LI TIN SANG v. POON BUN CHAK AND OTHERS

HCA 2038/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2038 OF 1997

____________________

____________________

____________________

J U D G M E N T

____________________

1. This action concerns 300,000 shares in a company called Megawell Industrial Limited (''Megawell'') which were, prior to 1 January 1992, registered in the name of the plaintiff (''the Shares''). The plaintiff claims a declaration that the Shares were held by the 2nd defendant (as nominee of the 1st defendant and under his direction) and subsequently by the 3rd defendant on trust for him. The plaintiff also claims a declaration that the considerations for the transfers or sales of the Shares from the 2nd defendant to the 3rd defendant and from the 3rd defendant to one Trustland Inc. ('' Trustland'') were received by the 2nd and 3rd defendants on trust for the plaintiff. The plaintiff further seeks orders for enquiries into the circumstances whereby the Shares were transferred or sold and what has become of the consideration paid for the transfers or sales, and for account and payment of the dividends, income, interest and benefits derived from the Shares. Additionally, the plaintiff also claims damages in breach of trust and/or procurement of breach of trust.

The Background

2. Much of the background leading to this action is not in dispute and is set out below.

3. The 1st defendant is the chairman and managing director of Texwinca Holdings Limited ('THL'), a company listed in the Hong Kong Stock Exchange since 6 August 1992. THL is within a group of companies that can be conveniently referred to as the Texwinca Group. The Texwinca Group is principally engaged in the textile and garment business. Apart from THL, there are no less than 10 companies within the Texwinca Group. For the present purposes, the important ones comprise:

Names of companies	Years of incorporation or acquisition	Business engaged in
Tak Shun Knitting Factory Ltd. ('Tak Shun')	1975	Fabric knitting
Nice Dyeing Factory Ltd. ('Nice Dyeing')	1983	Fabric dyeing
Winson Knitting Factory Co. Ltd. ('Winson')	1986	Knitting
Nice View Dyeing & Bleaching Ltd. ('Nice View')	1990	Yarn dyeing

4. At the time THL was listed, the 1st defendant was interested in more than 360 million shares in THL through the 3rd defendant and through a company called Giant Wizard Corporation ('Giant Wizard').

5. In 1989, the plaintiff met the 1st defendant. The plaintiff was then a director and shareholder of a company called Texbloom Limited ('Texbloom'), which was within the Lai Sun Group of companies. Texbloom was engaged in garment dyeing. It is not really in dispute that the plaintiff had considerable experience and expertise as a dyeing technician, although there is some disagreement as to the extent of his reputation.

6. The plaintiff resigned from Texbloom and sold his shareholding in Texbloom, and joined Nice Dyeing as a director on 1 October 1989. He was mainly responsible for the production line and the technical side of the company. On 4 May 1990, he was allotted 6250 shares of $100 each in Nice Dyeing whereupon he became a 20% shareholder of the company. Further on 10 May 1991, the plaintiff was allotted 450,000 shares at $1 each in Nice View. This represents 10% of the shareholding in Nice View. When THL was listed in 1992, the plaintiff was given over 10 million shares in THL. The public offer price was $1.03 per share. The plaintiff was also made a director of THL. It is common ground that the plaintiff did not pay for these shares; they were all paid by the 1st defendant.

7. On 17 June 1994, the plaintiff tendered his resignation and he left Nice Dyeing and THL on 1 October 1994.

8. The 2nd defendant came from the same native village as the 1st defendant. He came to Hong Kong from the Mainland in 1986. In 1987, he joined Tak Shun as a technician. For a period of time in 1989, he was also involved in Winson. Since 1991, he started working for Nice View and is now working in the Mainland consequential upon the relocation of the production line to Dungguan.

