SUN TIAN GANG v. CHANGCHUN HIGH & NEW TECHNOLOGY INDUSTRIES DEVELOPMENT PARENT CO AND OTHERS

HCA 179/2015

[2022] HKCFI 3348

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 179 OF 2015

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JUDGMENT

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1.  This is the trial of preliminary issues for the purpose of determining whether the new claims sought to be introduced by the Plaintiff (“Sun”)  in the draft Re-Amended Statement of Claim (“RASOC”)  are time-barred.

2.  The new claims were sought to be introduced by a Summons filed on 5 March 2018 by which Sun sought leave to (i)  join Geomaxima Holdings Co Ltd (“GH”)  as the 2^nd Plaintiff in this action; and (ii)  amend the ASOC as shown in the RASOC annexed to the Summons.

3.  The RASOC sought to add 4 new claims.  It is common ground that each of them is, prima facie, time-barred (the applicable limitation period of 6 years expired on 29 August 2011 or 22 May 2013).   

4.  Sun seeks to postpone the running of time under the Limitation Ordinance, Cap 347 (“Ordinance”)  by relying on the deliberate concealment provisions under s.26 of the Ordinance.

5.  By a Decision dated 8 November 2018 ([2018] HKCFI 2499)  (“Decision”), DHCJ Le Pichon held that it was not possible for the court to decide the deliberate concealment issue by affidavit evidence.  Allowing the proposed amendments would deprive the Defendants of a limitation defence due to the relation back principle.  Refusing the proposed amendments would prejudice Sun.  In the circumstances, the best course of action would be to order a trial of preliminary issues (Decision, [62]).  

Background

6.  The facts of this case are complex and the factual disagreement between the parties is extensive.  However, there is a Statement of Agreed Facts filed pursuant to this court’s directions from which the key facts agreed by the parties can be found.  Unless indicated otherwise, the facts stated below are not in dispute.

Parties (the 5^th to 7^th, 9^th and 10^th Defendants are not concerned with this trial)

7.  In and prior to August 2005, Sun owned 999/1000 issued shares in China Geomaxima Co Ltd (“CG” and “CG Shares”), a BVI company, which in turn held a 54.85% interest (1,662,795,650 shares)  in GeoMaxima Energy Holdings Ltd (“GEHL”), a Bermudan company listed on the Hong Kong Stock Exchange.  The remaining 1 share in CG was held by Liu Lu Ding on trust for Sun. 

8.  GEHL in turn held 80% interest in Xinjiang XingMei Oil Pipeline Co Ltd (“XM”), a Sino-foreign joint venture operating an oil pipeline in Xinjiang.

9.  In August 2005, Sun was the chairman and an executive director of GEHL.  Guo Ting (“Guo”), a witness of Sun in this trial, was the vice-chairman and an executive director of that company.

10.  Sun was the 100% beneficial owner and sole director of GH, a Hong Kong company, which provided management service to other companies controlled by Sun in Hong Kong, Mainland and overseas, including GEHL (“Geomax Group”).  Guo and the 11^th Defendant (“Cheung”)  were amongst the deputy general managers of GH.

11.  Sun also beneficially wholly owned Sino Champion Ltd (“SCL”), a BVI company, which owned a 90% interest in NingXia Geomaxima Fengyou Chemical Co Ltd (“NXG”), a Mainland company operating a chemical fertilizer factory.

12.  The 1^st Defendant (“CHNT”)  is a PRC state-owned enterprise, headquartered in Jilin Province.  It belonged to Changchun High & New Technology Industries Development Area (“Changchun Development”), a state-owned entity. 

13.  The 2^nd Defendant (“Hong Chang”)  is a BVI company.  The 3^rd Defendant (“Xing”)  was at all material times the sole director and shareholder of Hong Chang.  Xing was also the chairman and executive director of GEHL from late 2005 to March 2009.  She is the wife of Cheung.

14.  According to Cheung, his role in GH as a deputy general manager became defunct following Sun’s arrest in the Mainland on 11 August 2005 (see below).  It is Sun’s case that Cheung was at all material times a shadow director of Hong Chang.

15.  The 4^th Defendant (“Zhang”)  was at all material times until around July 2010 CHNT’s director, general manager and legal representative.

16.  The 8^th Defendant (“Ma”)  joined CHNT in October 2003, and became its deputy general manager since April 2005.  From around June 2010 to 2014, Ma was CHNT’s general manager and legal representative.  He was a non-executive director of GEHL from November 2004, and was re-designated as executor director of the company on 22 August 2005.

17.  The 9^th Defendant (“Wan”)  was the financial controller and company secretary of GEHL prior to 22 August 2005. He was appointed an executive director of GEHL on 22 August 2005.

18.  The 10^th Defendant (“Kong”)  was a director of GEHL from August to December 2002.  He was appointed as non-executive director of GEHL on 22 August 2005.  In March 2009, he became Chairman of GEHL.  In September 2011, he resigned as Chairman and executive director and assumed the position of non-executive director of GEHL.

Representation

19.  In this trial, Sun was represented by Mr Man SC and Mr Man.  CHNT, Zhang and Ma (“CHNT Defendants”)  were represented by Mr Wong Yan Lung SC and Mr Lau.  Hong Chang, Xing, and Cheung (“HC Defendants”)  were represented by Mr A Wong SC and Mr Kwan.

RMB120m debt

20.  By 31 December 2001, GH had obtained an advance of RMB120m from CHNT or its parent (“Debt”).  It was accepted by Sun that the Debt was repayable to CHNT.  The money was originally advanced for the acquisition of a Hong Kong listed company for CHNT, but the listing plan was postponed due to the outbreak of SARS and the economic downturn.

21.  Sun’s case is that partial repayments of the Debt in the sums of RMB5m and RMB19m were made on 7 January 2002 and in August 2003 respectively.  The balance in the amount of RMB96m remained due before he was arrested in the Mainland on 11 August 2005[1].  These repayments are disputed by the Defendants[2].

22.  By a Guarantee dated 31 December 2001 (“GH Guarantee”)[3], GH agreed to pledge 250,000,000 GEHL shares to CHNT to guarantee the Debt.

23.  It is the case of the CHNT Defendants that the Debt was further secured by two other instruments, (a)  a Guarantee dated 6 May 2002 and executed by CG (“CG Guarantee”)  and (b)  a Repayment Agreement dated 9 December 2002 (“CG Repayment Agreement”).  Under these documents, CG agreed to pledge its GEHL shares to CHNT for the repayment of the Debt.  Sun disputes the authenticity of these documents.

ICBC RMB190m loan to XM

24.  On 21 March 2003, XM obtained a loan of RMB190m from ICBC (“XM Loan”)  for the period from 21 March 2003 to 18 March 2011.  The XM Loan was guaranteed by CHNT pursuant to an instrument dated 18 March 2003 (“CHNT Guarantee”).  It might be the case that the XM Loan was obtained, at least in part, for the purpose of repaying the Debt.

25.  By a Counter-Guarantee dated 22 April 2003 (“GH Counter-Guarantee”), GH agreed to use assets up to RMB380m to counter-guarantee CHNT’s liability under its Guarantee.  By a tripartite agreement dated 2 July 2003 (“Tripartite Agreement”), GH and XM undertook to CHNT to use at least 70% of each drawdown of the XM Loan towards repayment of the Debt. 

26.  It is CHNT Defendants’ case that CHNT’s liability under its Guarantee was further secured by another Counter-Guarantee dated 2 July 2003 (“CG Counter-Guarantee”)  under which CG agreed to pledge its GEHL shares as security.  Sun disputes the authenticity of the CG Counter-Guarantee.

CG’s loan from D7 and the Share Charge

27.  On 16 July 2003, CG charged all its GEHL Shares in favour of the 7^th Defendant (“Kingston Securities”)  to secure a loan of HK$30m (“Share Charge”).

28.  Prior to 15 August 2005, the outstanding sum owed by CG to Kingston Securities was HK$18,229,315, and 2 post-dated cheques dated 15 August 2005 had been issued by Sun to the latter in the amount of HK$229,315 and HK$18,000,000 respectively for the repayment of such outstanding sum.  This part of the evidence was controversial, but it was not relevant to this trial save for the Defendants’ challenge to the credibility of Guo.

SCL Guarantee

29.  It is the CHNT Defendants’ case that :

(1)  The Debt was further secured by the “SCL Guarantee” dated 22 April 2004, under which SCL undertook to transfer its Shares in NXG to CHNT in the event that the Debt was not repaid by 30 July 2004;

(2)  By the “GH Undertaking” dated 24 April 2004, GH undertook to partly repay the Debt with any proceeds recovered from its proceedings against 中國吉林國際經濟技術合作公司 in which GH was claiming a sum of US$5m;

(3)  SCL executed an Agreement dated 15 July 2004 with CHNT confirming its guarantee of the Debt (together with interest)  with the NXG Shares.  

Sun disputes the authenticity of all 3 documents.

Debenture

30.  According to the CHNT Defendants, by a Debenture dated 28 July 2004 signed by Sun, Sun charged his CG Shares to CHNT to secure the indebtedness under 9 instruments listed in the Annex to the Debenture, namely :

(1)  A Letter of Intent dated 15 November 2001 and signed between GH and Changchun Development under which GH agreed to assist the latter to enter into the capital market of Hong Kong;

(2)  An Agreement dated 3 December 2001 signed between GH and Changchun Development, under which GH agreed to assist the latter to enter into the capital market of Hong Kong;

(3)  The GH Guarantee;

(4)  The CG Guarantee;

(5)  The CG Repayment Agreement;

(6)  The Tripartite Agreement;

(7)  The CG Counter-Guarantee;

(8)  The SCL Guarantee; and

(9)  The GH Undertaking.

31.  Sun disputes the authenticity of the Debenture.  However, for the purpose of this trial and with the agreement of the parties, the Debenture is assumed to be genuine because the new causes of action are advanced by Sun (and GH)  as an alternative case in the event that the court is against him on the authenticity of the Debenture. 

32.  As regards the 9 Debenture Instruments :

(1)  Sun accepts the authenticity of 4 of them, namely, the Letter of Intent, the 3 December 2001 Agreement, the GH Guarantee and the Tripartite Agreement (items 1, 2, 3 and 6 listed above);

(2)  Sun disputes the authenticity of 5 of them, namely, the CG Guarantee, the CG Repayment Agreement, the CG Counter-Guarantee, the SCL Guarantee and the GH Undertaking (items 4, 5, 7-9).

