VINCENT ENG AND ANOTHER v. CHEN QIN BIAO AND ANOTHER

HCA 2657/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2657 OF 2007

________________________

BETWEEN

(By Original Action)

and

BETWEEN

(By Counterclaim)

________________________

___________________________

J U D G M E N T

___________________________

Introduction

1.  The 1^st plaintiff (“Eng”) is a businessman.  He is a Hong Kong permanent resident. 

2.  The 2^nd plaintiff (“Info Fortune”) is a limited company incorporated in the British Virgin Islands.  At all material times until 20 October 2007 Lee Man Fa (“Lee”) was the sole director and shareholder of Info Fortune.  Until 20 October 2007 Info Fortune was the alter ego of Lee.

3.  Sunny Global Holdings Limited (“Sunny Global”) is a company incorporated in Hong Kong.  Sunny Global is a listed company with its shares traded in the Hong Kong Stock Exchange.

4.  Lee was at all material times until 15 October 2006 the Chairman and executive director of Sunny Global. From 16 October 2006 to 25 May 2007 Lee was a non-executive director of Sunny Global.

5.  This action concerns 196,792,000 shares in Sunny Global which were held in the name of Info Fortune at all material times (“the 196,792,000 shares”).

6.  Eng’s case is that he and Lee are friends.  As Lee was in serious financial difficulties Eng lent him money on different occasions from about the end of 2004 to about July 2006.  By July 2006 Lee had borrowed the total sum of US$2,000,000 (“the debt”) which had not been repaid.  Eng granted Lee further extensions of time to Lee for him to repay Eng. 

7.  In or about April 2007 Lee told Eng that he would sell shares in Sunny Global in order to repay the debt to Eng.  Thereafter, Eng did not receive any repayment of the debt owing by Lee to him.  

8.  By October 2007 Eng and Lee reached a final agreement as to how the debt would be repaid.  This was to be done by Lee transferring his entire interest in Info Fortune, which held the 196,792,000 shares, in full and final settlement of the debt owing by Lee to Eng.  This took place on 20 October 2007.  On that day Lee transferred all his shares in Info Fortune to Eng.  Eng was also appointed a director of Info Fortune.  Lee resigned as a director.  Eng has been the sole director since that time.

9.  The 1^st defendant (“Chen”) is a businessman from Shan Wei City in Guangdong in the Mainland.  Chen’s case is that he purchased the 196,792,000 shares for HK$12,000,000 from Lee on behalf of himself and 3 other investors from Shan Wei City in or about March 2004.  The 3 other investors are Huang Shang Zhao, Chen Xian Zhi and Liu Bang Mou (“the investors”).  His case is that from that time he and the investors were the beneficial owners of the 196,720,000 shares.

10.  Eng learnt from Lee that Chen was Lee’s assistant.  He also learnt that in or about June 2007 an account was opened in the name of Info Fortune at DBS Bank account number 57-2612252 (“the DBS bank account”) and also at DBS Vickers (Hong Kong) Ltd (“the DBS Vickers account”) to enable shares of Sunny Global in the name of Info Fortune to be sold on the instructions of Lee with the proceeds thereof to be deposited into the DBS bank account.

11.  Eng also learnt from Lee that Chen had been authorized by him to be the authorized signatory of the DBS bank account and the account with DBS Vickers.

12.  Chen denies knowing Lee or ever meeting him.  He denies that he was ever his assistant or had anything to do with Sunny Global or any of its subsidiaries.  He denies that Lee authorized him to sell any Sunny Global shares on his instructions.

13.  There is no dispute that share certificates in the name of Info Fortune representing a total of 100,000,000 shares in Sunny Global were deposited into the DBS Vickers account on 28 June 2007.  This is confirmed by the statement of the DBS Vickers account at page 54 of the Core Bundle.

14.  It is also undisputed that between 20 July 2007 and 29 October 2007 Chen caused to be sold through the DBS Vickers account a total of 70,004,000 shares in Sunny Global.  That left a balance of 29,996,000 shares unsold from the 100,000,000 shares which had been deposited into the DBS Vickers account.

