KU MING FONG KATHERINE AND OTHERS v. CHU CHIA CHIN CHARLES

HCA 1757/2018

[2024] HKCFI 2309

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1757 OF 2018

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J U D G M E N T

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A.  INTRODUCTION

1.  In this trial, the plaintiffs ask the court to find a trust, based on an alleged conversation in 1995, which was only mentioned by the 4^th plaintiff for the first time in 2017 (ie 22 years after the alleged conversation).  Before 2017, not even the alleged beneficiaries had been told about this trust. 

2.  This is the trial only of issues on liability.

B.  RELEVANT FACTUAL BACKGROUND

B1.  The parties

3.  The defendant is a solicitor admitted in March 1983.  He set up his own firm in the name of “Charles Chu & Co Solicitors” in December 1989 and has practiced in the same firm to date. 

4.  He is the father of Chu Kah Yin Natalie, Chu Kah Ming Katherine and Chu Anson (“Chu Children”) and the grandfather of three grandchildren. 

5.  The 1^st plaintiff is the ex-wife of the defendant.  The 1^st plaintiff and the defendant married each other in late 1983 and formally divorced in early 1995. 

(1)  The 1^st plaintiff has two children (“Leung Children”) with one Mr Leung Lai Yuen (“Mr Leung”) prior to her marriage with the defendant.  They are the 2^nd plaintiff and the 3^rd plaintiff, who have resided with Mr Leung in Canada since (according to the 2^nd plaintiff) 1985 and 1989 respectively. 

(2)  The 1^st plaintiff also has three children with the defendant (ie the Chu Children).

6.  The 4^th plaintiff is the brother of the 1^st plaintiff.  He is also the founder of the “Nam Tai” group of companies (“Nam Tai Group”), which was listed under one Nam Tai Electronics Inc (“Nam Tai”).  In this connection:

(1)  The 4^th plaintiff was the Executive Chairman of the Board of Directors of Nam Tai at all material times.

(2)  The defendant was an Executive Vice President of Nam Tai from June 1987 to June 1988, and was an Independent Non-Executive Director of Nam Tai from December 1992 to June 2017.

B2.  Background as to how the defendant acquired the Lully Shares

7.  On 17 October 1983, the defendant married the 1^st plaintiff in Honolulu.  At the time of their marriage, the 2^nd plaintiff and the 3^rd plaintiff were 8 and 6 years old respectively. 

8.  Whilst the Leung Children initially resided with the defendant and the 1^st plaintiff, according to the 2^nd plaintiff, the 2^nd plaintiff and the 3^rd plaintiff moved to Canada to reside with Mr Leung in 1985 and 1989 respectively.  It is undisputed that since then, Mr Leung had resumed care and control of the Leung Children, and had been supporting them financially. 

9.  In April 1986, the defendant became a partner of Messrs Y T Chan & Co Solicitors, working as a conveyancing lawyer when the conveyancing practice was robust.

10.  Even before the defendant was formally invited to join Nam Tai by the 4^th plaintiff in 1987, the defendant had assisted the 4^th plaintiff and/or Nam Tai on various matters as one of their legal advisors and participated in negotiations that the 4^th plaintiff and/or Nam Tai had with their business counterparts, due to his general legal expertise as well as his English proficiency.

11.  Whilst the 4^th plaintiff disputes the above, the 4^th plaintiff accepts that the defendant did accompany the 4^th plaintiff to Washington to attend an inquiry into Nam Tai’s trading practice by the United States International Trade Commission, and had sought the defendant’s legal advice in respect of a traffic accident in which the 4^th plaintiff was involved. 

12.  It is the defendant’s case that against the above background, he was invited to assist, and did assist, in the listing process of Nam Tai for which he received shares in Lully Corporation (“Lully”) in return in the following circumstances.^[1]

13.  In 1987, the 4^th plaintiff invited the defendant to join Nam Tai to facilitate its listing.  Whilst the defendant was initially hesitant about joining Nam Tai, he was eventually persuaded to do so because the 4^th plaintiff proposed in a series of conversations with the defendant that:

(1)  The 4^th plaintiff would appoint the defendant as a director and vice president of Nam Tai;

(2)  The 4^th plaintiff would issue shares in Nam Tai to the defendant; and

(3)  In the event Nam Tai was listed, Nam Tai would engage in the business model of acquiring manufacturing companies with a view to having them listed.

14.  The 4^th plaintiff’s proposal was attractive to the defendant mainly because the future business model of Nam Tai would allow the defendant to utilise his legal and English skills to the greatest extent, and it seemed to him a good career prospect.

15.  As a result and against the above background:

(1)  The defendant forwent his practice as a partner of Messr Y T Chan & Co Solicitors in 1987.

(2)  The 4^th plaintiff transferred 2 out of 12 shares in Lully to the defendant on 7 July 1987. 

(3)  Nam Tai was incorporated in the British Virgin Islands to facilitate the public trading of its shares and was established as the holding company of the subsidiaries of Nam Tai Group in 1987. 

(4)  Upon Nam Tai’s incorporation, the defendant was made Nam Tai’s Executive Vice President, Secretary and Director, and assisted in its public listing.

16.  In April 1988, Nam Tai completed its initial public offering on the Nasdaq.  At that time, Lully held 55.6% of Nam Tai and Lully was majority owned by the 4^th plaintiff. 

17.  In about June 1988, the defendant resumed his full time practice as a solicitor in Hong Kong because the 4^th plaintiff was not enthusiastic in acquiring other manufacturing companies, a main reason why the defendant joined Nam Tai in the first place.  Indeed, the first acquisition by Nam Tai mentioned by the 4^th plaintiff in his Witness Statement took place in 1999, ie some 11 years after Nam Tai first became listed.

18.  On 14 September 1989, the defendant resigned as an officer and director of Nam Tai.

19.  In December 1989, the defendant commenced his own legal practice in the name of “Charles Chu & Co, Solicitors”.  The firm was renamed “Charles Chu & Kenneth Sit” in April 1990 when Mr Kenneth Sit joined the partnership.

20.  In August 1990, the 4^th plaintiff procured Lully to allot more shares to its shareholders.  As a result, the defendant’s shareholding in Lully was diluted from 2 out of 12 shares to 4 out of 36 shares (“Lully Shares”).

B3.  The defendant’s financial circumstances and the 1992 Disposal

21.  The defendant’s case is that he had disposed of the Lully Shares in 1992 in the following circumstances. 

22.  In 1992, the defendant was experiencing grave financial stress both domestically as well as professionally.  At that time:

(1)  The defendant had to pay for the Chu Children’s private schooling, the 1^st plaintiff’s various purchases, as well as the salaries of a driver, a chef, and three domestic helpers at home. 

(2)  Additionally, the defendant and Mr Kenneth Sit had decided to expand their partnership and admit Mr Wu Hong Cho as a new partner, a step which was anticipated to cause significant financial outlay.

23.  As a result, the defendant approached a long-time friend Mr 談智隽 (“Mr Tan”) to see if he could introduce any potential purchaser of the Lully Shares.  As a gesture of friendship, Mr Tan bought the Lully Shares from the defendant for the consideration of HK$4 million (“1992 Disposal”).

24.  On 18 November 1992, the 4^th plaintiff sent the defendant a fax, recording the defendant’s agreement to rejoin Nam Tai as an independent director.  In the fax, the 4^th plaintiff requested the defendant to transfer the Lully Shares to the 1^st plaintiff on the basis that an independent director was not allowed to have any direct or indirect interest in Nam Tai.

25.  In December 1992, the defendant was appointed as an independent director of Nam Tai.  The defendant’s case is that the defendant had informed the 4^th plaintiff about the 1992 Disposal at about that time.  Whilst he could not recall the precise details, there is no dispute that the 4^th plaintiff did not insist on the transfer of the Lully Shares to the 1^st plaintiff, and it is the defendant’s case that this was because the defendant had informed the 1^st plaintiff of the 1992 Disposal after the fax was sent to him (as opposed to the 4^th plaintiff’s case that a US lawyer advised him that a transfer was not necessary as long as the defendant resigned as director of Lully).  Accordingly, the 4^th plaintiff appointed the defendant as an independent director of Nam Tai.