9. The 3rd defendant is a trust entity for the 1st defendant and his family. It is controlled by the 1st defendant.

10. Megawell was acquired on 3 November 1989. It is a garment factory that started business in 1990. It has a share capital of $3 million divided into 3 million shares. There were 5 shareholders and directors. Their shareholdings are as follows:

1st defendant	900,000 shares (30%)
plaintiff	300,000 shares (10%)
1st defendant's brother,	300,000 shares (10%)
Poon Kei Chak ('KC Poon')
Wong Kwok Keung ('KK Wong')	750,000 shares (25%)
Li Kwok Leung ('KL Li')	750,000 shares (25%)

It is common ground that all the $3 million share capital was provided by the 1st defendant. There is however dispute as to whether the share capital was provided by him by way of gift or by way of advancement.

11. On 1 January 1992, the 1.5 million (50%) shares in Megawell held under the names of the plaintiff, the 1st defendant and KC Poon were transferred to the 2nd defendant at a nominal value of $1. The 3 of them also ceased to be directors of Megawell. There is no dispute that the transfer was to facilitate the listing of THL. Essentially, as Megawell obtained its fabric supply from Nice Dyeing and other companies in the Texwinca Group, it was one of the trading customers of the Texwinca Group. Since the plaintiff, the 1st defendant and KC Poon were shareholders of both Megawell and THL; this would give rise to double-dealing and position of conflict and may cause problems to the listing of THL. Therefore acting on advice, the three of them disposed of their shares in Megawell.

12. It is common ground that the 2nd defendant had not paid the $1 consideration. There is also no issue that, despite the transfer of shares, the three of them continued to act as guarantors, jointly with KK Wong and KL Li, to the banking facilities extended to Megawell. Further, the 1st defendant continued to operate the bank account(s) of Megawell and sign cargo receipts for Megawell.

13. According to the audited accounts of Megawell, it was trading at a loss by 31 March 1992. It began to make a profit in the year ending 1993, and substantial dividends were declared and paid in the same year and the years that ensued.

14. On 9 October 1995, the 2nd defendant sold the 1.5 million Megawell shares standing in his name to the 3rd defendant at $ 21 million (i.e. $14 per share). It is the 2nd defendant's case, and which is not disputed that he had not collected this $21 million and that it was kept by the 1st defendant at his disposal.

15. The transfer of the 1.5 million Megawell shares from the 2nd defendant to the 3rd defendant was announced in the newspaper prior to the transfer being effected. On learning of the news, The plaintiff caused his solicitors to write to the solicitors acting for the 2nd and 3rd defendants asserting a trust over the Shares and objecting to the proposed transfer. The allegation was refuted by the solicitors acting for the 2nd and 3rd defendants.

16. On 18 February 1997, the 3rd defendant announced its conditional agreement with Trustland regarding the sale of the 1.5 million Megawell shares. On 26 February 1997, the plaintiff commenced these proceedings. On 1 April 1997, following the approval of the sale by the General Meeting of THL, the 1.5 million Megawell shares were sold by the 3rd defendant to Trustland. Trustland is a wholly owned subsidiary of THL.

17. Apart from the present action, the plaintiff and the 1st defendant have also been involved in several other litigation. On 3 April 1997, the plaintiff commenced HCA 3397/97 against the 1st defendant and Giant Wizard, claiming declaration of trust over some 21 million shares in THL registered in the name of Giant Wizard. The action was wholly discontinued in March 1998. Also on 16 September 1997, the plaintiff instituted HCA 9767/97 against Trustland seeking relief similar to those in the present action over the 1.5 million shares. Then on 13 October 1997, the 1st defendant brought HCA10769/97 against the plaintiff to recover 7 loans, totalling over $16.4 million.

The Action

18. The plaintiff's case is that the Shares were transferred to the 2nd defendant to be held on trust for him. It is pleaded in the Further and Better Particulars of the Amended Statement of Claim that the plaintiff's claim against the 2nd defendant is not one of express trust, but of constructive and/or resulting trust in law. The trust is said to arise from the fact that despite the transfer, the plaintiff continued to take part in the management of Megawell and was also paid the dividends arising out of the Shares, and that the 2nd defendant had not paid for the Shares. The plaintiff further relies on a telephone conversation he had with the 2nd defendant in early 1995 in which it is said that the 2nd defendant had acknowledged the plaintiff's beneficial interest in the Shares. The conversation had been taped and the recording and transcript were in evidence.

