’s evidence on fund-flow.

70.  D1’s evidence in relation to the execution of the Letter of Confirmation, the Loan Agreement and the related receipts is covered in section G1. of FL/WS1. In gist, D says that by December 2004, WDI Technology remained short of funds. He could not afford them all. They had a meeting around that time. Ps said that they could provide funds of around USD1 million, but only by way of loans. They further took advantage of the situation, revived what was discussed in early August 2002, and indicated that they would like to have 40% in WDI Plumbing. Ben Yu went along and indicated that he would like 18%. They insisted that if D1 required them to provide further funding, he should sign a letter confirming that Proportion. D1 indicated that he had no objection to signing that confirmation, provided that Ps and Ben Yu were obliged to make up the shortfalls in according with the Proportion, and that they would further in the future provide share capital and loans as required in that Proportion. That has been referred to as the December 2004 Oral Agreement. Those where the circumstances in which the Letter of Confirmation and Loan Agreement were signed.

71.  I find D1’s version in relation to the December 2004 Oral Agreement supported by the contents of the Loan Agreement, and in particular the records therein of the Loan Actual, Proportion, Loan Quota and Variance.

72.  Mr Lai submits that D1’s evidence in the above regard should be dismissed. He points to Swell’s accounts suggesting that its financial position at that time was robust. D1’s overall financial position was far from clear. I do not find D1’s evidence that he could only afford USD2.22 million incredible. Mr Lai further submits that it was not credible that the terms of the December 2004 Oral Agreement were not reduced to writing, and that their existence was contradicted by the terms of the Investment Certificate and the Loan Agreement. I do not accept those submissions. I in particular repeat my observations made in the paragraph immediately above.

73.  Having considered all the evidence, I find D1 to be an honest and reliable witness, and that I am able to rely on his evidence.

F.6.  Conclusion on credibility

74.  For the above reasons, I find that P1 and P2 are neither honest nor reliable witnesses.

75.  I on the other find that D1 and Weng honest and reliable witnesses. In respect of any differences, I accept their evidence over those of Ps’.

G.  Issue#1

76.  I have set out above Ps’ pleaded case in relation to the Alleged Shareholders’ Agreement. I accept Mr Khaw’s submissions that Ps’ pleaded case is that the entirety of the Alleged Shareholders’ Agreement was reached and agreed during the 5/8/02 Meeting, and that the onus is on Ps to prove their case as pleaded to the requisite standard.

77.  I have found Ps not to be honest and reliable witnesses. I do not accept their account of events in relation to the 5/8/02 Meeting. I find their case in relation to the Alleged Shareholders’ Agreement against common and commercial sense, and is inherently most improbable. Their case is also contradicted by the fund-flow evidence, and is not corroborated by the documents they seek to rely upon.

78.  On the other hand, I have found D1 to be an honest and reliable witness. I accept his evidence that the discussions that took place during the 5/8/02 Meeting were preliminary in nature. I accept his evidence that “it goes without saying that [P1] and [P2] … and Ben Yu would have to make the proportionate amount of capital contributions for them to attain the desired shareholding percentage.” I accept his evidence that no agreement in the form of the Alleged Shareholders’ Agreement was reached during the 5/8/02 Meeting.

79.  I answer Issue#1 in the negative.

80.  The above conclusion is sufficient to dispose of Ps’ claim herein. Out of deference to submissions made, I consider as appropriate some of the other issues, and give brief reasons for my views on them.

H.  Issue#2

81.  The following discussion is premised upon the assumption that the Alleged Shareholders’ Agreement as pleaded existed.

82.  In deciding the applicable law, the common law rule is that the law applicable to a contract is the system of law by which the parties intended the contract to be governed, or, where their intention is neither expressed nor to be inferred from the circumstances, the system of law with which the transaction has its closest and most real connection – First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569 §53.

83.  It is common ground that there was no express agreement between the parties on the applicable law. Nor had their intention in that regard been expressly evinced.

84.  The question then boils down to their inferred intention, or which system of law that the Alleged Shareholders’ Agreement had its closest and most real connection.