26.  It may be noted at this stage that:

(1)  The Articles of Association of Lully (which is produced by the plaintiffs) does not contain any registration requirement for the transfer of the Lully Shares.  On the contrary, Lully can issue stock bearer certificates.

(2)  As a director of Nam Tai, the defendant had routinely made disclosure regarding his interest in Nam Tai in accordance with the requests of Nam Tai’s legal department.  Consistently with the 1992 Disposal, these disclosures show that the defendant held minimal interest in Nam Tai since 28 February 2001.[2] The defendant was not required to make such disclosure as a director prior to then.

(3)  The defendant’s conduct is consistent with the 1992 Disposal.  As detailed below, when the 4^th plaintiff started making inquiries about the whereabouts of the Lully Shares in 2017, the defendant immediately stated that he had disposed of the Lully Shares a long time ago.

B4.  The defendant’s divorce with the 1^st plaintiff and the Clean Break Understanding

27.  In late 1988/early 1989, the 1^st plaintiff settled a litigation with Mr Leung and received HK$17,500,000 as a result.^[3] 

28.  Since then, starker differences in life style and expectations emerged between the 1^st plaintiff and the defendant. The 1^st plaintiff would make negative remarks about the defendant’s earnings, and the 1^st plaintiff paid little attention to the Chu Children, with her time spent on socializing and Chinese opera singing.

29.  In early 1993, the defendant met his current wife and began a relationship with her.  The defendant eventually admitted his relationship to the 1^st plaintiff and moved out the matrimonial home with the Chu Children. 

30.  This court has heard evidence about the dynamics between the defendant and the 1^st plaintiff in the period leading up to their divorce.  The 1^st plaintiff admitted to have been physically abusive to the defendant.

31.  In 1994, the 1^st plaintiff presented a petition to divorce the defendant.  With a view to ensuring a clean break with the 1^st plaintiff and securing the custody of the Chu Children, the defendant agreed with the 1^st plaintiff (through their respective legal representatives) that:

(1)  The defendant shall be responsible for the support and care of the Chu Children and the custody of the Chu Children shall be granted to the defendant.

(2)  There shall be a clean break between the 1^st plaintiff and the defendant upon their divorce in that their claim for ancillary relief against each other shall be dismissed.

(“Clean Break Understanding”)

32.  On 14 December 1994, His Honour Judge de Souza granted a decree nisi in respect of the divorce between the defendant and the 1^st plaintiff.  The terms of the order also embodied the Clean Break Understanding.

33.  Pausing here, it should be noted that:

(1)  The effect of the Clean Break Understanding is that the defendant shall have the custody of Chu Children but forgo all claims against the matrimonial home at Woodland Heights which was sold in anticipation of divorce for the consideration of HK$18 million.

(2)  The 1^st plaintiff did not dispute the existence of the Clean Break Understanding.  She merely offered her own explanation of why the Clean Break Understanding was reached between the 1^st plaintiff and the defendant.

(3)  The 1^st plaintiff and the defendant had acted in accordance with the Clean Break Understanding since their divorce (as further detailed below).   

34.  On 26 January 1995, the marriage between the defendant and the 1^st plaintiff was formally dissolved.

B5.  The Alleged 1995 Conversation

35.  The Alleged 1995 Conversation was said to have taken place between the defendant and the 4^th plaintiff “after the divorce [with the 1^st plaintiff]” in the Nam Tai office in Kwun Tong.^[4]  The plaintiffs’ case is that during the alleged meeting:

(1)  The defendant suggested returning the Lully Shares held by him to the 4^th plaintiff due to his divorce with the 1^st plaintiff.

(2)  The 4^th plaintiff proposed (and the defendant agreed) that instead of returning the Lully Shares, the defendant should hold the Lully Shares for the benefit of the 1^st plaintiff, the Leung Children and the Chu Children, and in particular for the purpose of the upbringing of the Leung Children and Chu Children.  This gave rise to the alleged trust (the “Alleged Trust”).

(3)  The Alleged 1995 Conversation has been set out in §59 of the 4^th plaintiff’s Witness Statement, to which I refer.  The defendant agreed to the 4^th plaintiff’s proposal and on that basis, retained the holding of the Lully Shares. 

36.  The defendant denies that any such conversation had ever taken place.  He only recalls discussing with the 4^th plaintiff whether he should resign from his directorship of Nam Tai because of his divorce with the 1^st plaintiff sometime in late 1994.  The 4^th plaintiff said that would be unnecessary but would appreciate if the defendant could be as congenial with the 1^st plaintiff as possible in his divorce with her.

37.  In December 1996, the shares in Nam Tai held by Lully were distributed to the shareholders of Lully on a pro rata basis.^[5]

38.  On 15 June 2000, Lully Corporation was dissolved pursuant to Liberian law because it had not maintained a registered agent in the Republic of Liberia for two years and/or Lully had not paid the annual corporation registration fees for two years.^[6]

B6.  The defendant and the 1^st plaintiff’s interaction after the divorce and the 2014 Agreement

39.  It is common ground that the defendant and the 1^st plaintiff reached an arrangement whereby, after their divorce, the 1^st plaintiff could spend up to HK$5,000 per month as expenses as affiliated members of the Hong Kong Jockey Club and Hong Kong Country Club.

40.  The defendant’s case is that he agreed to bear such expenses at the 1^st plaintiff’s request so that she could spend time with the Chu Children at a place familiar to them.

41.  After the defendant’s divorce with the 1^st plaintiff, the defendant also extended sundry loans to the 1^st plaintiff on account of her financial difficulties.  The evidence suggests that:

(1)  In 2003, the defendant lent the 1^st plaintiff  HK$90,000, which was due (but was unpaid) on 7 June 2004.

(2)  On 29 April 2005, the defendant further lent HK$100,000 to the 1^st plaintiff on the condition that the 1^st plaintiff surrender her status as an affiliated member of the Hong Kong Jockey Club.  The defendant’s case is that whilst he felt morally obligated to lend some assistance to the 1^st plaintiff, he wanted to minimise his ties with the 1^st plaintiff (who did not visit the Hong Kong Jockey Club much anyway).

42.  In May/June 2014, the 1^st plaintiff informed the 4^th plaintiff that she was in financial difficulties and the 4^th plaintiff informed the defendant of the same.  It is common ground that an arrangement was eventually reached among the 4^th plaintiff, the defendant, one of the 1^st plaintiff’s sisters, the 2^nd plaintiff and the Chu Children that:

(1)  The 4^th plaintiff, the defendant and one of the 1^st plaintiff’s sisters would each pay HK$10,000 to the 1^st plaintiff each month;

(2)  The 2^nd plaintiff and the Chu Children would each pay HK$2,000 to the 1^st plaintiff each month.

(“2014 Arrangement”)

43.  It is also common ground that the 1^st plaintiff agreed to surrender her affiliate membership in the Hong Kong Country Club in exchange for the 2014 Arrangement.  This was because the Chu Children had already grown up, the original rationale for permitting the 1^st plaintiff to retain the affiliate membership in Hong Kong Country Club no longer existed.

44.  Significantly, it is undisputed that the 4^th plaintiff did not mention the Alleged Trust to anyone at this point in time.^[7]

B7.  The emergence of the Alleged Trust

45.  In 2014, Nam Tai was renamed “Nam Tai Property Inc” to reflect its change of core business from electronics manufacturing to property development.

46.  In January 2017, Mr Tan passed away in Taiwan.  By then, the defendant had moved offices 6 times and many documents and records had been lost as a result of such relocations.

47.  On 1 June 2017, the 4^th plaintiff announced by way of an e-mail to the Board of Nam Tai that:

(1)  He was approached by Kaisa Group Holdings Limited (“Kaisa”), a property developer in Mainland China, which was interested in purchasing the 4^th plaintiff’s stake in Nam Tai. 

(2)  He agreed to sell his stake in Nam Tai at a significant premium and informed the Board of Nam Tai that for such purpose, a due diligence exercise would be performed by Kaisa on Nam Tai.

48.  As a result, a special committee (“Special Committee”) was set up to consider whether the Board should facilitate the above due diligence exercise and any other matter relating to the 4^th plaintiff’s intended sale of his stake in Nam Tai.  The defendant was one of the members of the Special Committee.

