LEUNG PIK WA v. POH PO LIAN AND ANOTHER

HCA 681/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 681 OF 2011

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J U D G M E N T
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1. This case concerns the beneficial ownership of a large number of shares in C Y Foundation Group Limited (“CYF”)[1], a Hong Kong listed company.  Such shares constitute a controlling stake in CYF (46.2%).  I shall refer to these shares as “CYF Shares” to follow the terminology used in the Agreed List of Issues (“L/I”) filed pursuant to the directions of this court. 

2. The plaintiff, Madam Leung Pik Wa (“Madam Leung”), is the mother of the late Kenny Kok Teng Nam (“Deceased”) who died intestate on 22 May 2008 at the age of 45.  Madam Leung brings this action as the Administratrix of the Deceased’s estate (“Estate”). The Deceased was at all material times the sole director and shareholder of Sino Gain Holdings Corporation (“Sino Gain”), a company incorporated in the BVI. 

3. The 1^st defendant, Dato Poh Po Lian (“Dato Poh”) was a friend and close business associate of the Deceased during the latter’s lifetime.  He is the sole shareholder and director of the 2^nd defendant, Luck Continent Limited (“Luck Continent”), a company also incorporated in the BVI. 

4. Luck Continent presently holds 321,625,412 shares[2] in CYF, ie, the CYF Shares.  Madam Leung maintains that all of those shares belong to the Estate.  Amongst the CYF Shares, some were acquired by Luck Continent after the death of the Deceased.  It is not altogether clear to this court why all the CYF Shares belong to the Estate.

5. It has been said on behalf of Madam Leung by Mr Wong SC, appearing with Ms Lee and Mr Lok, that her case is straightforward.  Her case is that the Deceased and Dato Poh had entered into an oral agreement (“Agreement”) in late 2006 according to which the CYF Shares were held on trust by Dato Poh for and on behalf of the Deceased during his lifetime, and thereafter on behalf of the Estate by operation of law. 

6. On the other hand, it is the defendants’ case that there was never any such agreement between the Deceased and Dato Poh.  The CYF Shares all along belong to Dato Poh beneficially. 

7. The relevant issues have been set out in the L/I.  It is plain that the present dispute is primarily one of fact.  There is no witness from Madam Leung’s side who was present when the Agreement was allegedly made.  She relies heavily on the evidence that the Deceased, via Sino Gain, had made or procured certain payments to be made in relation to the acquisition of the CYF Shares (“Acquisition”). 

8. Common sense dictates that the most important evidence for the resolution of factual disputes is the contemporaneous documents.  This is particularly so in the present case by reason of the absence of any witness from Madam Leung’s side who can speak to the Agreement.  I shall begin the appraisal of the evidence with an examination of the Acquisition, the payments made for it, the subsequent share placements and finally the oral evidence of Madam Leung and her son, Mr Lam Joo Kok (“Lam”).  The evidence of the defendants will be considered in the course of such appraisal. 

9. The guiding principles on evaluation of contested evidence are trite.  I have been reminded of those principles very recently : see SFC v Yin Yingneng Richard & Ors, HCMP 2502/12, 16 January 2015, §§58-60.  I do not propose to set them out again in this judgment.

The Acquisition

10. Much of the evidence concerning the Acquisition is uncontroversial.  The Deceased was an investment and corporate adviser from Malaysia who lived in Hong Kong.  According to the unchallenged evidence of Dato Poh, he got to know the Deceased in 2004 or 2005, and through the Deceased he was introduced to Mr Theodore Chee Tock Cheng (“Cheng”) and his wife Leonora Yung (“Yung”). 

11. In late 2006, the Deceased made a proposal to Dato Poh for the acquisition of CYF.  CYF would be used after acquisition to develop an online gaming business in the Mainland. It was thought that such business would be very profitable.  Cheng would be responsible for managing CYF[3]. It was believed that the Mainland connection of Cheng and Yung would be very useful for establishing the new online business. 

