SUN YAN v. SUPERB JADE LTD AND OTHERS

HCA 813/2014

[2023] HKCFI 1433

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 813 OF 2014

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(by Original Action)

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(by Counterclaim)

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_____________________

JUDGMENT

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1.  This is a dispute about the beneficial ownership of all issued shares (“the Superb Jade Shares”) in Superb Jade Limited (“Superb Jade”) and, as it follows, the funds and assets held by Superb Jade. It is common ground that the merits of the claims depend very much on the factual findings to be made by the court.

2.  This case comprises:

(i)   the original claim (“the Original Claim”) commenced by Mr Sun Yan (“Sun”) as the Plaintiff against a total of 4 Defendants, namely: (a) Superb Jade; (b) Mr Lin Li Dong (“Lin”); (c) Ms Tang Jing (“Tang”); and (d) Mr Zhao Jiangqi (“Brother Zhao”);

(ii)  the action by counterclaim (“the Counterclaim”) commenced by Superb Jade and Lin against: (a) Sun; (b) Shenyin Wanguo Securities (HK) Ltd (“SWS”); and (c) Ms Shum Lai Na (also known as Ms Selina Shum) (“Shum”).

3.  Pursuant to §6 of the Order made by this court dated 9 July 2019, the indemnity proceedings between SWS and Shum are stayed pending the determination of the other claims in this action.

A.  BACKGROUNDS OF THE PARTIES

4.  The backgrounds of the parties can be summarized as follows.

A.(i)  Sun

5.  Sun came from the Mainland but has since become a Hong Kong resident.  Sun claims that, by the time Superb Jade was acquired in July 2009, he was already a seasoned investor with strong investment experience, expertise and network.

6.  Sun graduated from the School of Industrial Economics and Business Administration of Shanghai University of Finance and Economics in 1986.

7.  In around 1991, Sun set up a company known as “廣東省惠州市大亞灣投資發展有限公司” (“Sun’s Investment Company”) and was responsible for its investment business.  Since then, Sun made handsome profits and thereafter continued to accumulate experience and enhance business connection in the investment sector.

8.  In around 1988, Sun met Ms Liu Yang (“Liu”).  Liu has been known to be a prominent figure among global market players in the private equity circle.  According to Sun, the market often tended to hold positive views on projects in which Liu was or said to be interested.

9.  Sun claims that, due to the close relationship between Liu and Sun and the former’s appreciation of the latter’s skill, experience and acumen in investment, Liu, in around 2008, invited Sun to assist in the investment projects undertaken or to be undertaken by the Atlantis Group.  As a result, Sun had represented the Atlantis Group in different investment projects and often served as a director on the board of investee companies as designated by Liu or the Atlantis Group. Although there was at the time no formal employer and employee relationship, Sun did maintain a close working relationship with the Atlantis Group.  On the invitation of Liu, Sun was appointed a director of Atlantis in February 2010.

10.  At the same time, since June 2010, Sun has been and still is employed as an Investment Consultant in the Capital Market Department of Burwill Properties Ltd, which is a wholly owned subsidiary of Burwill Holding Ltd (which is a company whose shares have been listed on the Main Board of the Hong Kong Stock Exchange since 1983).

A.(ii)  Lin and Brother Zhao

11.  Lin was at all material times and still is a resident in Shanghai.  Lin has conducted a restaurant or fast food chain business (“the Restaurant Business”) known as “家家長沙米粉” in Shanghai through a Mainland company known as “上海家家美餐飲管理有限公司” (“Lin’s Mainland Company”) since 2000.

12.  Lin’s Mainland Company has severed its relationship from the chain “家家長沙米粉” since around 2003.  Indeed, in 2014, the Restaurant Business comprised only a single outlet.  At all material times, the registered capital of Lin’s Mainland Company was RMB300,000.

13.  Like Lin, Brother Zhao was at all material times and still is a Mainland resident.  He is the natural elder brother of Lin.  Despite being natural brothers, the two of them have different surnames because: (1) Brother Zhao inherited the surname of their father; (2) Lin, on the other hand, inherited the surname of his mother and is also the adopted son of his mother’s brother known as Mr Lin Jinrong.

14.  According to Lin and Brother Zhao, they first came to know Sun in around 1989.  Since then, they developed close relationship and eventually became a family when Sister Zhao married Sun as further elaborated below.

A.(iii)  Sun’s immediate family

15.  Madam Zhao Jianwu (“Sister Zhao”) is the natural elder sister of Lin.  Sister Zhao is also the younger natural sister of Brother Zhao.

16.  Sun set up his own business in the early 1990s.  By early 1992, Sister Zhao (having graduated from the School of Geographic Sciences of East China Normal University in 1989) started to work as a secretary in Sun’s company (i.e. Sun’s Investment Company).

17.  After around 10 months, Sun married Sister Zhao on 14 December 1992 in the Mainland and thereafter maintained a matrimonial home in Shenzhen (“the Matrimonial Home”).  Their only son, Mr Sun Zhibing (孫知兵) (“Zhibing”), was born in 1995 in the Mainland. Sun and Sister Zhao were involved in divorce proceedings in the Hong Kong Family Court.

A.(iv)  Tang

18.  Tang was at all material times and still is a Mainland resident.  According to Sun, Tang is a friend and former work subordinate of Brother Zhao at a Shenzhen-based securities firm called “蔚深證券有限責任公司”.  On Tang’s case, she was only a colleague but not a subordinate of Brother Zhao.

A.(v)  Superb Jade

19.  Superb Jade is a company incorporated in the British Virgin Islands (“BVI”) on 22 July 2009.  On the face of the corporate documents (but subject to Sun’s claims and explanation regarding how Lin became his nominee or trustee), Lin was at all material times and still is the only registered shareholder and director of Superb Jade.  On the evidence, it does not appear to be in dispute that Superb Jade has no independent business as such, but was at all material times used to hold investments or assets.

A.(vi)  SWS

20.  SWS was at all material times and still is a company incorporated in Hong Kong, carrying on the business of regulated activity in dealing in securities as prescribed under Schedule 5 of the Securities and Futures Ordinance (Cap. 571) (“SFO”) and also a licensed corporation under the SFO.  SWS’s involvement in this Action arose out of a securities account opened and maintained by Superb Jade with SWS (“the SWS Account”) and the disputed dealings concerning the SWS Account.

A.(vii)  Shum

21.  Shum was at all material times a licensed representative engaged by SWS.  She was assigned to manage the SWS Account in her capacity as the account executive of SWS.

22.  Sun accepts that he and Shum are both from Hangzhou and that they have been acquainted with each other.  They played golf occasionally.  Sun was a customer of SWS who has been operating his own trading under his own account through Shum so that Shum recognizes him.

B  THE PARTIES’ RESPECTIVE CASE

23.  I then try to summarize the parties’ respective case as follows.

B.(i)  Sun’s case

24.  I first start with Sun’s case.

25.  In around May 2009, Sun was presented with an investment opportunity. Whilst considering whether to invest, Sun believed it would be appropriate to set up layers of offshore special purpose vehicles for these private equity investments for ease of subsequent exists and for tax planning reasons.  However, given the uncertainty over the prospects of the private equity projects to be procured by Sun which might have a bearing on the reputation of Atlantis (at which, as noted above, Sun was known in the market to be responsible for assessing private equity investments) and for fear of exploitation by investee personnel of Atlantis’ reputation to promote their own interests, Sun was minded to use nominees to hold the special purpose vehicles that in turn would hold the intended joint investments.

26.  In this regard, Sun felt that he had to be cautious.  Due to his association with the Atlantis Group, the use of any special corporate vehicle in his own name might still cause outsiders to consider the investment as one made by Sun on behalf of the Atlantis Group.  Sun did not want people to make stories out of such association (be it positive or negative).  Hence, in order to distant the potential investment from the Atlantis Group, Sun caused Superb Jade to be set up for the purpose of holding the potential investment.

27.  By reason of their long-standing friendship, Sun first asked Brother Zhao if he could assist him in holding all the shares in a corporate vehicle as his nominee or agent.  In response, Brother Zhao told Sun that it was inconvenient for him to act as Sun’s nominee or agent, and suggested Sun to ask his younger brother, Lin, to do so.  As a result, Sun approached Lin and Lin agreed to act as Sun’s nominee or agent of a corporate vehicle (i.e. Superb Jade).

28.  On around 22 July 2009, Superb Jade was set up on Sun’s instructions through a registered agent with the assistance of Ms Amy Zhang (“Amy”) who was the secretary of Liu.  All the set-up costs (including the share capital and the administrative costs) were paid by Sun.

29.  However, the potential investment eventually did not develop past the negotiation stage.  This happened at around the time when Superb Jade was incorporated.  Sun nevertheless decided to: (1) keep Superb Jade as his corporate vehicle to hold assets of various classes; and (2) maintain Lin as his nominee or agent to hold the Superb Jade Shares as well as to act as his nominee director.

30.  It was under such circumstances that Lin became the sole registered shareholder and director of Superb Jade.  However, by reason of the aforesaid background, Lin was and still is no more than Sun’s trustee, nominee or agent in respect of the Superb Jade Shares as well as all assets held by Superb Jade.

31.  Sun has provided an account about his alleged investment in World Charm Holdings Ltd (“World Charm”), which is one of the major assets that was once held in the name of Superb Jade.  It was an investment made by Sun through Superb Jade in an enterprise engaging principally in the production and licensing of movies, television drama series and television advertising in the Mainland, represented by 106,700 shares of World Charm (“the World Charm Shares”).  This investment was made by Sun in around March 2011 at the purchase price of HK$49.8 million, which price was settled by Sun. Besides, Sun was at all material times in possession of the originals of the share certificate for the World Charm Shares.

32.  World Charm was a 45% shareholder of a company known as China Entertainment Media Group Ltd (“CEMG”), which was the holding company of the aforesaid enterprise.  On 21 October 2011, ChinaVision Media Group Ltd (“ChinaVision”) (a company listed on the Hong Kong Stock Exchange) entered into a sale and purchase agreement with, among others, World Charm for the acquisition of the entire issued share capital of CEMG. The consideration for this acquisition was to be satisfied by the allotment of new shares by ChinaVision. As a result, Superb Jade (which held 10.67% shareholding in World Charm) received a total of 241,950,000 new shares allotted by ChinaVision.  The said 241,950,000 new shares of ChinaVision (“the ChinaVision Shares”) were deposited into the SWS Account upon Sun’s instructions.

33.  After the ChinaVision Shares were deposited into the SWS Account, part of them were sold and the sale proceeds were used to acquire other securities through the SWS Account. Hence, Sun says that the assets held in the name of Superb Jade were held by Superb Jade and Lin as nominees or trustees on behalf of Sun.  In any event, there is no suggestion or evidence to show that Lin or Brother Zhao paid for the World Charm Shares or the ChinaVision Shares.

34.  In early May 2014, Sun discovered that the company kit and the chop of Superb Jade (“the Company Kit and Chop”), which had at all material times been in his possession, had gone missing.