49.  On 5 June 2017, the Special Committee first contacted its external legal counsel, Mr David A Kern from Messrs Jones Day, to seek his advice.  As Mr David A Kern subsequently confirmed, the Special Committee had a duty to “consider the best interests of (1) [Nam Tai] and (2) all of the stockholders of the company who will be impacted” by the 4^th plaintiff’s intended sale of his Nam Tai stake to Kaisa.

50.  Further correspondence then ensued between Jones Day and the Special Committee.  The 4^th plaintiff was not copied in any further correspondence to facilitate the free discussion of the Special Committee. 

51.  It transpired that the Special Committee (including the defendant himself) was concerned that allowing Kaisa to take up a large stake in Nam Tai may stifle Nam Tai’s prospect of collaborating with other property developers.  In particular:

(1)  On 8 June 2017, Mr Peter Kellogg, a substantial shareholder of Nam Tai in his own right, was concerned that if Kaisa became a large shareholder in Nam Tai, no other property developer would want to collaborate with Nam Tai. 

(2)  On 13 June 2017, Mr Peter Kellogg again reiterated the same concern by way of an e-mail.

(3)  On 19 June 2017, the Special Committee resolved that Kaisa could conduct due diligence on Nam Tai only on the condition that Kaisa would agree not to acquire further shares in Nam Tai or seek any management position in Nam Tai until at least 18 months after the signing of a standard non-disclosure and standstill agreement or 3 years after the purchase of Nam Tai shares from the 4^th plaintiff.^[8]

52.  On 21 June 2017, the 4^th plaintiff wrote an e-mail voicing his disagreement with the conditions proposed by the Special Committee to his “personal deal”.^[9] 

53.  On the same day, Mr Peter Kellogg responded to the 4^th plaintiff by saying that the 4^th plaintiff’s email “shows a difference of opinion” between the Special Committee and the 4^th plaintiff, and that “we may welcome Kaisa as a developer but not to control NTP and that is why we have asked for the protections that you would like us to change”. 

54.  On the next day (ie 22 June 2017):

(1)  The 4^th plaintiff wrote an e-mail to all directors of Nam Tai, “remind[ing]” them that Nam Tai was “under an investigation which requires all of our directors and management to declare and clarify their shares ownership in the company”.  He singled out the defendant in the e-mail and mentioned the Alleged Trust for the first time that “there was a special purpose concerning any funds or proceeds from the shares that I gave you under trust”.[10]

(2)  The 4^th plaintiff wrote another e-mail to the defendant, copying all directors of Nam Tai.  In that e-mail, the 4^th plaintiff expressed his displeasure with the defendant’s work in the Special Committee.  In particular:

(a)  The 4^th plaintiff was under the impression that the defendant wanted to look for other investors (instead of Kaisa) to invest in Nam Tai, and the 4^th plaintiff was unclear whether “this idea came from the Special Committee or from yourself only; and whether you have any conflict of interests or personal relationship with such another potential investors or not”.[11]

(b)  The 4^th plaintiff also questioned the defendant’s ability to continue serving as a director of Nam Tai, saying “it is impossible for you to handle the task for the Company in the future if you cannot working [sic] in the PRC”.

(3)  In response, the defendant tendered his resignation as a director of Nam Tai, and confirmed the accuracy of his shareholding disclosure.^[12]  The defendant also clarified that he did not propose for any potential investors to invest in Nam Tai.

55.  On the defendant’s case, the defendant resigned because, among other things, (1) he considered that the 4^th plaintiff must have thought that he was standing in the 4^th plaintiff’s way in the sale of Nam Tai shares to Kaisa, and (2) he was well aware of the 4^th plaintiff’s litigious and abusive tendency to use litigation as a means to pressurize other people.

56.  Notwithstanding the defendant’s resignation, inquiries were made about the whereabouts of the Lully Shares by Mr Lorne Waldman, the Chair of the Compensation Committee, at the behest of the 4^th plaintiff.  It should be highlighted that:

(1)  As of 29 June 2017, the defendant had reported that he had never controlled any large amount of Nam Tai shares.

(2)  On 17 July 2017 and 18 August 2017, the defendant stated by way of e-mail, among other things, that he had disposed of his Lully Shares to relieve his financial pressure in or around late 1992, although he had difficulties locating documents in support of the same due to lapse of time.

(3)  On 22 August 2017, Mr Lorne Waldman reported to the 4^th plaintiff and stated that in view of the defendant’s answers, he did not “believe [the defendant] needs to make any corrective disclosures”.  He wanted to discuss with the 4^th plaintiff before making “recommendations to the rest of the board of directors”. 

(4)  It is unknown what the 4^th plaintiff discussed with Mr Lorne Waldman, but Mr Lorne Waldman eventually wrote to the defendant, requesting further clarifications on 24 August 2017, which the defendant duly provided on 25 August 2017.

(5)  On 28 August 2017, Mr Lorne Waldman again reported to the 4^th plaintiff, and stated that he would “try calling you to discuss when I am back”.

(6)  It is again unknown what the 4^th plaintiff discussed with Mr Lorne Waldman.  Mr Lorne Waldman eventually wrote to the defendant again on 6 September 2017, stating that “if you can not…remember the details I will have to pass this matter back to [the 4^th plaintiff] to follow up, including taking appropriate legal actions”.   The defendant appeared to have provided further clarification by way of a call subsequently.

57.  Mr Lorne Waldman was apparently no longer involved in the inquiry concerning the Lully Shares since then.  Starting from 14 September 2017, the responsibility for such inquiry was borne by Mr Julian Lin, the Chief Executive Officer of Nam Tai.  All these inquiries were copied to the 4^th plaintiff and appeared to have been made at his behest.^[13]

58.  On 22 September 2017, Nam Tai approved the defendant’s resignation as a director. 

59.  On 24 January 2018, the 4^th plaintiff’s solicitors wrote to the defendant and made inquiries about the whereabouts of the Lully Shares, claiming that the defendant held them on the Alleged Trust. 

60.  On 30 July 2018, the plaintiffs commenced this action against the defendant on the basis of the Alleged Trust.  After the commencement of these proceedings:

(1)  The defendant had approached Mr Richard Tan, the son of Mr Tan, to see if he could locate any records in relation to the 1992 Disposal – to no avail. 

(2)  Mr Richard Tan also told the defendant that both he and his brother, Mr Leon Tan would like to stay away from the proceedings.  This message was relayed to the defendant after Mr Leon Tan received a letter from the plaintiffs inquiring about the 1992 Disposal.

C.  SUMMARY OF THE PLAINTIFFS’ CASE

61.  The plaintiffs’ case on liability is as follows:

(1)  There was a trust of Lully Shares declared and constituted by the “Alleged 1995 Conversation”.  The defendant is the trustee of the Lully Shares for the benefit of the 1^st plaintiff, the Leung Children and the Chu Children (the “Beneficiaries”);

(2)  Originally, the plaintiffs ran an alternative case that the circumstances of the Alleged 1995 Conversation could be interpreted as giving rise to a Quistclose trust of the Lully Shares.  This alternative claim was expressly abandoned in the plaintiffs’ Written Closing Submissions;

(3)  The defendant breached the oral trust and his fiduciary duties towards the 1^st to 3^rd plaintiffs by converting the trust property for his own use, and by failing to hold and/or use the trust property for the benefit of the Beneficiaries and/or for the upbringing of the Leung Children and the Chu Children. 

D.  SUMMARY OF THE DEFENDANT’S CASE

62.  The defendant’s case is that the plaintiffs’ claims should be dismissed on the following bases (any one of which is sufficient):

(1)  The Alleged 1995 Conversation is plainly not proved.  Indeed, the court is invited to find that the Alleged 1995 Conversation never took place at all (See Section E below). 

(2)  The Alleged Trust fails for want of subject-matter by reason of the 1992 Disposal.  The court is also invited to find that the defendant had informed the 4^th plaintiff about the 1992 Disposal in about the end of 1992 (See Section F below).

(3)  Even if the Alleged 1995 Conversation had taken place, the 1^st to 3^rd plaintiffs’ claim in trust cannot be sustained in view of the evidence given by the 4^th plaintiff (See Section G below).