Sun’s arrest

33.  On 11 August 2005, Sun was arrested at the border crossing in Shenzhen.  He was sent to be detained in custody in Jilin on 13 August 2005.  On 16 September 2005, he was formally arrested and detained in Jilin Detention Centre.

34.  Two sets of serious criminal charges had been brought against Sun (in December 2007 and June 2009 respectively)  followed by two criminal trials (the first of which was held in March and December 2008 and the second in June 2009)  in the Mainland.  Sun was not convicted of any offence.

35.  On 8 November 2010, Sun was granted bail and put under house arrest in Beijing. 

36.  On 6 March 2012, Sun regained his freedom when the Jilin Court allowed all remaining charges against him to be withdrawn.

37.  Apart from Sun, the second-in-command of the Geomax Group, Shi Lin Hua (“Shi”), was also detained in the Mainland on 19 November 2005.  He was formally arrested on 27 January 2006.  He was charged with contract fraud which was allegedly committed under Sun’s instructions.  Shi was never released and died during incarceration.  The Defendants dispute Shi’s position in the Group.  According to them, Guo was the most senior person of GEHL in the absence of Sun.

38.  Following Sun’s arrest, efforts were made by CHNT to enforce the Debenture.  These events lie at the heart of the controversies between the parties in this action.  However, it will be seen below that it is unnecessary to resolve the controversies for the present purpose. 

Enforcement of the Debenture

39.  According to the case of the CHNT Defendants, SCL had breached its obligation under the SCL Guarantee to repay the Debt by 30 July 2004.  The SCL Guarantee was one of the Debenture Instruments the breach of which would render the Debenture enforceable.

40.  No enforcement action was taken by CHNT over the Debenture until after Sun was arrested.  Shortly after Sun’s arrest, the CG Shares were disposed of on 29 August 2005 as follows.

41.  According to the CHNT Defendants, they learned about the arrest of Sun by the Jilin PSB[4] in mid-August 2005.  They decided to enforce the Debenture out of, inter alia, the concern that the Mainland law enforcement authorities would take or might have already taken steps to seize control or possession of Sun’s assets and companies in Hong Kong.

42.  At around the same time, and with the arrangement of Kong, Zhang and Ma met with Kingston Securities and it was orally agreed that the latter would refrain from enforcing the Share Charge in exchange for CHNT’s promise to procure the repayment of the outstanding sum of HK$18m owed by CG to it.  The agreement was to enable CHNT to sell the CG Shares without fear of diminution of value by any enforcement of the Share Charge. 

43.  It appears that on 19 August 2005, Kingston Securities returned the post-dated cheque of HK$18m previously issued by Sun (see para 28 above).  There was a document which referred to a confirmation by Wan in respect of the matter. 

44.  On 22 August 2005, by a public announcement GEHL announced that :

(1)  Sun had resigned as GEHL’s chairman and executive director;

(2)  Guo was re-designated as chairman of GEHL;

(3)  Ma was re-designated as executive director of GEHL;

(4)  Wan was appointed as executive director of GEHL; and

(5)  Kong was appointed as non-executive director of GEHL.

45.  According to the CHNT Defendants, at about the same time, Xing and Cheung expressed an interest to acquire the CG Shares, and an oral agreement for the acquisition at the consideration of HK$41,999,992.20 was reached between Zhang on CHNT’s behalf and Cheung on Hong Chang’s behalf.

46.  By an Agreement dated 29 August 2005 between CHNT and Hong Chang, CHNT sold the CG Shares to Hong Chang at a stated consideration of HK$41,999,992.20 which would be paid at the time of completion (“CG Transaction”).  On the same date, an Instrument of Transfer (signed by Zhang on behalf of CHNT as the “lawful attorney of [Sun]” and by Xing on behalf of Hong Chang)  was executed to transfer the CG Shares from Sun to Hong Chang. 

47.  Around the same time, a number of documents disposing of assets owned directly or indirectly by Sun came into existence. Mr Man said that it was plain that Sun did not give his consent or approval to such documents due to his incarceration :

(1)  On 29 August 2005, another Instrument of Transfer was executed to transfer the remaining 1 CG share from Liu Lu Ding to Hong Chang (the purported signature of Liu is under dispute).  That 1 CG share was not subject to the Debenture.  Mr Man said that given that Liu Lu Ding was a bare trustee of Sun and the latter was incarcerated by 29 August 2005, the transfer was clearly without Sun’s consent or approval;

(2)  On the same date, an Agreement was purportedly entered into between GH and CHNT under which GH agreed to guarantee the HK$18m debt owed by CG to Kingston Securities with its claim against 中國吉林國際經濟技術合作公司 (“29/08/05 Agreement”).  The Agreement bore the company chop of GH (but no signature), which was kept by Wan (according to Sun).  As Sun, the sole director of GH, was incarcerated at the time the 29/08/05 Agreement was entered into on GH’s behalf without Sun’s consent or approval, said Mr Man.

48.  In respect of the consideration under the CG Transaction, as of 24 August 2005, the trading price of GEHL shares was HK$0.055. The 1,662,795,650 GEHL Shares belonging to CG were accordingly worth about HK$91,453,760.75 in the market.  If the HK$18m owed by CG to Kingston Securities under the Share Charge was taken into account, the CG Shares would be worth HK$71m (they were sold at HK$42m).  In this simplistic analysis, the element of control premium which might be attached to the GEHL shares is ignored. 

49.  The case of the CHNT Defendants is that the consideration of HK$42m was determined by an independent valuer, based on the prevailing trading price and applying suitable discount, and taking into account the HK$18m loan due to Kingston Securities. 

50.  However, there is no dispute that the HK$42m was never paid by Hong Chang.  The CHNT Defendants said that Cheung was unable to pay immediately and requested CHNT (and it agreed)  to lend Hong Chang a sum equivalent to the purchase price repayable in one year.  There was a Loan Memorandum dated 8 September 2005 to that effect.  Further, Hong Chang undertook with CHNT: (a)  to discharge the HK$18m loan due to Kingston Securities; (b)  to use its best endeavours to assist CHNT to procure the repayment of the Debt and to discharge the CHNT Guarantee (there was an Undertaking dated 8 September 2005 to those effect); and (c)  to use the GEHL shares held by CG to secure/guarantee the repayment of the loan of HK$42m[5].

51.  On 8 September 2005, by a joint announcement (“Joint Announcement”)  GEHL and Hong Chang jointly announced the acquisition of the CG Shares by Hong Chang from CHNT at a consideration of HK$41,999,992.20 and the 1 CG share by Hong Chang from Sun at a consideration of US$1.00 on 29 August 2005.  The transactions had resulted in the change of controlling shareholder of GEHL.  Accordingly, Hong Chang was required to make an unconditional mandatory cash offer (“GO”)  to acquire all the issued shares of GEHL not already owned by it.

52.  The Joint Announcement referred to the Debenture, by which the Debt was secured.  No reference was made to any other liabilities under the Debenture Instruments.  

53.  On 28 September 2005, a Composite Offer document relating to Hong Chang’s GO was issued (“Composite Offer Document”).  The offer closed on 19 October 2005, with valid acceptance of the share offer in respect of 1.92% shareholding in GEHL having been received.  The Composite Offer Document contained a letter from the Board of GEHL to its shareholders and option holders, which was issued in the name of Ma for the Board.

54.  The Composite Offer Document also contained a letter of advice from Baron Capital Ltd to the Independent Board Committee dated 28 September 2005 as to whether the terms of the share offer were fair and reasonable as far as the independent shareholders and option holders were concerned.  Mr YL Wong placed considerable emphasis on this advice and contended that the HK$42m consideration under the CG Transaction was appropriate. 

55.  Kingston Securities was Hong Chang’s financial adviser responsible for the conduct of the GO.  It also extended a HK$50m loan to Hong Chang for making the GO.

Enforcement of the SCL Guarantee

56.  On 21 September 2005, CHNT commenced proceedings in the Mainland against SCL and NXG to enforce the SCL Guarantee (“SCL Proceedings” and “NXG Transaction”).  On about 23 September 2005, the Jilin Court made an Asset Preservation Order which, inter alia, froze the NXG Shares held by SCL.

57.  By a Settlement Agreement dated 22 June 2006 signed by Sun on behalf of SCL, SCL agreed to repay the Debt with interest and costs out of the sale proceeds of an anticipated sale of the NXG Shares to Sichuan Lutianhua Co Ltd (“Lutianhua”).  Sun disputes the validity of the Settlement Agreement on the ground that it was signed by him under coercion and duress whilst imprisoned.

58.  The Settlement Agreement provided, inter alia, that (i)  SCL should repay the Debt to CHNT after the Agreement took effect; and (ii)  SCL should repay the Debt together with interest by using the sale proceeds of the NXG Shares in the event of a sale to Lutianhua.

59.  The Settlement Agreement was approved by a Mediation Agreement dated 23 June 2006[6] as recognised by the Jilin Court (“Mediation Agreement”).

60.  On 26 August 2006, Lutianhua and SCL (represented by Sun and Shi Wei Cheng (“WC Shi”)  executed a Share Transfer Agreement whereby SCL agreed to sell the NXG Shares to Lutianhua for RMB212,394,256.60.  Sun disputes the authenticity of this Agreement on the ground that he could not possibly have been in 四川瀘洲市 (the stated place of execution of the document)  to sign it when he was incarcerated in Jilin.

61.  On 28 September 2006, Lutianhua, WC Shi on behalf of SCL, and Ma for and on behalf of CHNT entered into an agreement for the enforcement of the Settlement Agreement.

62.  On 12 November 2007, the sale of the NXG Shares to Lutianhua at the consideration of RMB212,394,256.60 was approved by the Jilin Court, and the sale proceeds were paid into court.  On 11 May 2007, the Jilin Court ordered the discharge of the freezing Order on the NXG Shares for the purpose of transferring those shares to Lutianhua.

63.  On 22 May 2007, the Jilin Court ordered and confirmed that RMB162,539,920.35 out of the proceeds of sale of the NXG Shares was to pay CHNT for the Debt, interest of RMB35,159,910.35 and overdue payment of RMB6,770,000.  The remaining balance of RMB49,854,336.25 would be handled in accordance with the law. 