35.  Since around 7 May 2014, Lin procured Superb Jade to withdraw cash held in the SWS Account.  Upon notification by Shum, Sun gave instructions to her to acquire shares of Tencent Holdings Ltd (“the Tencent Shares”) using the fund in the SWS Account, hoping that this would prevent Lin of making any withdrawal from the SWS Account.  Despite this, Lin attended the office of SWS on 7 May 2014 and eventually succeeded in withdrawing a sum of HK$14,707,995.54.  According to Sun, this sum of money was then transferred or paid to designations beyond his reach.

36.  It is Sun’s case that Lin, Tang and Brother Zhao were and still are holding the various amounts so transferred and that they are traceable proceeds.  It is on this basis that Sun obtained injunction orders against Superb Jade, Lin, Tang and Brother Zhao to protect his interests in the assets held by Superb Jade and also to assert his tracing claims.[1]

B.(ii)  The case of Lin, Superb Jade and Brother Zhao

37.  I then turn to the case of Lin, Superb Jade and Brother Zhao (collectively referred to as “the Lin’s Parties”).   According to their primary case, Lin has been conducting the Restaurant Business in the Mainland since around 2000.   In around 2009, “in order to pave way for expansion of his business and to enjoy tax benefit, Lin planned to change the [Restaurant] Business to a business to be owned and operated by a wholly foreign owned enterprise in the [Mainland] (“WFOE”) and he therefore planned to set up a BVI company, which would then hold his shareholding in the [Restaurant] Business”.  Due to his trust and confidence in Sun and also in view of Sun’s working experience in Hong Kong, he engaged Sun’s assistance in setting up Superb Jade on 22 July 2009 and opening the SWS Account on 3 November 2009.  To Lin’s knowledge, Shum was a close acquaintance of Sun and they were both from Hangzhou.  Since Shum was an account executive in SWS, Sun referred Lin to her to set up the SWS Account for and on behalf of Superb Jade.

38.  For the huge amount of assets then in the SWS Account, the Lin’s Parties claim that in around 1992 (shortly before Sun married Sister Zhao), Brother Zhao obtained a sum of RMB750,000 as consultancy fee from a state-owned enterprise.  Due to prevailing local regulations in the Mainland at the time, this sum of RMB750,000 could not be paid to Brother Zhao directly (as he was a natural person) but had to be paid to a corporate entity nominated by him.  As Brother Zhao did not own any corporate entity at the time, the consultancy fee was paid to Sun’s business (i.e. Sun’s Investment Company).

39.  Without Brother Zhao’s approval, Sun applied the entire amount of RMB750,000 to purchase employee stocks (“the Shenzhen Properties Shares”) of a company known as Shenzhen Properties & Resources Development (Group) Ltd (“Shenzhen Properties”) through the connection of Sun’s uncle (who was then working in Shenzhen Properties).  Contrary to Sun’s expectation, the Shenzhen Properties Shares so acquired could not be traded in the open market until 2006 (after Mainland’s reform of her financial rules and regulations).  As a result, Sun was not able to, and never did, refund the sum of RMB750,000 to Brother Zhao.  In the meantime, Sun experienced financial difficulties and it was Lin and Brother Zhao who supported Sun and his family.

40.  In around 2006, following the reform of the Mainland financial rules and regulations, the Shenzhen Properties Shares were sold at huge profits (as the price increased about 50 times since 1992).  In around May 2011, Sun and Lin had the following discussions: (1) Sun was grateful for the support of Lin and Brother Zhao, including the fact that Brother Zhao did not demand repayment of RMB750,000; (2) Sun knew a Mr Dong Ping (“Dong”), who was famous in the movie industry in the Mainland.  Instead of making direct repayment to Lin and Brother Zhao, Sun suggested that he would use the sale proceeds derived from the sale of the Shenzhen Properties Shares to invest in a company of Dong (which turned out to be CEMG).  Brother Zhao was later informed of Sun’s proposal and also agreed.  It was under such circumstances that Superb Jade acquired the World Charm Shares and subsequently received the allotment of the ChinaVision Shares.

41.  On this basis, it is alleged that all the assets in Superb Jade had been given by Sun to Lin and Brother Zhao as “gifts”, and that they had become sole and absolute owners thereof.  For this reason, they also allege that Sun has no interest, whether legal or equitable, in Superb Jade or in the assets held by Superb Jade.

42.  Further, it is pertinent to note that in around March 2014, Alibaba Investment Ltd decided to invest in ChinaVision by entering into a subscription agreement with it.  Indeed, in August 2014, ChinaVision changed to its present name of “Alibaba Pictures Group Ltd”.  As a result, the share price of ChinaVision went up substantially.  It is alleged that Sun regretted to have given the ChinaVision Shares to Lin and Brother Zhao after learning the sharp increase of the share price of ChinaVision.

43.  The Lin’s Parties also run a half-hearted alternative case.  It is contended that Sun was privy to certain alleged market misconduct or illegal activities which render Sun unable to claim beneficial interest over any assets deriving from the ChinaVision Shares.  In his final submissions, Mr Lam, SC, counsel for the Lin’s Parties, submits that Sun was in contravention of ss 9(1) and (2) of the Prevention of Bribery Ordinance (Cap 201).  However, as demonstrated below, this claim is based on speculation rather on facts.

B.(iii) Sun’s reply to the case of the Lin’s Parties

44.  Sun disputes the allegations made by the Lin’s Parties.

45.  First, Sun admits that he did receive the said sum of RMB750,000 in around early 1993. However, there was no trust arrangement in respect of this sum and that the entire amount of RMB750,000 had been fully repaid to Brother Zhao.

46.  Second, Sun denies that he had ever purchased any Shenzhen Properties Shares by using any part of the said sum of RMB750,000. Instead, Sun acquired 100,000 shares in Shenzhen Properties by using his own money in the amount of RMB860,000.  Such shares were eventually disposed in July 2014 and Sun made a profit of around RMB233,800.

47.  Third, without prejudice to Sun’s case that the allegation of non-payment of the World Charm Shares is irrelevant, Sun denies that the consideration for the World Charm Shares had not been paid.  Instead, the payment was made in two trenches, namely: (1) HK$33 million in around March to May 2012; and (2) HK$16.8 million in 2013.[2]

48.  Fourth, Sun denies the case of gift put forward by Lin and Brother Zhao.

49.  Fifth, Sun denies any allegation of illegal conduct or market misconduct.

B.(iv)  The Counterclaim

50.  Superb Jade and Lin also bring a counterclaim based on conspiracy, breach of contract and breach of confidentiality and fiduciary duty against Sun, SWS and Shum.

51.  Superb Jade and Lin claim that, in the morning of 7 May 2014, Lin gave written withdrawal instructions to SWS to withdraw all the funds in the SWS Account (“the Withdrawal Instructions”) at the United Centre Office of SWS.  Lin was told by the staff that the Withdrawal Instructions would be strictly complied with by SWS.  Subsequently, Lin received a phone call from Shum that, allegedly by reason of an agreement with a third party, she had already caused Superb Jade to use all the available funds to purchase the Tencent Shares.  Immediately after, Lin called to ascertain whether SWS had complied with the Withdrawal Instructions and queried about the unauthorised purchase of the Tencent Shares.  Later, Lin learnt that the SWS Account was only left with cash in the amount of HK$14,707,955.54.

52.  The pleaded case of the Counterclaim is as follows:

(i)   According to the Standard Terms and Conditions governing the SWS Account,in particular pursuant to Clause 10(b), all instructions given to SWS must be in writing.

(ii)  Further, there are also implied terms or duty of care owed by SWS to Lin and Superb Jade, namely that SWS would carry out the instructions of Lin and Superb Jade, which SWS failed to do so; and that SWS would observe the duty of confidentiality to Superb Jade and Lin by keeping all information given by them in strict confidence, which SWS breached it by informing Sun of the Withdrawal Instructions.

(iii) Shum and SWS also owed fiduciary duties to Lin and Superb Jade by virtue of the cash account application form submitted on 3 November 2009, which they have committed a breach by allowing the purchase of the Tencent Shares and not strictly complying with the Withdrawal Instructions.

(iv) It is alleged that Sun and Shum have conspired together to injure Superb Jade or Lin.

(v)  SWS is vicariously liable for Shum’s wrongdoing.

53.  As defence to the Counterclaim, Sun claims that he was entitled to cause Superb Jade to purchase the Tencent Shares and to ignore the Withdrawal Instructions as the beneficial owner of the assets or shareholdings of Superb Jade.

54.  SWS’s defence is two-fold: (i) SWS cannot be vicariously liable for Shum’s misconduct because Shum is not an employee or agent of SWS or she had acted outside the scope of her employment or agency relationship; and (ii) SWS did not owe the duties as claimed by Lin and Superb Jade and there was no breach of any duties whether as alleged or at all.

55.  Shum supports Sun’s case that he is the beneficial owner of the assets or shareholdings of Superb Jade.  She therefore only carried out the instructions according to the beneficial owner of the SWS Account.

B.(v)  The core issue

56.  It follows from the aforesaid that the core issue in this case is to identify the true beneficial owner of the SWS Account and the shares and assets of Superb Jade.   The merits of the Counterclaim also depend on the court’s finding on this core issue.

57.  Perhaps it would be convenient for me here to deal with one pleading point raised by Mr Lam.

58.  Mr Lam refers me to the amendment of pleading made on 15 July 2019.  Prior to the amendment, Sun’s claim is one based on the trust of the assets in the SWS Account held in the name of Superb Jade. However, the amendment in 2019 makes it clear that Sun’s trust claim also covers the Superb Jade Shares.  Mr Lam submits that such late amendment undermines the credibility of Sun’s claim.

59.  I disagree.  Sun’s claim has been clear from the outset.  It has always been Sun’s case that Lin was his nominee in setting up both Superb Jade and the SWS Account.  Under such circumstances, it only follows that Sun had to make the amendment in the pleading to cover both the shares and the assets.  The amendment only tidies up the claim in law with no material changes in the supporting factual allegations.

C  WITNESSES AT THE TRIAL

60.  The following witnesses testified at the trial:

(i)   Sun who testified in support of his own case;

(ii)  Zhibing who was called by Sun as a witness;

(iii) Lin and Brother Zhao who testified in support of their case;

(iv) Mr Leslie Wong (“Wong”) who testified in support of SWS’s case; and

(v)  Shum who testified in support of her own case.

61.  Before I consider the merits of the claims, I will make some preliminary observations about the credibility of each individual witness.  I deal with them in the order in which they testified at the trial.

C.(i)  Sun

62.  The most important witness in support of Sun’s case must be Sun himself.

63.  Sun is highly educated and has been engaged in investment business for over two decades. He was employed by several listed companies and is undoubtedly experienced in private equity.

64.  He provided the court with an account about his background, the reason for the setting up of Superb Jade and the SWS account, the dealings and the transactions involving the assets in the SWS Account, his dealings with Lin, Brother Zhao and Shum throughout the years.  He maintained that he is the beneficial owner of Superb Jade and the SWS Account.