(4)  In any event, the plaintiffs’ claim against the defendant must be barred by laches and/or acquiescence (see Section H below).

E.  DID THE ALLEGED 1995 CONVERSATION TAKE PLACE

E1.  Fundamental unreliability and inconsistency in the plaintiffs’ case as to whether the 1^st plaintiff was a beneficiary of the Alleged Trust

63.  The starting point is that there is no contemporaneous document evidencing the Alleged Trust.  The plaintiffs’ entire case is based on the 4^th plaintiff’s evidence of an alleged oral conversation in 1995 (ie 29 years ago) that was first mentioned to anyone in 2017 (ie 22 years after its alleged declaration). 

64.  As submitted by the defendant, such extraordinary lapse of time clearly renders it virtually impossible for the plaintiffs to discharge their burden in the circumstances.  “[A]t this distance of time” the court would “make every intendment in favour of that having been honestly done which purported to be done” – Watt v Assets Co Ltd [1905] AC 317 at 333 (Earl of Halsbury LC).  Hence, the disclosures, the non-distributions or account by the defendant towards the alleged Beneficiaries would be heavily presumed to be honest.  The point is that throughout the years, the defendant has acted as if he was not the owner/trustee of the shares in question.  That must be presumed to be the honest position.

65.  The 4^th plaintiff’s evidence is that in about 1995, upon hearing the defendant’s divorce with the 1^st plaintiff and his proposal to return the Lully Shares to him, the 4^th plaintiff immediately decided to entrust the defendant with the Lully Shares by way of the Alleged Trust, one of the purposes of which was to “take care of the 1^st plaintiff”.  I accept the defendant’s submissions that this is plainly incredible.

66.  First, it is inherently unlikely for the defendant to be asked by the 4^th plaintiff to “take care of the 1^st plaintiff”, when the divorce was in progress or had just been completed.  In particular:

(1)  There was simply no basis whatsoever for the 4^th plaintiff to believe that the defendant would continue to treat the 1^st plaintiff well after their divorce.

(a)  The 4^th plaintiff’s evidence was that he did not ask about the details of the divorce between the defendant and the 1^st plaintiff,and he was not even surprised to learn about their divorce. 

(b)  The 4^th plaintiff also confirmed that he did not know whether the defendant had treated the 1^st plaintiff in a bad way during the marriage, and he did not know whether the defendant would continue to treat the 1^st plaintiff well in the future.

(2)  On the contrary, there was every reason for the 4^th plaintiff to doubt whether the defendant would continue to treat the 1^st plaintiff well.  After all, the defendant and the 1^st plaintiff were already divorcing each other, notwithstanding that, as the 4^th plaintiff recalled, the defendant declared the 1^st plaintiff to be the love of his life at the time of their marriage.

67.  Secondly, in view of the traumatic nature of the divorce, it is incredible that the defendant would agree to continue to take care of the 1^st plaintiff by way of the Alleged Trust which would require him to maintain constant contact with the 1^st plaintiff and keep track of her financial wellbeing.  This is very different from the unavoidable contact with the 1^st plaintiff over the Chu Children.

68.  The defendant’s case/evidence is that he would like to start a new life after his traumatic divorce with the 1^st plaintiff.  Among other things, the defendant’s desire for a clean break is clearly documented in the divorce decree nisi by HH Judge De Souza.

69.  The defendant’s case – ie the divorce was extremely traumatic for him – is well corroborated by the 1^st plaintiff and the 2^nd plaintiff’s evidence.  According to the 1^st plaintiff and the 2^nd plaintiff:

(1)  The 1^st plaintiff reacted “extremely” (“極端”) to the breakdown of marriage.  As admitted by the 1^st plaintiff herself, she went “crazy” (“發癲”) at the time and engaged in heavy drinking.  Indeed, according to the 1^st plaintiff, the 1^st plaintiff’s reaction was so extreme that she had asked the defendant to help her commit suicide.

(2)  The 2^nd plaintiff(even though she spent part of her time in Canada at the time) could also observe that the 1^st plaintiff would cry often and it became obvious that the 1^st plaintiff resorted to heavy drinking as a response.

(3)  The 1^st plaintiff also admitted that from 1993 to 1995, she had physically and emotionally abused (“虐待”) the defendant,[14] and hit him, especially when she was drunk.[15] 

(4)  The 1^st plaintiff also accepted at the time of her divorce, she would not have wanted the defendant to be able to have it easy (“不想他好過的”).[16]

70.  Thirdly, when the 4^th plaintiff first mentioned the Alleged Trust to Julian Lin and the 1^st plaintiff in 2017/early 2018, the 4^th plaintiff did not mention that the 1^st plaintiff was a beneficiary of the Alleged Trust. This undermines any suggestion that the 1^st plaintiff was intended to be a beneficiary of any trust at all. 

71.  Insofar as the 4^th plaintiff’s exchange with Julian Lin is concerned:

(1)  On 27 September 2017, Julian Lin wrote an e-mail to the defendant (with the 4^th plaintiff copied through his secretary) which recorded the 4^th plaintiff’s recollection of how the Alleged Trust came about.  This was also the very first time any “particulars” have been provided regarding the Alleged Trust.

(2)  In the said e-mail, Julian Lin stated that the Alleged Trust was “for the benefit of your children.  Specifically, Lully Shares was entrusted to you by Mr Koo for the purpose of funding the upbringing of your 5 children”.  Julian Lin further said that the defendant ought to be accountable to “your children as beneficiaries of the trust”. 

(3)  Most glaringly, the 1^st plaintiff was not mentioned as beneficiary of the Alleged Trust, nor was she stated to be someone to whom the defendant should be accountable.  Notwithstanding the above, the 4^th plaintiff never sent out any further email to correct Julian Lin’s “omission”.

(4)  Had Julian Lin been told by the 4^th plaintiff that the 1^st plaintiff was a beneficiary of the Alleged Trust, it was highly unlikely that Julian Lin would have failed to mention that the 1^st plaintiff was a beneficiary, or that the 4^th plaintiff would not have corrected Julian Lin’s omission.

(5)  This is because at the time the e-mail was sent on 27 September 2017:

(a)  The 4^th plaintiff had contemplated that legal action may be commenced against the defendant, and that such legal action may concern the enforcement of the Alleged Trust.

(b)  The 4^th plaintiff also confirmed in cross-examination that the prospect of litigation had been discussed by the 4^th plaintiff with Julian Lin.

(c)  Furthermore, the 4^th plaintiff was well aware that it was important to ensure the accuracy of pre-litigation correspondence, depending on the relevance of the correspondence to the litigation.

(d)  Julian Lin was himself also a highly experienced lawyer, who must have been aware of the importance of making an accurate record of what was discussed.

(6)  Thus, the inevitable inference must be that in 2017, the 4^th plaintiff had never mentioned to Julian Lin that the 1^st plaintiff was a beneficiary of any trust.  Consistently, the 4^th plaintiff also accepted that the e-mail had accurately described what he told Julian Lin.[17]

72.  The 2^nd plaintiff has no reliable recollection that at the end of 2017, the 4^th plaintiff had mentioned that the 1^st plaintiff was a beneficiary of the Alleged Trust:

(1)  When asked about what she was told by the 4^th plaintiff about the Alleged Trust, the 2^nd plaintiff could not give an answer even after an extended pause and requested a 5-minute adjournment to recollect the relevant event.[18]

(2)  After the adjournment, the first answer the 2^nd plaintiff gave in court was that she was told that the Lully Shares shall be held on trust to take care of “you” (“你地”).[19]  She later said that she actually did not remember exactly what she was told.  Ultimately, she also stated that she could not be sure if the 4^th plaintiff mentioned the 1^st plaintiff as a beneficiary of the trust or not.[20]

(3)  In view of the above, there is simply no basis to conclude from the 2^nd plaintiff’s evidence that she has been told by the 4^th plaintiff that the 1^st plaintiff was a beneficiary of any trust.

73.  On the contrary, the Facebook conversation exchanged between the 2^nd plaintiff and the Chu Children suggests that the 2^nd plaintiff was unlikely to have been told by the 4^th plaintiff that the 1^st plaintiff was a beneficiary:

(1)  In the conversation, the 2^nd plaintiff stated that the Alleged Trust was intended “to take care of the 5 children”.  The 1^st plaintiff was not mentioned at all as a beneficiary.