12. There is no dispute in respect of the overall structure of the Acquisition, which can be found in the Statement of Agreed Facts filed pursuant to the directions of this court.  The Acquisition consisted principally of the following transactions :

(a) On 31 January 2007, Luck Continent’s initial subscription of 3 billion shares of CYF at HK$0.01 each (total consideration of HK$30 million), and Luck Continent making a general offer (“GO”) on 5 February 2007 to all shareholders of CYF to acquire their shares at HK$0.51 per share; 

(b) After the initial subscription, Luck Continent would own about 97% of the shares in CYF.  The cost of the initial subscription and the GO were to be financed by 2 loans from Emperor Securities Ltd (“ES”) in the respective sums of HK$40 million and HK$45 million, pursuant to loan and security agreements entered into between Luck Continent, Dato Poh and ES (collectively, “Emperor Agreements”); 

(c) The GO was made on 5 February 2007, and only 14,127 shares were accepted under the same at the cost of HK$7,204.80.  Hence, the drawdown under the 2^nd ES loan, which was designed to cover the cost of the GO, was minimal;

(d) On 13 March 2007, the placement of 53,750,000 shares owned by Luck Continent to a cornerstone investor at HK$1.09 per share, which generated around HK$58.5 million for Luck Continent; 

(e) On 13 March 2007, a “top-up” placement of 900,000,000 shares owned by Luck Continent through UOB Kay Hian (“UOB”) at the price of HK$1.28 per share, which generated HK$1.15 billion for Luck Continent;

(f) These placements where necessary in order to maintain a sufficient volume of shares in the hands of the public; and

(g) On 25 May 2007, Luck Continent’s subscription of an additional 600 million new shares at HK$1.28 each at the cost HK$768 million.  This subscription was in exercise of the rights under a Share Warrant (“Warrant”) which was granted to Luck Continent as part of the Acquisition.

13. After these transactions, Luck Continent held 2.6 billion shares of CYF.  Luck Continent’s holding was subsequently increased to around 3.2 billion shares by further exercising the rights under the Warrant – 100 million shares were acquired on 8 December 2009 and 500 million shares were acquired on 8 January 2010.  Luck Continent subsequently sold 30 million of its CYF shares on 24 August 2010, and thereby reaching the present level of shareholding.

14. The 2^nd tranche of 600 million shares (100 + 500) was acquired after the Deceased had passed away.  There is no clear evidence that they were paid for directly or indirectly with money belonging to the Deceased.  I therefore reject Madam Leung’s claim to these shares in any event. 

Acquiring the “shell”

15. The above transactions were all documented.  It is Madam Leung’s case that in addition to the above transactions, there was a payment for acquiring the “shell” from the controlling shareholder of CYF at the price of HK$50 million.  This part of the Acquisition is controversial.

16. Mr Sussex SC, who appeared with Mr Lam for the defendants, objected to this part of the evidence on the ground that the issue of shell acquisition was not pleaded.  However, the objection was not accepted because (a) there is no claim in relation to the HK$50 million and it is therefore debatable whether this part of the Acquisition had to be pleaded; and (b) in light of the importance of the funding for the Acquisition, there would not be a proper adjudication of the same without a complete picture of the Acquisition. 

17. The relevant evidence here is sketchy at best. On the other hand, the Acquisition was plainly a form of back-door listing and it would be very surprising if the principal shareholder(s) would agree to give away his/their control of a listing company for free.  A listed corporate shell is a valuable asset. 

18. Indeed, Dato Poh’s own evidence is that one of the main tasks carried out by the Deceased in the Acquisition process was to negotiate with the principal shareholder of CYF, Mr Alex Wong (“Wong”), and he acknowledged that Wong’s agreement was important to the success of the Acquisition. 

19. In the Circular of the Acquisition dated 12 January 2007 (“Circular”), it can be seen that Wong was an executive director of CYF and was holding 23.57% of the shares in that company via his corporate vehicles. 