19. In the case of the 3rd defendant, the plaintiff says that in receiving the Shares with knowledge or constructive notice of the same were held by the 2nd defendant on trust, it has become a constructive trustee.

20. As against the 1st defendant, the plaintiff says that he procured a breach of trust by directing the 2nd defendant to transfer the Shares to the 3rd defendant and by permitting or directing the 3rd defendant to accept them and subsequently to transfer them to Trustland.

21. The defendants, on the other hand, deny any allegation of trust. While the 1st defendant accepted the transfer of the 1.5 million shares in Megawell to the 2nd defendant was prompted by the listing of THL, the defendants' case is that the transfer was an outright transfer of both the legal and beneficial interest. According to the defendants, Megawell was then suffering great loss and the shares were of no value. They dispute the allegations that the plaintiff took part in the management of Megawell after the transfer. The 1st defendant accepts that he had paid sums of money to the plaintiff, but deny that they represent the plaintiff's share of the dividends arising from the Shares. The 1st defendant says that they were advancements made to the plaintiff at his requests, and they form part of the 1st defendant's claim under HCA10769/97. The 2nd defendant also disputes that he had in the telephone conversation acknowledged he held the Shares on trust for the plaintiff.

The Issue

22. The central issue in this action is whether the Shares were transferred to the 2nd defendant to hold on trust for the plaintiff. It is primarily an issue of fact to be determined by the credibility of the parties.

The Witnesses and the Evidence

(1) The Plaintiff

23. The plaintiff testified that he first met the 1st defendant when the latter paid a visit to him in his factory. He was then enjoying a substantial reputation in the textile trade as a skillful dyeing technician. He had also been instrumental in establishing Texbloom and its success. The plaintiff said that he was invited by the 1st defendant to join Nice Dyeing, and that they had reached agreement on the terms of his joining Nice Dyeing. According to his evidence in court, the terms include:

(a) allotment of 20% shareholding in Nice Dyeing;

(b) provision of a Mercedes Benz for the plaintiff's use;

(c) payment of the plaintiff's tax liability;

(d) sharing in the commission or rebates from purchases made by Nice Dyeing;

(e) counting the plaintiff in when the 1st defendant or his companies developed new items, meaning that he would be given shares in the new endeavours;

(f) the plaintiff resigning from Texbloom and giving up his shares in Texbloom in return.

24. The plaintiff's evidence is that the 1st defendant already conceived the idea of having one of his companies listed as a public company, and that listing was the common objective of the 1st defendant and him. The plaintiff said that Megawell was acquired as part of the expansion of the 1st defendant's group of companies and in preparation for listing. KK Wong and KL Li were senior staff from Giordano, a well-known local garment producer. The plaintiff claimed that the three of them together formed a strong team and Megawell would add a useful limb to the 1st defendant's group of companies. The plaintiff acknowledged that the audited accounts of Megawell showed losses in the first 2 years of its operation, but he said that these were only losses on paper. He explained that Megawell had incurred heavy capital layout as a new company and had also invested in the setting up of new workshops. He said that Megawell started to make a profit in 1991 or 1992 and dividends were eventually declared in 1993.

25. The plaintiff agreed that he did not pay for the Shares. He said the 1st defendant told him at the time that it was small money and that it could be settled when dividends were declared. Then in about the end of 1991, the 1st defendant told him that the Shares had to be transferred to a third person to avoid conflicts, but that the benefits and future profits arising from the Shares remained with the plaintiff, notwithstanding the transfer. The plaintiff said that he executed the transfer papers in reliance of the assurances.

26. The plaintiff gave evidence that the management and operation of Megawell remain unchanged after the transfer. The five of them continued to be involved in the operation. The bank mandate was however changed and the plaintiff ceased to be a signatory. The five of them remained as guarantors to the bank facilities granted to Megawell.

27. It is the plaintiff's evidence that, after the transfer, he had received through the 1st defendant 3 dividend payments as follows:

28 May 1993	$180,000
11 October 1993	$108,000
4 February 1994	$600,000

The plaintiff said that the first payment was in respect of the first interim dividend of $1.60 per share declared on 5 March 1993. The plaintiff's entitlement was $480,000 (i.e. 300,000 x $1.60), and after deducting the $300,000 share capital, it came to $180,000. The plaintiff said he did not know why the 1st defendant did not also pay him the second interim dividend of $0.35 each share declared on 31 March 1993.