(2)  Had the 2^nd plaintiff been told by the 4^th plaintiff that the 1^st plaintiff was a beneficiary of the Alleged Trust, it would have been highly unlikely that the 2^nd plaintiff would have failed to mention the same because:

(a)  The 2^nd plaintiff knew that litigation was being contemplated against the defendant at the time.[21]

(b)  The 2^nd plaintiff accepted that there was no reason why she would not be as accurate as possible in repeating what she was told by the 4^th plaintiff.

(c)  The 2^nd plaintiff also prefaced her Facebook message by saying that she had to tell the Chu Children “something quite serious”. 

(3)  Indeed, the 2^nd plaintiff accepted that she was endeavouring to repeat what she was told by the 4^th plaintiff when she puts the words “take care of 5 children” in quotation mark in the Facebook message.[22]

E2.  The 2^nd and 3^rd plaintiffs could not have been named as beneficiaries of the Alleged Trust

74.  Further, it is also inherently unlikely that the 4^th plaintiff would have proposed and/or that the defendant would have agreed to hold the Lully Shares on trust for the “upbringing of the 2^nd and 3^rd plaintiffs”.  

75.  It is an undisputed fact that by 1995, the 2^nd and 3^rd plaintiffs were adults (aged around 20 and 18 respectively), and were living with and supported financially by Mr Leung in Canada. 

76.  Viewing the matter from the 4^th plaintiff’s perspective, there was no need for the 2^nd and 3^rd plaintiffs to be given any support from the defendant.  This is because:

(1)  To the 4^th plaintiff’s knowledge, Mr Leung was a wealthy person/person of means.  It would also appear that the 4^th plaintiff actually knew that the 2^nd and 3^rd plaintiffs were living in Canada in 1995. 

(2)  In connection with the latter point, the 4^th plaintiff initially said that he did not know where the 2^nd and 3^rd plaintiffs were living during the defendant’s marriage with the 1^st plaintiff.  He also said that he did not know that they have gone to Canada to live with Mr Leung, claiming that “Canada was very big” (“加拿大很大”).

(3)  However, the 4^th plaintiff’s denial cannot be sustained because:

(a)  The 4^th plaintiff, the 2^nd plaintiff and the 3^rd plaintiff, all lived in Vancouver at the material time.  Further, at least for a period of time, the 4^th plaintiff was living with his daughter and his mother.

(b)  When confronted with these facts, the 4^th plaintiff admitted from 1989 to 1997 he had heard “a little” about the 2^nd and 3^rd plaintiffs living in Canada.

(c)  The 2^nd plaintiff also recalled having met the 4^th plaintiff in Vancouver as well during the above period of time.  She apparently had a good relationship with the 4^th plaintiff’s daughter, as she described meeting the 4^th plaintiff’s daughter “frequently”.  She also had a good relationship with the 4^th plaintiff’s mother.

E3.  The 2014 Arrangement irreconcilable with the Alleged Trust

77.  Moreover, it is common ground that the 4^th plaintiff took the lead to come up with the 2014 Arrangement to alleviate the financial difficulties of the 1^st plaintiff at the 1^st plaintiff’s request.  It is also common ground that even in 2014, amidst the various discussions on how to relieve the 1^st plaintiff financially, the 4^th plaintiff never asked about the administration of the Alleged Trust by the defendant.

78.  Such conduct by the 4^th plaintiff is plainly inconsistent with the existence of the Alleged Trust, making his story wholly incredible.  In this connection:

(1)  The 4^th plaintiff accepted that, at the time the 2014 Arrangement was made, the Alleged Trust would have held approximately HK$30 to 40 million worth of Nam Tai shares.[23]  The 4^th plaintiff also confirmed that he still believed that the defendant had held/controlled such amount of Nam Tai shares at the time the 2014 Arrangement was reached.

(2)  Further, the 4^th plaintiff stated that Nam Tai had declared a lot of dividend per share over the years, which he described in his witness statement as “一直維持豐厚派息給予股東”.   Indeed, in 2013 alone, the Alleged Trust ought to have received about HK$3 million as dividends from Nam Tai.[24]

(3)  At the time the 2014 Arrangement was reached, it should also have been clear to the 4^th plaintiff that the 1^st plaintiff had fallen on very hard times.  In particular:

(a)  Relatively modest sums (ie HK$38,000) were scrapped together from multiple family members, including the Chu Children who had not started working yet, to support the 1^st plaintiff’s living.

(b)  The 4^th plaintiff also said that he took the view that the 1^st plaintiff’s financial difficulties were such that he considered it appropriate for her to surrender the Country Club membership so that she did not need to use a car.[25]

(4)  Given the stark contrast between (a) on the plaintiffs’ case, what would have been held or received under the Alleged Trust and (b) the dire financial circumstances of the 1^st plaintiff, it must have been clear to the 4^th plaintiff that the defendant had not administered the Alleged Trust properly to take care of the 1^st plaintiff (had the Alleged Trust really existed).

79.  However, the fact is that the 4^th plaintiff had never inquired with the defendant and the 1^st plaintiff about the administration of the Alleged Trust.  The 4^th plaintiff’s failure to do so clearly demonstrates that the Alleged Trust simply did not exist.

F.  THE 1992 DISPOSAL AND LACK OF SUBJECT MATTER

80.  It is common ground that if the 1992 Disposal is proven, the Alleged Trust must fail for lack of subject-matter and the plaintiffs’ claim must be dismissed.  Also, if the 1992 Disposal had taken place, it would be extremely unlikely for the Alleged 1995 Conversation to have happened.  For the following reasons submitted by the defendant, I agree the evidence shows that the 1992 Disposal did occur, and the defendant did inform the 4^th plaintiff about the 1992 Disposal.

F1.  The 1992 Fax and the defendant’s appointment as INED of Nam Tai

81.  It is common ground that prior to the defendant’s appointment as an independent non-executive director (“INED”) of Nam Tai, the 4^th plaintiff sent the defendant a fax on 18 November 1992 (“1992 Fax”). 

82.  What the 1992 Fax shows is that the 4^th plaintiff had at one point considered it necessary for the defendant to transfer his Lully Shares to the 1^st plaintiff for the defendant to be appointed as an INED of Nam Tai. 

83.  In fact, the 4^th plaintiff considered this matter of sufficient importance that he annotated the 1992 Fax to remind himself that there were two “points” in it, point “A.” being that the defendant could not become an INED of Nam Tai if he continued to hold Lully Shares, and point “B.” being that the defendant may transfer the Lully Shares to the 1^st plaintiff as a solution to the problem. 

84.  The only dispute between the plaintiffs and the defendant concerns why the defendant was appointed as an INED of Nam Tai, notwithstanding that the defendant did not transfer the Lully Shares to the 1^st plaintiff as requested in the 1992 Fax.  The rival contentions are:

(1)  The 4^th plaintiff’s case that after the 1992 Fax was sent, he received advice from the SEC lawyer, Mark Klein, that the defendant could be appointed as an INED of Nam Tai as long as he resigned as a director of Lully; or

(2)  The defendant’s case is that it is very likely that he had informed the 4^th plaintiff of the 1992 Disposal after the 1992 Fax was sent to him and therefore, he was appointed as an INED of Nam Tai notwithstanding that he did not transfer the Lully shares to the 1^st plaintiff. ^[26]

85.  I agree that the 4^th plaintiff’s case must be rejected for the reasons submitted by the defendant:

(1)  The 4^th plaintiff said that he had a team of assistants to keep his documents. 

(2)  The 4^th plaintiff also said that the 1992 Fax would likely have been put by his team of assistants in a dossier, and it was fair to say that all documents relating to the defendant’s appointment as an INED should have been kept in the same dossier.

(3)  The 4^th plaintiff further accepted that if Mark Klein had given the advice that the 4^th plaintiff contends, Mark Klein would likely have advised on the issue of the defendant’s appointment as an INED by way of fax and therefore in writing. 

(4)  As no such written advice has been disclosed in this litigation (notwithstanding that the 4^th plaintiff had asked his team of assistants to locate the same), it is highly likely that Mark Klein simply had never rendered any advice regarding the defendant’s suitability to be appointed as an INED of Nam Tai, if he continued to hold Lully Shares.