15.  There is also no dispute that the total sum of HK$18,400,000 was withdrawn from the DBS account from 26 July 2007 to 26 October 2007 by Chen. 

16.  After the transfer of the shares of Info Fortune by Lee to Eng on 20 October 2007 Eng’s accountants WTMG Certified Public Accountants (“WTMG”) discovered that 29,996,000 shares of Sunny Global remained in the DBS Vickers account.  They also discovered that the monies remaining in the DBS bank account was HK$7,406,666.69.

17.  WTMG also discovered that 4 share certificates in the name of Info Fortune in respect of the total of 96,792,000 shares of Sunny Global were missing.  Eng and Info Fortune informed the Hong Kong Central Securities Depository of the loss of the 4 share certificates by letter dated 25 October 2007.  The 4 share certificates for the total of 96,792,000 shares of Sunny Global (“the 4 share certificates”) are :

(1)     SUG 0000305 for 10,000,000 shares;

(2)     SUG 0000306 for 1,000,000 shares;

(3)     SUG 0000307 for 10,000,000 shares; and

(4)     SUG 00003949 for 75,792,000 shares.

18.  On or about 25 October 2007 instructions were also given by Info Fortune to revoke the authority of Lee and Chen from operating the DBS bank account and the DBS Vickers account.  As a result, Chen was no longer able to operate the DBS bank account and the DBS Vickers account.

19.  It transpired that on or about 31 October 2007 Chen tried to use the 4 share certificates to register with Computershare Hong Kong Investor Services Ltd (“Computershare”), the share registrars of Sunny Global, an instrument of transfer to register a purported transfer of 96,792,000 shares of Sunny Global from Info Fortune to the 2^nd defendant (“Polaris”).  The instrument of transfer was signed by Chen purportedly on behalf of Info Fortune.

20.  Polaris is a company incorporated in Hong Kong and is the alter ego of Chen.

21.  The attempt by Chen to transfer the 96,792,000 shares to Polaris failed.  Computershare withheld the application for transfer in view of the claim on behalf of Eng.  The application for transfer was shortly thereafter withdrawn by Polaris.

The claims and counterclaims

22.  Eng and Info Fortune claim against Chen and Polaris for a declaration that the 96,792,000 shares of Sunny Global represented by the 4 share certificates are and remain beneficially owned by Info Fortune.  They also claim damages in the sum of HK$18,400,000 with interest thereon and all necessary accounts, inquiries and costs.

23.  Chen and Polaris deny that they are liable to Eng and Info Fortune as claimed.  They also counterclaim against Eng, Info Fortune and Lee for, inter alia, :

(a)   damages in the sum of HK$7,406,666.69 which was left in the DBS bank account;

(b)   the return of 29,996,000 shares of Sunny Global which was left in the DBS Vickers account or their value;

(c)   a declaration that Chen was the true owner of the 196,792,000 shares;

(d)   a declaration that Polaris has been the true owner of 96,720,000 shares of Sunny Global since 31 October 2007 and is entitled to be registered as the owner of 96,792,000 shares of Sunny Global;

(d)   interest; and

(e)   costs.

24.  Lee denies that he is liable to Chen and Polaris.  He counterclaims against Chen and Polaris for damages alternatively, an indemnity and other relief as claimed in his counterclaim.

The main issue

25.  There is no doubt that the legal owner of the 196,720,000 shares has been Info Fortune at all material times.  100,000,000 shares were deposited into the DBS Vickers account in the name of Info Fortune on 28 June 2007.

26.  The main issue in this action is who was the beneficial owner of the 196,720,000 shares.

27.  If it is found that the beneficial owner was Chen and the investors, Eng case is that he was a bona fide purchaser of the 196,720,000 shares for value without notice of the interest of Chen and the investors.

28.  The starting point is that Info Fortune was the legal owner of the 196,720,000 shares at all material times.  That being so, the presumption is that the beneficial ownership of the shares also vests in the legal owner.  The presumption is, of course, rebuttable. Chen seeks to rebut that presumption by his claim that he and the investors became the beneficial owners of the 196,720,000 shares in or about March 2004 when Chen on behalf of himself and the investors purchased the same from Lee. This is denied by Eng, Info Fortune and Lee.  It is incumbent on Chen and Polaris to prove that Chen and the investors became the beneficial owners of the 196,720,000 shares as alleged.  The burden of proof is on Chen and Polaris.