28. As to the second payment, the plaintiff said that, some time after the first payment was made, the 1st defendant told him that interest had to be charged on the share capital, but the interest rate was not specified. When the 1st defendant gave him the cheque for the second payment, he told the plaintiff that it was the dividends of the Shares, after deducting the interest on the share capital. The calculation for the interest was however not made known. As for the third payment, the plaintiff said that it represented the 1st interim dividend of $2 each share declared on 18 January 1994 (i.e. 300,000 x $2 = $600,000).

29. The plaintiff denied the 1st defendant's allegation that these sums were loans. He adduced evidence on the records of the joint accounts held by him and his wife. They show that in June 1993 there was over $4.9 million in the accounts and over $5.4 million in October 1993. As at February 1994, the balance was $770,000.

30. The plaintiff also gave evidence on the telephone conversation he had with the 2nd defendant in early 1995. It was said that during the conversation, the 2nd defendant had agreed with the plaintiff's suggestion that some of the Megawell shares had been shifted to the 2nd defendant to hold temporarily.

31. In cross-examination, the plaintiff accepted that he had been treated generously by the 1st defendant. He was offered $100,000 as salary in the first month, which he declined as being too much. He only accepted $50,000. He agreed that he had been paid over $10 million in the 5 years he worked for the 1st defendant, in addition to the shares given to him and the dividends arising from these shares. The plaintiff further agreed that the 1st defendant had made interest-free loan of $500,000 to $600,000 to him within months of his joining Nice Dyeing to enable him to purchase a flat in Wonderland Villa. The plaintiff also said that another interest-free loan of $8 million was made to him in early 1993, which he claimed was paid off in May 1993.

(2) The 1st Defendant

32. As for the 1st defendant, his evidence is that he could not recall clearly how he came to meet the plaintiff. He said some time after that, the plaintiff mentioned to him during a lunch gathering that he had some arguments with his boss, whereupon the plaintiff asked him whether he would be interested in joining Nice Dyeing. The 1st defendant explained that one of his directors, Lui Kwok Chi, was planning to emigrate and he was looking for a technician to join Nice Dyeing. About 2 weeks later, the plaintiff telephoned him to say that he would join Nice Dyeing. It is the 1st defendant's evidence that nothing was said, let alone agreed, about the terms of the plaintiff working for Nice Dyeing. He denied any agreement on the terms stated by the plaintiff in his evidence. He however agreed that the salary was not mentioned, though he had in mind a monthly salary of $100,000, which was 4 to 5 times that of the market salary.

33. The 1st defendant explained that he had given shares in Nice Dyeing, Nice View Dyeing and other companies to the plaintiff as an incentive to encourage him to work diligently for the company. He said that it was his style to treat able staff nicely because by giving them handsome rewards, they were less likely to quit.

34. The 1st defendant's evidence on Megawell is that he was approached by KK Wong and KL Li to cooperate in the setting up of a garment business. The discussions involved only the three of hem. It was eventually agreed that KK Wong and KL Li would jointly hold 50% of the shares and he would hold the remaining 50% in the new company. The share capital was agreed at $3 million to be provided by the 1st defendant. KK Wong and KL Li would be responsible for the operation and management of the company. Out of his 50% shares, the 1st defendant said he gave 10% each to KC Poon and the plaintiff. The 10% was given to the plaintiff as an incentive as the 1st defendant hoped that he would be more vigilant with the fabric to be dyed and supplied by Nice Dyeing to Megawell. The 1st defendant said he had not asked for payment of the shares in Megawell and had also not received payment for them.