20. With the above in mind, I examine the relevant documents concerning the purchase of the “shell”.  Firstly, there are some documents which may be the Deceased’s working papers and they had been retrieved from some old files belonging to him.  There are references in those papers to the purchase of “shell” at the cost of HK$50 million[4].  It should be made clear at the outset that I do not accept that these working papers speak for themselves.  Indeed, some of the contents of these papers are difficult to decipher.  There is no evidence as to when they came into existence or who created them.  Without corroboration by other evidence, I am not prepared to rely on these papers.

21. However, there is reliable evidence of 2 payments made by Sino Gain in the sums of HK$40 million and HK$10 million on respectively 11 and 12 December 2006.  Two cashier orders were obtained by Sino Gain for these payments.  They were made payable to Quickgold Investments Ltd (“Quickgold”).  There is a suggestion by Mr Wong that Quickgold was acting for ES at the material time, but it is unsupported by any evidence.  Interestingly, the record stated that both cashier orders were “Received and held by Gary Sik until further instructions”. 

22. Gary Sik was at that time the managing director of Mitsubishi UFJ (“UFJ”), the financial adviser for the Acquisition.  There can be no doubt that the Sino Gain had paid for the cashier orders.  However, there is a photocopy of those cashier orders with the following annotation: “Returned to Issuer, & received by : Kenny Nam”.  The document was apparently signed by the Deceased and dated 22 December 2006. 

23. If the cashier orders were in fact returned to the issuer, Bank of China (Hong Kong) Ltd, one would expect Sino Gain’s account to be credited with HK$50 million.  According to the unchallenged evidence of Mr Daniel Law (“Law”), who was the bookkeeper of Sino Gain at the material times[5], the money was never returned to Sino Gain.  Mr Sussex suggested that it is possible that the bank had failed to return the money.  With respect, I find the proposition a fanciful one.

24. If the payments to Quickgold were meant for the purchase of the “shell”, then Quickgold was ultimately not paid.  It would not be right for the court to speculate why it was so.  However, as indicated in the Circular, Wong’s shareholding in CYF would be reduced from 23.57% to 0.67% upon completion of the subscription of 3 billion shares.  It is quite difficulty to believe that no payment or benefit was required by Wong in the exercise. 

25. The evidence does not allow this mystery to be resolved.  With respect, this is symptomatic of Madam Leung’s case.  She is undoubtedly handicapped by the lack of personal knowledge over the Deceased’s affairs and the documentary evidence she managed to put together does not provide a full picture on the Acquisition. Perhaps she should have sought the assistance of a forensic accountant to properly put together the fragments of financial information. 

26. This brings me to another feature of the Acquisition which is not apparent from the Acquisition documents.

Share investment scheme

27. Law gave evidence that from November 2006 to 8 March 2007, a total of about HK$82.79 million had been received by Sino Gain from various investors.  He referred to a Sino Gain Shares Statement dated 30 March 2007 (“Shares Statement”) which was prepared by him.  This document shows a number of lenders and the funds received from them for the purpose of a share investment scheme totalling about HK$77.69 million[6].  According to Law, some of the investors had entered into a loan agreement with Sino Gain in respect of their investment.  The investors were repaid from 30 March 2007 onwards in the form of cash and/or shares in CYF.  The above evidence of Law’s was not challenged.

28. Further, Law’s evidence is corroborated by that of Dato Lim Sze Guan (“Dato Lim”), who gave evidence for Dato Poh.  Dato Lim’s name appears on the Shares Statement.  According to Dato Lim, he learned about a good investment opportunity which the Deceased had via a mutual friend, Mr Cheah Yoke Foo (“Cheah”), in around November 2006.  Later, he and Cheah met the Deceased to discuss that investment.  Not a lot of details were disclosed to them by Deceased.  However, in essence the investments of the investors would be pooled into an investment vehicle, namely, Sino Gain which would take up shares in CYF.  The major shareholder of CYF would be Dato Poh, who Dato Lim believed to be a well-known businessman of substance from Singapore.  Further, the Deceased said that the acquisition price for the shares would be around HK$0.50 or HK$0.51 per share, and there would be a return of at least 20% from the investment. 