(5)  The 4^th plaintiff’s case in this regard must therefore be rejected.

86.  The overwhelming likelihood must be that the defendant had informed the 4^th plaintiff of the 1992 Disposal after the 1992 Fax was sent to him, hence the 4^th plaintiff appointed the defendant as an INED of Nam Tai, having satisfied himself that the Lully Shares had already been disposed of by the defendant. 

87.  As an aside, it can be noted that even before the defendant had sight of the 1992 Fax in this litigation, the defendant was able to independently recollect in an e-mail dated 18 August 2017 to Lorne Waldman that he had disposed of the Lully Shares at around the time he was appointed as an INED of Nam Tai. 

88.  The defendant’s evidence relating to the 1992 Fax is clearly credible and is accordingly accepted by the court.

F2.  The 1996 Distribution Sheet and Uniglobe

89.  The plaintiffs’ case is that the defendant had requested the 4^th plaintiff to distribute Nam Tai shares to one Uniglobe Investment Limited (“Uniglobe”) in 1996 and that Uniglobe was under the defendant’s control. 

90.  In advancing their case, the plaintiffs rely on a sheet prepared by Mark Klein relating to the aforesaid distribution (“1996 Distribution Sheet”), which the 4^th plaintiff retrieved from documents in his possession.

91.  The 1996 Distribution Sheet, however, strongly supports the defendant’s case that the 1992 Disposal had taken place, that the 4^th plaintiff had been informed of the same, and that the defendant had never received any Nam Tai shares in 1996.

92.  The first point to note is that the 1996 Distribution Sheet does not record the defendant as a recipient of Nam Tai shares from Lully, or that the defendant owned or controlled Uniglobe.  On the contrary, what is recorded on it in fact demolishes the theory that Uniglobe was owned or controlled by the defendant:

(1)  On the plaintiffs’ case, in December 1996, the defendant held an 11.11% shareholding in Lully (ie 4 out of 36 shares in Lully), and those were the “Lully Shares” said to be held on trust.  The 4^th plaintiff also confirmed in his oral evidence that Lully had 36 shares in total,of which 4 was held by the defendant,in 1996.

(2)  Accordingly, if the Nam Tai shares held by Lully were to be distributed on a pro rata basis to Lully’s shareholders as pleaded by the plaintiffs, the defendant ought to have been distributed 11.11% of the Nam Tai shares held by Lully only.

(3)  However, the 1996 Distribution Sheet shows that Uniglobe had been distributed 19% of the Nam Tai shares held by Lully, (which was about 8% more than the defendant’s entitlement on the plaintiffs’ case). 

93.  There is no conceivable explanation why, on the plaintiffs’ case, the defendant (if he remained a shareholder in Lully) would get more than his proportionate share in the December 1996 exercise. 

(1)  The 4^th plaintiff repeatedly referred to another sheet prepared by Mark Klein at [C/33/411], which tracked the history of Lully’s shareholdings in Nam Tai from 1988 to 1994.  However, the said sheet could only account for any changes of Lully’s shareholding in Nam Tai.  It could not account for any changes of the defendant’s shareholding in Lully.

(2)  More importantly, there was simply no reason for the 4^th plaintiff to distribute more Nam Tai shares to the defendant, over and above the defendant’s proportionate shareholding in Lully.  This is because, according to the 4^th plaintiff’s evidence, whilst Lully did acquire further Nam Tai shares from time to time, these acquisitions were funded either by the sale proceeds of Nam Tai shares previously sold by Lully, or by the 4^th plaintiff himself.[27]  The defendant had never given any money to Lully to purchase Nam Tai shares.[28]

(3)  In the premises, on his case, the 4^th plaintiff simply could not have procured 19% (as opposed to 11.11%) of Nam Tai shares held by Lully to a corporate vehicle controlled by the defendant.

94.  In any event, and whilst the court is not required to determine precisely what happened in December 1996, the clear picture is that there was no distribution of Nam Tai shares on a pro rata basis to Lully shareholders on the basis of their shareholdings in Lully.  The percentage of Nam Tai shares distributed to the Lully shareholders simply does not track the number of shares in Lully (for example, 19% would translate to 6.84 shares in Lully – the distribution percentages to other recipients, if multiplied by 36 shares, also would not yield whole numbers).

95.  The overwhelming likelihood is that there was some agreement among the recipients for the distribution of Nam Tai shares held by Lully.  There is no suggestion that the defendant was a party of such an agreement, or was involved in any discussion leading to such an agreement.  Clearly that is because there is no truth in the plaintiffs’ case, and the defendant had (to the knowledge of the 4^th plaintiff) already disposed of his Lully Shares by December 1996.

F3.    Mark Klein’s lack of action and the post 2001 Nam Tai disclosures

96.  The 4^th plaintiff stated that after the dispute arose, he had asked Mark Klein about the December 1996 distribution, and Mark Klein said he did not know who Uniglobe belonged to, and he did not have any record regarding Uniglobe.  

97.  The distribution of Nam Tai shares to Lully shareholders involved the participation of Mark Klein.  In particular, the 1996 Distribution Sheet was obtained from and prepared by him. 

98.  As the SEC lawyer of Nam Tai, Mark Klein was responsible for ensuring that Nam Tai had made accurate disclosure of shareholdings held by its directors, shareholders and senior management.

99.  At that time (1996), Nam Tai was required to disclose each person known by Nam Tai to own beneficially 10% of the common shares of Nam Tai.  Where the officers and directors of Nam Tai as a group owned more than 10% of common shares, their shareholding as well as exact numbers of shares held must also be disclosed.^[29]

100.  It follows that Mark Klein and the 4^th plaintiff would likely have discussed who owned or controlled Uniglobe.  As the 4^th plaintiff agreed, Mark Klein should have found out about the ownership of Uniglobe because this would have affected the accuracy of any disclosure to be made by Nam Tai’s directors, shareholders and senior management.  Indeed, the 4^th plaintiff himself was aware that some form of disclosure requirements applied to directors and shareholders as at 1996.

101.  The fact that there is absolutely no record of Mark Klein noting that the defendant was the owner of Uniglobe is plainly inconsistent with the plaintiffs’ theory. 

102.  Mark Klein was still responsible for compliance matter of Nam Tai as of 2001, when it became necessary for individual directors to disclose their shareholdings in Nam Tai.  Had it been the case that Uniglobe was controlled or owned by the defendant, Mark Klein would likely have found out about such fact in 1996 when he prepared the 1996 Distribution Sheet (for reasons stated above).  As such, Mark Klein would also likely have prompted the defendant to make further disclosure of his interest in Nam Tai from 2001.

103.  However, the fact of the matter is that Mark Klein never prompted the defendant to make further disclosure of his interest in Nam Tai from 2001 onwards.  Mark Klein’s “negligence” would have been glaring (and therefore extremely unlikely):

(1)  According to the 4^th plaintiff, Mark Klein was replaced by Julian Lin as the SEC lawyer of Nam Tai. 

(2)  As Julian Lin joined Nam Tai in May 2017, and had served as Nam Tai’s external legal advisor for 5 years prior to joining Nam Tai, Mark Klein must have served Nam Tai until sometime in 2012.

(3)  In other words, Mark Klein would have failed to ensure that the defendant had made accurate filings for more than a decade from 2001 to 2012.

104.  It is clear that the defendant has simply never held any substantial interest in Nam Tai because of the 1992 Disposal, and that was the reason why Mark Klein never asked the defendant to make any corrective disclosure.

105.  The conduct of the 4^th plaintiff is equally revealing and indicates that he could not have believed that the defendant held a large number of Nam Tai shares: 

(1)  The 4^th plaintiff’s own evidence is that he was very familiar with the regulatory regime and would ensure that the annual reports of Nam Tai were submitted without any mistake.[30]  The 4^th plaintiff confirmed the truth of such evidence in cross-examination.[31]  The 4^th plaintiff in fact went further to accept that he would briefly read the annual reports of Nam Tai from time to time.