85.  In December 2012, Ds filed a summons for an order that these proceedings been stayed in favour of the Xiamen courts on the principles of forum non conveniens. Having heard parties, A To J on 19 July 2013 dismissed the application[78]. At §49 of the Decision, His Lordship expressed the view that the applicable law is Hong Kong law, on the principal basis that trust is not a concept recognized by Mainland law, so that the Alleged Shareholders’ Agreement “must have a closer connection with Hong Kong law which supports its existence rather than PRC law which calls for its abortion.”

86.  I accept Mr Lai’s submissions[79] that when considering the inferred intention of the parties of the issue of “closest and most real connection”, one relevant consideration is the assumption that parties did not enter into an agreement with a system of governing law which rendered the contract bad – see N V Handel My J Smits Import-Export v English Exporters (London) Ltd [1955] 2 Lloyd’s Rep 317 at 323-324, per Singleton LJ, and Coast Lines Ltd v Hudig & Veder Chartering N V [1972] 2 QB 34 at 44E-G, per Lord Denning MR.

87.  When dismissing Ds’ appeal against the decision of A To J[80], the Yuen J observed at §§26.1 to 26.3 that:

“26.1. The same point applies to Solut’s submission that the judge placed too much weight on the parties’ inferred intention that the Shareholders’ Agreement should be governed by a law under which it would effective, rather than a law with which (on Solut's contention) the matter had the closest connection.

26.2. First, as was set out by Lord Collins in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569, the first stage of the court's enquiry must be what was the intention of the parties. Absent an express intention, often the tests of inferred intention and close connection merge into each other (para. 53).

26.3. Then the question is whether PRC law is the law with which the agreement has the closest connection. In my view, it must be remembered that the Shareholders Agreement covered companies in the PRC, the US and Hong Kong. Therefore when one is considering the inferred intention of the parties or the jurisdiction with which the Shareholders Agreement has the closest connection, one should not confuse that with the place of performance of part of that agreement (the PRC). First Laser was quite different. The agreement in that case only covered PRC-incorporated companies.”

88.  I would not accept Mr Khaw’s submissions[81] that taking the above-identified considerations into account involves reference to “one party’s subjective, ex post facto case theory on how the contract should work and operate”, or any pre-supposition that the Alleged Shareholders’ Agreement is valid and subsisting. If I had concluded that the Alleged Shareholders’ Agreement had been reached, I would be inclined towards the view that both parties would have intended to be bound, and would have intended it to have legal effects.

89.  If necessary, I would have concluded that Hong Kong law would be the governing law.

I.  Issues#3a and 3b

90.  These Issues are no longer engaged, as I have answered Issue#1 in the negative, and have in addition concluded in relation to Issue#2 that I would have concluded if necessary that Hong Kong law would apply.

91.  On Issues#3a and 3b, I simply express the following views.

92.  As recorded above, Mr Lai has accepted that if Mainland law is to apply, he would not pursue the trust claim. Issue#3a is no longer relevant.

93.  In so far as Issue#3b is concerned:

(a)  The main differences between Prof Lin and Prof Xiao relate to the meaning of “joint venture agreement” (合營企業協議), “joint venture contract” (合營企業合同) and “joint venture articles of association” (合營企業章程) (see Article 3 of the 《中華人民共和國中外合資經營企業法》(2001年修訂) (the “Joint Venture Law”) and Article 10 of 《中華人民共和國中外合資經營企業法實施條例》(2001年修訂) (the “Implementation Rules”)), and whether the 5/8/02 Minutes was caught thereby, so that it was required to be submitted for approval before taking effect;

(b)  In gist, Prof Lin’s opinion is that to be within the definitions of “joint venture agreement”, “joint venture contract” or “joint venture articles of association”, the document has to be one between joint venture parties. In the context of the Alleged Shareholders’ Agreement, his opinion was that[82]:

“i. The Shareholders’ Agreement is an agreement between the [Ps], [D1] and [Ben] Yu. The signing of the Shareholders’ Agreement itself is one step before the signing of the joint venture agreement. It is not an activity of the two related equity joint venture companies, i.e., WDI Plumbing and WDI Technology.

ii. Because the Shareholders’ Agreement is an agreement between the shareholders which is one step before the conclusion of the relevant joint venture agreement(s), it does not fall into any categories of documents as listed under Article 3 of Equity Joint Venture Law and therefore not subject to examination and approval by the relevant authorities.”