65.  For the reasons given in the latter part of this Judgment, I accept his evidence as the truth.

66.  Sun is certainly a sophisticated businessman.  With his background and the skill, knowledge and connections obtained throughout the years, he would be able to make use of corporate vehicles to conceal his interests in various transactions or his relationship with the interested parties.  The full backgrounds for the sale and purchase agreement of the World Charm Shares might not have been revealed at the trial, but one cannot deny that the transaction bore the footprint of Sun rather than that of Lin.  He may not be a businessman of high moral standard.  Yet, this is not a trial on his moral responsibility.  His background, the control he maintained over Superb Jade and the SWS Account and the highly sophisticated transactions involving the assets in the SWS Account throughout the years certainly support Sun’s evidence that he is the beneficial owner of Superb Jade and the SWS Account.

67.  Even though there are some minor discrepancies between Sun’s oral testimony at trial and the contents of his witness statements, such discrepancies are not sufficient to render Sun an incredible or unreliable witness.  Even honest witness can make mistakes during the course of the legal proceedings or during trial.  What is important is to consider Sun’s evidence as a whole.  There are also minor issues including: (i) the use of Shum’s address in the affirmation filed for the application of Mareva injunction; and (ii) the making of affirmations despite Sun is a Christian.  Whilst these matters were raised during cross-examination, it cannot be seriously suggested that such minor matters can materially affect the credibility or reliability of Sun.  Sun at the time would not and has not gained any advantage from such minor matters, and there is simply no basis to suggest that these were deliberate attempts to hide anything.

C.(ii)  Zhibing

68.  Obviously, Zhibing was torn between his father on the one hand, and his mother and his uncles on the other hand.  He was only 14 years old when Superb Jade was incorporated. Sun agreed that he would not discuss business with Zhibing and he would not discuss the incorporation of Superb Jade with him.  Zhibing admitted that he has no knowledge as to the exact financial situation of the family in 2003; no direct or personal knowledge of why Superb Jade was set up; no direct or personal knowledge as to why a securities account in Superb Jade’s name was opened at SWS; and no direct or personal knowledge as to the circumstances in which the ChinaVision Shares were deposited into the SWS Account on 6 February 2002.

69.  Nevertheless, Zhibing’s evidence is relevant on the following issues: (i) the general financial condition of his family throughout the years; (ii) the general financial condition of the Restaurant Business at the relevant times; and (iii) the showing of the WeChat message by his mother as further elaborated below (“the WeChat Message”).

70.  Zhibing is plainly a straightforward witness who is trying his best to assist the court and there is no basis to doubt his testimony.

71.  After the dispute arose, it is clear that Zhibing had chosen to believe his father.  It has been suggested that Zhibing is under the influence of Sun, partly because Sun still provided financial assistance to him.   However, I agree with Mr Yuen, SC, counsel for Sun, that, given his education level and his upbringing, Zhibing must have appreciated the solemnity and seriousness of giving testimony in court.   Furthermore, I do not accept that the provision of financial assistance would have motivated Zhibing to fabricate evidence in favour of his father.  After all, he has his own source of income from the university, and there is no indication that Sun has ever threatened to cut his financial support.

72.  Zhibing testified about the showing of the WeChat Message to him by his mother.  Sister Zhao did not testify at this trial, which is understandable as someone in her position would not want to be seen as siding with either camp. Although no formal witness statement has been provided, one should not ignore the WeChat Message provided by Sister Zhao:

(i)   §1 of the WeChat Message clearly stated that Superb Jade was incorporated by Sun using Lin as his nominee.

(ii)  The WeChat Message was sent not to Sun’s solicitors, but the solicitors acting for the Lin’s Parties. The contents of the message are probably true, as Sister Zhao wanted to ensure that the legal team acting for the Lin’s Parties knew the truth.

(iii) The WeChat Message was sent on 31 July 2018, i.e. almost 2 years after delivery of the Judgment in FCMC 7824/2015 (dated 21 September 2016) (whereby HH Judge Bruno Chan dismissed Sister Zhao’s divorce petition on the ground that Sun had no substantial connection with Hong Kong).  In other words, by the time of the WeChat Message, there was no pending legal proceedings between Sun and Sister Zhao.  Further, there is no evidence that any divorce proceedings have been commenced by Sister Zhao in the Mainland.  It follows that Sister Zhao would not have had any motive to support Sun’s claim over Superb Jade with a view to getting a share thereof through divorce proceedings.

73.  Zhibing confirmed that her mother showed him the WeChat Message.  There is a suggestion that Sister Zhao did so in order to remedy their mother-and-son relationship.  Zhibing denied this, which is understandable.  If one looks at the situation from Zhibing’s perspective, what he was after at the time was an explanation from his mother as to what happened and why she behaved in the way she did.  The legal proceedings could not have been in the forefront of Zhibing’s mind.  Instead, what is important is that Zhibing explained that his mother sent the WeChat Message to the solicitors for the Lin’s Parties hoping that they would not continue with the legal proceedings. The reasonable inference to be drawn is that Sister Zhao wanted to tell Zhibing that she was doing something to remedy the situation, i.e. to ask her brothers (Lin and Brother Zhao) to stop the legal proceedings and to withdraw the claim over the shares and assets of Superb Jade.  In so doing, Sister Zhao must know that Superb Jade belongs to Sun. If she knows Superb Jade belongs to Lin, sending the WeChat Message would only irritate Lin and would not achieve her purpose. Hence, the WeChat Message is an important piece of evidence supporting Sun’s case.

74.  Mr Lam also makes a point that, given Sister Zhao’s character, Sun has made an untrue allegation against her that she was greedy and conspired with her brothers to misappropriate his assets.  However, one must bear in mind the trauma experienced by Sun when he found about the missing of the Company Kit and Chop and the withdrawal of the assets from the SWS Account.  Taking into account the then tense marital relationship between them, it would only be natural for Sun to have made such kind of allegation, which he subjectively believed to be true, against Sister Zhao.

C.(iii) Lin

75.  Lin graduated in 1992 from “南京郵電大學” and worked in Shanghai since 1996.  Between those years, he had worked as an engineer at “富士通軟件公司” and “海南藥業”.  In 2000, he started the Restaurant Business.

76.  Lin told the court about his background, the reason for the setting up of Superb Jade and his dealings with Sun throughout the years.  His case has been summarized in the earlier part of this Judgment and I do not want to repeat the same here.[3]

77.  As compared with Sun, Lin has a more humble background and is a less sophisticated businessman.   I reject Lin’s evidence for the various reasons given in the latter part of this Judgment.

C.(iv) Brother Zhao

78.  Brother Zhao is also a highly educated and sophisticated businessman.  He has experience in the finance and securities industry. However, as he said in cross-examination, the nature of his jobs was very different from that of Sun.

79.  He provided the court with an account about his dealings with Sun throughout the years, in particular the payment of RMB750,000 into Sun’s account and the “gifting” of the World Charm Shares in the SWS Account to Lin. His evidence basically supports the case of the Lin’s Parties.

80.  Likewise, I reject Brother Zhao’s evidence for the various reasons given in the latter part of this Judgment. 

C.(v)  Wong

81.  Wong, the Chief Operating Officer of SWS, is an experienced executive in the securities industry.  His evidence covers, inter alia, the procedures that should be followed in opening an account in SWS, the measures adopted by SWS to monitor the account after it had been opened and details of the internal investigation done after the incident.  His evidence highlights the importance of verifying the true and full identify of a client, and all account executives should be very familiar with these procedures.  It is clear that Wong was not involved in any of the events which gave rise to the disputes between Sun on the one part and Lin, Brother Zhao and Tang on the other.

82.  Wong was meticulous, careful and straightforward when giving evidence.  Given the role of SWS in this dispute and his position in SWS, it is common ground that there is no motive for Wong to lie in the present case.  Subject to his opinion on the nature of “人頭戶” (front man account), I accept his evidence as the truth.

83.  Wong was asked questions concerning the expression “人頭戶”.  According to Sun’s case, the SWS’s Account is a “人頭戶” in the sense that the beneficial ownership belongs to someone other than the account holder.  Wong seemed to suggest that the expression “人頭戶” was used by people in the local securities industry to mean securities accounts maintained for the purpose of carrying out illegal or irregular activities.

84.  I agree with Mr Yuen that one should approach Wong’s evidence in this regard with some caution:

(i)   Wong was called as a factual witness and not an expert witness, and so despite his experience in the local securities industry, his opinion on the meaning of “人頭戶” is inadmissible.

(ii)  During cross-examination, Wong fairly accepted that there is no universal definition of the term “人頭戶”, and different people may use the term with different meanings.

(iii) Given the Mainland background of Sun, there is no evidence that the meaning of “人頭戶” as understood by the local securities industry is the same as understood by persons coming from the Mainland.

(iv) Most importantly, there is no evidence to suggest that either Sun or Shum had used the term “人頭戶” in the course of the opening or operation of the SWS Account.  On the contrary, Shum explained that Sun and her communicated in the Hangzhou dialect and that they did not use such an expression.

85.  Hence, even if such expression had been used by Sun or Shum (which I do not accept it to be the case), I do not find that what they meant was that the SWS Account was used for or associated with illegal or irregular activities.

C.(vi)  Shum

86.  Another crucial witness is Shum.

87.  It is quite clear that various parts of her oral testimony given at this trial are not consistent with her witness statement or her previous Chinese statement given to SWS during the course of SWS’s internal investigation.  In the previous statements, she somewhat evaded the question as to when she knew that Lin was a nominee.  In her oral testimony at trial, she clearly confirmed that Sun is the true beneficial owner of Superb Jade and the SWS’s Account and she knew such fact when the account was opened. By making such positive assertion, she is prepared to take all the blame herself, in particular her failure to follow the required rules in reporting the identity of the true owner of the account handled by her.

88.  Having considered her evidence carefully, I accept what she told the court in her oral testimony are the truth.  Taking her evidence as a whole, the only reasonable inference to be drawn is that Shum at all material times knew that the SWS Account and another SWS’s account held in the name of Lin (“Lin’s SWS Account”)[4] were beneficially owned by Sun, irrespective of whether Sun had told her so expressly.   My reasons are as follows:

(i)   Sun was the one who operated these two accounts and not Lin.  In particular, Sun (and not Lin) was invariably the one who gave instructions to Shum.

(ii)  It was Sun who checked the state of the SWS Account from time to time, whereas Lin never did so.

(iii) Sun called up Shum in early May 2014 to tell her about the missing of the Company Kit and Chop and expressed his concerns.

(iv) On 7 May 2014, Shum told a staff in SWS, 鄭凱華 (“Cheng”), that the money in the SWS Account did not belong to Lin.

89.  It appears from the evidence that initially Shum did not (subjectively) sense anything wrong when she opened the two accounts for Superb Jade and Lin.  It was only on 7 May 2014 that she found herself caught in a dilemma.  That is why she felt confused and did not know what to do.  It was against this background that Shum tried to navigate between her duties owed to SWS and the Securities and Futures Commission (“SFC”) on the one hand and the true position (i.e. the SWS Account and Lin’s SWS Account both belong to Sun) on the other.  This explains the unsatisfactory features in her evidence whether in her statements or oral testimony.