The witnesses

29.  I heard evidence from Eng and from Chen.  I found the evidence of Eng to be credible and reliable.  I accept his evidence.

30.  I found that Chen was neither a credible nor a reliable witness.  I do not believe him.

31.  Although witness statements of Chen Sze Po and Lee were served, they did not give evidence at the trial.

The evidence and findings

32.  Chen gave evidence that he is a merchant living in Shan Wei City in Guangdong.  He is a shareholder of Honghaiwan Sea-Farming Limited Liability Company, a Shan Wei company carrying on the business of breeding abalone.

33.  Chen said that Chen Sze Ping and Chen Sze Po, his fellow clansmen and relatives who had moved to Hong Kong, informed him that they learnt from a lawyer in Hong Kong Albert Luk Kwok Keung (“Albert Luk”) that Lee was looking for suitable buyers to purchase the 196,720,000 shares held by him in the name of Info Fortune at the price of HK$12,000,000.  Lee was then the Chairman of Sunny Global.  When Chen learnt of this he approached the investors who were also his fellow clansmen and they decided to purchase the 196,720,000 shares for a long term investment.  He said that the investors agreed that the shares be kept under the name of Chen.

34.  Chen further said that as he did not know Lee or Albert Luk he appointed Chen Hak Liu, a staff member working for Chen Sze Ping’s and Chen Sze Po’s company, to be the contact person to contact Albert Luk and to deal with the purchase of the 196,720,000 shares on behalf of Chen and the investors.

35.  Chen said that in or about the end of March 2004 they agreed to buy the 196,720,000 shares for HK$12,000,000 through Albert Luk.  

36.  Chen also said that as neither he nor the investors had a bank account in Hong Kong they relied on Chen Yuk Wah, the younger sister of Chen Sze Ping and Chen Sze Po, to issue a cheque from her bank account in Hong Kong to pay for the shares. 

37.  Chen relies on the copy cheque at page 1 of the Core Bundle (“the cheque”) as being the payment of the HK$12,000,000 for the 196,720,000 shares.  The cheque is not entirely legible but there is no dispute that the cheque is a cheque dated 26 March 2004 for HK$12,000,000 made payable to Albert K K Luk & Co. from the bank account of Chen Yuk Wah.

38.  I would observe that on the evidence before me it is abundantly clear that Info Fortune did not hold as many as 196,720,000 shares in Sunny Global in or about the end of March 2004.

39.  Sunny Global’s announcement on 13 April 2004 of the results of the rights issue of 618,000,000 rights shares at HK$0.10 per rights share at page 6 of the Core Bundle shows clearly that the rights issue became unconditional at 4 pm on Thursday 8 April 2004.  It also shows that the share certificates for the fully paid up rights shares would be sent out to those entitled to the same on 14 April 2004.  It is also clear from that announcement that the substantial shareholder of the company took up its provisional allotment of 181,500,000 shares representing approximately 29.37% of the total number of rights shares available for subscription under the rights issue.

40.  The announcement also set out the shareholding structure of the company immediately before and immediately after the completion of the rights issue.  Before the completion of the rights issue on 8 April 2004 the substantial shareholder held 121,000,000 shares representing 29.37% of the shares in the company.  After the completion of the rights issue on 8 April 2004 the substantial shareholder held 302,500,000 shares also representing 29.37% of the shares in the company.

41.  There can be no doubt that the substantial shareholder referred to in the announcement was Info Fortune.

42.  The share certificates dated 16 February 2004 representing the total of 121,000,000 shares in the Core Bundle were all in the name of Info Fortune.  These are the share certificates all dated 16 February 2004 with the following certificate numbers:

(a)    SUG 00002995 for 10,000,000 shares;

(b)    SUG 00002996 for 10,000,000 shares;

(c)    SUG 00002997 for 10,000,000 shares;

(d)    SUG 00002998 for 10,000,000 shares;

(e)    SUG 00002999 for 10,000,000 shares;

(f)    SUG 00003000 for 10,000,000 shares;

(g)    SUG 00003001 for 10,000,000 shares;

(h)    SUG 00003002 for 10,000,000 shares;

(i)    SUG 00003003 for 10,000,000 shares;

(j)    SUG 00003004 for 10,000,000 shares;

(k)    SUG 00003005 for 10,000,000 shares;

(l)    SUG 00003006 for 10,000,000 shares; and

(m)    SUG 00003007 for 1,000,000 shares.