Enforcement of the CHNT Guarantee by ICBC

64.  On 29 April 2009, XM was declared bankrupt.  As a result of the bankruptcy, the XM Loan became repayable, and ICBC commenced proceedings in July 2009 against CHNT pursuant to its Guarantee.

65.  Hong Chang and Cheung (through Honour Luck Investment Ltd, a Hong Kong company controlled by Cheung)  entered into a debt restructuring agreement with ICBC in March 2011, the effect of which was the release of CHNT from the liability under its Guarantee upon payment by Honour Luck of RMB170m to ICBC.  Such payment was effected as to RMB150m by March 2012 and the balance in October 2013. 

New causes of action

66.  Four new claims were advanced in the RASOC :

(1)  A claim (“Chargee Duty Claim”)  by Sun (and GH)  against CHNT for breaches of its duty as chargee under the Debenture in selling the CG Shares to Hong Chang, its nominee, at a substantial undervalue, ie, the CG Transaction; 

(2)  A claim (“Dishonest Assistance Claim”)  by Sun (and GH)  against Hong Chang, Xing and Cheung for dishonestly procuring, participating or otherwise assisting in CHNT’s breach;

(3)  A claim (“Double Recovery Claim”)  by Sun (and GH)  against CHNT for failing to give credit for the sale price of the CG Shares in the sum of HK$41,999,992.20, when the Debt was repaid in full out of the proceeds of sale of the NXG Shares by SCL to Lutianhua in the enforcement of the SCL Guarantee;

(4)  A claim (“Partial Repayment Claim”)  by GH against CHNT for failing to give credit for the partial repayments of RMB5m and RMB19m made in reduction of the Debt when the sale proceeds of the NXG Shares were paid to CHNT.

67.  The Double Recovery Claim amendment by Sun was allowed under the Decision.  The learned Deputy Judge held that (i)  it arose out of the same or substantially the same facts as the original causes of action already pleaded, and hence the exception under O.20, r.5(5)  applied; and (ii)  it was a claim to recover trust property to which no limitation period applied.

68.  In light of the permitted amendment, GH did not further pursue the amendment relating to its claim on Double Recovery.

69.  It should be note that the only new cause of action which concerned the HC Defendants was the Dishonest Assistance Claim.

The Preliminary Issues

70.  Two preliminary issues were previously formulated on behalf of Sun.  They were adopted in the Decision, [51], “subject to any amendments as may be considered appropriate by the Judge assigned to conduct the trial” ([87(1)])  :

1^st Preliminary Issue

“Whether the fact of the sale of the [CG Shares] at a consideration of HK$41,999,992.20 on 29 August 2005 has been deliberately concealed by [CHNT, Hong Chang, Xing and Cheung] or any of them from [Sun] and [GH] or either of them, and whether [Sun] and [GH] or either of them discovered the fact or could with reasonable diligence have discovered it prior to 6 March 2012”, and

2^nd Preliminary Issue

“Whether the fact of the sale of the [NXG Shares] (as approved by the Jilin Court on 12 January 2007)  and the payment of RMB162,539,920.35 out of such sale proceeds to [CHNT] for repayment of [the Debt] plus interest without giving credit for the payments previously made by GH in the sums of RMB5 million and RMB19 million (without prejudice to [the case of CHNT, Zhang and Ma] that these sums were never received by [CHNT]), has been deliberately concealed by [CHNT, Hong Chang, Xing and Cheung[7]] or any of them from [Sun] and [GH] or either of them and whether [Sun] and [GH] or either of them discovered the fact or could with reasonable diligence have discovered it prior to 6 March 2012.”

71.  Subsequently, the parties were directed to agree the issues for this trial pursuant to paras 6 and 7 of the Order of this court dated 5 September 2019 :

“6. The Parties do agree an agreed list of issues for the trial of Preliminary Issues. Where there is no complete agreement, the issues which are not agreed are to be listed after those which are. The agreed list of issues be lodged with the Court not less than 14 days before the next directions hearing;

7.   The Parties are to be bound by the agreed list of issues;”

72.  As a result, a List of Issues was lodged with the court on 19 December 2019.  Subsequently, the List was re-lodged as a Joint List of Agreed Issues (the two documents were substantially identical). A copy of the later document is annexed to this Judgment as Annexure I.

73.  It can be seen that the 2 Preliminary Issues ordered under the Decision had been divided into 4 and there were rival formulations over the Sub-Issues.  In particular, there were rival formulations over the application of s.26(3)  of the Ordinance (see below).

Issues in this trial

74.  The issues in this trial are primarily factual. This court is required to determine (i)  whether there was deliberate concealment of facts relevant to the new causes of action; and (ii)  if so, when the concealed facts were discovered or could with reasonable diligence have been discovered by Sun (and GH)  in respect of two transactions, namely, the CG Transaction and the NXG Transaction.

75.  In respect of the “relevant facts”, for the purpose of the Chargee Duty Claim and Dishonest Assistance Claim, Sun (and GH)  contend that the following facts (or any one of them)  relevant to their causes of action were deliberately concealed, and were not discovered or could not with reasonable diligence have been discovered by them prior to 6 March 2012: (i)  the sale of the CG Shares by CHNT to Hong Chang; (ii)  the consideration of the sale was HK$41,999,992.20; and (iii)  it was a sale by CHNT to its nominee.

76.  For the purpose of the Partial Repayment Claim, GH contends that the following facts (or either of them)  relevant to its cause of action were deliberately concealed, and were not discovered or could not with reasonable diligence have been discovered by it prior to 6 March 2012: (i)  the sale of the NXG Shares by SCL to Lutianhua; and (ii)  out of the sale proceeds, RMB162,539,920.35 was paid to CHNT for repayment of the Debt plus interest without giving credit for the partial repayments of RMB5m and RMB19m previously made by GH.

77.  Notwithstanding the Joint List of Agreed Issues, the Defendants argued that Sun and GH are not entitled to rely upon a statutory alternative by which the deliberate concealment of facts can be proved (see s.26(3)  of the Ordinance below). 

78.  Further, the Defendants argued that this court should not assume any facts in determining the Preliminary Issues.  In particular, the breach of duty which is an element of s.26(3). 

79.  I shall have to deal with these arguments which impact upon the proper parameters of this trial before turning to the factual issues.

Applicable law

S.26 of the Ordinance

80.  S.26(1)(b), (2)  and (3)  of the Ordinance provide as follows :

“(1)  Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either—

…

(b)  any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

…

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be)  or could with reasonable diligence have discovered it.

(2)  References in subsection (1)  to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.

(3)  For the purposes of subsection (1), deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.”

[emphasis added]

81.  The applicable legal principles are largely uncontroversial.  Concealment under s.26(1)(b) means a deliberate concealment of relevant facts and the relevant limitation period would start to run from the date on which the concealment is discovered (or could have been discovered with reasonable diligence): Lee Tsan Sum v Wong Pui Hon David [2010] 4 HKLRD 219, [39(a)], per Fok J, as he then was.

82.  The burden of proof rests on the plaintiff to establish that: (i)  there has been a relevant concealment; and (ii)  he could not have discovered the concealed facts without exceptional measures which he could not reasonably have been expected to take: Lee Tsan Sum, [39(b)].

83.  A “fact relevant to the plaintiff’s right of action” is a fact without which the cause of action would be incomplete.  It is not relevant that a defendant may have concealed a fact which, if known, would merely go to strengthen an existing case: Lee Tsan Sum, [39(c)].  It is not enough that evidence that might improve the claim is concealed, provided that the claim can be properly pleaded without it: Lee Tsan Sum, [39(d)].

84.  Although in most cases where the section applies the defendant will have known the fact that he concealed was relevant, it is not essential to show the defendant must have known that the fact was relevant to the right of action: Lee Tsan Sum, [39(f)].

85.  This court was referred by Mr Man to the recent English CA decision in Potter v Canada Square Operations Ltd [2022] QB 1.  In that case the CA analysed the leading cases on the English equivalents of s.26(1)(b)  and s.26(3)  and consolidated the relevant principles in an admirably clear and comprehensive judgment.

86.  S.26(1)(b)  applies to 2 situations: (i)  active concealment of a fact relevant to the right of action; and (ii)  a defendant who had failed to disclose such a fact while being under a duty to do so: Potter, [64]-[67], [74]-[77] and [83], per Rose LJ.

87.  In respect of failure to disclose where the defendant has a duty to do so, the “duty” to make such disclosure did not have to be a free-standing contractual, tortious or fiduciary duty.  The existence of such a duty is “a matter of common sense”; it needs only be one arising from a “combination of utility and morality”: Potter, [68]-[77], per Rose LJ.  Such duty was referred to as a duty “in Limitation [Ordinance] terms” by Males LJ at [199].  The Defendants disagreed with this part of the judgment. It will be seen below that it is unnecessary to resolve this issue for the present purpose.

88.  AIC Ltd v ITS Testing Services (UK)  Ltd [2007] 1 All ER (Comm)  667 was analysed at length in Potter and it serves to illustrate the nature of the disclosure duty which comes under s.26 of the Ordinance.

89.  In that case, the defendant had been instructed by the plaintiff to test and certify the quality of a cargo of gasoline due to be loaded for carriage to New York.  The defendant acted negligently by using the wrong test method and certified that the fuel met the required specification. Subsequently, the defendant carried out a re-test which showed that the product was outside the specification.  However, it told the plaintiff that it would “stand by” the certificate, suggesting that they were not aware of anything that indicated that the cargo did not in fact meet the specification.  The plaintiff relied on s.32(1)(b)  of the Limitation Act 1980 (equivalent to s.26(1)(b)  of the Ordinance), and the majority of the English CA held that the defendant had been under a sufficient duty to inform the plaintiff about the re-test result and the failure to do so amounted to “concealment”.  As Sir Martin Nourse held at [383], the duty existed “on the simple common sense of the notion that a certifier who has acquired knowledge of a material inaccuracy in his certificate is obliged to disclose it”.

90.  S.26(3), is intended to extend the scope of s.26(1)(b)  to provide an alternative and in some cases easier means of establishing the facts necessary to bring the case within s.26(1)(b): Potter, [83].  The plaintiff needs not concentrate on the concealed facts but can instead concentrate on the commission of the breach of duty; if the circumstances are such that the plaintiff is unlikely to discover for some time that the breach of duty has been committed, the facts involved in the breach are taken to have been deliberately concealed for s.26(1)(b)  purposes: Potter, [39].