90.  In considering the credibility of her oral testimony, I can perhaps ask the following questions: (i) If Shum did not at the material times know that Sun was the beneficial owner of the SWS Account and Lin’s SWS Account, why would she find it necessary to protect Sun?  (ii) Why is she prepared to take all the blame herself (even to the extent of sacrificing her career) with a view to support Sun’s case? 

91.  There is no evidence that Shum derived any benefit from doing so.  There may be a slight suggestion that Shum may take up the alternative job of being a golf teaching professional, but losing her licence in the securities industry is not a small stake that can explain the “favour” she did for her friend.  In my judgment, the reason why Shum changed her testimony in the witness box is because she understood that her original version could not survive after the scrutiny by the court, and she had no option but to tell the truth in the witness box.

92.  There may be an issue as to whether Shum had told SWS during the internal investigation or to her former solicitors that Lin was only a nominee.  As Shum had been caught in a situation of losing her licence on the one hand and telling the truth on the other, it would be unsafe for the court to attach any weight to what she might have said in the past. Rather the court should focus on what she actually did (including her oral confirmation of the orders with Sun and the conduct of protecting Sun in May 2014) in deciding the beneficial ownership of the SWS Account.

C.(vii)  Witnesses not called to testify at the trial

93.  A number of witnesses have provided witness statements but were not called to testify at the trial.  Since the testimonies of these witnesses as contained in their respective witness statements are not challenged, the parties accept that they can or should be taken into account by this court in considering the merits of the case.

94.  The first one is 郭秉杰 (“Guo”).  Guo’s witness statement deals with Sun’s purchase of the Shenzhen Properties Shares in detail and is supported by contemporaneous documents.  As further elaborated in the latter part of this Judgment, Guo’s testimony rebuts the case of the Lin’s Parties that: (i) Sun made 50 times profit from his investment in the Shenzhen Properties Shares; and (ii) as a result, Sun gave the World Charm Shares to Lin and Brother Zhao so as to repay Brother Zhao’s kindness of not pressing him to repay the sum of RMB750,000.

95.  The second and third ones are Ms Mavis Fan (范微微) and Cheng who were then staff members of SWS.  Their witness statements deal with the events that took place on 7 May 2014.

96.  In §13 of Cheng’s witness statement, she said that in one of the telephone conversations she had with Shum in the afternoon of 7 May 2014, Shum told her that the money in the SWS Account did not belong to Lin.  I agree with Mr Yuen that such contemporaneous response by Shum is important.  At that time and in the context of such a telephone conversation with her colleague, Shum would not have had any motive to lie, which very much supports Sun’s case that he is the beneficial owner of the SWS Account.

C.(viii)  Absence of possible witnesses

97.  In his closing submissions, Mr Lam submits a list of possible witnesses that he claims Sun should have called to testify at the trial, and adverse inference should be drawn against Sun for his failure to do so.

98.  The list includes: Liu, Amy (staff working in Atlantis), Ms Liu Lu (Sun’s secretary)(“Lu”), Mr Zhao Chao (Director of World Charm and ChinaVision)(“Zhao Chao”), Dong, Mr Terry Wong (staff of ChinaVision) (“Terry”), Ms Vivaldi Lam (staff of ChinaVision)(“Vivaldi”), Ms Yang Qin (who allegedly help Sun to make the payment for the purchase of the World Charm Shares)(“Yang”).  On Sun’s evidence, Vivaldi, Lu, Dong and possibly Terry knew that he was the beneficial owner of Superb Jade.

99.  I do not propose to deal with each possible witness here.  It suffices for me to say that the present dispute has nothing to do with these persons.  They may be able to tell the court some peripheral facts which may only be relevant to the backgrounds of the parties, but they are not expected to have personal knowledge about the beneficial ownership of Superb Jade or the SWS Account.  Some of them (such as Vivaldi, Lu and Terry) were only junior staff who helped Sun to take care of various daily matters.  They did not have extensive dealings with Sun, and their involvement (such as Lu and Vivaldi) can be seen from the relevant contemporaneous documents.  Hence, I refuse to draw any adverse inference against Sun for the absence of these possible witnesses at the trial.

D  MERITS OF THE ORIGINAL CLAIM

100.  Having carefully considered the evidence, I have no doubt in my mind that Sun is the beneficial owner of the Superb Jade Shares and the assets held in the name of Superb Jade.  My broad reasons are as follows:

(i)   Sun’s reasons for the setting up of an offshore company (i.e. Superb Jade) are more convincing.

(ii)  The control of the operation of the SWS Account had all along been vested in Sun.

(iii) The dealings and the transactions involving the assets in the SWS Account are more consistent with Sun’s version of events, and not that those assets were gifts or originated from gifts from Sun as alleged by the Lin’s Parties.

(iv) Sun was the one who paid for the setting up costs and annual fees relating to Superb Jade.

101.  I will elaborate on these reasons below.

D.(i)  Reasons for the setting up of Superb Jade and the SWS Account

102.  The parties have given different versions for the reasons for the setting up of Superb Jade.  Sun’s case has been summarised in Section B.(i) above.  On the other hand, Lin claims that, in light of possible business expansion, he wanted to acquire a BVI company for tax benefits and potential listing in the future.  In his oral testimony, he also added that the costs for incorporating an offshore company was low and the required registered capital was only US$1.

D.(i).1  Background of the parties and the initial reasons for the setting up of Superb Jade and the SWS Account

103.  Taking into account the backgrounds of the parties, Sun’s version is certainly more convincing.

104.  Sun’s background has been summarised in his witness statements and oral testimony, in particular:

(i)   By around 1991, Sun had already set up his own business.

(ii)  By around 1992, due to his involvement in real estate development and funding, Sun had already accumulated wealth to the extent of RMB10 million (his “first bucket of gold”).  It is not disputed that, back in 1992, RMB10 million was a lot of money in the Mainland.

(iii) Sun came to know Liu in around 1998 and have since become good friend.  Since then, Sun did from time to time assist Liu in investment projects.

(iv) During cross-examination, Sun also confirmed that he was involved in both investment and high-tech companies during the period from 2000 to 2009.

(v)  On 1 January 2009, Sun entered into an agreement with China Grand Forestry Green Resources Group Limited (“China Forestry”) whereby he was appointed as an “Executive”.

(vi) From February 2010 to April 2014, Sun formally participated in the affairs of the Atlantis Group.

105.  Sun has his own BVI company known as Crescent Investment Holding Co. Ltd. (“Crescent”).  There is also a BVI company known as Glory China International Ltd (“Glory China”) which was held by his wife (Sister Zhao).

106.  In his testimony, Sun explained how he used these offshore companies in different manners:

(i)   Crescent was used as a vehicle to perform services or operate projects outside the Mainland.  This explains why Crescent was used by Sun to enter into the Marketing Services Agreement with Heng Xin China Holdings Limited (“Heng Xin”).

(ii)  Since the initial investment negotiation fell through, Superb Jade was used to hold assets for Sun. This explains: (a) why the World Charm Shares and the ChinaVision Shares were placed into the SWS Account; and (ii) why there were the subsequent buying and selling of shares by Sun through the SWS Account.

(iii) As regards Glory China held by Sister Zhao, it was not used at the material time.

107.  On the other hand, Brother Zhao explained that the nature of his work was not the same as Sun’s, though there were some similarities at one stage.  Nevertheless, as between Brother Zhao and Lin, it is clear Brother Zhao is the one who was at the material times more familiar with offshore companies.

108.  Lin worked in two companies before venturing into food business.  In 2000, he started the Restaurant Business in the Mainland.  It is not disputed that Lin never had any experience in dealing with BVI or other offshore companies before May 2009.  According to Lin, he relied on the experience of Sun in helping him to set up the offshore company.

109.  Having considered the backgrounds of the parties and their alleged reasons for setting up Superb Jade, I find that Sun’s version is more convincing.

110.  Given Sun’s background, he was familiar with the investment industry and thus has knowledge of the use and operation of offshore companies.  All these explain why Sun chose to hold assets through nominees or trustees, a case which he has consistently maintained (even in the previous matrimonial proceedings involving Sister Zhao^[5]). This is also not disputed by Lin and Brother Zhao.  On Lin’s own case, it was because of Sun’s knowledge of offshore company that he asked Sun to assist in the setting up of Superb Jade.

111.  Sun has provided detailed explanation as to why he saw the need to ask Lin to be his nominee in respect of Superb Jade.  The crux of Sun’s reason is that he did not want people to associate his personal investments with those of Liu or the Atlantis Group.  Such an intention on the part of Sun is understandable.  As Sun explained, the circle of the investments (especially private equities) that Sun dealt with is a small circle, at least some people would know the relationship between Sun and Liu or the Atlantis Group.  Indeed, Sun explained that by 2009, he was widely known in the market as someone connected to and representing the Atlantis Group.  Such background provides a credible explanation about Sun’s desire to disassociate his personal investments from investments made by the Atlantis Group.

112.  Mr Lam makes the following attacks against Sun’s evidence:

(i)   The reasons given by Sun for the setting up of Superb Jade are not always consistent and he always added new reasons for the same.

(ii)  Sun’s alleged reputation of his connection to the Atlantis Group and potential investment opportunities are only bare assertions unsupported by evidence.

(iii) The alleged potential investments were still in the negotiation stage when Superb Jade was set up in around May 2009.

(iv) It was impossible for Sun to distance himself from the investments as he had to be involved in the negotiation in any event and the investment circle was a small one.

(v)  Sun could hold shares in his own name as, for BVI companies, the public would not be able to find out who the registered shareholders of the company are.

(vi) There is confusion in his evidence as to when he made the oral agreement with Lin for the nominee arrangement.

113.  Despite Mr Lam’s able submissions, I do not find that these observations would undermine the credibility of Sun’s evidence.  Sun was involved in a unique investment circle.  It is true that people negotiating with Sun would know Sun and his background, but Sun was at the material time not a full-time employee of the Atlantis Group.  Sun at the time had his own personal investments.  Indeed, shortly before Superb Jade was incorporated, he was appointed an Executive of China Grand Forestry Green Resources Group Limited.  Hence, unless and until Sun made clear his capacity, people could not be sure as to under which capacity Sun was acting during any negotiation.

114.  It is true that the public would have difficulty in finding out the shareholders and directors of a BVI company, but yet in an investment transaction, it would not be surprising that corporate documents would have to be produced (as part of the documents required for completion).  If he were to find a nominee to hold the investments for him, it would not at least on paper reveal his interests or connections with the investments.

115.  I also do not accept that Sun has been changing his explanation for acquiring Superb Jade.  It has all along been his case that Sun wanted to set up Superb Jade to “avoid unnecessary troubles”, as stated in his first affirmation made in support of the ex parte Mareva injunction application.  In the subsequent witness statements, Sun provided further substance to support such allegation.  This is quite understandable in view of the development of the case and the queries raised by the Lin’s Parties at different stages of the proceedings.  I also do not find that there is any confusion in Sun’s evidence as to when the nominee agreement was made.  Unlike a normal commercial contract which is easy to identify a particular contract date, the present nominee agreement involved a less formal arrangement between friends.  It would be too pedantic to pick on the exact date.