29. In due course, Dato Lim signed a loan agreement with Sino Gain to provide it with an interest free loan of HK$4.5 million for 6 months.  Apparently, the Deceased took the view that the investments should take the form of interest free loans.  On 1 December 2006, Dato Lim paid HK$4.5 million to Sino Gain by way of a cashier order as his investment. 

30. In about mid-March 2007, Dato Lim was informed by the Deceased through Cheah that he was entitled to be allotted shares in CYF in return for his investment at a notional acquisition price of HK$0.51 per share.  Dato Lim gave instructions to sell part of his shares at the price of HK$1.28 per share yielding HK$5.4 million, thereby getting back his investment with exactly 20% profit. 

31. In mid-June 2007, Dato Lim made an enquiry with the Deceased through Cheah on the necessity for a fresh loan agreement given the expiration of the existing one.  The reply email from the Deceased stated as follows :

“The mentioned loans have fully converted into shares and has been partially realized into cash through first placement exercise, cash receipt has been refunded earlier to each holder, the remaining shares holding will be transfer to each holder after six months maturity from first placement thereby no additional agreement required.”

32. The balance of Dato Lim’s shares was not transferred to him despite repeated inquiries and demands.  Eventually, after the Deceased had passed away, Dato Lim took up the matter with Cheng. Eventually, those shares were transferred into his share account held with HSBC in mid-2009.  Dato Lim did not know who transferred those shares to him but he assumed that it was Cheng. 

33. I find Dato Lim to be a reliable witness.  His evidence is consistent with the documents and he was straightforward as a witness. 

34. The evidence is not clear as to precisely how the funds raised from the investors (“Funds”) were deployed.  Although the circumstances suggest that they were somehow used in the Acquisition, it is puzzling as to what they were used for.  As indicated above, the subscription of the 3 billion shares was financed by the 1^st ES loan.  The GO had yield only a handful of shares, and the subsequent placements had in fact produced a huge surplus due to the very substantial increase in the share price. 

35. It is possible that the Funds were used to finance the payment of HK$50 million for the acquisition of the shell, but then the payment was ultimately not required (see above).  It is also possible that the Funds were used to pay off the ES loans (see below).  Indeed, despite the absence of a clear paper trail, Mr Sussex has fairly accepted the inference that part of the Funds (about HK$25.26 million) was used to repay the ES loans (“Repayment”).  However, the Repayment only constituted a small part of the Funds.

36. Another inference which Mr Sussex has accepted is that part of the Funds was used in acquiring some of the placement shares (see below). 

37. I should also mention that according to the terms of the loan agreement signed by Dato Lim, the funding was for “various financial instrument investments”.  Hence, it is not at all certain that the Funds were deployed solely in the Acquisition. 

38. The fund raising was clearly driven by the Deceased.  It tends to suggest that, contrary to the evidence of Dato Poh, he was playing a significant role in the Acquisition (more than that of someone simply stringing the deal together).  Further, if the Funds were indeed used to pay off Luck Continent’s debt incurred in the Acquisition (the ES loans), it lends some credence to the suggestion that there is considerably more to what appears on the surface. 

39. In his final submissions, Mr Sussex suggested that the Deceased could have been a partner in this very lucrative acquisition of CYF. 

Payments for the Acquisition

40. As indicated above, this is the lynchpin of Madam Leung’s case.  It is common ground that the Share Subscription cost of HK$30 million came from the 1^st ES loan of HK$40 million. 

41. There were a number of other expenses in connection with the Acquisition.  These expenses were discharged by Sino Gain either directly or indirectly.  In respect of the direct payments by Sino Gain, they have been helpfully set out in the plaintiff’s opening submissions (“O/S”) at paras 37 and 38.  They included, inter alia, payments to UFJ, legal expenses and 2 temporary loans to Luck Continent each of HK$300,000 (“SG Loans”).  The total amount was nearly HK$1.5 million.  With the exception of a HK$14,000 cash payment by the Deceased (made on 23 May 2007), all these payments were made on or before 24 January 2007.

42. The indirect payments are set out in paras 39 to 43 of the O/S.  The assertion is that the SG loans were used to discharge various expenses associated with the Acquisition totalling about HK$736,000. 