91.  The term “breach of duty” within s.26(3)  applies to any legal wrongdoing and is not restricted to breaches of contractual, tortious or fiduciary duties: Potter, [59]-[62].

92.  On the meaning of “deliberate” under both s.26(1)(b)  and s.26(3)  :

(1)  It is not sufficient to show that the defendant deliberately or consciously carried out the act in question; the concealment of facts or breach of duty must be an intended result: Potter, [36], [38], [39] and [85]; see also Lee Tsan Sum, [71];

(2)  Recklessness would be sufficient to render the concealment or breach of duty deliberate for the purposes of s.26(1)(b)  and s.26(3)  respectively: Potter, [91]-[138]; Lee Tsan Sum, [74];

(3)  A person is acting recklessly with respect to a circumstance when he is aware of a risk that it exists or will exist and it is, in the circumstances known to him, unreasonable to take the risk.  A person acts recklessly with respect to a result when he is aware of the risk that it will occur and it is, in the circumstances known to him, unreasonable to take that risk: Potter, [87] and [137].

93.  The test for whether a breach of duty under s.26(3)  is “unlikely to be discovered for some time” is an objective one in that it does not matter whether the defendant thinks that the breach of duty is unlikely to be discovered for some time, but whether in fact that was unlikely: Brown v Bird & Lovibond [2002] EWHC 719 (QB), [14], per Moxon Browne QC; Cave v Robinson [2003] 1 AC 384, [60], per Lord Scott.

94.  On the meaning of “reasonable diligence”, the test is “how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency”: Paragon Finance v DB Thakerar & Co [1999] 1 All ER 400, at 418d, per Millett LJ (as he then was).

95.  In OT Computers Ltd v Infineon Technologies AG [2021] QB 1183, [47], Males LJ held that under the single issue whether the claimant could with reasonable diligence have discovered the concealment, the question what reasonable diligence requires may have to be asked at 2 distinct stages : 

(1)  Whether there is anything to put the claimant on notice of a need to investigate.  At this stage, the claimant must be reasonably attentive so that he becomes aware (or is treated as becoming aware)  of the things which a reasonably attentive person in his position would learn;

(2)  What a reasonably diligent investigation would then reveal.  At this stage, he is taken to know those things which a reasonable diligent investigation would then reveal.

96.  “Reasonable” denotes an objective standard. “But that is not the end of the matter.  It is the plaintiff who is supposed to have shown reasonable diligence.  This leaves open to argument the extent to which the personal characteristics of the plaintiff are to be taken into account in deciding what diligence he could reasonably have been expected to have shown.  It does not follow that because an objective standard is applied, he must be assumed to have been someone else”: Peconic Industrial Development Ltd v Lau Kwok Fai (2009)  12 HKCFAR 139 at [30]-[32], per Lord Hoffmann NPJ.  However, the CFA left that question open because it did not arise in the case: [30] and [32]. 

97.  Mr YL Wong referred to a recent UK Supreme Court decision of FII Group Test Claimants v HMRC [2022] AC 1 at [255] where it was observed that the issue “does not depend upon the characteristics of the particular claimant: whether, for example, it was inclined to await further developments, … The standard is ‘could’, as Millett LJ emphasised in Paragon Finance … And the test is objective, as Millett LJ explained in the same passage of his judgment, …”.  Mr YL Wong submitted that there is no reason why the UK position should not be adopted by this court.

98.  However, in the course of his opening, Mr YL Wong accepted that the court should not ignore the fact that Sun was incarcerated or under house arrest in the Mainland.  He suggested that the test was what a reasonable detainee with what Sun said he was allowed to do could have discovered.  I shall have to come back to this issue of law before I apply it to the facts.

99.  This court was also referred by Mr YL Wong to the serious nature of some of the allegations made by Sun, eg, those directed at a judicial officer of the Jilin Court.  Sun is required to establish as a compelling inference sufficient to overcome the inherent improbability that such individual would have done so: ADS v Brothers (2000)  3 HKCFAR 70 at 96G-I, per Lord Hoffmann NPJ.

100.  Mr A Wong emphasized that the “deliberate concealment” to be proved by Sun must be against the defendant who carried it out.  The law does not deprive a defendant of a limitation defence because someone else (not acting on his behalf)  had deliberately concealed facts from the claimant: Harrison Jalla v Royal Dutch Shell plc [2020] EWHC 459 (TCC), [77], per Stuart-Smith J.

Ambit of this trial

101.  The 2 arguments raised by the Defendants (see paras 77 and 78 above)  were related and both impacted upon the ambit of this trial. 

102.  The objection to the reliance by Sun (and GH)  on s.26(3)  is difficult to understand when the parties were well aware that the application of the sub-section is an issue in this trial, albeit that they could not agree on the formulation of the issue (see Annexure I). 

103.  There is no merit in any of the technical arguments advanced by the Defendants.  It is unnecessary to deal with each one of them[8].  The Defendants cannot pretend that s.26(3)  is not an issue in this trial because it was not agreed.  Ultimately, it is a matter for this court to decide if the issue is one fit for this trial (see also para 70 above).  The Defendants are not entitled to tie the hands of the court by saying that they did not prepare this trial with s.26(3)  in mind. 

104.  Neither can the Defendants say that they were not aware of the need to adduce evidence to address the issue of breaches of duty.  The original List of Issues was lodged in December 2019.  If there were any misapprehension on the scope of the evidence required, there was ample time for the Defendants to remedy the deficiency.  Any deficiency in the Defendants’ evidence was self-inflicted.

105.  Sun has a statutory entitlement to rely upon s.26(3)  to prove the concealment of relevant facts.  The Defendants are aware of such reliance for almost 3 years.  They have no right to deprive Sun of such reliance.

106.  If the real concern of the Defendants is that the court should not adjudicate on the breaches of duty in this trial, they could have agreed to Mr Man’s proposal that those issues be assumed for the present purpose.  This brings me to the 2^nd argument.     

Elements of s.26(3)

107.  It is not in dispute that “deliberate concealment” under s.26(3)  has 3 elements: (i)  commission of a breach of duty; (ii)  that the breach was committed deliberately; and (iii)  that the breach was committed in circumstances in which it was unlikely to be discovered for some time.  It is also common ground that element (i)  will be issue at the main trial regardless of the amendment before this court.

108.  The question therefore arose as to whether this court should make findings on all 3 elements in this trial, or whether it only needs to make findings on elements (ii)  and (iii)  and leaving element (i)  to the main trial.

Element (i)  – breach of duty

109.  The relevant breaches of duty alleged by Sun (and GH)  in the RASOC were that (the authorities relied upon by Mr Man had not been disputed by the Defendants)  :

(1)  CHNT sold the CG Shares to Hong Chang, which was its nominee, in breach of its duty to exercise the power of sale in good faith for the purpose of securing repayment of moneys due under the mortgage: Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295, 312F-G, per Lord Templeman; Farrar v Farrars Ltd (1888)  40 ChD 395, 409 per Lindley LJ (a sale to oneself is no sale at all, even if the full price was paid);

(2)  CHNT sold the CG Shares to Hong Chang at a substantial undervalue, in breach of its duty to exercise reasonable care to secure the best price obtainable: Silven Properties Ltd v Royal Bank of Scotland plc [2004] 1 WLR 997, [19], per Lightman J; Standard Chartered Bank v Walker [1982] WLR 1410, 1416B & 1415E-1416A, per Lord Denning MR;

(3)  CHNT applied the sale proceeds of the NXG Transaction to pay the Debt on the basis that the full sum was outstanding, in breach of its duty to account for the surplus proceeds arising from the sale of the CG Shares: Fisher and Lightwood’s Law of Mortgage, 15^th edn, [54.21]; Snell’s Equity, 34^th edn, [39-043];

(4)  Hong Chang (nominee of CHNT), Xing (director of Hong Chang)  and Cheung (who agreed with CHNT on behalf of Hong Chang to purchase the CG Shares)  dishonestly assisted CHNT’s breaches of duty in participating in the CG Transaction: R P Austin, Essays in Equity (1985), pp 199-200; Thomas v Pearce [2000] FSR 718, 720-721, per Buxton LJ (these authorities concerned accessory liability for breach of trust and fiduciary duty and breach of confidence, which were relied upon by analogy).

Whether element (i)  should be assumed

110.  It is reasonably well-established that in a trial of preliminary issue the court should only make the necessary findings to resolve that issue.  For other issues in the action, there will be a trial where all the evidence will be before the court and it would be more appropriate to resolve those issues at the trial.  Hence, it is not unusual for assumptions to be made for purposes of preliminary trial: see, eg, Brown v Bird & Lovibond, supra, [3] and Julien v Evolving Technologies and Enterprise Development Ltd [2018] UKPC 2, [11].

111.  Mr Man submitted that in this trial the court should proceed on the assumption that the Defendants had committed the legal wrongdoings complained of in the RASOC, [87]-[90], and hence committed breaches of duty (ie, element (i))  for the purpose of s.26(3)  for the following reasons :

(1)  This is an amendment application to include new claims in respect of which, prima facie, limitation period had expired.  The starting point must be that the court should not make any definitive finding unless strictly necessary to do so;

(2)  Logically, if Sun (and GH)  are unable to establish the breaches of duty alleged in the RASOC at the main trial, the new claims would fail and the Defendants would not have to rely on any limitation defence.  Thus, leaving element (i)  to be tried at the main trial (it is an issue of the main trial in any event)  would not prejudice the Defendants’ limitation defence;

(3)  Put another way, this court should only be required to make definitive findings of facts so as to ensure that allowing the amendments would not occasion any injustice to the Defendants.  Allowing an amendment (and correspondingly depriving the Defendants of a limitation defence)  will not result in injustice if ultimately Defendants are not found to be in breach of duty.  The converse is that if the Defendants are ultimately found to be in breach of duty, the assumption of element (i)  would have been rightly made.

112.  I find the submission compelling and there was no real answer provided by the Defendants (with the exception of 1 point, concerning the relationship between element (i)  and (ii), which will be addressed below), whose position on this issue had changed in the course of this trial. 

113.  In respect of the CHNT Defendants, having objected strenuously to the assumption proposed by Sun, the position they adopted at their opening was that this court should make a finding on all the elements of s.26(3)  if the court is against them on the reliance of that section by Sun.