43.  I find that immediately before the completion of the rights issue on 8 April 2004 Info Fortune was the substantial shareholder referred to in the announcement and that Info Fortune only held 121,000,000 shares of Sunny Global prior to that date.  That being so, Lee never held the 196,720,000 shares through Info Fortune in or about the end of March 2004.  I so find.

44.  In any event, it seems to me that it makes no commercial sense for Lee to offer to sell the 196,720,000 shares in or about the end of March 2004 for HK$12,000,000.

45.  Lee through Info Fortune paid HK$0.10 for each rights share.  Before the completion of the rights issue Lee through Info Fortune held 121,000,000 shares and after the completion of the rights issue he held 302,500,000 shares.  He therefore acquired 181,500,000 shares by the rights issue.  The total sum of HK$18,150,000 was paid to acquire the 181,500,000 shares at HK$0.10 each. 

46.  It makes no commercial sense for Lee to pay HK$18,150,000 shortly before 8 April 2004 to acquire 181,500,000 shares if in fact he had sold the 196,720,000 shares to Chen and the investors for HK$12,000,000.  I would also observe that on the evidence before me the shares of Sunny Global were being traded in the stock market at HK$0.10 per share at the end of March 2004.

47.  Chen relies on double or multiple hearsay evidence to support his case that the cheque was for the payment of the 196,720,000 shares that he allegedly purchased from Lee on behalf of himself and the investors.

48.  The evidence of Chen that he purchased the 196,720,000 shares for HK$12,000,000 from Lee in or about the end of March 2004 is in my judgment incredible.  I do not believe him and I reject his evidence.

49.  I would also observe that there is no documentary evidence at all in support of Chen’s case.  The cheque does not support his case.  There is no evidence that it was ever presented for payment.  Even if it had been presented for payment and cleared there is no evidence that the proceeds were ever paid to Lee for the 196,720,000 shares.  There is no evidence of a bought and sold note for the 196,720,000 shares, an agreement for the sale and purchase of the shares, or even a receipt from Albert Luk & Co. for the HK$12,000,000 allegedly paid to Albert Luk.

50.  Chen also relies on the fact that he obtained possession of the share certificates for the 196,720,000 shares together with instruments of transfer signed in blank by Lee on behalf of Info Fortune.

51.  Chen gave evidence that around the end of 2004 he received through Chen Sze Po the original share certificates for the 196,720,000 shares and about 10 original blank instruments of transfer signed by Lee on behalf of Info Fortune.  He said that he had kept the original share certificates and the instruments of transfer in the Mainland since that time.  He also said in evidence that although the share price of Sunny Global had risen from about 2004 to 2007 he and the investors did not consider selling any of the shares until about mid 2007.

52.  Chen said that in mid 2007 he intended to sell all or some of the shares.  As the shares had all along been held in the name of Info Fortune Chen said that he asked Chen Sze Ping and Chen Sze Po for their assistance.  They contacted Chen Hak Liu to assist Chen in the sale of the shares.  Chen was advised by Chen Sze Po that since the shares were still registered in the name of Info Fortune the simplest way was to sell them through Info Fortune.  Chen was told that he needed to open a bank account and a securities account.

53.  Chen said that in or about early June 2007 Chen Hak Liu told him that he had managed to get in touch with Lee through a lawyer called Irene Wong Oi Tuen (“Irene Wong”) and Aceya Ma Wing Kan (“Aceya Ma”), an in house lawyer of Sunny Global.  Chen learnt from Chen Hak Liu that he could open a bank account at DBS Bank in Hong Kong and a securities account at DBS Vickers (Hong Kong) Ltd.  Chen also said that he was told that Lee had requested a remuneration of HK$100,000 for his help in opening the accounts in the name of Info Fortune.  Chen agreed to pay the HK$100,000 in two instalments of HK$50,000 each with the first instalment to be paid when the accounts were opened and the remaining HK$50,000 to be paid when all the shares were sold.