43. On balance, I am prepared to accept that these payments were indeed payments of Acquisition expenses made by Sino Gain.  It is important that (a) there is no real denial of this part of Madam Leung’s case and (b) there is no suggestion that Luck Continent was engaged in other business at the material time which might have accounted for some of the payments.  In the defendants’ final submissions, these payments of expenses were accepted.  It was suggested by Mr Sussex that part of the Funds was used for these payments.  However, Mr Sussex submitted that it was done as a matter of convenience, and possibly to minimise interest payment, because there was sufficient money from the 1^st ES loan to pay the expenses. 

44. The most important payment made by Sino Gain in respect of the Acquisition was the Repayment.  It was made on 8 March 2007 by Sino Gain to ES by way of a cashier order.  As regards the balance of the repayment for the loans, Mr Wong relied upon a Notes to Transactions found in the Deceased’s papers[7] (“Notes to Transactions”) which suggests that most of the balance (about HK$11.37 million) was funded by the proceeds of sale of some shares, likely to be CYF shares, at HK$1.2 per share.  Mr Sussex did not disagree with this part of Madam Leung’s case.  However, it is another mystery as to where those shares come from. 

45. The timing of the Repayment is important.  It appears that the ES loans were repaid to allow a Charge over the Subscription Shares (a security under the Emperor Agreements) to be lifted so as to complete the placement exercise. 

46. There is no denial by Dato Poh on the Repayment.  His evidence is that he knew little about the details of the Acquisition.  He relied upon the Deceased and his own staff to take care of those matters.  Further, Dato Poh’s case is that the Deceased was responsible for arranging the finance for the Acquisition. 

47. I regret to say that I do not find Dato Poh to be a credible witness.  I have no doubt that he is hiding the truth from the court.  As a successful businessman, there can be no doubt that he must have a clear mind on matters of finance.  It may be acceptable for him not to know about the payment of expenses of HK$1.5 million.  It is quite a different matter when it comes to discharging the ES loans.  Further, I cannot see why the Deceased should be responsible for the Repayment when there was, according to the defendants’ case, no prior agreement on what reward he would reap from the Acquisition.  Businessmen would not normally do such a thing without return.

Proceeds of the placements

48. The evidence here is also rather murky, and this is where the defendants’ case is exposed. 

49. The Acquisition turned out to be a very profitable business venture.  According to the recollection of Dato Poh, after the GO the shares acquired by Luck Continent were worth in excess of HK$2 billion. 

50. According to the accounts of Luck Continent, the proceeds of the 1^st placement, HK$58.5 million (see para 12(d) above), were recorded as having been received on 19 April 2007.  There is no clear evidence as to where the money had gone to.  However, the accounts show that the money did not leave Luck Continent as a specific sum.  Instead, there were various outgoings which consumed the funds. 

51. The 2^nd placement was actually a disposal of 300 million shares as opposed to 900 million bearing in mind that there was a subscription by Luck Continent of an additional 600 million shares (see para 12(e) and (g) above). 

52. According to Dato Poh, the 2^nd placement produced net proceeds in excess of HK$300 million.  He was extremely vague on where this huge sum of money had gone to.  This is simply unbelievable and there is little doubt that Dato Poh was deliberately holding back the truth from the court.  After much probing under cross-examination, Dato Poh eventually said that out of these proceeds HK$100 odd million was held by Luck Continent and HK$200 odd million was held by the Deceased on his behalf.  When he was asked whether he had done anything to recover the money held for him, he said that he was still checking the accounts.  Such evidence cannot be taken seriously.

53. Relying upon the accounts of Luck Continent, Mr Wong said that no less than HK$143.25 million had been paid out of Luck Continent’s accounts to or in the name of Sino Gain or the Deceased.  Dato Poh tried his best to wriggle out of these documents by saying that they had not been audited and that they were prepared by a staff, Mr Philip Yu[8], who was later convicted of certain criminal offence.  In light of the fact that these proceedings have been on-going for a number of years, such evidence is again difficult to accept.  It is incredible that an honest businessman would not have a clear idea about an asset of such value.  On the other hand, it would not be right to treat the contents of the unaudited accounts as facts. 