35. According to the 1st defendant, the idea of listing was not conceived until after 1990 and as a result of suggestions from some officials of his banker. The preparations were only carried out in 1991. The acquisition of Megawell was not part of the plan of listing. The 1st defendant said that Megawell was a failure in the first 2 years of its operation. It has incurred substantial loss. Therefore there was no intention to include it in the listing exercise. His financial director, Simon Ting, however advised him because of the common directorship in THL and Megawell, it might cause problems in the listing of THL. Two options were suggested by Simon Ting. The first option was to wind-up Megawell. It was considered not viable as Megawell was heavily indebted to the companies within the Texwinca Group and its dissolution would cause harm to the Group. Dissolution of Megawell would also affect the 1st defendant as he had given personal guarantee over its indebtedness. The other option was to sell the shares in Megawell, but given the loss suffered by the company, it was unlikely to attract any buyer.

36. Eventually, the 1st defendant decided to give the 50% shares to the 2nd defendant to let him have a try. The 1st defendant said he related this idea to the plaintiff and the plaintiff did not object. He told the 2nd defendant about this and also promised the 2nd defendant that he would remain responsible for the finance of the company. The $1 nominal value was suggested by Simon Ting. The 1st defendant said that it was under such circumstances that the Instruments of Transfer came to be executed. His evidence is that the Megawell shares were basically worthless at that time. He referred to the audited account for the year ending 31 March 1992 and pointed out that it recorded an accumulated loss of $8.3million. He denied having assured the plaintiff that the future benefits and profits of the shares would remain with the plaintiff despite the transfer. In the 1st defendant's evidence, it was his decision to give the 1.5 million shares to the 2nd defendant and that was final. At the time, nobody was bothered about the shares in Megawell as all the attention was focused on the listing of THL.

37. The 1st defendant explained that he continued to sign cheques and cargo receipts for Megawell as he wanted to retain control over the expenditure and accounts of Megawell. The control was necessary because he continued to be responsible for the finance of the company. As to the fact that the 5 original shareholders remained as guarantors after the shares were transferred to the 2nd defendant, the 1st defendant's explanation was that any change would prompt the bank to review the credit facilities granted to Megawell. In view of the loss suffered by Megawell, problems may arise if the bank were to conduct a review.

38. The 1st defendant said the 3 sums of $180,000, $108,000 and $600,000 were loans and not payments of dividends. He said that these were only part of the loans he advanced to the plaintiff on the latter's requests. He gave evidence that the plaintiff often requested for advancements through Simon Ting and the accountant. He said that the plaintiff would lose temper and caused nuisance in the office when he had liquidity problem or needed an advancement.

39. As to the sale of the 1.5 million Megawell shares by the 2nd defendant to the 3rd defendant, the 1st defendant explained that in 1995, the Texwinca Group was wanting to set up a garment retail business and was in need of a garment manufacturing factory. Consequently, the 2nd defendant was asked to sell the Megawell shares to the 3rd defendant, which was his personal company. Owing to the common shareholding of the 3rd defendant and THL, disclosures of the transactions between Megawell and THL had to be made in the annual reports of THL. By 1996, the garment retail business was in operation and under THL's control. Accordingly in 1997, the Megawell shares were sold to Trustland. In so doing, Megawell became 50% owned by THL and became part of the Texwinca Group.

40. The 1st defendant was cross-examined on the management account of Megawell made up to 31 December 1991. It was suggested that if the difference between the closing stock as at 31 December 1991 and the opening stock as at 1 April 1991 was taken into account, then the profit for the period between 1 April and 31 December 1991 would be increased by over $ 8 million. The 1st defendant was unable to deal with this as he said he was not familiar with accounting. As a result of this line of cross-examination, the Financial Controller of the Texwinca Group was called to explain the accounts, a matter that I shall return later.

41. The 1st defendant was cross-examined as to why within months from the transfer of the shares, the loss of Megawell was significantly reduced and the company was able to make profits and declare dividends. The 1st defendant's explanation is that the prospect of Megawell was improving by the end of 1991 because there were customers from Giordano. In re-examination, the 1st defendant stated that the management account made up to 31 December 1991 did not come into existence and was not available for reference and consideration in late 1991 when the transfer of the Megawell shares was contemplated. At that time, they could only refer to the audited account for the year ending 31 March 1991 in assessing the financial position of Megawell.