54.  Chen said that Chen Hak Liu made arrangements with Choi Chung Pun (“Choi”) a branch manager of DBS Bank in Hong Kong to meet Chen and Lee in a restaurant in Shenzhen on 8 June 2007 to sign account opening documents.  Chen said that on 8 June 2007 he went to Shenzhen from Shan Wei to meet Choi, Chen Hak Liu and Wong Chi Fai, a colleague of Chen Hak Liu.  He also brought HK$50,000 with him.  He said that Lee did not show up.  However, he handed the HK$50,000 to Chen Hak Liu to pass onto Lee.  Chen said that the account opening forms had been prepared by Chen Hak Liu and Choi and that he signed the documents in that restaurant in Shenzhen.  

55.  Chen also said that a few days later he was informed by Chen Hak Liu that he had already passed the HK$50,000 to Lee through Irene Wong and that he and Lee had gone to DBS Bank in Hong Kong to sign all the account opening forms.  On his evidence it was in those circumstances that the DBS bank account and the DBS Vickers account were opened.

56.  Chen also said that he handed over to Chen Hak Liu share certificates for 100,000,000 shares of Sunny Global together with some of the blank instruments of transfer signed by Lee on behalf of Info Fortune to deposit the same into the DBS Vickers account. 

57.  Between 20 July and 29 October 2007 Chen sold a total of 70,004,000 shares of Sunny Global for the total sum of HK$25,806,600.69 which was deposited into the DBS bank account.  This is not disputed.  The schedule at page 213 of the Core Bundle sets out the details of the share sales in that period compiled from the documents in evidence.

58.  Of the 100,000,000 shares deposited into the DBS Vickers account, 70,004,000 shares had been sold by 29 October 2007 thereby leaving a balance of 29,996,000 shares in the DBS Vickers account.  This is confirmed by the documentary evidence which has not been disputed.

59.  Chen also said, as is confirmed by the documentary evidence, that by the end of October 2007 he had transferred from the DBS bank account the total sum of HK$18,400,00.  The details of the withdrawals are set out in the document at page 214 of the Core Bundle which was compiled from the documents in evidence and which has not been disputed.

60.  Chen said that in late October 2007 he was informed by Chen Sze Po that Info Fortune had cancelled his authorization to operate the DBS bank account and the DBS Vickers account.  He said that he was then advised to formally transfer the remaining 96,720,000 shares held by him into Polaris.  He then filled in the instrument of transfer signed by Lee and attempted to transfer 96,720,000 shares still held by him to Polaris.  However, as I have said, this attempt was unsuccessful.

61.  Lee’s case on how the DBS bank account and the DBS Vickers account were opened is different from Chen’s case.  Lee’s case is that Chen was his trusted assistant who was entrusted to keep safe custody of share certificates and share transfer forms that he had signed.  Chen was entrusted to sell or transfer the shares on his express instructions or approval.  In or about June 2007 he wanted to repay the debt to Eng by selling his shares in Sunny Global and for that reason the DBS bank account and the DBS Vickers account were opened in the name of Info Fortune.  He denies that Chen was ever authorized to withdraw the total sum of HK$18,400,000 from the DBS bank account or to transfer 96,720,000 shares to Polaris.  He also denies that he ever received the HK$50,000 as alleged by Chen.

62.  Although Lee did not give evidence in support of his case, it is clear that the contemporaneous documentary evidence contradicts the evidence of Chen as to the opening of the DBS account and the DBS Vickers account.