114.  As regards the HC Defendants, in their written opening, [52]-[57], they contended that there should be determination of whether there were breaches of duty in this trial, as this was an element of section 26(3)  and the applicability of which was one of the issues.  It was stated in [57] that “[t]his Court has to make its ruling on element (i)  based on the evidence now before it.”  Although the submission was made in the context of objection to the application of s.26(3), it showed that the position of the HC Defendants was at best ambiguous. 

115.  However, at the opening of their case, the position of the HC Defendants was that the assumption proposed by Sun should be made in the event that the court is against them on the application of s.26(3).

116.  In the course of the trial, the issue was re-visited and the HC Defendants changed their position again and proposed that (a)  both elements (i)  and (ii)  should be assumed; and (b)  in the event of Sun succeeding in proving all the other elements of deliberate concealment, leave to amend should only be granted on the condition that elements (i)  and (ii)  be proved at the main trial.

117.  The CHNT Defendants expressed agreement with the proposal, but it was not suggested by them that they would abandon the position that findings be made in this trial in respect of element (i). 

118.  I am unable to agree with the proposal of the HC Defendants.  To begin with, element (ii)  is not an issue at the main trial.  It defeats the purpose of this trial to defer a limitation issue to the main trial, and thus abdicating the responsibility of this court.  I consider such deferral wrong in principle.

119.  I can well understand the desirability of the proposal from the Defendants’ point of view because they would be in a no loss situation regardless of the outcome of this trial.  But that may not meet with the justice of the case. 

120.  I agree with the submissions of Mr Man that, firstly, unless the court is satisfied that the amendments would not subvert a limitation defence (such as where time is extended under s.26), Sun should not be allowed to make the new claims.  Insofar as element (i)  is concerned, if the court is to allow Sun to make the new claims, it has to be satisfied that it would not subvert any limitation defence.  That would be the case if the breach of duty is “assumed”, because if breach of duty is not proved, then there would be no subversion of any limitation defence, as there is ex hypothesis no valid claim: s.35(3)  of the Ordinance; Roberts v Gill [2011] 1 AC 240, [99], per Lord Walker; Global Bridge Assets Ltd v Sun Hung Kai Finance Ltd [2012] 4 HKRLD 474, [25]-[28], per Kwan JA (as she then was).

121.  Secondly, if conditional leave (with deferral of issues to be tried at trial)  were a permissible option, the entirety of all factual issues surrounding the amendments should be deferred, and this 15-day trial would not have been necessary.  The Defendants are not entitled to insist on present determination of a selection of issues which if determined in their favour would defeat the amendments, and defer all other issues to trial.  Such tactical cherry-picking should not be condoned.

122.  In his closing submissions, Mr Man suggested that the option of making findings on all 3 elements of s.26(3)  is open to this court.  It would be unfair to Sun, having been put to prove them because of the refusal by the Defendants to accept the assumption proposal and having exposed the fragilities in the Defendants’ case by way of cross-examination of their witnesses, to allow those witnesses the opportunity to pour over the transcripts of their evidence and consider how to explain the bad answers and come up with further stories. 

123.  There is certainly force in the submission, but I believe that adhering to the well-trodden path is generally the correct path.  The submission does not sway me from the principle that the court should only make the necessary findings in a trial of the present nature.

124.  Finally, on the relationship between elements (i)  and (ii), I accept as a matter of principle that those elements may be intertwined or closely related.  For that reason, there is some force in the submission of the Defendants that both elements should be left to trial. However, it will be seen below that in this case the determination of element (ii), with the assumption of element (i)  presents no difficulty.

125.  For these reasons, I shall proceed on the basis of an assumption of element (i)  for the purpose of s.26(3), which is the primary case of Sun (and GH). 

Element (ii)  – deliberateness

126.  I agree with Mr Man that the nature of the breaches relating to self-dealing, dishonest assistance and failure to give credit was such that they could only have been committed deliberately.  In respect of the failure to give credit, RMB24m was not a small sum of money, especially in August 2005, there can be no serious suggestion of accidental or negligent failure to give credit. 

127.  I also agree with Mr Man that in relation to the sale of the CG Shares at undervalue, the sale price (which was never paid)  was fixed without any independent valuation.  This is quite clear from the Defendants’ own evidence and not something which they could seriously dispute.  At the very least, CHNT was guilty of recklessness.

128.  In the course of their opening, the Defendants complained, and relied upon as a ground for opposing the assumption of element (i), that if the breaches of duty were assumed, the deliberateness element would be a walkover.  

129.  Further, the evidence was that Zhang, whose knowledge was attributable to CHNT, accepted that he knew that (a)  CHNT could not sell the CG Shares to itself whilst pretending it was a sale to a third party; and (b)  CHNT had an obligation to sell those Shares at a proper or highest possible price.  Similarly, Cheung accepted that it would be dishonest for a chargee to sell a security to itself whilst pretending that it was a third party sale. 

130.  Such evidence showed that the breaches of duty alleged by Sun (and GH)  (self-dealing, dishonest assistance[9] and undervalued sale)  must be intended results (see para 92(1)  above).  In respect of the failure to give credit, there is a compelling inference that, as experienced businessmen, Zhang and Ma (who dealt with both the CG Transaction and NXG Transaction on behalf of CHNT)  well knew that they had a duty to account to Sun and GH for any partial payment received and to give appropriate credit so that CHNT would not be overpaid.  Thus, this breach would also be an intended result.

131.  In the premises, I hold that the assumed breaches of duty were deliberate.   

Element (iii)  – discoverability

CG Transaction

132.  I agree with Mr Man that the question is whether, objectively, the breaches of duty committed on 29 August 2005 in relation to the CG Transaction were unlikely to be discovered by Sun for some time (see para 93 above).

133.  The Defendants relied heavily upon the fact that GEHL was a public company and the CG Transaction was publicised.  On the other hand, Sun was incarcerated in Jilin when the wrongs were committed.  I have to consider the evidence of his incarceration to determine whether the breaches were, objectively, not discoverable by him for some time.  

Sun’s detention

Assessment of Sun’s evidnece

134.  Sun was cross-examined by the Defendants for 4 days.  As an overall assessment, I take the view that he was a credible witness who had withstood the stern test of very lengthy and repetitive cross-examinations on events going back 17 years.  Sun was forthcoming and straightforward with his answers.  He volunteered details which did not necessarily assist his case, eg, he asked a young cellmate to read the “Incomplete Agreement” (see below)  to him.  Nor did he exaggerate his evidence when the Defendants were in no position to contradict him (see para 154 below).  Further, it is unlikely that Sun had made up the details as he went along, eg, his conversation with Gao[10] where he requested the latter to go to see Wan in Hong Kong.  Sun said that Gao told him that it was the last time that Gao would work for him because he believed that representing Sun had resulted in the cancellation of his position as vice-chairman of the local lawyers’ association.  Furthermore, where documents were available, Sun’s evidence was largely consistent with the same.   

135.  Bearing in mind the very long lapse of time, I see no serious internal inconsistency in Sun’s evidence or inconsistency between his evidence and that of Guo.  The existence of inconsistency of the latter type can only be expected and may be attributable to the difference in recollection.  I prefer the evidence of Sun to that of Gao where their evidence differed because, plainly, there were good reasons for Sun to remember the events, whereas Gao had left GEHL on 1 November 2005, not long after Sun’s arrest.

136.  There were times when Sun showed frustration with the repetitiveness of the cross-examination and with the challenges made to his evidence concerning the circumstances of his incarceration.  In respect of the latter, Sun questioned the basis of the challenges when the Defendants had no knowledge of what he had been through.  Such reaction by Sun was not unexpected, and I do not hold it against him.  When he had to relive his time in detention, Sun showed some emotion, which was again to be expected.

137.  It does not follow from the finding that Sun was a credible witness that his evidence would be accepted in totality.  The important parts of such evidence would be evaluated against inherent probabilities, common sense and the rest of the evidence. 

Detention in Jilin prior to 8 November 2010

138.  On 8 November 2010, Sun was granted bail and put under house arrest.  It was common ground that he enjoyed a degree of freedom during house arrest.  For the present purpose, the circumstances of Sun’s detention prior to house arrest, a period of over 5 years, were central to and sufficient for the determination of element (iii).

139.  Sun described his detention in his witness statement[11] as follows :

“在我被刑事拘留在吉林省看守所的這段時間 (即自2005年8 月到2010年11月我獲得取保候審之前)  ，我長期受公安和看守員不人道和粗暴的對待和威脅，亦因過度頻密的提審，精神狀態極差。例如我曾被綁在審訊椅上，手腳胸背全部銬住在審訊椅上，動也不能動,不讓喝水、吃飯、如廁、入睡長達30 多個小時，飽受折磨。本人在被拘留期間被提審和訊問超逾一百次。辦案人員命令本人簽署的任何文件，包括詢問筆錄、和解協議等，就算不同意或不清楚明白其內容，我也只有簽署。而且我有老花眼，在看守所裡並沒有眼鏡，我當時根本看不到文件的內容。”

140.  Sun said that during the prolonged periods when he was tied to the interrogation chair, he had to urinate in his pants.  He said that he was living under constant fear over his fate, eg, for how long he would be incarcerated.  He was in a state of mental and physical breakdown.  He was still consulting a psychologist at the time of his evidence.  There is no reason to doubt Sun’s evidence.  Given his position at the material time and the unexpected arrested, many people would be broken by the indefinite detention alone.  The treatment received by Sun would have destroyed the will of most people. 

141.  Sun described the time when he was incarcerated as “isolated from the rest of the world”.  That was confirmed by his evidence on the limited contacts which he had during detention.  I accept that Sun had fully and frankly accounted for the same.  Sun’s evidence that he had no access to a phone (contacts had to be made via the PSB)  or to the internet was not seriously challenged.  None of the contacts made by Sun during detention could have led him to discover the CG Transaction or the details thereof :

(1)  In late September 2005, Xiu Bao (“Xiu”), a Mainland lawyer who previously represented a company within the GeoMax Group and a friend of Cheung, visited Sun on his own accord and without Sun’s request.  During the visit, Xiu merely told Sun what rights he had and then left.  There was no discussion about the status of GEHL or other companies related to Sun.  Sun suspected, probably with hindsight, that Xiu was sent by Cheung to check his status.