(2)  Thus, if there had been any truth in the 4^th plaintiff’s assertion that he believed that the defendant held a large number of Nam Tai shares distributed in 1996, the 4^th plaintiff would have prompted the defendant to make further disclosure of his interest in Nam Tai in his personal name from 2001 onwards. 

(3)  The very fact that he did not do so showed that he knew that the defendant had long disposed of any direct interest in Lully, and did not receive any distribution of Nam Tai shares from Lully in 1996.

106.  In this connection, to explain his belated “effort” to ask the defendant to make further disclosure, the 4^th plaintiff suggested that in about June 2017, he was told by Julian Lin that there was some change of regulatory/enforcement practice concerning the disclosure of Nam Tai shareholding held by corporate vehicles (as opposed to held under personal name).  This suggestion is incredible because:

(1)  As a matter of fact, since 2001, Nam Tai has been disclosing the shareholding held by the directors/shareholders, whether they were held via corporate vehicles or not.

(2)  The 4^th plaintiff also eventually accepted in cross-examination that he knew that one must disclose shares held through corporation one controls, before receiving any purported reminder from Julian Lin, that this was indeed “101” in listing practices, and the 4^th plaintiff had known this since 1988 when Nam Tai was listed.   

107.  Thus, the truth must be that the 4^th plaintiff did not ask the defendant to make further disclosure earlier because he knew that the defendant had long disposed of any direct or indirect interest in Lully, and did not receive any distribution of Nam Tai shares from Lully in 1996.

F4.  The need for the 1992 Disposal from the defendant’s perspective

108.  I accept the defendant’s evidence that the defendant had sold his Lully Shares as a result of his financial stress both domestically and professionally (see paragraph 22 above).

109.  In particular, it was anticipated that considerable expense would be incurred due to the expansion of the defendant’s law firm and new partnership with Mr Wu.

110.  There was a suggestion from the 1^st and 2^nd plaintiffs that the 1^st plaintiff paid the bulk of the family expenses during the defendant’s marriage with the 1^st plaintiff.  This evidence must be approached with skepticism and in any event does not show that the defendant was not in need of money at the time when the 1992 Disposal took place.  In particular:

(1)  There is no evidence that the 1^st plaintiff had ever paid for the expansion of the law firm partnership anticipated in 1992.  The 1^st plaintiff did not say so in her witness statement either.

(2)  To the contrary, as the 1^st plaintiff confirmed in her re-examination, she did not visit the office of the expanded partnership because the 1^st plaintiff and the defendant were already contemplating a divorce at that time, and the 1^st plaintiff had no recollection that she funded the expenses incurred in the expansion. 

(3)  Accordingly, the clear likelihood is that the defendant would have to put together funds to support the intended expansion of the partnership, and the defendant did so by making the 1992 Disposal.

(4)  As for domestic expenses, the 1^st and 2^nd plaintiffs’ evidence is unreliable.  Among other things:

(a)  The 1^st plaintiff was said by the 2^nd plaintiff to have “no sense of money”, and the 1^st plaintiff also admitted that she was not very good at managing her financial affairs.  In these circumstances, it is inherently unlikely that the 1^st plaintiff can provide any accurate recollection as to the proportion of family expenses that the 1^st plaintiff and the defendant had respectively borne during their marriage.

(b)  As for the 2^nd plaintiff, the 2^nd plaintiff accepted that the defendant had paid for family expenses, but she was not sure how large a portion of family expenses the defendant had contributed.  In any event, the 2^nd plaintiff also accepted that her knowledge of the financial affairs at home was based on a mixture of personal knowledge and what she was told by the 1^st plaintiff (which for reasons explained above are not reliable).

111.  Insofar as the plaintiffs criticised the defendant for any inconsistency between (1) what the defendant said in his e-mail to Lorne Waldman dated 17 July 2017 and (2) what the defendant now says as to the timing and reasons for the 1992 Disposal, such criticism is not well-founded.  For the reasons set out in paragraph 67 of the defendant’s Closing Submissions, I agree that insofar as there may be any inconsistency in terms of timing and circumstances of the 1992 Disposal, such inconsistency is understandable.  In 2017, out of the blue, he was asked to answer for matters that took place 25 years ago, for which he had no reason to keep any record. 

112.  The defendant has also been extensively questioned as to the circumstances surrounding the 1992 Disposal.  The plaintiffs put the queries in these terms: at trial, the defendant said that he cannot recall whether he told the 4^th plaintiff during the phone call to whom the defendant had sold the shares; whether the 4^th plaintiff asked him to whom had he sold the shares; whether he returned the share certificates to the 4^th plaintiff; whether he provided the 4^th plaintiff with the “simple documents” or copies of those “simple documents” executed for the transaction of sale of Lully Shares; whether he asked the 4^th plaintiff to register Mr Tan as the new shareholder and issue him share certificates; whether he took any steps to help Mr Tan to realise the interest in the Lully Shares, to benefit from the same; whether he took steps to safeguard and realise Mr Tan’s interest in the Lully Shares and whether the defendant gave the 4^th plaintiff’s contact to Mr Tan.  The plaintiffs submit that these allegations of no recollection are clear signs of evasion.   

113.  I do not agree with the plaintiffs’ criticism of the defendant’s evidence.  As the defendant frankly stated, he could not recall the details about the 1992 Disposal.  This is only to be expected given that the material events took place more than 32 years ago (as at the date of this trial), and more than 25 years ago (when the “inquiry” into the defendant’s historical interest in Nam Tai first started). 

114.  Indeed, the very fact that the defendant is no longer able to recollect with precision the 1992 Disposal is precisely one of the reasons why the plaintiffs’ claim can hardly be reliably proved now in 2024, and why it should be barred by laches, which I shall deal with below.

115.  Finally, the plaintiffs criticise the defendant for not first approaching the 4^th plaintiff to see if the 4^th plaintiff would purchase the Lully Shares from the defendant.  The defendant has provided credible explanation for it.  The defendant considered that the 4^th plaintiff would not be very interested in acquiring the Lully Shares from the defendant because (1) the 4^th plaintiff had diluted the defendant’s Lully shareholding and in substance gave what belonged to the defendant to Mr Murakami, and (2) the 4^th plaintiff himself already had a lot of options to acquire Nam Tai shares.  In addition, the defendant had already left Nam Tai at the time.  It would have been “rather bad” for him to “go back to him to ask him to buy the shares” from him.  

F5.  Use of the terminology “Beneficial Interest”

116.  During the defendant’s cross-examination, the plaintiffs contrasted (1)what the defendant said in the e-mail to Lorne Waldman dated 17 July 2017 (in which the defendant said that he had “assigned off my beneficial interests of Lully”) with (2) what the defendant said in his Answer to Requests for Further and Better Particulars (“Answer to F&BP”) dated 22 January 2020 (in which the defendant said that he had disposed of the “legal and beneficial interest” in the Lully Shares).

117.  This, however, is but a technical objection.  It was certainly not put to the defendant that he had retained mere legal ownership of the Lully Shares in 1992 and assigned beneficial ownership away to anyone.  The plaintiffs’ attack about the use of the term “beneficial ownership” also entirely ignores the crucial context in which the defendant’s responses were given. 

118.  In cross-examination the defendant pointed out the obvious that what “beneficial ownership” means depends on context.  The defendant’s answer to Lorne Waldman was given in response to an inquiry concerning the defendant’s interest in Nam Tai within the specific regulatory context of the SEC.  

(1)  In this specific regulatory context, the word “beneficial owner” carries a meaning, referring to “any person who, even if not the record owner of the securities, has or shares the underlying benefits ownership” (Emphasis added).[32] In other words, it plainly includes someone who is a legal owner of the shares.

(2)  Thus, in an earlier letter dated 14 February 2017 in which the defendant made disclosure to Nam Tai, the defendant disclosed the amount of Nam Tai shares which he “beneficially own[s] directly or indirectly” any interest in Nam Tai.

(3)  Furthermore, when the “inquiry” into the defendant’s interest in Nam Tai started in June 2017, the 4^th plaintiff himself first used the language of beneficial ownership.  In this regard:

(a)  The e-mail sent by the 4^th plaintiff to the defendant on 22 June 2017 was titled “Form 20F disclosure of director’s beneficial ownership”. 