42. The 1st defendant was further cross-examined on the accounts of Megawell as regarding the loans due from KK Wong and KL Li and loan due to the 1st defendant. He agreed that it was possible that the accounts had treated the $1.5 million share capital he paid on behalf of KK Wong and KL Li as advancement to Megawell and recorded the capital of KK Wong and KL Li's shares as loans due from them. The 1st defendant however maintained that he had received no payment from the two for the 1.5 million shares allotted to them.

(3) The 2nd Defendant

43. As for the 2nd defendant, he testified that it was the 1st defendant's idea that he be given 50% of the Megawell shares. He said the 1st defendant told him that the shares had no value. He was later made a director of Megawell, but he only dealt with the supply of raw material, which was his area of expertise. KK Wong and KL Li were responsible for the production and sales whereas the 1st defendant was responsible for the finance of the company. He attributed the success of Megawell in the period after 1992 to the change in market strategy and focus and also improved management.

44. As to the sale of the shares to the 3rd defendant in 1995, the 2nd defendant said that the price was fixed by the account office of the Texwinca Group. He stated that he did not collect the $21 million and it was left with the 1st defendant. He explained that he had already obtained a lot of money from the dividend payments and he did not know what to do the money.

45. In relation to the telephone conversation, the 2nd defendant's evidence is that the call was unexpected as he did not give his telephone number to the plaintiff. He said he was taken by surprise when the plaintiff suddenly changed the subject and referred to the shares in Megawell. He said he was confused and was just repeating after the plaintiff when he used the expressions 'yeah' and 'yes'; he was not agreeing with the plaintiff's suggestion that the shares were shifted to him to be held temporarily. He was also merely trying to clarify with the plaintiff what he was referring to when he asked whether the plaintiff wanted to have his portion back.

(4) Mr Edward Chan

46. Apart from the parties, the only witness called at the trial is Mr Edward Chan, the Financial Controller of the Texwinca Group. He was called to deal with the accounts of Megawell and in response to the cross-examinations of the 1st defendant on the management accounts of Megawell. He pointed out that the suggestion of adjusting the management account to take into account the difference between the opening stock position and closing stock position was due to a misreading and misunderstanding of the accounts. He agreed under cross-examination that the management account made up to 31 December 1991 did contain serious discrepancies, but because he did not have a complete set of the ledgers with him, he was unable to account for the discrepancies.

The Findings

47. In assessing the evidence adduced in this case, it is important to bear in mind that the plaintiff bears the burden of making good his claim that the Shares were transferred to the 2nd defendant to hold on trust for him.

48. In my judgment, the plaintiff has failed to demonstrate that his evidence and his account are credible. In the first place, his evidence on the terms for his joining Nice Dyeing as agreed between him and the 1st defendant orally is plainly different from his pleaded case and his witness statement. While he said in Court that he was specifically promised 20% of the shares in Nice Dyeing, the Re-Amended Statement and the witness statement merely refer to blocks of shares in one or more companies in the Texwinca Group or in other companies to be decided by the 1st defendant. Although the Further and Better Particulars of the Amended Statement of Claim had referred to shares in Nice Dyeing, there was no reference to any percentage. All the other terms referred in his oral evidence, such as the provision of a Mercedes Benz, the payment of his tax and to share in the commission or rebates, were not pleaded nor mentioned in his witness statement. No explanation was given as to why he would omit to mention these important and attractive terms in the pleading and the witness statement, but could recall them when he gave evidence in Court, bearing in mind that the oral agreement was made some 10 years ago.

49. The plaintiff's evidence that one of the terms of his employment is that Nice Dyeing would pay for his tax is also not supported by the other evidence before the Court. Although the employer's returns show that Nice Dyeing had paid for the plaintiff's salary tax for 1989 to 1992, the documents do not disclose a consistent pattern of the tax being paid by Nice Dyeing. On the contrary, they show that Nice Dyeing only paid the plaintiff's tax for 1989/90 after May 1991 and for 1990/91 and

1991/92 after March 1993, well after the time due for payment and after reminders and further demands from the Inland Revenue Department had been issued. There is also no record of Nice Dyeing paying for his tax for the year 1992/93, which should be payable in early 1994 when the plaintiff remained on good terms with the 1st defendant.