(2)  On about 29 November 2005, Qu Hai Jun (“Qu”)  and Liu Mou Ping (“Liu”)  visited Sun and told him that they could represent him in his criminal case.  The meeting was held in the presence of the PSB officers.  To Sun’s understanding, Qu and Liu were introduced by the PSB to represent him with the consent of his family.  When Sun requested to have lawyers of his own choice, the PSB refused and told him that he had no option.  Subsequently, Qu and Liu visited Sun for around 5 to 6 times (in the presence of PSB officers)  and told him what charges were laid against him.  There was no discussion about the status of GEHL or other companies related to Sun.

(3)  In June 2006, Judge Zhang Dong Mei (“Judge Zhang")  of the Jilin Higher People’s Court visited Sun.  The visit related to the SCL Proceedings (see below)  and not relevant to the CG Transaction.

(4)  In about August 2006, WC Shi and a Mainland lawyer, Chai Guan Hong (“Chai”)  visited Sun.  The visit of WC Shi, who was in charge of NXG, related to the SCL Proceedings.  He brought along a Letter of Authorisation (“Authorisation”)  addressed to the Court dated 31 August 2006 by which SCL would authorize him to deal with, inter alia, the execution of settlement agreement between CHNT and SCL.  The Authorization was signed by Sun. 

(5)  In respect of Chai, he had previously represented XM.  It is Sun’s case, which was disputed, that Chai was acting on CHNT’s instructions for the visit.  Chai presented to Sun a draft agreement between Sun and CHNT prepared by, according to Sun’s case, the latter and represented to him that GEHL was not under proper management after Sun was detained, and hence CHNT agreed to let Xing manage the company in Sun’s absence for a fee of RMB19m. GEHL would be handed back to Sun after he was released.  Sun did not have his presbyopia glasses (he was not allowed to keep those glasses in detention)  and was unable to read the draft agreement.  He was confused by what Chai told him, and he refused to sign the draft agreement without CHNT first signing it. 

(6)  Chai subsequently returned with the draft agreement signed by Zhang with the company chop of CHNT (“Incomplete Agreement”), and left it with Sun for signature.  Sun secretly retained the Incomplete Agreement, and when asked by a PSB officer about it, he said that he had disposed of it.

(7)  The terms of the Incomplete Agreement were at variance with what was said to Sun by Chai.  It stated that CHNT had acquired the GEHL Shares from CG pursuant to the CG Counter-Guarantee; that CHNT had signed a trust agreement with Hong Chang on 29 August 2005 pursuant to which Hong Chang would hold the GEHL Shares on trust for CHNT; that CHNT promised that if Sun could discharge CHNT’s liability under the XM Guarantee, CHNT would transfer the GEHL Shares back to him; and that the RMB19m remitted to CHNT on 28 August 2003 (see para 21 above)  should be treated as fees for taking over GEHL.

(8)  After September 2006, Sun’s brother engaged a criminal lawyer, Gao Jun Jie (“Gao”)  to represent him in his criminal case.  However, whilst Gao was allowed to visit Sun, the visits were restrictive.  Sun elaborated on the procedure for applying to meet with Gao. He had to make an application with the PSB requesting a meeting with Gao.  He was required to inform the PSB on the matter for which he wanted to see Gao. When Gao arrived for the meeting, PSB officers would be present during the meeting and could hear what was being said. 

(9)  Shortly before the criminal trial in March 2008, Gao was allowed to have one-on-one meetings[12] with Sun to discuss his criminal case, but not any other matter.  The meetings were monitored by CCTV.  All the meetings were limited to 30 to 40 minutes.  There was no discussion as to the status of GEHL which was not related to his charges.

142.  Drawing the strands together, there is little doubt in my mind that Sun’s freedom and outside contact were much restricted during the time of his detention in Jilin.  He was badly treated, broken physically and mentally.  He was pre-occupied with the uncertainty of his fate, which had caused much fear in him.  For instance, in answer to the question that he could have asked Gao to find out what had happed to CEHL, Sun said: “How do you expect it was possible for me to do it?  Every day I was feeling scarred and worried.  I did not even know how many more years I would be sentenced to.  How do you expect me to ask these things with lawyers?”

143.  I do not believe that it can seriously be suggested that Sun was able to find out what had happened to CEHL.  The contacts he had would not have allowed him to find out about the same, even if he had any energy or heart left to do so.  Therefore, I am driven to the conclusion that element (iii)  is satisfied in respect of the CG Transaction. 

144.  Finally, Mr Man is plainly right that even with the public announcements (to which Sun had no access)  the fact that Hong Chang was CHNT’s nominee (if true)  was concealed from the entire world.

NXG Transaction

145.  The CHNT Defendants relied upon the fact that Lutianhua was a Mainland listed company.  Announcements were made and publicity was given to the NXG Transaction.

146.  The documentary evidence adduced by the CHNT Defendants over the publication of the NXG Transaction did not disclose whether the RMB24m or any part of it was deduced by CHNT.  In other words, unless Sun was able to get someone to investigate and report to him, it is not at all clear why the matter was discoverable.  Sun’s case is that it was only in October 2015 that he was able to obtain the documents of the SCL Proceedings from the Jilin Court.

147.  The evidence concerning Sun’s detention in Jilin is equally relevant and applicable here.  Based on such evidence, I am satisfied that element (iii)  is proven in respect of the NXG Transaction also.

148.  As regards the reliance by the CHNT Defendants on various documents which were purportedly signed or received by Sun, including: (i)  the Settlement Agreement and the Mediation Agreement; (ii)  the interview note dated 24 October 2006 of a meeting between Judge Li Ze Zhang (“Judge Li”), the enforcement judge, and Sun (“Interview Note”); and (iii)  the Judgment of the Jilin Intermediate People’s Court dated 22 May 2007 (“Judgment”), I am inclined to accept Sun’s evidence. 

149.  On the Settlement Agreement, Sun’s evidence was that he was asked by Judge Zhang to sign on the signature page.  The rest of the Agreement was not provided to him.  Sun explained to Judge Zhang that repayment of RMB24m had already been made in respect of the Debt, but it was ignored.  He eventually signed on the document after having been in the interrogation chair for some 30 hours. 

150.  Sun had no recollection of seeing the Mediation Agreement whilst he was in detention.  He denied that the signature on the acknowledgement of receipt of that document was his.  It was pointed out by Mr Man that the service address on the acknowledgement of receipt[13] was left blank, which might be contrasted with other receipts of the Jilin Court at D/17/23 (apparently signed by WC Shi)  and D/8/9 (which stated that Sun had refused to sign)  where the service address was not blank. In any case, the Mediation Agreement only contemplated the sale of the NXG Shares, which had not taken place as of the date of the document.

151.  Sun was unable to remember the interview with Judge Li.  Further, given that the Interview Note did not have his fingerprint, he was unable to confirm the authenticity of the same.  In this regard, I note that all the interview records of Zhang, Ma, Wan and Cheung with the PSB bore their fingerprints.  In any event, Sun could not have known from the meeting as reflected by the Interview Note whether credit would be given by CHNT to the repayment of RMB24m upon receiving the sale proceeds for the NXG Shares.

152.  The Judgment was an important document because the attached Account of the sale proceeds of the NXG Shares would inform a reader that no set off for the RMB24m was given.  However, Sun never received the Judgement.  The service address on the purported acknowledgement of receipt[14] was again left blank, and the authenticity of the signature on the document was disputed by Sun.

153.  In view of the condition of his detention, even if Sun had signed certain documents during detention, it is highly doubtful whether he knew or understood the contents of the documents that he was asked to sign.

154.  I have not lost sight of Mr YL Wong’s submission based on the implication of Judge Zhang if Sun’s evidence on the Settlement Agreement is to be accepted.  Firstly, to put the matter in context, Sun’s evidence was that he was invariably tied to the interrogation chair whenever he was interviewed during detention.  The same happened when he met Judge Zhang. He confirmed that Judge Zhang did not do anything which might cause any additional treatment to him. 

155.  Sun was extensively cross-examined on this topic and his evidence was unshaken.  He was put in the interrogation room in the morning on 21 June 2006, and was not allowed by the PSB officers to leave until he signed on the execution page of the Settlement Agreement.  Judge Zhang did not remain in the interrogation room.  After some 30 hours, in the evening on 22 June 2006, Sun had no choice but to sign the document.  He also filled in the date after looking at the calendar hanging in the room.  More likely than not, Sun had signed 2 execution pages (CB(2)/41/252 and CB(2)/42/254).  He was criticised for not mentioning that in his witness statements.  However, given the long passage of time and the suffering experienced by Sun, it could not be expected that he had retained a faultless memory or that he would set out every detail in his witness statements.

156.  In my view, Sun’s evidence on the Settlement Agreement was credible.  I do not believe that he was making up details like filling in the date despite having been told to leave it blank.  More importantly, Sun’s evidence is supported by the Settlement Agreement itself. Consistent with Sun’s evidence that the partial repayments were ignored, it made no mention of the RMB24m.  Even on the evidence of CHNT, GH had repaid RMB19m to a third party in accordance with its instructions.  It was not a small sum.  Sun’s evidence that he told Judge Zhang about the repayments was inherently credible.  I believe that Sun would not have signed the Settlement Agreement if he had a choice.  He had no choice due to the condition he had to endure in the interrogation room.

157.  The evidence before this court suggested that various actions had been taken whilst Sun was incarcerated (see, eg, paras 47 and 60 above).  It is not the function of this trial to get to the bottom of them.  However, I am in no doubt that the court should exercise caution with the documents relied upon by the Defendants.  They do not sway me from the conclusion at para 147 above. 

Discoverability under s.26(1)(b)

158.  The above conclusion on the applicability of s.26(3)  (with the assumption of element (i))  only assist Sun (and GH)  on deliberate concealment, but not the 2^nd limb of s.26(1)(b)  – whether the concealment was discovered or could with reasonable diligence have been discovered prior to 6 March 2012.

Actual discovery

159.  On whether the concealment was discovered by Sun prior to 6 March 2012, it is a simple factual issue.  In respect of the time when Sun was in detention in Jilin, I have dealt with the condition of detention above.  I do not believe that it can seriously be suggested that Sun knew about the concealments in question, with the exception of the sale of NXG Shares by SCL to Lutianhua.

160.  The evidence suggested that Sun knew about the sale of the NGX Shares.  He might not have known the identity of the purchaser, but I do not believe that it was important or “relevant” to Partial Repayment Claim.  Firstly, Sun’s evidence was that he was informed by Judge Zhang that CHNT had commenced proceedings against NXG[15], and that he was asked to sign the Settlement Agreement the consequence of which was to sell the NXG Shares to repay the Debt[16].