(b)  The same title was used in many of the subsequent correspondence.  By way of example, the e-mail sent by the 4^th plaintiff to the defendant on 26 June 2017, as well as the defendant’s exchange with Lorne Waldman, all bear the same title.  

(4)  In his oral evidence, the defendant has also clarified that the 4^th plaintiff was at the time concerned about “beneficial interest” in the Nam Tai shares held by the defendant.[33] In view of all the above matters, it is not difficult to understand why the defendant would have adopted the terminology “beneficial interest” in describing his disposal of the Lully Shares.

(5)  It is plain that everyone was talking about the “beneficial interest” in the Nam Tai shares in the US securities law sense.  Even in Julian Lin’s email on 14 September 2017, when it was clear to everyone that the discussion concerned the defendant’s former ownership of shares in Lully, Julian Lin was still saying that “the Company are concerned with historically disclosure concerning the beneficial ownership of Nam Tai shares by you” (Emphasis supplied).  Likewise, at point 5 on [C3/581], Julian Lin stated that “As an indirect, but beneficial holder of Nam Tai shares through Lully, you had disclosure obligations to state your beneficial ownership from time to time.” (Emphasis supplied).

(6)  In any event, the defendant had clarified that all he wanted to say was that “there’s nothing under [his] name”.[34] Consistently, the defendant expressly denied that he was making any distinction between legal and beneficial interest in his answer to Lorne Waldman, and the defendant confirmed that how the expression “beneficial interest” was used all depended on the context in which such expression was used.  There is simply no basis to think that the defendant was carefully crafting his answer to Lorne Waldman and making a distinction between legal and beneficial ownership.

119.  By contrast, the answer given by the defendant in the Answer to F&BP arises in a different context.  In the Answer to F&BP:

(1)  The defendant was responding to a different question, namely, whether he had disposed of the “legal interest, equitable interest or both legal and beneficial interest” in the Lully Shares.

(2)  Given that the defendant’s view was that by reason of the 1992 Disposal “there’s nothing under [his] name”, it is entirely natural for the defendant to state in the Answer to F&BP that both “legal and beneficial interest” has been disposed of. 

(3)  Indeed, the defendant himself also confirmed that he used the terminology of “legal and beneficial interest” in the Answer to F&BP because he was asked a different question.[35]

G.  NO VIABLE CASE OF TRUST EVEN ON THE 4^TH PLAINTIFF’S EVIDENCE

120.  The defendant submits that:

(1)  The Alleged Trust cannot be viably constituted as a fixed trust.  This is because a fixed trust is one in which a beneficiary has a current fixed entitlement to an ascertainable income or net capital of a trust fund after deduction of sums paid by the trustees in the exercise of their administrative powers of management.  The 4^th plaintiff’s evidence however is that the share of interest was intended to be unequal.[36]

(2)  Nor can there be a discretionary trust.  First, this legal consequence is expressly denied by the 1^st to 3^rd plaintiffs.  Further, there is completely no plea by the plaintiffs that there was any express declaration or implied understanding between the defendant and the 4^th plaintiff regarding any discretion vested in the defendant.  It matters not that the 4^th plaintiff said in evidence that the defendant’s discretion might have been understood though not discussed.  Surely any implied understanding has to be pleaded.   

121.  I do not agree.  The legal consequence of the Alleged 1995 Conversation giving rise to a discretionary trust has been expressly pleaded in paragraph 22 of the Amended Defence, which is a finding that the court can make if the plaintiffs’ factual case is proved.

H.  THE PLAINTIFFS’ CLAIM BARRED BY LACHES

122.  Due to my findings in favour of the defendant made in Sections E and F above, it is strictly speaking not necessary to make a ruling on the issue of laches.

123.  But in case I am wrong, I would briefly state that I agree with the following submissions of the defendant on the question of laches.

124.  In determining whether a claim is barred by laches, the court must determine whether, having regard to all the circumstances, it is “practically unjust” for the court to give a remedy: Beijing Hantong Yuzhi Convention Centre Ltd v Lao Yuan Yi [2018] HKCFI 1030 at §105. 

125.  There is no preconceived formula for determining whether laches is made out or not, but it may apply “where by his conduct and neglect [a party] has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted” (Emphasis supplied): Beijing Hantong at §105.

126.  When the Alleged Trust was first mentioned to anyone in 2017, some 22 years had already passed from when it had allegedly arisen by virtue of the Alleged 1995 Conversation.  It is clearly unjust for the Alleged Trust to be enforced in such circumstances.

127.  Without prejudice to the above, even if some degree of knowledge/suspicion of a breach of trust is required for laches to be applied to debar a claim, this requirement would have been amply satisfied on the facts. 

128.  In this regard, all of the plaintiffs’ claims are based on the 4^th plaintiff’s evidence and contentions as the alleged settlor of the Alleged Trust.  Further, as the 1^st plaintiff confirmed, it was the 4^th plaintiff who had control of the direction of these proceedings (and that was why she was unfamiliar with what documents had been disclosed in these proceedings).

129.  Now, even on the 4^th plaintiff’s case, he would have sufficient knowledge to act earlier:

(1)  He could have asked for an account or at least some form of update since the alleged declaration of trust in 1995.

(2)  As mentioned above, by 2001 when the defendant had disclosed that he only held minimal interest in Nam Tai, the 4^th plaintiff ought to have raised queries.

(3)  Latest by May/June 2014 when the 2014 Arrangement was entered into, when it became necessary for the Chu Children to chip in funds to support their mother, it was unfathomable why the 4^th plaintiff did not even say one single word about the Alleged Trust.

130.  The plaintiffs’ failure to take action at any of the above points in time significantly hampers the defence of the defendant’s case because there was meanwhile a significant loss of evidence which may corroborates the defendant’s case or prove his innocence.

131.  Insofar as witnesses are concerned, Mr Tan, the purchaser of the Lully Shares, had passed way in January 2017, and was unable to give evidence on the 1992 Disposal.  As for the defendant, he was also unable to recollect the circumstances surrounding the 1992 Disposal due to lapse of time. 

132.  Insofar as documentary evidence is concerned:

(1)  Documents – which may have existed or may be identified with more precision by the defendant, and which could have proven the 1992 Disposal – have been lost, partly because of the various relocations of the defendant’s office.  As a matter of fact, the defendant could not even tell what documents he may have signed in relation to the 1992 Disposal.

(2)  More importantly, if these proceedings had been commenced earlier in time, discovery may have been made in relation to documents in the 4^th plaintiff’s possession, which may undermines the plaintiffs’ case or prove the defendant’s innocence.  These documents include, (a) all documents relating to the internal administration of Lully (such as its register of members); (b) all documents relating to the defendant’s appointment as INED, and which may have been stored in the same dossier containing the 1992 Fax; (c) the “Koo Letter of 12/18/96” as referred to in the 1996 Distribution Sheet; and (d) any other documents which may have been in Mark Klein’s possession relating to the 1996 Distribution Sheet.

133.  Clearly, there is extreme delay in the commencement of this action by the 4^th plaintiff, which is the fault of the 4^th plaintiff (not the defendant), and the defendant had suffered significant prejudice as a result.  As the 1^st to 3^rd plaintiffs are only claiming through the 4^th plaintiff’s allegations, it cannot be right that the defendant is then made to suffer from all the difficulties resultant from this extreme delay.  The plaintiffs’ case should therefore be defeated by laches.

I.  CONCLUSION

134.  For the reasons set out above, I find that:

(1)  The Alleged 1995 Conversation did not take place. 

(2)  The defendant sold the Lully Shares to Mr Tan in 1992 at a consideration of about HK$4 million and informed the 4^th plaintiff about it at or about the time that the defendant was appointed as an INED of Nam Tai.

(3)  No trust was created over the Lully Shares because of the 1992 Disposal and because the Alleged 1995 Conversation did not take place. 

(4)  The plaintiffs’ claim against the defendant is in any event debarred by reason of laches and/or acquiescence.

135.  Accordingly, the plaintiffs’ claims against the defendant in this action must be dismissed in their entirety.

136.  Further, I order that the costs of the action (including all costs reserved, if any) be paid by the plaintiffs to the defendant, such costs are to be taxed if not agreed with a certificate for 2 counsel.  

137.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

138.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.