63.  The account opening documents for the opening of the DBS Vickers account shows clearly that the account was opened in the name of the client namely, Info Fortune.  Chen was named in the account opening form as the person responsible for giving instructions in relation to the transactions to be conducted through the account.  However, what is of importance is that in clause 23 under the ‘Client Identity Declaration’ Lee was named as the ultimate beneficiary of the account. This wholly contradicts Chen’s evidence that the account was opened for his benefit to enable him to sell the shares that he had purchased in March 2004 from Lee.  It is clear from the account opening form, and I so find, that Lee was the ultimate beneficiary of the account and hence the ultimate beneficiary of the 100,000,000 shares of Sunny Global that had been deposited into the DBS Vickers account.  I also find that Chen was authorized to operate the account on behalf of the ultimate beneficiary Lee.

64.  Chen was unable to give any satisfactory explanation as to why the account opening form described Lee as the ultimate beneficiary.

65.  Chen denied that he knew Lee or had ever met him.  He also denied that he had ever worked for Lee or Sunny Global or any of its subsidiaries.  He was unable to give any satisfactory explanation for his signature appearing on account opening forms for Sunny Global or Joy Century Holdings Ltd (“Joy Century”) a subsidiary of Sunny Global.  He accepted that he had signed the documents that he was referred to in cross-examination but was unable to give any satisfactory explanation as to why his signature appeared on the same.

66.  It is clear from the contemporaneous documents in evidence that Chen was an authorized signatory of the bank account of Joy Century with Wing Hang Bank Ltd opened on or about 12 August 2004.  He was also described as a manager.

67.  Chen was also an authorized signatory of the bank account of Sunny Global with Wing Hang Bank Ltd also opened in August 2004.

68.  Chen was also cross-examined about requests for bank confirmation of information for audit purposes signed by him as an authorized signatory of Sunny Global in 2005.  

69.  Chen accepted in evidence that he had signed the documents and the specimen signature cards and the other documents that he was referred to but said that he had no recollection of signing the same.  He said that Chen Hak Liu had given him documents to sign from time to time saying that it had something to do with his purchase the 196,720,000 shares from Lee.  

70.  There is also no satisfactory explanation from Chen as to why he only received the share certificates for the 196,720,000 shares at the end of 2004 some 9 months after he had allegedly purchased the same from Lee.  There is no satisfactory explanation for the delay in the delivery of the share certificates and the instruments of transfer.

71.  On Chen’s evidence he had received all the share certificates and the instruments of transfer by the end of 2004.  He could, therefore, have transferred the shares to himself or to a nominee at any time thereafter.  Yet he was content to let the shares remain in the name of Info Fortune for a few years from 2004 to 2007 even though the share purchase had, on his evidence, been completed in 2004.  It makes no sense for him to hold onto the share certificates without registering himself or his nominee as the owner shortly after he received the certificates and the instruments of transfer.  He said that he was not anxious to transfer the shares when he received them as he could do so at any time.  If he had purchased the shares and received the share certificates with the instruments of transfer by the end of 2004 it is, in my view, inconceivable that he would not want to transfer the shares to himself or his nominee shortly thereafter.

72.  According to the contemporaneous documents he was a manager of Sunny Global and its subsidiary Joy Century and he was an authorized signatory in the bank accounts of Sunny Global and Joy Century with Wing Hang Bank Ltd.  He had also signed requests for audit confirmation on behalf of those companies in 1995 and in 1996.  

73.  It seems to me that, contrary to his evidence, he did know Lee and he was his authorized signatory to operate the DBS Vickers account.  The ultimate beneficiary of that account and the 100,000,000 shares deposited therein in June 2007 was Lee.  

74.  I do not believe Chen and I reject his evidence.  It seems to me, and I so find, that Chen has not been truthful when giving evidence.  In my judgment Chen was the agent of Lee in the operation of the DBS bank account and the DBS Vickers account.

75.  The proceeds of the sale of 70,004,000 shares of Sunny Global from July to October 2007 amounting to HK$25,806,600.90 belonged to Info Fortune.  By withdrawing the total sum of HK$18,400,000 out of the total proceeds of sale from the DBS bank account Chen has acted in breach of trust.  That money belonged to Info Fortune.

76.  Chen also gave evidence that he set up Polaris with the intention of transferring the remaining shares into Polaris after he found out that his authorization to operate the DBS bank account and the DBS Vickers account had been cancelled.  I do not believe him. His evidence is contradicted by the company documents of Polaris.  These show that by 27 March 2006 Polaris had already been set up and that Chen was appointed a director with effect from 27 March 2006.  