161.  Second, Sun agreed in both his witness statement[17] and viva voce evidence that he had signed the Authorization enabling WC Shi to represent SCL in dealing with (a)  the sale of the NXG Shares; and (b)  the payment of the sale proceeds to CHNT.  The Authorization stated that (i)  the SCL Proceedings had by then entered the execution stage; (ii)  Sun, on behalf of SCL, authorized WC Shi to represent it at the execution stage; (iii)  the powers granted included: to raise objections, to enter into settlement, to sign relevant agreements and to accept service of judicial documents; and (iv)  the authorization should last until the conclusion of execution. 

162.  As regards the period of time when Sun was under house arrest, I have little doubt that Sun remained in the dark (with the exception of the sale of NXG Shares).  Apart from this court’s favourable view of Sun’s reliability as a witness, there were good pointers to the resolution of this issue (see also the evidence below on the condition of house arrest). 

163.  Firstly, in May or June 2011 Sun asked Gao to go to Hong Kong to make enquiries with Wan about GEHL.  Sun’s evidence was that Wan, who was the only person with appropriate professional qualification amongst the small team of Hong Kong management staff, was his most trusted person in respect of his Hong Kong affairs.  Sun wanted to contact Wan to ask him about what had happened to GEHL.  He managed to find Wan through a retired ex-employee (Chen Jing), and he asked Gao to go to Hong Kong to meet Wan and report to him.  However, Wan refused to talk about GEHL when he met Gao.  

164.  I do not believe that Sun had made up this elaborate story on a failed contact.  I am not swayed by Wan’s denial of meeting Gao in Hong Kong.  It was possible, but improbable, that Gao did not go to Hong Kong and meet Wan.  The fact that Sun had asked Gao to speak to Wan about GEHL was consistent with the fact that he did not know about the CG Transaction.

165.  Secondly, in April 2012 (Sun regained his freedom on 6 March 2012), Sun met Kong 3 times.  Part of the first meeting was secretly taped-recorded by Sun.  Sun said that he tried to put pressure on Kong and bluffed that he had engaged lawyers to investigate the disposal of CG Shares and NXG Shares for the same Debt.  Sun tried to get Kong to provide him with documents, including (i)  Kingston Securities’ pledge document; (ii)  CHNT’s security document; and (iii)  the documents relating to the GO.  Sun’s evidence was borne out by the transcript of the recording. 

166.  The meeting was supportive of Sun’s evidence that he did not know about the disposal of his shares in GEHL until he was told by his former secretary, Pei Xiao Xin (“Pei”), in early 2012 that those shares had been taken by CHNT.  However, he was not told about any details of the transaction (such as how it was effected and the amount of consideration)  during that very brief meeting with Pei.  Hence, Sun attempted to press Kong to help him. 

Discovery with reasonable diligence

167.  The period of time when Sun was under house arrest in Beijing was the focus of the parties’ submissions on the question whether Sun could with reasonable diligence have discovered the concealment in question because (a)  there was some degree of relaxation of restrictions on Sun after he was put under house arrest on 8 November 2010; and (b)  the availability of public information in respect of both the CG Transaction and NXG Transaction.  Before I deal with the evidence, I need to elaborate on the legal test to be applied.

The test

168.  The principles set out in paras 94 to 97 are not in serious dispute.  Where the parties parted company was how the personal characteristics of Sun, which were clearly subjective, are to be taken into account in the objective test. 

169.  In OT Computers, supra, [38], Males LJ held :

“… in Hussain v Mukhtar [2016] EWHC 424 (QB), Martin Chamberlain QC (sitting as deputy High Court judge)  suggested that this did not mean that personal characteristics such as naïvetés and inexperience in financial matters should be taken into account as to do so would involve a departure from the objective standard which the cases require. I would agree that personal traits or characteristics bearing on the likelihood of the particular claimant discovering facts which a person in his position could reasonably be expected to discover, such as whether the claimant is slothful, naïve, shy, nervous, uncurious or ill-informed are not relevant. But it does not necessarily follow, as Lord Hoffmann NPJ said in Peconi, that the claimant must be assumed to be someone or something which he is not.”

[emphasis added]

170.  As to how the subjective element is to be merged in the objective test, the learned Lord Justice held at [48] :

“… while the use of the words ‘could with reasonable diligence’ make clear that the question is objective, in the sense that the section is concerned with what the claimant could have learned and not merely with what he did in fact learn, the question remains what the claimant (or in the terminology of the section, ‘the plaintiff’)  could have learned if he had exercised such reasonable diligence. That must refer to the actual claimant, in this case OTC, and not to some hypothetical claimant.”

171.  Finally, in [59], the rationale for the importation of an objective standard can be found: “… it is appropriate to set an objective standard because it is not the purpose of the law to put a claimant which does not exercise reasonable diligence in a more favourable position than other claimants in a similar position who can reasonably be expected to look out for their own interests.  Rather, claimants in a similar position should be treated consistently”. 

172.  Two points may be distilled from the forgoing dicta: (a)  the law protects those who exercise reasonable diligence; and (b)  consistency in treatment of claimants in a similar position.

173.  So what were the circumstances of Sun which can legitimately be taken into account in applying the test?  First, Sun’s personal traits should be ignored.  This should include his ignorance about public announcements and that such information was available from the internet or the public domain.

174.  I should say that although Sun’s evidence in this regard was challenged, I accept that Sun was genuinely ignorant.  I bear in mind that his business was in the Mainland; acquiring the majority shareholding in GEHL was his first experience with a Hong Kong listed company; and he entrusted the compliance matters to CEHL’s financial controller and company secretary, Wan, as well as its legal advisor, Michael Li (“Li”).

175.  Second, Sun’s circumstances, eg, he was under house arrest with considerably curtailed freedom, should be taken into account. The Defendants were unable to agree that Sun’s lack of funds (all his assets had been seized by the PSB)  and health problems (after he was released from Jilin detention, Sun was for a few months pre-occupied with seeking medical treatment for his deteriorated health)  could be taken into account.  I disagree with the Defendants.  These were circumstances inseparable with the prolonged detention suffered by Sun, and were clearly not personal traits. 

176.  Drawing upon the authorities, in my view, the applicable test is what a claimant in the position of Sun (including his house arrest and lack of funds), free of his personal traits, could have discovered with reasonable diligence (see in particular para 169 above and Adams v Bracknell Forest Borough Council [2005] 1 AC 76, 74E-F).

Applying the test

177.  To begin, Mr Man accepted that in respect of the CG Transaction there was a trigger, ie, the visit from Chai and the Incomplete Agreement, which put Sun on inquiry during his period of house arrest.  Thus, the 1^st stage question was answered in the positive (see para 95(1)  above). 

178.  The same must apply to the NXG Transaction in view of this court’s findings in paras 160-161 above.

CG Transaction

179.  It was not disputed that during the time of house arrest between November 2010 and March 2012, Sun was able to meet or contact his family members (wife, brother and sister), albeit that the contact had to be made via PSB officers.  Various people were allowed to meet or contact Sun. Such people included Cheung, Chen Jing, Pei, friends (Zhang Wu Cheng and Li Hong Quan), and lawyers (Gao and Lau Yu Fung (the 5^th Defendant)).  On Sun’s evidence there were brief discussions with some of the visitors on GEHL.

180.  Sun accepted during cross-examination that he had the right to request to see anyone during house arrest, but he was required to inform the PSB about the matters for which the visit was requested.  As Mr A Wong submitted, Sun did not suggest that any of his requests to the PSB was rejected.  Indeed, Sun’s evidence showed that, Li Hong Quan, was allowed to see and talk to him without being invited. 

181.  Further, although Sun’s evidence was that his meetings with visitors were monitored by the PSB, he was able to discuss matters concerning GEHL without prohibition or intervention from the PSB.  For instance, in his witness statements, Sun stated that he had discussed with Gao, Cheung, Li Hong Quan, Guo and Pei on matters concerning GEHL.

182.  Based on such evidence, the Defendants submitted that with reasonable diligence Sun could have asked various people whom he met or spoke to during his house arrest to find out from the public domain information concerning the CG Transaction, including the sale to Hong Chang and the consideration.  In this regard, I note that Gao had published his submissions made on behalf of Sun to the Mainland Criminal Court on his or his firm’s website.  This tends to suggest that Gao was familiar with the use of the internet. 

183.  There is considerable force in the submission of the Defendants.  Although I accept Sun’s evidence that his family members did not have any “business qualifications” and would not be able to assist him to find out about GEHL, the same cannot be said about Gao and Pei (I do not believe that it had been shown on the evidence that the other visitors were in a position to assist Sun[18]).   

184.  Sun’s belief that he should find out about GEHL from Wan (via Gao)  because Wan knew everything about the company was, in my view, based on his ignorance over the availability of information from the public domain.  I take the view that a claimant in Sun’s position (with about 5 years of experience at the helm of a listed company), who did not share his personal traits, could have asked Gao or Pei to find out from the public domain information about GEHL.  Such information would have revealed the CG Transaction.

185.  With his usual eloquence, Mr Man submitted that the court should be cautious about accepting the Defendants’ submission bearing in mind that the popularity of the use of internet in 2005 (the more relevant period here is November 2010 to March 2012)  could not be what it is today. Further, there was no evidence on what relevant information was available from the public domain. 

186.  With respect, I do not believe that the points would assist Sun (or GH)  because he bears the burden of proof.  Given that the availability of public information on the CG Transaction was central to the Defendants’ case from the outset, it was incumbent upon Sun to demonstrate that, if that was the case, there was no such public information readily available.

187.  In the premises, I must find that Sun (and GH)  had failed to make out his case concerning the concealment of the sale of CG Shares and the consideration thereof. 

Nominee sale

188.  However, I am unable to see a realistic suggestion that Sun could have found out that the sale was by CHNT to its nominee, Hong Chang.  Apart from the restrictions which Sun was under during house arrest, his evidence, which I accept, was that he was impecunious.  Indeed, he had difficulty buying food for himself. 

189.  There was no real answer by the Defendants to this part of the case of Sun (and GH), apart from complaining that Sun had moved the goalposts because the Preliminary Issues, as originally formulated, did not refer to the concealment of nominee sale. 