50. The plaintiff's evidence on the 3 dividend payments is further in my mind most unconvincing. The first two payments simply do not match with the dividends declared by Megawell at the material time. By the time the first payment of $180,000 was made, Megawell had already declared two interim dividends of $1.60 and $0.35 per share respectively. There is no reason why the 1st defendant would only give him the first declared dividend and not the second. It would have been more convenient to give him both dividends and then to deduct the share capital and the interest at one go.

51. As to the second payment of $108,000, it was given at a time when the final dividend for the year ending 31 March 1993 was not yet declared. I say so because it was only in the directors' report dated 12 November that it was recommended that a final dividend of $0.37 be paid. Hence, the only dividend that had been declared and not paid over to the plaintiff would be the second interim dividend of $0.35 per share. The plaintiff's entitlement on the second interim dividend only came up to $105,000 (i.e. 300,000 x $0.35), which was less than the $108,000 he was given. Yet the plaintiff said that this amount had already allowed for deduction of interest on the $300,000 share capital.

53. As to the third payment of $600,000, although it tallies with the first interim dividend for the year ending 31 March 1994, it does not account for the final dividend of $0.37 per share for the year ending 31 March 1993. As pointed out, this final dividend was only declared after the second payment of $108,000. There is no explanation why the plaintiff was not given this.

54. As a matter of fact, the plaintiff's account that the 1st defendant required him to pay for the Shares together with interest does not sit comfortably with the evidence on the 1st defendant's personality and his other dealings with the plaintiff. Admittedly, the 1st defendant had been extremely generous towards the plaintiff by giving him shares in Nice Dyeing, Nice View and THL. There is no justifiable reason to treat the shares in Megawell differently. The plaintiff suggests that the reason for the difference lies in the fact that two outsiders, KK Wong and KL LI, are involved in Megawell. That in my view is unsustainable. It is evident from the distribution of the shareholding that Megawell is essentially a cooperation between the 1st defendant on the one hand and KK Wong and KL Li on the other hand. Irrespective of whether KK Wong and KL Li were required to pay for their shareholding, it is entirely within the 1st defendant's prerogative as to how he would like to arrange his 50% shareholding. He did not consult KK Wong and KL Li before allotting 20% of the shares to KC Poon and the plaintiff. Neither were they consulted before the 50% shares were transferred to the 2nd defendant. The 1st defendant, being the financier of Megawell, it is not surprising that he was at liberty to decide on how his 50% shares were to be held or dealt with. Therefore, it is not a convincing reason to ask the plaintiff to pay for the Shares together with interest even if KK Wong and KL Li had to pay for their shares.

55. Looking at the evidence as a whole, it is not difficult to see that the plaintiff was instrumental to the process of listing of THL. In February and March 1992 when plans for listing were in progress, the plaintiff was allotted a total of 639 shares in Trustland without payment. At about the same time, he also sold his shares in Nice View to Trustland in exchange for 729 Trustland shares. Shortly afterwards in May 1992, he sold 930 Trustland shares to Giant Wizard in exchange for 930 Giant Wizard shares. Shortly before the listing of THL, the plaintiff sold his 20% Nice Dyeing shares to Trustland and also sold his remaining shares in Trustland to THL in exchange for THL shares. The pattern that emerges suggests that the plaintiff came to hold shares in the companies of the Texwinca Group as and when directed by the 1st defendant. He would give up the shares either absolutely or in exchange for shares of other companies as and when required by the 1st defendant and in accordance with the plan for listing.

56. The transfer of the Shares along with the other 40% shares to the 2nd defendant is just another step in the plan leading to the listing of THL. That being the case, there is no conceivable reason why the 1st defendant would want the plaintiff to retain beneficial interest in the Shares after they were transferred to the 2nd defendant. As the 1st defendant said under cross-examination, he is the big boss and has supreme authority in and ultimate control of the companies and the Texwinca Group. He made the decision and the others simply comply. The suggestion that the 1st defendant would repeatedly assured the plaintiff that he retained the future benefits and profits in the Shares despite the transfer is, in my view, inherently improbable.