77.  On Chen’s evidence the total amount of HK$18,400,000 withdrawn from the DBS bank account was transferred to Waterberry Investment Limited (“Waterberry”) which was the company of his friend Chen Qin Gou.  He said that he used the money to set-off sums he owed to his friend in some other places in the Mainland.  He said that it was set-off in many ways as they had investments together in the Mainland.  He was evasive and vague as to how the monies were used as a set-off.  I do not believe him.

78.  I would observe that Chen has failed to call important witnesses who could have supported his case.  There is no satisfactory explanation for not calling Chen Sze Ping, Chen Sze Po, Chen Yuk Wah, Albert Luk, Irene Wong, Aceya Ma or Choi to give evidence in support of Chen’s case.  In my view an adverse inference can and should be drawn that if they had been called to give evidence their evidence would not have supported Chen’s case (Li Sau Keung v Maxcredit Engineering Ltd & Another [2004] 1 HKC434 at pages 443 to 444; Hoie Sook Fong & Another v Ismail Halima & Another [2009] 1 HKC 326 at page 336).

79.  In my judgment Chen has failed to establish that he and the investors were the beneficial owners of the 196,720,000 shares as from the end of March 2004.  He has failed to rebut the presumption that the legal owner being Info Fortune was also the beneficial owner of the 196,720,000 shares.  In my judgment Chen was clearly the agent of Lee when he deposited the 100,000,000 shares of Sunny Glory into the DBS Vickers account.  He sold 70,004,000 shares between July and October 2007 without the authority or instructions of Lee and by so doing he has acted in breach of trust.  He has also withdrawn HK$18,400,000 from the DBS bank account without the authority or instructions of Lee and transferred the same to Waterberry and by so doing he has acted in breach of trust.

80.  Eng gave evidence that Lee was his friend whom he had met through the introduction of friends in the Mainland.  In or around the end of 2004 he lent Lee the equivalent of US$80,000 in renminbi currency.  Although in his witness statement he mentioned that the loans to Lee were in US currency, I believe him and accept his evidence that in fact the loans were in renminbi but the repayment of the loans to him were to be in US currency.

81.  Eng also said that about 3 months later Lee asked him for further financial help and he agreed to and did lend Lee a further sum equivalent to US$300,000 in or about mid April 2005 also in renminbi.  He also lent further sums to Lee thereafter and by the end of 2005 he had lent Lee the equivalent of US$1,500,000 in renminbi.  On 16 December 2005 he requested Lee to give him an IOU which Lee signed confirming that he had borrowed US$1,500,000 from him and undertaking to repay the same without interest by 28 February 2006.

82.  Lee was, however, unable to repay by 28 February 2006 and requested a further loan from Eng in July 2006.  Eng agreed to lend him a further sum in renminbi equivalent to US$500,000.  This is confirmed by the IOU dated 18 July 2006 signed by Lee confirming that US$500,000 was lent to Lee by Eng and that Lee would repay the debt by 28 February 2007.

83.  By February 2007 Lee had not repaid Eng the total sum of US$2,000,000 owing to Eng.  Lee requested an extension of time for repayment.  Reluctantly Eng agreed to do so and granted him an extension until the end of April 2007.  

84.  In or about mid April 2007 Lee again told Eng that he was unable to repay the debt.  Lee told him that he was still holding shares in Sunny Global and that he would sell these to repay Eng.  Eng said that he agreed to this and asked Lee to take action to sell his shares in Sunny Global to repay him.  

85.  Eng said that Lee subsequently told him that Info Fortune had opened the DBS bank account and the DBS Vickers account to deal with the sale of his shares in Sunny Global held in the name of Info Fortune.  Lee also told him that as he had to travel in and out of Hong Kong he had named Chen as his authorized signatory.

86.  Eng said that in or about June or July 2007 Lee proposed that as repayment for the outstanding debt of US$2,000,000 owing by Lee he would transfer his entire interest in Info Fortune to him.  He then negotiated the matter with Lee.  Ultimately in or about early October 2007 he reached a final agreement with Lee whereby he agreed to take the entire interest of Lee in Info Fortune with its assets of the 196,720,000 shares as full and final settlement of Lee’s indebtedness to him.