54. Putting aside the inconsistencies in his evidence, Dato Poh’s case is that he had paid HK$80 million to the Deceased to cover the expenses paid by him on his behalf with the balance to be kept by the Deceased as his reward for a very successful acquisition. 

55. On any account, this was a very handsome reward indeed.  Whilst it should be viewed in the context of a highly lucrative transaction, the manner in which the reward was agreed is highly unusual. According to Dato Poh, there was no prior agreement on any reward.  The sum was simply what the Deceased asked for.  There is no suggestion of any discussion on how it was assessed or what relationship it bore with the Deceased’s contributions in the Acquisition.  Neither is there any evidence that Dato Poh had evaluated the reasonableness of the suggested reward.  Indeed, his evidence is that it was within his contemplation that the entire proceeds of HK$300 odd million could be given to the Deceased as his reward.  Again, this is not what one expects from a reasonable businessman and I do not believe this evidence. 

56. I believe that the way in which the Deceased was in a position to draw upon a very substantial part of the proceeds of the 2^nd placement, coupled with the other unusual features identified above, strongly suggest that there is a good deal more to what appears on the papers.

The 2^nd placement 

57. Of the 900 million shares owned by Luck Continent that were placed through UOB under the “top-up” placement, 99,340,000 shares were placed to Sino Gain on 19 March 2007 at HK$1.28 per share, making a total consideration of about HK$128.57 million.

58. Sino Gain financed part of the purchase price for the shares with margin facilities of HK$35 million from UOBpursuant to a Facility Letter dated 19 March 2007.  Mr Sussex submitted, without demur from Mr Wong, that the inference from the evidence is that the balance of about HK$93.57 million was made up of funds received by Sino Gain under the Share Investment Scheme.

59. The names of the placees and the number of shares placed to each of them (including Sino Gain) in the top-up placement are shown in a spreadsheet[9]. The largest placee was Tai Fook Securities (“TFS”), which was placed with 200 million shares at HK$1.28 per share for a total consideration of HK$256 million.

60. For reasons which are wholly unclear, it appears that TFS defaulted on the payment for the bulk of these shares or the payment was otherwise not accounted for to Luck Continent :

(a) According to Luck Continent’s journal[10], on 26 March 2007, entries were made for the credit of HK$256 million for the sale of 200 million shares to TFS;

(b) On the same day, however, HK$233 million of that sum was transferred to accounts receivables (A/R);

(c) On 31 March 2007, the sum of HK$233 million was written off entirely with the notation “Write-off A/R from [TFS] due to bad investments made”.

61. It was pointed out by Mr Sussex that in the Notes to Transactions there was an entry dated 26 March 2007 for “Reverse 200m shares” under “LuckC’s TF account”, with the consequential “Off Record” debit of HK$255 million.  For what it is worth, such evidence fortifies the belief that there was much going on behind the scene, but it is an impossible task for the court to deduce from the bits and pieces of information what actually took place.

62. For completeness, I should mention that at the time when the Deceased passed away he had about 26.68 million shares in CYF under his own name. 

Blank transfer forms

63. The final piece of documentary evidence is made up of 3 documents signed by Dato Poh in relation to Luck Continent (“Blank Documents”):

(a) blank Share Transfer Form;

(b) blank Resignation of Director; 

(c) blank Resolution of Luck Continent approving the share transfer and acceptance of resignation.

64. Madam Leung’s case is that the Blank Documents were recovered from the Deceased’s files and their existence goes to confirm her case of a trust arrangement whereby the CYF Shares were merely held by Dato Poh on trust for the Deceased.

65. Countering the argument, Mr Sussex said that the Blank Documents could only transfer the shareholding of Luck Continent and do not support Madam Leung’s pleaded case that the subject matter of the trust was the CYF Shares and not the shares of Luck Continent. Whilst Mr Sussex is technically correct, the evidence is that Luck Continent had no other business and therefore transferring the shareholding of it would be equivalent to transferring the CYF Shares.