116.  Mr Lam also challenges why Sun had chosen Lin and not Brother Zhao or Sister Zhao to be his nominee.  Sun had also appointed Sister Zhao as his nominee in two companies in 2009, and he queries why Sun did not appoint her as his nominee for Superb Jade as well.

117.  Given the relationship between the parties, there is no substance in these complaints.  Even on Lin’s own case, there was a great deal of trust between the parties by that time.  Further, taking into account Sun’s connections and the scale of his possible investments, I do not find it surprising that he sought to establish a network of offshore companies held by different nominees.  The business profile of Sun certainly fits the sort of arrangement alleged by him for his possible investment plan in the future.

118.  The timing for the setting up of Superb Jade is also consistent with Sun’s case.  There is no serious dispute that Sister Zhao was Sun’s nominee in holding the shares in China Glory.  The fact that both Superb Jade and China Glory were set up at more or less the same time cannot be a matter of pure coincidence.

119.  On the other hand, I do not find that Lin’s version for the setting up of Superb Jade is convincing.  It does not sit well with his more humble and less sophisticated background.

120.  First, regarding intended listing, I find it surprising that such reason was not mentioned in Lin’s pleadings and only appeared in his witness statement.  Unlike Sun which had a more complicated and sophisticated plan, Lin’s plan was a simple one to a less sophisticated businessman.  The omission to mention this reason earlier certainly undermine the credibility of his case.  In any event, as Lin accepted during cross-examination, the intended listing was a “long way to go”.  Further, when a company intended to go listing, the team of professional advisers would advise the corporate structure (including whether there was any need to incorporate an offshore company to be the listing vehicle or otherwise).  There is no plausible explanation as to why Lin would have incorporated an offshore company for intended listing with such intended listing still had a long way to go.

121.  Second, regarding possible tax benefits, it is most surprising that Lin had not consulted any professionals (such as accountants, lawyers, etc) before incorporating Superb Jade.  I agree with Mr Yuen that, as a matter of business or common sense, one would expect that Lin (as a businessman of some experience) would have sought some preliminary advice before incorporating Superb Jade.  At the very least, if Lin’s story is true, he would be interested to find out how much tax could be saved.  The total absence of prior professional advice certainly undermines the credibility of Lin’s explanation.  Lin’s explanation that he simply followed his friends’ suit in setting up offshore company or WOFE without any concrete idea does not add any weight to his case.  The lack of his understanding about these important matters is surprising.

122.  Third, regarding possible business expansion, it is plain that the Restaurant Business was not doing well in 2009. During cross-examination, Lin was taken through the tenancy agreements and related documents in respect of the shops or workshops included in the table under §26 of his 1^st witness statement.  Some of the shops were closed presumably due to poor business, and it is also difficult to see how shop or workshop in university or industrial areas could generate handsome profits.  More importantly, Lin did not produce any accounts of his business.  If his business was good, one would expect him to do so as that would be the best evidence to show that he had a basis to consider business expansion or restructuring.

123.  Further, Zhibing testified that he had visited Lin’s shop in Shanghai and on one occasion had the chance to look at the accounts.   He confirmed that the business was not good.  It is also not disputed that the “joining fee” of RMB200,000 was paid by Sun (although Lin claimed that he asked Sister Zhao to pay it for him).  Despite Lin’s allegations of repayment, there is no documentary evidence of repayment. Besides, both Lin and Sister Zhao must have had bank accounts in the Mainland, and so Lin could have procured the transfer of this sum to pay for the “joining fee” instead of asking Sister Zhao to pay on his behalf (knowing that Sister Zhao was at the time a housewife). Lin could also have procured the transfer to Sister Zhao if he had repaid this sum.

124.  The poor Restaurant Business and the dubious financial position of Lin certainly do not sit well with his account of acquiring an offshore company for possible business expansion in the future.  There is also no reason to explain why Lin needed a readily available offshore company when he could always acquire such vehicle in the future.

125.  Fourth, for the explanation regarding low costs for setting up offshore company, one would still not incur such costs unless there is really a need for doing so.  As demonstrated above, Lin did not have any need to have an offshore company readily at hand so that he could make use of it as and when the need arose.   On the other hand, Sun had to deal with many investments at the time, and it would be in his interest to have some offshore companies readily at hand.

126.  Apart from the aforesaid, it is also difficult to explain why Lin decided by himself to use an offshore company for possible expansion of the Restaurant Business when such business was a partnership business involving other partners.  On his own admission, Lin did not discuss the plan to set up an offshore company with his two business partners who owned the remaining 25% interest in the Restaurant Business. This is, to say the least, very odd even if one takes into account Lin’s assertion that the two business partners were silent partners and did not participate in the management of the food business. The use of offshore company for business expansion would affect their interests.  One would expect at least a notification or a discussion.

127.  Further, when Superb Jade was incorporated, only Lin was the shareholder.  If the intention was to use Superb Jade to hold the Restaurant Business, it is difficult to understand why his two business partners were not made 25% shareholders.  On Lin’s case, he had not even discussed this matter with his two business partners. This again is contrary to any commercial or common sense.

128.  It is also surprising that the costs for setting up Superb Jade and its annual fees were not reflected in his business account.  Not only would the costs and annual fees be part of the business costs, the two business partners would have to make their 25% contribution. The total absence of such accounting entries and the payment of these costs by Sun show that Lin’s story is not credible.

129.  It would now be convenient for me to deal with another challenge against Sun’s case.  It is submitted by Mr Lam that Sun’s case is not consistent with the information obtained from the public documents:

(i)   There were and are strict regulations concerning disclosure of beneficial interests in listed companies.  For this reason, the substantial shareholders (i.e. those holding more than 5%) were required to complete declaration forms. On 26 October 2011, Lin was asked to confirm the information stated in the “Individual Substantial Shareholder Notice” and “Corporate Substantial Shareholder Notice” regarding the ChinaVision Shares.  Lin was stated to be the “substantial shareholder” and the “controlling shareholder” of Superb Jade, and the remark in the attachment stated that Superb Jade was “wholly-owned” by Lin.

(ii)  The same information was contained in another set of disclosure forms which were attached to an email dated 1 February 2012 from Terry of ChinaVision to Lin (which were copied to Sun’s email account).  According to Sun, Lu would take care of his emails.

(iii) Lin was stated in the annual report of ChinaVision for 2011 as maintaining “100% beneficial interest in Superb Jade”.

130.  Mr Lam submits that, if Sun’s evidence is true, the necessary implication is that he together with all these persons conspired, and participated, in the making of false public documents.  This would be a very serious matter constituting criminal offences.

131.  In my judgment, the things mentioned above actually explain why Sun wanted to engage a nominee to hold his investments despite that someone might still know about his interests in the investments.  At least, the public documents do not show his involvement.  For the staff helping Sun to complete the relevant documents, it was probable that they just followed the instructions of their “boss” without thinking too much about the legal implications of their conducts.  Further, without knowing the full details of the dealings between Sun and Lin, they might not be able to appreciate what they did might be improper.

132.  For Sun, by trying to conceal his involvement in these investments, he may not be a person of high moral or business standard.  Yet this is not a trial on his moral or criminal responsibility.  Sun is the kind of sophisticated businessman who would have engaged in such kind of arrangement.  He is prepared to walk on thin ice, and he would not consider concealing his interests a serious matter.  The same applies to Shum who assisted him to set up the SWS Account.  After all, trust and holding assets for someone else are not new concepts.  For these reasons, I reject Mr Lam’s challenge in this regard.

D.(i).2  Subsequent use of Superb Jade for other purposes

133.  The parties have also invited me to consider the subsequent use of Superb Jade in order to assess the credibility of the evidence.

134.  Sun’s evidence is that “at around the time when [Superb Jade] was incorporated, the potential investment projects with the Investors did not develop past the negotiation stage and ultimately did not result in any investment. However, [he] decided to keep [Superb Jade] as [his] corporate vehicle to hold assets of various classes and procure [Superb Jade] to set up a securities account for that purpose.”  He also said that [Superb Jade] has thereafter become the primary depository of [his] investments and to avoid multiple fund transfer.”  Sun said that this change of mind took place shortly after the incorporation of Superb Jade.

135.  Mr Lam challenges such explanation by saying that, upon such change of circumstances, there was no longer any reason to hide his identity as the true beneficial owner of Superb Jade.  If he decided to keep Superb Jade simply to hold his assets, he could have asked Lin to transfer the Superb Jade Shares back to him. Further, Sun had another BVI company i.e. Crescent.  It was incorporated on 4 November 2009, about 3 months after the incorporation of Superb Jade.  If the change of circumstances took place before the incorporation of Crescent, why did Sun need to set up another company serving the same purpose? And if the change of circumstances took place after that, why did Sun need to keep Superb Jade at all, or use it for a purpose already served by Crescent?

136.  In reply to such queries, Sun said that Crescent was not used to hold his assets, rather it was used to operate projects outside the Mainland such as signing the service agreement with Heng Xin.  Again, Mr Lam argues that such answer is inconsistent with his earlier allegation in the witness statement and the substantial assets held in the name of Crescent.

137.  Mr Lam has also pointed out the fact that the SWS Account had been left dormant until February 2012 (which was more than 2 years after the SWS Account was opened in November 2009), which does not support Sun’s allegation that he intended to use such company as his “primary depository” of his investments.  He also submits that Sun has failed to give a satisfactory explanation as to why he would need another securities account at SWS when he already had one under his own name at SWS.

138.  In my judgment, such line of challenge is extremely unrealistic given the nature of the business operated by Sun.  Sun is an opportunistic businessman who would make use of his connections to make money when opportunity arises.  He set up different corporate vehicles which would be ready to be used for different opportunities or investments.  As explained by Sun, there may be change of circumstances every day in a fluid business world, and so it would be quite unrealistic to expect Sun to give a detailed explanation to justify every business decision, or sometimes inaction, on his part.  What is most important is that, as further elaborated in the latter part of this Judgment, Sun had made use of Superb Jade and the SWS Account to deal with substantial investments and assets which were unlikely to be gift to Lin.  I accept the explanation given by Sun to be a genuine one.

139.  On the other hand, I do not find that Lin’s account as to the change of use of Superb Jade and the dormancy of the SWS Account is convincing.  He stated in his statement that because the stock market in Hong Kong at that time was too volatile, he did not use the SWS Account for trading of shares.

140.  Again, such answer raises more questions:

(i)   If Superb Jade was used for future expansion of the Restaurant Business, why did he need to open the SWS Account for the trading of stocks and equities?

(ii)  Had Lin notified the two partners of the Restaurant Business that he used Superb Jade, which would be the corporate vehicle for the Restaurant Business, to trade in stocks and equities?

(iii) If Lin just wanted to trade in stocks and equities without involving the Restaurant Business, why did he not just use a personal account in his own name (which he did set up eventually, i.e. Lin’s SWS Account) to do so?  There was simply no need to cause Superb Jade to set up an account in SWS.