87.  Eng then engaged WTMG to deal with the documentation.

88.  I believe Eng and accept his evidence.  His evidence was supported by documentary evidence including the IOUs signed by Lee, the instrument of transfer dated 20 October 2007 signed by Lee as transferor and Eng as transferee to transfer the shares of Info Fortune to Eng in consideration of US$2,000,000, the bought and sold note dated 20 October 2007 for the shares in Info Fortune for US$2,000,000, the resolutions of Info Fortune dated 20 October 2007, and the certificate of incumbency of Info Fortune signed by the registered agent of Info Fortune on 1 November 2007.  Eng was also appointed a director of Info Fortune on 20 October 2007 and Lee resigned on the same day.  The authenticity of the documents were not disputed.

89.  I would also observe that in cross-examination it was never suggested to Eng that he did not in fact lend the equivalent of US$2,000,000 to Lee and that he did not receive the shares of Info Fortune from Lee as repayment of the debt.

90.  I am satisfied and find that Eng did lend the total sum of US$2,000,000 to Lee from 2004 to 2006.  I am also satisfied and find that as repayment of the debt Lee transferred his entire interest in Info Fortune to Eng on 20 October 2007.  From that time onwards Eng was the sole director and shareholder of Info Fortune.

91.  I also find that on or about 25 October 2007 Eng learnt that Chen had withdrawn sums of money from the DBS bank account and that he had sold Sunny Global shares using the DBS Vickers account.  He then caused the authority of Chen to operate the DBS bank account and the DBS Vickers account to be revoked.

Conclusion

92.  In my judgment Eng is entitled to the relief claimed against Chen and Polaris.  Mr Westbrook SC, with Mr Chung, for Eng in their closing submissions initially submitted that Chen was liable in damages in the sum of HK$18,400,000 for conversion of the total sum of HK$18,400,000 withdrawn from the DBS bank account.  However, later on Mr Westbrook submitted that the plaintiff was electing not to seek damages in the sum of HK$18,400,000 but was electing to pursue a tracing order with liberty to apply relying on Afzal v Malik in the English Court of Appeal on 30 March 1994 (Lexis transcript).

93.  It seems to me, and I so find, that Eng is entitled to the orders as sought by Mr Westbrook in his closing submissions.  No relief is sought as to the remaining 29,996,000 shares of Sunny Global in the DBS Vickers account or the HK$7,406,666.90 remaining in the DBS bank account.

94.  I give judgment for Eng on his claim and make the following orders and declarations against Chen and Polaris :

(1)    A declaration that 96,792,000 shares of Sunny Global Holdings Limited represented by the share certificates numbered SUG 00003005, SUG 00003006, SUG 00003007 and SUG 00003949 are and remain legally and beneficially owned by Info Fortune.

(2)    An order that Chen do within 28 days from to-day file and serve the following account, with all necessary vouchers and supporting documents, and verify the said account by affidavit or affirmation :

an account of all monies disbursed from the DBS bank account held by Info Fortune between 20^th July and 30^th October 2007, identifying how and to whom payment was made and for what purpose.

(3)    A declaration that Info Fortune is the legal and beneficial owner of all the monies credited to the DBS bank account and is entitled to trace the sums disbursed from that account between 20^th July and 30^th October 2007.

(4)    Liberty to apply.

95.  I dismiss Chen's and Polaris counterclaim against Eng, Info Fortune and Lee.

96.  As for Lee's counterclaim against Chen and Polaris, Ms Yang, for Lee, accepted that Lee’s counterclaim should be dismissed as he failed to give evidence in support of the same.  I dismiss Lee’s counterclaim against Chen and Polaris.

97.  I also make orders nisi as to costs as follows:

(1)   Chen and Polaris to pay Eng and Info Fortune their costs of the action and the counterclaim with certificate for two counsel;

(2)   Chen and Polaris to pay Lee for Chen's and Polaris' counterclaim against Lee;

(3)   Lee to pay Chen and Polaris for his counterclaim against them.