190.  With respect, I see little merit in this technical argument.  The plea of nominee sale (or self-dealing)  was introduced in paras 87 and 88(1)  of the re-amendment of the SOC for which leave is being sought.  Para 88(1)  relied upon paras 43, 44, 80(1)  and (2)  of the existing pleading by which the allegation of nominee sale was squarely made. Further, paras 87 to 89 were referred to in one of the disagreed sub-issues (see Annexure I, p 3).

191.  In the premises, I uphold the case of Sun (and GH)  on deliberate concealment in respect of the nominee sale. 

NXG Transaction

192.  There is little evidence adduced by Sun on this issue, save it was only in 2015 that he was able to obtain the documents of the SCL Proceedings from the Jilin Court.  I have already noted that the public information on the NXG Transaction did not disclose whether credit was given for the RMB25m or any part of it.

193.  Mr YL Wong suggested that Sun could have asked Gao to find out about the NXG Transaction.  On the evidence, I am not convinced that, even if he was asked, Gao could have gained access to the relevant information, eg, the Mediation Agreement. 

194.  In my view, the more relevant person to seek assistance would be WC Shi, who was authorised by Sun to represent SCL in the sale of the NXG Shares.  In all probabilities, WC Shi would know or at least could find out whether credit had been given for the RMB24m.  No evidence had been adduced by Sun as to any contact made with WC Shi and if not, the reason for not doing so.  I bear in mind the submission made by Mr Man that the point was not explored on evidence, but it cannot be gainsaid that the burden of proof rested on Sun and the failure to adduce evidence on this obvious avenue of enquiry must be resolved against him (and GH).

195.  I therefore find against Sun (and GH)  on the concealment over the NXG Transaction.   

Deliberate active concealment and non-disclosure when under duty pursuant to s.26(1)(b)

196.  For completeness, I shall deal with these elements (see para 86 above)  in respect of the nominee sale succinctly.  Sun (and GH)  relied upon the Incomplete Agreement and Cheung’s meeting with Sun in March 2011 as deliberate active concealments.  I agree with the submissions of Mr Man that Sun’s case on the Incomplete Agreement should be preferred over that of the CHNT Defendants :

(1)  Sun was incarcerated at the time.  Who would have prepared the document for him?  It was highly improbable that Sun had come up with the terms in the Agreement, such as the nominee arrangement between CHNT and Hong Chang and reference to a trust agreement of a specific date, and asked WC Shi to put it to CHNT (according to the CHNT’s Defendants).

(2)  It is inherently improbable that CHNT (acting by Zhang)  would sign (and apply the company seal)  on a document (a)  drafted by Sun; and (b)  the contents of which Zhang regarded as untrue. 

(3)  According to Zhang, he was forced to sign an untrue agreement in exchange for Sun’s agreement to settle the SCL Proceedings. However, the intended settlement was not even a term of the draft agreement.  Zhang could have easily made amendments to the draft to include such term, but he did not.

(4)  On the case of the CHNT Defendants, since Hong Chang was not in truth CHNT’s nominee, CHNT would not be able to fulfil the Agreement by transferring the GEHL Shares back to Sun.  It is difficult to understand why CHNT would commit to an obligation which it knew could not be performed.

197.  I find that CHNT, acting via Chai, had deliberately and actively concealed the fact that the sale to Hong Chang was, in truth, to itself via a nominee with the use of the Incomplete Agreement to mislead Sun.

198.  As to the deliberate active concealment by Cheung (whose act was attributed to Hong Chang and Xing), Cheung accepted in cross-examination that when he was asked by Sun about GEHL in their meeting in March 2011, the more relevant thing for him to say would be that his wife got the CG Shares (and thus in control of GEHL).  Instead, Cheung only told Sun that GEHL seemed to have been sold, and asked Sun to enquire with CHNT for more details.  This was misleading.

199.  I also find that Cheung had deliberately concealed the nominee sale from Sun.

200.  I also agree with Mr Man’s submissions on CHNT’s deliberate non-disclosure when under duty to do so.  CHNT’s duty of disclosure (whether as a matter of law or common sense)  arose from the fact that as chargee it was an accounting party and should exercise its power of sale in good faith (see para 109 above).  If a chargee is not selling the secured property to an independent third party, he is plainly expected to tell the charger by virtue of his duty of good faith.

201.  CHNT never made any attempt to inform Sun of the true nature of the sale to Hong Chang.  Indeed, it never inform Sun of the CG Transaction or the details thereof.  The non-disclosure was plainly deliberate in the sense that CHNT intended not to let Sun know about the nominee sale.  In the Incomplete Agreement prepared by CHNT and presented to Sun, CHNT made no reference to the CG Transaction.  In the public announcements (the contents of which Ma was responsible), the fact of the nominee sale was concealed from the world.   

202.  In the premises, had it been necessary to do so, I would have found in favour of Sun (and GH)  on the nominee sale based on s.26(1)(b)  without reliance on s.26(3). 

Assessment of the evidence of Sun’s witnesses

203.  Finally, at the risk of unnecessarily lengthening this long judgment, I would say a few words about the credibility of Guo and Sun’s elder sister, Sun Xiang Ming (“Ms Sun”).  I do so bearing in mind that they had repeatedly been attacked as liars in the witness box. 

204.  Consistent with the approach that only the necessary findings are to be made, I see no need to dwell on the credibility of the Defendants’ witnesses.  The cross-examination of them concerned predominantly the breaches of duly (element (i)  of s.26(3)). It is likely that they will give evidence at the main trial and no doubt judgment will be made on the reliability of their evidence in a more comprehensive manner.  Where the above findings touched upon the evidence of the Defendants’ witnesses, I have relied largely upon inherent probabilities for guidance. 

205.  Gou gave evidence as a witness for Sun.  He was under considerable attack in cross-examination.  Insofar as criticisms that he did not discharge his duties properly as an executive director of GEHL, I take into account that (a)  he was trained as an engineer; (b)  he had not been in a management position in a listed company before coming to Hong Kong to work for the Geomax Group; and (c)  he relied on Wan, who was a professional, to deal with matters of compliance with rules and regulations. 

206.  Gou was heavily challenged on his evidence over the period from August 2005 after Sun was arrested to November 2005 when he left GEHL.  Gou’s evidence was that there was much uncertainty over what was to happen to Sun, and whether he would be released soon.  Rumours were flying around.  Within days, the matter went from bad to worse because the Shenzhen office of the Group was raided by PSB, with computers and files taken away. There was fear by the staff that they might get arrested.  Shi went into hiding and only gave Gao a phone number for contact.  I see no reason to doubt such evidence.  Indeed, I would find it odd if Sun’s sudden arrest did not cause instability to the Group and alarm the staff. 

207.  Gou’s evidence concerning how the management of GEHL dealt with Sun’s arrest was the focus of much cross-examination.  Gou said that he sought advice from the company legal advisor, Li, and was told that the arrest had to be announced by way of public announcement.  The only way to avoid doing so was to replace Sun.  This was said during a meeting at which Wan was also present. 

208.  Gou accepted that he was the most senior person as the vice-chairman and executive director of GEHL in the absence of Sun, but he said that the replacement of Sun by him as chairman and the appointment of Wan and re-designation of Ma as executive directors were the collective decision of Wan, Li and himself.  The minutes for these actions (signed by him, Ma, Wan and Kong)  (“Minutes”)  and Sun’s letter of resignation (signed by Guo)  addressed to the Board (“Letter”), both dated 22 August 2005, were not drafted by him. Guo said that he only knew that the change of membership of the Board would be announced. 

209.  In respect of Guo’s directorship in GH and CG, Guo said that he did not know when he found out that he was appointed.  He explained that these were Sun’s companies and when he was asked to be a director or shareholder of his companies, he agreed to do so as a favour but he had nothing to do with these companies.  He said that before he left GEHL on 1 November 2005, he asked Wan to get him out of whatever companies in his files. Guo resigned from these companies and signed a bunch of documents.  He wanted to start his life afresh with nothing to do with these companies.  He could not remember the documents he had signed.

210.  I believe that Guo was a truthful witness. There was no reason for him to remember everything vividly, especially when these events took place very long ago.  It was an episode he wanted to forget. However, he genuinely tried his best to assist the court.  I believe that the Minutes and Letter were supportive of Guo’s evidence.  The Minutes referred to Guo having received verbal instructions from Sun and the Letter had to be signed by Guo on Sun’s behalf.  Given the circumstances of sudden disappearance of Sun, it was highly unlikely for Guo to have conjured up a story by himself with the hope of getting pass the Board unchallenged.  More likely than not, as Guo said, he consulted Li for legal advice and together with Wan (the only professionally qualified member of the management)  they worked out the action plan which was executed. 

211.  Ms Sun was the third and last witness of Sun. She gave evidence from her home in California via video link.  She appeared to be a lady in her early 70s and was in retirement.  Her evidence mainly concerned the sale of a property in the Discovery Bay and what contact she was able to make with Sun directly or indirectly.  There was no material inconsistency in her evidence, nothing inherently improbable and she made a good impression as a witness. 

212.  Ms Sun was visibly taken aback when it was put to her by Mr YL Wong that her evidence was untrue.  I believe that the lady was genuinely surprised by the accusation.  She maintained her composure and firmly disagreed with the allegation.  I find Ms Sun’s evidence reliable.

213.  Insofar as there was any inconsistency between Ms Sun’s evidence and that of Gou concerning the contact between them.  It was likely a result of passage of time and different recollection of honest witnesses.  The point of importance was whether Ms Sun had any unrestricted access to her brother or vice versa.  There was no such access based on Ms Sun’s evidence.

Disposition

214.  For the reasons stated above, I allow the re-amendments sought in respect of the nominee sale as well as the joinder of GH.  Sun should be allowed an opportunity to consider this Judgment and reflect upon the necessary re-amendments.  The parties should endeavour to agree the terms of the draft order (including the consequential directions)  for the approval of this court within 14 days from the date of this Judgment, failing which a draft order be submitted by Sun together with a succinct letter identifying the disagreed parts of the same. 

215.  As for costs, although Sun has only succeeded partially, the appropriate costs order should reflect the failed dispute of the Defendants over Sun’s reliance on s.26(3)  and the assumption of element (i), which had significantly increased the length and costs of this trial. According to the apportionment suggested by Mr A Wong, which I believe is fair, the costs incurred for such dispute amounted to about 35% of the costs of this trial.  Looking at the matter in the round, I make an order nisi that the costs of this trial be in the cause, with a certificate for 2 counsel for each of the parties. 

216.  Last but not least, I am grateful to counsel for their assistance.  

Annex I