141.  For these reasons, I prefer to accept Sun’s evidence in this regard.

D.(ii)  Control over Superb Jade and its assets and the SWS Account

142.  I agree with Mr Yuen that the control over Superb Jade and its assets and the SWS Accounts is a material consideration in deciding the question of beneficial ownership.

143.  On the case of either camp, the parties had been placing great trust on the others by reason of their friendship and family relationship.  It was due to such trust that Sun did not ask Lin to sign any nomination agreement or declaration of trust.  On the other hand, according to the case of the Lin’s Parties, Brother Zhao asked Sun to hold the sum of RMB750,000 (which was a huge sum at the time) with no written documentation as well.  Hence, the absence of documentation is very much a neutral factor.

144.  Yet, according to Sun, he was the one who kept the Company Kit and Chop since its incorporation.  In more recent years, Sun kept the Company Kit and Chop separately in a drawer in a cabinet of his study room and a drawer in a table of his single bedroom at the Matrimonial Home.

145.  On the other hand, Lin claims that, as he frequently visited the Matrimonial Home, he left the Company Kit and Chop there for convenience, which were at all material times under the possession and control of Sister Zhao.  During cross-examination, Lin clarified that he only left the Company Kit and Chop at Sister Zhao’s Matrimonial Home after 2011 (i.e. after Sun made arrangement in respect of the World Charm Shares).  Hence, even with such change in the evidence, there is no dispute that the Company Kit and Chop were kept at the Matrimonial Home after 2011.

146.  Brother Zhao, on the other hand and for the first time, suggested during cross-examination that he found the company chop of Superb Jade in a safe jointly used by him and Lin in Shanghai.  Apart from the fact that it was a new allegation, it is inconsistent with the evidence of Lin, who did not suggest that he had at any stage kept the company chop at his safe in Shanghai.

147.  In any event, the purported explanation put forward by Lin does not sit well with his own case.  First, the Company Kit and Chop were not difficult to store or keep.  If Superb Jade was beneficially owned by Lin, one would expect him to keep the Company Kit and Chop at all times. There is simply no reason to leave it to Sister Zhao as Lin alleged.  Second, as admitted by Lin himself, if his reason for acquiring an offshore company were true, he understood and expected that there would be procedures to follow with the relevant Chinese authorities so that a WFOE structure could be used for the Restaurant Business.  Hence, there is no reason to place the Company Kit and Chop with Sister Zhao.  Third, the reason given by Lin for his change of evidence (i.e. put the Company Kit and Chop with Sister Zhao only after 2011) cannot be true.  If his story is true, he could have asked for all relevant documents be sent to him for signature, and he could then affix the company chop.  For these reasons, I reject Lin’s evidence regarding the safe-keeping of the Company Kit and Chop.

148.  Mr Lam submits that there is some doubt in Sun’s evidence regarding the possession of the Company Kit and Chop, for examples: (i) Sun did not say in his first affirmation that he kept the company chop in his bedroom separately from the company kit; and (ii) Sun said he did not know, approve or authorize the opening of a securities account in Chung Nam Securities Limited (“the Chung Nam Account”) in 2010 in the name of Superb Jade, and yet the Company Kit and Chop were clearly necessary, and must have been used, when the Chung Nam Account was opened.

149.  I do not find that these immaterial matters would undermine the credibility of Sun’s case.  Where exactly he put the Company Kit and Chop within his residence can hardly be regarded as a significant matter, in particular there is no dispute that the Company Kit and Chop were kept at the Matrimonial Home after 2011.  Further, without knowing the details of the procedures for the opening of the Chung Nam Account, I do not want to speculate what really happened by that time.  There might be different possibilities, such as Lin obtaining the Company Kit and Chop for a short while with or without Sun’s knowledge or the Chung Nam Account be opened without going through the formal procedures.  In any event, given his extensive exposure and Superb Jade was only one of his companies, it is unrealistic to expect Sun to recall all the details about the use of the Company Kit and Chop.

150.  In fact, Sun’s footprints are all over the places regarding the opening and operation of the SWS’s Account.   It is not seriously disputed that:

(i)   the opening of the SWS Account was arranged by Sun;

(ii)  Sun was the one who gave instructions to operate the SWS Account;

(iii) regarding the transactions done through the SWS Account, Shum confirmed execution of instructions with Sun (覆盤) before repeating the confirmation to Lin (apparently so that the confirmation could be recorded through SWS’s telephone recording system).

151.  On the other hand, according to Shum, Lin, until 7 May 2014, had never given any instructions to operate the SWS Account.  Sun would make enquiries about the state of this account, but Lin had never done so before 7 May 2014.  Shum’s evidence in this regard has not been seriously challenged by the Lin’s Parties.

152.  Further, it is understandable that the conversations between Sun and Shum were not “officially” recorded.  The whole arrangement was to get round the rules and regulations requiring the disclosure of the true ownership of the account.  There may also be an issue as to whether Shum believed that there was a formal authorization authorising Sun to operate the account.  If she believed that there was one, Mr Lam submits that she should have confirmed the transactions with Sun through the official recording system.  However, since I find that Shum at all material times knew that the account was a nominee account and she was prepared to bend the rules to assist Sun to open and operate such account, whether she believed that there was a proper authorisation is neither here nor there.  Indeed, such written authorisation might raise suspicion on the part of SWS about the true ownership of the account.

153.  Mr Yuen poses two pertinent questions for me to consider: If Superb Jade is beneficially owned by Lin, why would Lin have behaved in such a way?  If Shum did not understand Sun to be the one in control of the SWS Account, why would she have behaved in the way she did?  According to him, the answer is likewise obvious: Lin is only a nominee and thus he left everything to Sun.  Until 7 May 2014, Lin had shown no interest in the operation of the SWS Account.  I agree with such observation.

154.  Mr Lam relies heavily on the answers given in the account opening form (including the supply of the correspondence and email address of Lin) and the signing of the personal guarantee to show that Lin is the beneficial owner of the SWS Account.  However, if the parties did make the agreement for the setting up of Superb Jade as alleged by Sun and Shum was prepared to offer the necessary assistance, which I find it to be the case, then one would not be surprised by the answers stated in the account opening form.  Any contrary answers or the supply of the address of another person (which might raise suspicion about the true ownership of the account) would mean that they would not be able to carry out the arrangement as agreed.  In fact, the way in which Shum handled the transactions in the SWS Account as mentioned above speaks volume about the true ownership of the SWS Account.

155.  Further, given the then close relationship between the parties, it would not be surprising that Lin agreed to be Sun’s nominee and signed the personal guarantee.  Even on Lin’s own case, there was considerable trust between the parties by that time.  It is true that Lin could withdraw money from the SWS Account, but according to Sun, the account was still under his control because all the acts had to be done through the Account Executive and he subjectively believed that he could control both Lin and the Account Executive, i.e. Shum.  Given the trust between the parties, I accept it to be a genuine answer.

156.  It is also necessary for me to mention about another account in SWS opened in the name of Lin personally (“Lin’s SWS Account”).

157.  On the evidence, the following is clear and cannot be seriously challenged:

(i)   As explained by Sun, it is necessary to open a personal account so as to deal with the option (“the Magic Option”) granted by Magic Holdings International Ltd (“Magic”).  Lin does not appear to dispute this.

(ii)  Sun procured Lin to deal with the Magic Option as he did not want to upset the other directors, and that was why his personal account was not used.

(iii) Indeed, when cross-examined by Mr Samuel Chan, counsel for SWS, Lin apparently did not even know whether Lin’s SWS Account was a cash account or a margin account.  This shows that Lin did not care because he was only acting as Sun’s nominee.

(iv) More importantly, Sun was a non-executive director of Magic, while Lin had no dealings with Magic at all.  In the circumstances, there was no way that Lin would suddenly be granted the Magic Option.  Indeed, Lin has not come up with any satisfactory explanation in this regard.  Hence, like the SWS Account, the footprints of Sun (and not Lin) were all over the places regarding the opening and operation of Lin’s SWS Account.

158.  Mr Lam submits that there is no documentary evidence to show Sun’s entitlement to the Magic Option.  However, Sun was a non-executive director of Magic which supports his entitlement to the Magic Option.  On the other hand, Lin cannot demonstrate how he was able to acquire such profitable option.  Mr Lam submits that it was Lin who borrowed money from the SWS Account in order to fund the purchase of the Magic Option which attracted the payment of interest.  However, if what Sun told the court were true, it was only natural for Sun to borrow money using his own account to pay for the Magic Option.  What is important is how the loan was repaid.  There is no suggestion by Lin that he had the financial ability to repay the loan, and Sun’s account must therefore be the truth.

159.  Under such circumstances, I agree with Mr Yuen that the opening and operation of the Lin’s SWS Account reinforce Sun’s case that Lin was at all material times his nominee.  Lin’s conduct in respect of the Lin’s SWS Account and the Magic Option was only a continuation of his role as Sun’s nominee in respect of Superb Jade.  It was only because the Magic Option had to be dealt with through a personal account that Sun procured Lin to open the Lin’s SWS Account (instead of dealing with it through Superb Jade’s SWS Account).

160.  Superb Jade also had a bank account in the Bank of China, which was apparently opened at around the same time as the SWS Account. The authorised signatory of such account was Lin and all bank statements were sent to Lin’s address.  Mr Lam likewise relies on these facts to support that Lin is the beneficial owner.  Again, the opening of such account can be regarded as part of the nominee arrangement.  Further, despite the purported explanation given by Lin, Sun’s possession of the two blank express transfer applications of the Bank of China certainly adds weight to his case.  Hence, I also accept Sun’s evidence in this regard.

D.(iii)  Dealings and transactions involving the assets in the SWS Account

161.  Further, the dealings and transactions involving the assets in the SWS Account are more consistent with Sun’s case rather than that of the Lin’s Parties.

162.  There is no serious dispute that Superb Jade had substantial assets in the SWS Account.  The assets originated from the 106,700 World Charm Shares. According to Sun’s case, Superb Jade acquired the World Charm Shares on 30 March 2011 at the price of HK$49.8 million, which in turn were transformed into the ChinaVision Shares which were then deposited into the SWS Account on 6 February 2012.  Sun claimed that these were normal and arm’s length commercial transactions.

163.  Sun said he came to know Dong and Zhao Chao in about April 2010, which would be less than one year before the acquisition of the World Charm Shares.  Zhao Chao was at that time the sole shareholder of World Charm.  Sun said Dong introduced him to the opportunity of investing in CEMG, a subsidiary of World Charm (which held 45% therein).  CEMG was incorporated in Cayman Islands on 4 January 2011. 106,700 World Charm Shares would constitute 10.67% interest in World Charm, and about 5% interest in CEMG.

164.  In order to justify why there were such substantial assets, the Lin’s Parties provide the explanation as mentioned in §§38 to 42 above.  I do not want to repeat the same here.

165.  It is an essential case of the Lin’s Parties that the assets held by Superb Jade are gifts from Sun as a general gesture for the sum of RMB750,000 advanced from Brother Zhao to Sun.  According to them, Brother Zhao procured the sum of RMB750,000 to be transferred to corporate bank account controlled by Sun because Brother Zhao himself did not have corporate account to receive the money.  Sun then used the money to invest in the Shenzhen Properties Shares, and thus could not repay Brother Zhao.  However, Sun subsequently represented to Brother Zhao (and also Lin) that he had made handsome profits from the investment in Shenzhen Properties Shares to the magnitude of 50 times.