66. However, I am unable to agree that the Blank Documents, whether considered on their own or in conjunction with the other evidence, support a trust arrangement as suggested.  There is a compelling inference that those documents were created to answer the obligations under clause 2.2 of the Share Charge executed as a security for the ES loans. 

67. The evidence on how the Blank Documents came into the possession of the Deceased is not very clear.  There is a document from Luck Continent dated 9 March 2007 authorising Mr Lu Qing Hua to acknowledge the receipt of all documents returned by ES upon discharge of the loans.  According to Dato Poh, Mr Lu was Cheng’s assistant and he had performed various menial tasks in connection with the Acquisition.  However, given that the loans were repaid by the Deceased it is not surprising that the Blank Documents were in his hands. 

68. I believe that the 2 critical points here are, firstly, whether Mr Wong is right that the Blank Documents were not provided under the Share Charge but were created for a trust arrangement.  This contention is against the weight of the evidence[11] and cannot be accepted.  Secondly, why would 2 sophisticated people agree to use a set of documents for the transfer of the shareholding of Luck Continent for the purpose of a trust instead of a simple declaration of trust by Luck Continent?  Hence, I am not persuaded that the Blank Documents assist Madam Leung’s case. 

Conclusion on the documentary evidence

69. It is plain from the above analysis of the documentary evidence that there is insufficient evidence to demonstrate what the arrangement was between the Deceased (probably also representing various investors), Dato Poh and Cheng in respect of the Acquisition.  I agree with Mr Sussex that the precise mechanism or details of the arrangements made by the Deceased, who engineered this very successful transaction, may never be known after his death. 

70. This is not to say that Dato Poh does not know whether the CYF Shares belong to him beneficially.  I have serious doubt whether they all belong to him.  However, the lack of credibility in Dato Poh’s evidence does not assist Madam Leung in proving her case.  There is no sufficient evidence to infer that the CYF Shares belong to the Deceased beneficially or that there was a trust arrangement as alleged.  In all likelihood, the money used in the Repayment (the strongest point of Madam Leung) did not belong to the Deceased. 

71. For completeness, I should mention 2 point on which Mr Wong has put considerable emphasis. Firstly, the account treatment in Luck Continent’s books concerning 2 sums owed to it by Sino Gain and the Deceased.  They amounted to about HK$106 million and were written-off as bad debts on 31 December 2007.  Taken at the highest, I do not believe that this adds very much to the picture that certain arrangements concerning the Acquisition had been kept secret.  Without more being found out about the arrangements, the alleged trust has no proper foundation.  Further, the accounting treatment is at most a piece of circumstantial evidence to be considered with the rest of the evidence. 

72. Secondly, according to the books of Luck Continent, Dato Poh had only made 1 drawing in the sum of about HK$22.22 million.  Mr Wong suggested that the smaller drawing, compared to the payments made to or on behalf of Sino Gain and the Deceased, reflects the fact that Dato Poh was merely acting as a nominee.  I am not attracted by the submission because one cannot ignore the fact that the CYF Shares, which was trading at HK$25 per share during the better part of March 2007, were in the hands of Dato Poh. 

Evidence of Madam Leung and her son

73. I do not believe that Madam Leung’s case is assisted by her own evidence or that of Lam.  They were poor witnesses, more so in the case of Lam[12].  Their evidence is contradicted by incontrovertible evidence and they had no proper explanation for the contradictions.

74. Madam Leung’s evidence may be summarised as follows :

(1) She was told or given to understand on numerous occasions by the Deceased when he was still alive that:

(a) he was the true owner of the CYF Shares and Dato Poh was just a nominee and

(b) he controlled Sino Gain and used it as the vehicle to acquire or hold the CYF Shares;

(2) She was present at a meeting in September 2007 which took place at the Deceased’s residence where the Deceased told Cheng and Dato Poh how the CYF Shares should be dealt with if he died, and Cheng and Dato Poh said that they would respect his wishes thereby acknowledging the Deceased’s ownership of the CYF Shares;

(3) In the period after the Deceased passed away on 22 May 2008 up to an audio recorded meeting on 27 December 2010 (“Recorded Meeting”), she and Lam had numerous meetings and discussions with Dato Poh demanding for the CYF Shares or their proceeds, but to no avail.