57. In my judgment, the truth is as what the 1st defendant said, the Shares were given to the plaintiff free from payment. As and when the need arose for the Shares to be divested so as to facilitate the listing of THL, the plaintiff simply complied with the wish and decision of the 1st defendant. The reality is at the time, all the attention was focused on achieving the listing of THL, and all other matters were relatively unimportant and not worthy of much consideration. Irrespective of whether the loss incurred by Megawell was mere loss on paper or actual loss, the value of the Shares was no comparison to the prospect and potential of THL and its shares. It is not an over-statement to say that the 1st defendant would do all that was within his power to attain the listing of THL and the plaintiff would just comply with any directions of the 1st defendant in this regard. It is against such a background that the Shares were transferred to the 2nd defendant. It is inherently improbable that there would be any discussion or agreement between the plaintiff and the 1st and/or 2nd defendant that the Shares were to be held on trust for the plaintiff.

58. As far as the 2nd defendant was concerned, he was in a similar position as the plaintiff. He was merely carrying out the 1st defendant's instruction in receiving the 50% shares in Megawell. The fact that he did not pay the nominal consideration and did not receive the $21 million stated consideration when the 50% Megawell shares were sold to the 3rd defendant suggests that he was the nominee of the 1st defendant in holding these Megawell shares. To say the least, that is how he perceived his role to be in relation to the Megawell shares.

59. That is also reflected by the 2nd defendant's responses and replies in the telephone conversation he had with the plaintiff in early 1995. As he said, the call and the subject matter took him by surprise. Having listened to the tape and looking at the transcript, I accept his account that when he used the expressions of 'yeah' and 'yes', he was not confirming or agreeing with the plaintiff's suggestion that some shares had been shifted to him to hold temporarily. Looking at the conversation as a whole, it is clear that the 2nd defendant was at a loss. He is a less sophisticated and articulated person than the plaintiff is. During the conversation, he was acknowledging and echoing the questions made by the plaintiff, rather than answering them or affirming their veracity. His spontaneous reaction was to refer the matter to the 1st defendant. That, as mentioned above, is an indication that he considered himself the nominee of the 1st defendant with regard to the Megawell shares. That does not however mean that he acknowledged that the plaintiff had an interest in the shares. The evidence does not reveal that he was involved in the arrangements over the listing of THL. He would not be privy to the arrangement, if any, between the plaintiff and the 1st defendant. As the 2nd defendant said, when he asked whether the plaintiff wanted to have his portion back first, he was merely clarifying with the plaintiff what he was trying to say. The plaintiff had mentioned in the earlier part of the conversation that he wanted to get the shares back.

60. In short, the plaintiff's evidence and case are incredible and inherently improbable. That being the case, he has failed to make good his claim of the Shares being held by the 2nd defendant on trust for him and the action stands to be dismissed. It is therefore not necessary to go into detailed analysis of the 1st defendant's evidence and account. It is sufficient for me to say that the 1st defendant's evidence and account are on the whole more credible and probable than those of the plaintiff's. But that does not mean that all the 1st defendant's evidence is to be accepted without question. Quite clearly, the 1st defendant was trying to belittle the plaintiff and play down his importance when he said that he could easily find a dozen of technicians like the plaintiff. If this were the case, it is difficult to understand why he would offer $100,000 monthly salary and shares in his Nice Dyeing and Nice View to the plaintiff. The 1st defendant was also exaggerating when he said that the plaintiff would bang on tables and walls or even hit people when he wanted a loan or suffered losses in the stock market. It is hard to imagine a big boss would tolerate and acquiesce in such unruly behaviour. However, the fact that there are parts of the 1st defendant's evidence that I do not accept does not assist the plaintiff as it will not add credence to his case; still less will it prove the plaintiff's case.

Conclusion

61. For the reasons indicated above, I do not accept the plaintiff's case that the Shares were transferred to the 2nd defendant to be held by him on trust for the plaintiff. In the premises, the plaintiff's claim is dismissed with costs to the defendants to be taxed if not agreed.