166.  Sun admitted having received the money but explained that the same had been repaid by various set-offs (which were pursuant to an understanding reached at the time when he agreed to receive the money from Brother Zhao).

167.  Having carefully considered their evidence, I accept Sun’s version as the truth.  I agree with Mr Yuen that the extracts from Sun’s notebook is an important piece of evidence in support of Sun’s case.  Though Sun did not make any particular reference to these extracts in his witness statements, they are still contemporaneous records prepared by Sun.  At the time when the records were prepared, Sun could not possibly have thought that there would be this litigation.  Hence, there is simply no basis to suggest that the entries in the extracts are fabricated.  In any event, these extracts have been disclosed in the course of discovery, and yet no notice has been served on behalf of the Lin’s Parties under O 27, r 4(2) of the RHC disputing the authenticity.  In the circumstances, there is little basis to challenge the authenticity of these extracts.

168.  These extracts from the notebook, as explained by Sun, recorded the receipt of the said sum of RMB750,000 and some of the set-offs explained in Sun’s witness statements.  Further, it refutes the allegation that Sun used the sum of RMB750,000 to invest in Shenzhen Properties Shares and thus could not make repayment.

169.  Mr Lam argues that, if the notebook were a true record, it is surprising that the extracts do not cover: (a) the sum of RMB200,000 paid by Sun for Lin’s payment of “joining fee”; and (b) the set-off in respect of the golf membership.

170.  However, the payment of RMB200,000 by Sun is supported by evidence.  On the other hand, there is no documentary evidence to show any repayment.  The best Lin can do is to make mere assertions.  It may be said that the said sum of RMB200,000 was paid on Lin’s behalf and has nothing to do with Brother Zhao.  Yet given the then close relationship between the parties, it is not surprising at all that Brother Zhao agreed to bear the sum of RMB200,00 for Lin (just like Sun agreed to pay the sum when requested or asked by his wife, according to Lin’s own case).

171.  As for the golf membership, Sun’s explanation during his testimony is totally understandable (i.e. Brother Zhao’s embarrassment due to the drop in price).  On the evidence, it can be seen that: (a) it was Brother Zhao who introduced the golf membership to Sun; (b) Brother Zhao at the time thought it was a good investment, and he himself acquired one.  In the circumstances, even though technically Sun did not purchase the golf membership from Brother Zhao, it is not difficult to understand that Brother Zhao would feel embarrassed.  Given the relationship between the parties, such embarrassment would very well have caused Brother Zhao to make a modest “compensation” to Sun.

172.  I agree that these extracts may not contain the full details or the purpose of each payment.  This is quite understandable.  To Sun, these extracts were reminders only.  Normally a person would only record such details as they consider sufficient in such kind of documents.  One would not expect that the notebook would be used in subsequent litigation.  I would imagine that if the entries in these extracts were complete and perfect, the Lin’s Parties would then complain that it is a fabricated document.

173.  For these reasons, I accept Sun’s evidence that he had repaid the sum of RMB750,000 to Brother Zhao.  But even if no full repayment had been made, it does not affect the result of the case.  The subjective belief of full repayment on the part of Sun and the absence of any demand for repayment by Brother Zhao negate any suggestion that he gifted the profit deriving from sale of the Shenzhen Properties Shares to Lin or Brother Zhao.

174.  Another important element of the case of the Lin’s Parties is the subsequent “gift” to Lin.  They rely on this as the only basis to explain why Lin can claim the fruits of the China Vision Shares now sitting in the SWS Account (and also the cash withdrew on 7 May 2014).   Lin said that it was in about May 2011 that Sun informed him that he would give the shares to him and Brother Zhao as a gift in return for the financial assistance they had provided to him in the past and also Brother Zhao’s forbearance in not demanding for repayment of the RMB 750,000.  Brother Zhao said that Sun informed him of this matter in a meeting at a hotel in Beijing on or about 3 June 2011.

175.  I agree with Mr Yuen that such contentions on the part of the Lin’s Parties cannot withstand scrutiny.

176.  First, there is the witness statement of Guo.  The evidence of Guo destroys the case of the Lin’s Parties that Sun made 50 times of profit from his investment in Shenzhen Properties Shares.  In fact, the profit was only RMB188,256 (i.e. sale proceeds of RMB1,048,256 less original purchase price of RMB860,000).  Since the Lin Parties chose not to cross-examine Guo, there is no basis for them to challenge the contents of Guo’s witness statement.  In the circumstances, an important reason for making the alleged gift is simply missing.

177.  Second, it is claimed that the alleged gift was also to repay the alleged generosity of Lin as Lin allegedly helped Sun out when he was in financial trouble.  However, there is no concrete evidence to show that Sun was ever in financial trouble. The allegation of the Lin’s Parties is no more than mere assertion.  On the contrary, Zhibing testified that he did not recall any deterioration in the living standard of the family.  On the contrary, the living standard improved since 2003 (with concrete examples).  Further, Lin has produced no documentary evidence that he had provided financial assistance to Sun or his family.  Hence, the only other reason for the alleged gift also disappears.

178.  More importantly, I have serious doubt as to whether Sun is the kind of person who would have been so generous to Lin and Brother Zhao.  There is no evidence to show that Lin himself paid for the Magic Option.  Hence, according to the case of the Lin’s Parties, Sun had gifted them twice, one on the World Charm Shares and the other on the Magic Option (that could not possibly be obtained by Lin without Sun’s entitlement as the non-executive director of Magic).  Both instances (of the actual gift of World Charm Shares and a rare chance to get Lin’s hands on the shares of Magic through the privileged route of a share option made available by Sun) involved substantial benefits and gigantic windfalls to these two brothers that cannot possibly be explained or placated by Sun’s apparent senses of guilt to them for unduly procrastinating and not repaying their goodwill and financial assistance to him years ago.  According to Lin and Brother Zhao (and this must be true), Sun was a seasoned investor with keen eyes for profitable commercial deals. Hence, the “gift” story does not fit the facts of the case.

179.  The Lin’s Parties say that Sun was wealthy by that time which somewhat justifies the making of such substantial gift.  But on their own case, the financial condition of Sun was at one stage very poor which purportedly explains why Sun was so grateful for their financial assistance. In my judgment, there is simply no evidence to show that there was such huge fluctuation in Sun’s financial condition.

180.  In fact, the respective accounts about the financial condition of Sun given by Brother Zhao and Lin do not sit well with each other.  According to Brother Zhao, he had paid in financial assistance of less than RMB0.5 million to relieve the plight of his sister’s family.  Brother Zhao described Sun to be an “ambitious gambler” in shares and he should be guarded with care in relation to his advice on investment and shares speculation. Lin, on the other hand, said he entrusted Sun with no reservation on shares dealings in the SWS Account.   He gave such evidence with a view to justify why he did not take part in the daily operation of the SWS Account. Which version is correct?  If Sun is the kind of person described by Brother Zhao, why would Lin had entrusted Sun to take care of “his company” (i.e. Superb Jade) and allowed him to trade in volatile securities through the SWS Account?   Such conflicting versions about Sun’s character and financial condition raise serious doubt about the credibility of their case.

181.  I also find it odd that, even if Sun had owed money from Brother Zhao as alleged, Sun had decided to make the “gift” to Superb Jade which they say is a company owned by Lin.  Though Brother Zhao may be an elder brother of Lin, the size of the “gift” does not justify such generosity.    Hence, I do not find that the story of the Lin’s Parties is credible.

182.  Further, it is not in dispute that part of the ChinaVision Shares were sold over the period from 2 May 2012 to March 2014, and sale proceeds in the region of HK$82 million were paid into accounts designated by Sun.  Sun claims that it shows he was the beneficial owner of Superb Jade and its assets.  On the other hand, it is the case of the Lin’s Parties that these sums of money were “bonuses” gifted to Sun.

183.  I agree with Mr Yuen that such a way of giving “bonus” to Sun is most odd.  If they thought HK$49.8 million was good enough, Lin and Brother Zhao could simply have told Sun to sell all the ChinaVision Shares, pay them HK$49.8 million and ask Sun to keep the rest.  There is no need to adopt such a complicated scheme to effect bonus to Sun.  Further, if one looks at the account statements, there had been instances where the net balance was allowed to go below HK$49.8 million.  Lin must have been aware of this, since he received the daily statements of the SWS Account. This goes to show that the alleged explanation of “bonus” is false.  It follows that the ChinaVision Shares were not a gift, and that Sun placed his own shares into the SWS Account and thereafter disposed it in the way and at such time as he thought fit.

184.  In fact, there is confusion in the case of the Lin’s Parties about who was the ultimate beneficial owner of the cash and shares that remained in the SWS Account after “re-gifting” HK$82 million to Sun: Lin said he owned the whole lot but Brother Zhao had a share; Brother Zhao said 3 persons had to share the spoils (he himself, Lin and Brother Zhao’s wife).  Such confusion certainly undermines the credibility of their own case.

185.  Mr Lam also tries to attack Sun’s case by pointing out the suspected irregularities relating to the sale and purchase of the World Charm Shares such as: backdating of the agreements, incorrect information contained in the sale and purchase agreement and declaration, the absence of proper valuation of the shares, probable misleading information provided to the public, doubt as to whether Sun had paid the price of HK$49.8 million.  Mr Lam submits that, having regard to these suspicious features, the transactions could not be normal or arm’s length commercial transactions.

186.  In reply, Sun gave a detailed account in court as to how he paid the purchase price, but Mr Lam submits that the account is not credible.

187.  I do not propose to deal with these challenges in details here.  It suffices for me to say that the counter-party, Zhao Chao, had issued a written confirmation that he received the purchase price.  Mr Lam again attacks the confirmation by saying that it was made too late and Sun should have called Zhao Chao to testify in court.  But no one is seriously challenging that Sun was by that time the owner of the World Charm Shares, and so it serves very little purpose by calling Zhao Chao as an additional witness.  As his evidence would not be material to the determination of the core issue in this case, his absence should not be a factor weighing against Sun’s case.

188.  More importantly, I do quite understand the purpose of these challenges.  Are the Lin Parties seriously suggesting that they paid for the World Charm Shares themselves?  There is no such suggestion.  If there were any regularities, Sun was still the beneficial owner of the World Charm Shares.   As I have repeated many times in this Judgement, such transaction bears the footprint of Sun and the transaction fits his business profile.  On the other hand, no one would believe that Lin was the one who had engineered such kind of transaction.  Further, as further elaborated below, the alleged illegality and irregularity, which the Lin Parties have failed to establish, are not grounds to deny Sun’s beneficial ownership claim.

189.  For these reasons, I reject the allegation of the Lin’s Parties that there was any gift from Sun whether as alleged or at all.  Instead, it is clear that Sun was making use of the SWS Account to deal with his own assets and investments.