75. Madam Leung’s evidence was echoed by that of Lam.

76. I do not find it credible that the Deceased had said anything to his mother or his brother that the CYF Shares were his property.  Such a proposition is wholly inconsistent with the fact that the Schedule of Assets and Liabilities of the Deceased filed by Madam Leung’s solicitor, Mr Benson Chan (“Chan”), on 15 June 2009 under her instructions in a probate application made no mention of the CYF Shares.  On the other hand, the 26.68 million shares of the Deceased were referred to in that Schedule.  Chan confirmed in his evidence that he was not told about the CYF Shares at the time when the Schedule was prepared. 

77. Although Chan did say that he was told by Madam Leung a few months before he ceased to act for her, ie, a few months before March 2011 about a “huge” volume of shares owned by the Deceased in CYF, his recollection of that matter was admittedly vague.  Further, this part of Chan’s evidence was not based on any written record, and an email from Lam (who was acting as the interface between his mother and her solicitors) dated 12 May 2010 (“Email”) which Chan relied upon to refresh his memory[13] in fact made no mention of any CYF share.  I am therefore reluctant to place much weight on this piece of evidence.  In any case, giving its timing this evidence, taken at the highest, does not absorb the doubt over the allegation that the Deceased had said anything to the effect that he owned the CYF Shares.

78. In the Email, Lam wrote :

“… I have just got a piece of new information that my late brother was a shareholder and a director of a Hong Kong based BVI company which has records showing various transactions … The Company name is [Sino Gain].”

79. I agree with Mr Sussex that the Email clearly shows that Lam and his mother did not even know about the existence of Sino Gain until around May 2010. Further, this document supports Dato Poh’s evidence that Madam Leung had little idea of the nature and whereabouts of the Deceased’s assets. 

80. Both Madam Leung and Lam had given evidence of a meeting with Dato Poh on 15 June 2010 at a coffee shop in Malaysia, at which Dato Lim was also present.  I am inclined to accept Dato Lim’s evidence that there was no mention of or demand for return of any CYF shares at that meeting.  As stated above, I find Dato Lim to be a credible witness.

81. The Recorded Meeting shows that neither Madam Leung nor Lam thought that the CYF Shares belonged to the Deceased.  They were trying to persuade Dato Poh to sell those shares to Cheng at the meeting.  I have no doubt that Madam Leung’s explanations that she might get the purchase price from Cheng or that Cheng might resell the shares at a higher price and give her the difference were concoctions made under the pressure of cross-examination.

Objective indicia 

82. I agree with Mr Sussex that there are powerful pointers against the existence of a trust arrangement.  Firstly, there is no document recording the arrangement.  The Deceased was ill for a prolonged period of time.  He would have been concerned about a huge asset held in the name of another person.  He clearly had the time and resources to put his affairs in proper order.  Indeed, the Deceased could have gained control over the CYF Shares by filling in the Blank Documents.  The absence of any document militates strongly against the existence of a trust arrangement. 

83. Secondly, there is no sensible reason advanced as to why the Deceased had to conceal his ownership of the CYF Shares. 

84. Thirdly, if the CYF Shares belonged to the Deceased, he was acquiring his own shares by participating in the top-up placement.

Resulting trust

85. Finally, I do not believe that Mr Wong has a valid argument on resulting trust based on the Repayment.  It has been point out in para 23 of the defendants’ opening submissions that the argument is misconceived.  At most, the Repayment was a discharge by Sino Gain of the indebtedness of Luck Continent owed to ES, which may result in an assignment of ES’s chose in action against Luck Continent to Sino Gain.  Mr Wong has not provided any valid answer to this analysis.  With respect, the argument should have been withdrawn by Mr Wong.

Conclusions

86. For reasons stated above, Madam Leung has clearly failed to prove her case.  This action is accordingly dismissed.  I make an order nisi that the costs of this action be to the defendants with a certificate for 2 counsel.