(c)  I find that construction too narrow, and would defeat the purposes of having the approval system. I accept Prof Xiao’s opinion in this regard. He explained in court in the course of cross-examination as follows:

“Q. Now, turning back to bundle F, page 6061, article 3. Do you accept that article 3 only provides that those joint venture contracts signed by the parties to the joint venture agreement would require approval?

A. Well, concerning the provision of this article, one cannot understand it mechanically just by looking at the words. You cannot say that only the joint venture agreement and contract signed by the parties to the joint venture required approval. So you cannot say that for those joint venture contracts and agreements which are not signed by parties to the joint venture do not require approval. So here we have to interpret it -- interpret it according to the purpose and intention of the law making here. Well, the law of the Sino-foreign investment, well, is for the purpose of governing the Sino-foreign investment, and also it is for the governing of such type of -- such type of business in law. So the target of such law is for such type of business. It is not for a specific person. Well, if you -- if you say the joint venture contract which is signed by the parties to the joint venture contract required approval, and if you say that those joint venture contracts and agreements which are not signed by the parties to the joint venture then no approval is required, then it would then make the regulation -- sorry -- that will make the requirement of the law then to not serve the purpose. Well, if a joint venture contract and agreement which is not signed by the parties to the joint venture, if such type of contract can take effect without having got approval, then the national laws would be -- could be evaded very easily. Well, the people who are not parties to the joint venture then can sign the joint venture agreement, but such -- but such contract and agreement without having got approval will not take effect. Well, such a contract is only an expression of the intention of the parties. It is a record of such an expression. If they wish it to take legal effect they must change it to be a joint venture contract or agreement signed by the parties to the joint venture...

A. ...and submit that to the government authority concerned for their approval.

(d)  In §4.29 of his report[83], Prof Xiao expresses the opinion that as the 5/8/02 Minutes did not satisfy the requirements set out in the Joint Venture Law and Implementation Rules, it had not taken effect;

(e)  Prof Xiao’s view that the 5/8/02 Minutes was required by law to be submitted for approval is consistent with the views of the Xiamen Intermediate People’s Court expressed in the Judgment on the related proceedings between Ps and D1 in the Mainland;

(f)  I would if necessary accept Prof Xiao’s opinion as summarized above, and would so find;

(g)  On the Mainland law as I would find, I would if necessary dismiss Ps’ contractual claim based on Mainland law.

J.  Issue#4

94.  I have answered Issue#1 in the negative. The facts do not give rise to the Alleged Shareholders’ Agreement as pleaded.

95.  As I have summarized above, Ps’ trust claim is made upon the same factual basis upon which their contractual claim is based. The facts as I have found do not give rise to any trust or fiduciary duty as alleged.

96.  The relief sought by Ps is not justified.

97.  I answer Issue#4 in the negative.

K.  Issue#5a, Issue#5b, Issue#5c, Issue#6 and Issue#8

98.  As I have recorded above, Issue#5c is no longer being pursued.

99.  The December 2004 Oral Agreement and the 18/11/2008 Agreement are not being sued on. They are raised as part of the alternative defence that any Alleged Shareholders’ Agreement had been superseded thereby. In the light of my conclusion on the Alleged Shareholders’ Agreement, Issues#5a and Issue#5b no longer call for any ruling.

100.  In respect of those Issues, I say only this. I have found D1 and Weng to be honest and reliable witnesses. I would if necessary accept D1’s evidence on those two subsequent agreements. I repeat also my observations made above that D1’s version of events in relation to the December 2004 Oral Agreement is supported by the contents of the Loan Agreement, and in particular the records therein of the Loan Actual, Proportion, Loan Quota and Variance.

L.  Issue#7

101.  The answer is in the negative.

M.  Overall disposition

102.  For the above reasons, I dismiss Ps’ claim.

103.  As I have recorded above, that leave has been granted to Ds to discontinue the Counterclaim. No further order is called for.

O.  Costs

104.  The costs order should reflect the fact that Ds have discontinued their Counterclaim. Rather than dealing with the costs of the Claim and the Counterclaim separately, I make simply a cost order nisi that Ps shall bear 90% of the costs of the action, with certificate for 2 counsel, to be taxed if not agreed. Any application for variation should be made by letter within 21 days from the date of hand-down, upon receipt of which this Court will give further written directions, with the view of dealing with the application on the papers.