D.(iv)  Payment of setting up costs and annual fees of Superb Jade

190.  On the evidence, there cannot be any doubt that Sun was the one responsible for the cost of the setting up and maintenance of Superb Jade.  Indeed, it is not in dispute that Amy, who was a secretary in Atlantis, was the one responsible for handling the matters.  This is also supported by documentary evidence.

191.  I agree with Mr Yuen that Lin’s evidence in this regard is far from satisfactory.  Not only did Lin deny that Sun paid for the costs and annual fees, he alleged that even Sun himself did not know the amounts in question.  Lin eventually admitted during cross-examination that Sun paid for such costs and annual fees.

192.  I accept that Sun paid for these expenses.  He would not have done so unless Superb Jade is beneficially owned by him.  One may say that these costs may not be substantial, but there is still no reason for Sun to have paid for such expenses.  In particular, according to Lin’s own case, Superb Jade was his company acquired for the future expansion of the Restaurant Business.  Such expenses should form part of the costs of the Restaurant Business, and there is no reason for Sun to have paid these expenses in particular there are other partners for the Restaurant Business.

193.  Hence, these payments support Sun’s case.

D.(v)  Other considerations

194.  There are also some other considerations which may be relevant in deciding the beneficial ownership of Superb Jade and the SWS Account.

D.(v).(1)  The Chung Nam Account

195.  First, the Lin’s Parties are relying heavily on the Chung Nam Account held in the name of Superb Jade to support their case.  As Sun only learnt about the existence of the Chung Nam Account in the course of these proceedings, Mr Lam submits that Lin must be the beneficial owner of Superb Jade.

196.  The following facts can be gathered about the Chung Nam Account:

(i)   As one can see from the monthly statement dated 1 December 2010, the holder of the account was Superb Jade and the correspondence address was Lin’s address in Fujian.

(ii)  The account was apparently opened without the consent and knowledge of Sun.

(iii) The market value of the asset in the Chung Nam Account on 1 December 2010 was HK$17.4 million worth of shares of Hao Tian Resources Group Limited (“Hao Tian Shares”).

197.  According to Lin’s evidence, this represents a gift from his biological father, who is a retired judge in the Mainland.  Lin confirmed that Sun had no interest whatsoever in the Hao Tian Shares.  Brother Zhao also confirmed that in 2010, Lin’s biological father gave Lin HK$18 million which was utilised to buy Hao Tian Shares.  Brother Zhao believed that this was something his brother deserved for their father had not taken proper care of Lin in the past.  However, Mr Lam submits that all these are really beside the point.  He invites me to consider the following question: if Superb Jade really belonged solely to Sun as he claimed, why would Lin (and also his father) put valuable property which, on Sun’s admission, had absolutely nothing to do with him into Superb Jade?

198.  Despite the able submissions of Mr Lam, I do not find that the existence of the Chung Nam Account would undermine the credibility of Sun’s case.

199.  First, Lin has not produced any documents other than a selective collection of statements. There is no evidence as to when the account was opened, how it was opened and why it was opened.

200.  Second, the alleged gift by Lin’s biological father is equally mysterious.  Not only is it difficult to understand why a retired judge in the Mainland could save up to HK$18 million, it is equally difficult to understand why the entire gift consisted of shares in one company.   What is even more puzzling is Lin’s allegation that his biological father would choose to use not Lin’s personal name, but the name of an offshore company (i.e. Superb Jade), to open a corporate securities account in Chung Nam Securities Ltd, using the address of Lin’s adopted father in Fuzhou City as the correspondence address.  The alleged arrangement is so utterly strange that casts serious doubt on the credibility of Lin’s beneficial ownership claim.

201.  It is true that Sun knew nothing about this account until the commencement of these proceedings.  However, as the source of the funds for acquiring the shares in the Chung Nam Account is dubious and the whole transaction brings up more questions than answers, it raises a suspicion as to how the Chung Nam Account was opened in the first place.  Lin could have made use of Superb Jade to hold certain dubious assets, and I would not be surprised that Sun knew nothing about such account.  As Superb Jade was an offshore company in his name (there is no evidence that Lin owned other offshore company), it explains why Lin put the assets under the name of Superb Jade which he did not want other people to know about.  Hence, I do not find that the existence of the Chung Nam Account can take the case of the Lin’s Parties any further.

D.(v).(2)  Reactions and the conducts of the parties in May 2014

202.  The parties have also made submissions relying on the conducts of the parties in May 2014 in support of their cases.  However, on the case of either camp, the parties might have reacted in the way they did, and so I do not believe that their reactions and conducts can advance their respective case any further.

203.  But having said that, the conduct of Shum deserves some consideration here.  Prior to that, she did not considerate it “improper” by assisting Sun to operate the nominee account.  The dispute between the parties on 7 May 2014 therefore put her in a difficult position.  Nevertheless, she still regarded Sun as the true owner of the SWS Account: (i) she continued to follow the instructions of Sun in buying the Tencent Shares; and (ii) she told her colleagues that Lin could not withdraw money from the SWS Account.  If Lin were the rightful beneficial owner of the SWS Account, she should have had no difficulty in following the instructions of Lin.  To disobey Lin’s instructions under such circumstances would virtually mean that she was involved in some kind of conspiracy with Sun, but in my judgment, there was no reason or incentive for Shum to get herself involved in such kind of conspiracy.  On the other hand, since she knew that Sun was the beneficial owner, she considered it natural to follow his instructions and to protect his interests.

D.(v)(iii)  Internal investigation by SWS

204.  Another relevant consideration is the internal investigation carried out by SWS.  In this regard, what Shum said in the investigation and in the witness box are not the same.  It is quite clear that Shum was trying to protect herself during the investigation when she said she only knew about the true ownership of the SWS Account at a much later stage.  When the worst thing happened and she had to testify in the court, she had no choice but to reveal the truth.[6]

205.  There may be an issue as to whether Shum told SWS during the investigation about the true ownership of the SWS Account.  As I have analyzed in §92 above, no matter whether she had done it or not, it would not affect my judgment that Shum was telling the truth in court.

E  THE ALTERNATIVE PLEA AS TO ILLEGALITY

206.  The Lin’s Parties have pleaded an alternative case that the trust should not be recognized or enforced due to illegality.

207.  Whilst a number of very serious allegations were made against Sun, there is no serious dispute that the entire alternative case rests on the allegation of non-payment for the World Charm Shares.  There is simply no evidence to substantiate the other serious allegations against Sun.

208.  The Lin Parties claim that the alleged sale and purchase of the World Charm Shares was plainly a sham transaction.  Sun had not in fact paid the alleged price of HK$49.8 million, and so one would wonder what was the purpose behind such transaction.

209.  I agree with Mr Yuen that such alternative plea is built on speculation and not evidence.

210.  First, there is clear evidence of payment.  As analysed in §§187 and 188 above, the most important evidence is the confirmation by Zhao Chao.  There is no basis to doubt the veracity of this confirmation of payment.

211.  Second, Sun, whom testimony I accept as the truth, has explained how he arranged Lin to effect payment and the same are supported by evidence.

212.  Third, absence payment, it is difficult to see how Sun could obtain the World Charm Shares and then the China Vision Shares. The purported answers given by Lin or Brother Zhao were no more than mere speculation.

213.  Mr Lam then submits that, even if Sun did pay HK$49.8 million for the World Charm Shares, this sum was far less than the market value of the shares.  Again this is mere speculation.  Whether the consideration was at arm’s length depends on the circumstances facing the parties at the relevant time, and it would be dangerous for the court to reach any conclusion on the adequacy of the consideration based on the speculation of the parties.

214.  In any event, this alternative plea must fail as a matter of law.  Even if a party has performed illegal or improper actions, they may still be able to obtain relief provided that they do not have to rely upon their illegality in order to establish their claim.[7]  Applying this principle in the present case, the alleged illegality is completely irrelevant. Sun does not have to rely on the conduct which Lin or Brother Zhao alleged to be illegal or irregular.  The crux of the matter is the fact that Lin agreed to be Sun’s nominee or trustee back in May 2009.  What happened afterwards in respect of the World Charm Shares or the China Vision Shares are completely irrelevant.  Once this court held that Lin was Sun’s nominee, Lin does not have any right to deal with the assets held in the name of Superb Jade (irrespective of how they came into the hands of Sun or Superb Jade).

215.  For these reasons, I reject the alternative case of the Lin’s Parties.

216.  There is another interesting observation here.  The Lin’s Parties suggest that the World Charm Shares are gifts.  On the other hand, they are complaining about illegal conduct.  Mr Yuen has posed a pertinent question: Why would Sun commit illegal conduct to effect a gift to the Lin’s Parties?  It does not make any sense at all.  Again, this shows that the case of the Lin’s Parties is full of contradictions.

F  MERITS OF THE COUNTERCLAIM

217.  Mr Lam very fairly agrees that the Counterclaim will only get off the ground if the Lin’s Parties succeed in the defence of the Original Claim.  In other words, if the court is to accept Sun’s case that Lin is only a nominee or trustee, the Counterclaim must fail.  I therefore dismiss the Counterclaim.  It is also worth mentioning that the market value of the Tencent Shares in the SWS Account has increased significantly since the Counterclaim was issued on 10 February 2015.  Hence, even if the Counterclaim has any merit, which I do not find it to be the case, the judgment would be one for nominal damages only.  In any event, conspiracy is only actionable on proof of loss and to the extent of the loss.[8]

218.  For the same reason, it is not necessary for me to consider whether SWS should be held either primarily liable for failing to comply with the Withdrawal Instructions or vicariously liable for any wrongdoing on the part of Shum.  Even if this case may go elsewhere and a contrary view is taken about the propriety of my factual findings, since I reject the evidence of the Lin’s Parties, it is not appropriate for me to rule on these academic issues.  After all, these issues involve mixed law and fact, and so it serves very little purpose for me to make my rulings based on the factual findings I made in this Judgement.

G  FINAL ORDER AND REFERRAL FOR INVESTIGATION

219.  Mr Remedios, counsel for Tang, has informed the court at the outset of the trial that Tang would adopt the same position as that of the Lin’s Parties, and she would drop any additional defence raised in her pleading.

220.  For these reasons, I grant judgment against all the Defendants in the Original Claim in terms of the relief claimed in the Re-Amended Statement of Claim.  I also dismiss the Counterclaim.

221.  I make a costs order nisi that: (i) the costs of the Original Claim be to the Plaintiff and the costs of the Counterclaim be to the Defendants in the Counterclaim to be taxed if not agreed; (ii) there be certificate for 2 counsel for the Plaintiff in the Original Claim and the 1^st Defendant in the Counterclaim.  The order nisi shall be made absolute 21 days after the date of the handing down of this Judgment.

222.  The evidence of this case shows that Shum might have breached certain rules and regulations which she was required to observe as an authorised person in the trading of securities under the SFO.  I have invited submissions as to why the court should not refer the case to the relevant authority for investigation.  Having heard the submissions from Mr Chan, counsel for Shum, I do not find that there is any reason why the court should not do so.  I therefore refer this case to the SFC to investigate whether Shum is a fit and proper person authorised to trade in securities.