DELCO PARTICIPATION B.V. v. HWH HOLDINGS LTD

HCA 2943/2015

[2025] HKCFI 4739

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2943 OF 2015

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BETWEEN

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AND

HCA 3040/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3040 OF 2015

________________________

BETWEEN

________________

AND

HCA 2939/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2939 OF 2016

________________________

BETWEEN

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(Heard together)

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J U D G M E N T

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Index – This Judgment shall be divided into the following Sections:

A. Introduction

1.  ‘Oh, what a tangled web we weave, when first we practice to deceive!’[1]

2.  As will be seen below, that saying is undoubtedly true of the problems arising when a person tries to reconcile his or her shifting and fabricated evidence. But this is also one of those reasonably rare cases where one party’s assertions rest to a significant degree on allegations of underhand activity and the creation of false documents directed against its own activity and its own documents. The question which that party in effect poses is, ‘Do you believe what I said then, or believe what I say now?’.

3.  But there are many other issues involved, and that question – itself not necessarily determinative – falls to be considered in its much broader context. The broader context is that of all three actions which were heard together: HCA 2943/2015 (“A2943”), HCA 3040/2015 (“A3040”) and HCA 2939/2016 (“A2939”).

4.  These three actions travelled along a lengthy and diversionary interlocutory journey, evidenced by the plethora of decisions and rulings already previously given. But, finally, the three actions came to be heard at trial. Following opening submissions, evidence was taken over 14 days in Hong Kong and 2 days in the Netherlands (pursuant to a Letter of Request).

5.  Two rounds of written closing submissions were filed and exchanged, and then spoken to and supplemented orally.

6.  The Court has had the benefit of a full transcript of the trial and of the evidence taken on the request. Depending on its printed format, it would fill a few lever arch files. That can be added to the extremely voluminous other materials deployed by the parties. It is not possible to rehearse all the materials in this Judgment, and despite bearing in mind other materials I focus on certain more limited and perhaps key documents. That a matter may not be expressly mentioned does not mean it has been ignored or overlooked.

7.  Subsequently, in A3040 and A2939, Delco made an application for a post-judgment Mareva injunction in the contingent circumstances that the breach of fiduciary claim (see below) might be successful.

8.  This is my Judgment after trial and on those further matters.

B. Representation at Trial

9.  At trial (adopting the definitions given below):

(1) Delco was represented by Mr Victor Dawes SC, leading Mr James Man and Mr Jonathan Ng;

(2) Fang and HWH were represented by Mr William Wong SC, leading Mr Norman Nip SC and Mr Roger Phang; and

(3) CT and CTHK were represented by Mr Bernard Man SC, leading Mr Jason Lee.

C. Background

10.  Much of the general background is undisputed. In so far as it is necessary to understand the overall context of the claims and defences in these three actions, that background – set out broadly chronologically – is as follows. When referring to any dollar figures, I shall generally ignore any odd cents as might be shown in the original documents.

11.  In the 1990s, two Dutch businessmen engaged in the regular sale of scrap metals to a Chinese businessman.

12.  The two Dutch businessmen were Herman de Leeuw (“HDL”) and Stephan van Ooijen (“SVO”), and their company was Delco Recycling BV (“Delco Recycling”). Delco Recycling had a sister company, Delco Europe BV (“Delco Europe”). Delco Recycling was also the predecessor of Delco Asia Co Ltd (“Delco Asia”) and Delco Participation BV (“Delco”). Delco is the plaintiff in each of A2943, A3040 and A2939. Together, the various Delco companies can be referred to as the “Delco Group”. Each entity within the Delco Group was jointly and equally held by HPL Metals BV and SVO Company BV, being companies solely owned by HDL and SVO respectively.

13.  The Chinese businessman was Fang Ankong (“Fang”) and he owned or controlled a group of scrap metal recycling businesses in the PRC (“Fang Group”). Fang is a defendant to A3040 and A2939. Amongst the companies owned by Fang was a BVI company, HWH Holdings Ltd (“HWH”). HWH is a defendant to A2943 and A2939.

14.  By 1999, the business relationship had grown to the point that Delco Group and Fang Group decided to start a Sino-foreign joint venture (“Joint Venture”) to carry on the business of metal scrap recycling and trading.

15.  The Joint Venture operating company was a PRC company called Taizhou Chiho-Tiande Metals Co Ltd (“CT Metals”), established on 24 December 1999 with a registered capital of US$840,000. An ‘Intent Letter for Joint Venture’ was signed on 11 November 1999, identifying that Delco Europe would invest US$220,500 for a 26.25% interest. There is some dispute as to whether the Joint Venture was originally genuinely a joint venture, or whether the Delco Group was a mere nominee of the Fang Group. But it is not in dispute that, even if originally merely a nominee, the Delco Group became a true partner of the Fang Group in the Joint Venture.

16.  CT Metals was an approved foreign investment enterprise (“FIE”), and so benefited from certain business advantages and tax incentives to encourage foreign investment.

17.  Around late 2001, Delco Asia was set up by HDL and SVO for the purposes of holding their investments in the Joint Venture, and to operate as a procurement company for the Joint Venture. There were also perceived legitimate tax advantages through relatively typical transfer pricing arrangements. The structure had been advised by Frank van Lint (“FVL”), a Dutch tax adviser to the Delco Group from 2001 onwards.

18.  In 2002 and 2003, the Joint Venture was restructured and placed into a Hong Kong incorporated holding company called Hefast Holding Corporation Ltd (“Hefast”). Hefast was itself jointly owned by Delco Group and Fang Group, and it held the entire shareholding in CT Metals.

19.  In late 2003, Hefast held a 49% interest in Chiho-Tiande Foundry Co Ltd (“CT Foundry”). The remaining 51% was originally held by a company owned or controlled by a Taiwanese businessman called Chern Shyn Kang (“Chern”). Hefast became the sole holding company of CT Foundry as from June 2005. CT Foundry was an approved FIE.

20.  The broad division of input for the Joint Venture was that Fang ran the PRC operations whereas the Delco side was responsible for sourcing scrap metals from Europe. All processing and production facilities of the Joint Venture were located in the PRC, which was where the revenue for the Joint Venture was generated.

21.  Between around 2005 to 2007, Delco Europe was the subject of an investigation by the Dutch tax authorities. In essence, those authorities considered that Delco Europe had engaged in a systematic practice of under-invoicing in the tax years 2002 to 2005, so as to under-report the profits made by Delco Europe to evade Dutch tax on those profits. Following an appeal made against the tax assessment, the matter was ultimately compromised. The negotiations and arguments leading to the compromise were largely conducted on behalf of Delco Europe by FVL.

22.  In 2008, HDL, SVO and Fang wished to list the Joint Venture business (“2008 Listing Plan”). For that purpose, Chiho-Tiande Group Ltd (“CT”) was incorporated in the Cayman Islands in May 2008, with the intention that it be the holding company in the listed structure. Upon incorporation, CT was held equally between Delco Asia and HWH, and it became the holding company of Hefast.

23.  As part of the 2008 Listing Plan, Fang settled a trust (“FDG Trust”), which in turn held the entire shareholding of a BVI company, New Assets Holdings Ltd (“NAH” or “New Asset”). The FDG Trust was created by irrevocable instrument dated 28 August 2008, and its apparent purpose was to hold, through NAH, some shares of CT – intended to be 6% of the total shares after listing – on trust for three key employees. Each of Delco Asia and HWH transferred 4 shares (so, a total of 8 shares) of CT to NAH, for the stated total consideration of US$12,550,000.

24.  NAH had no funds to pay that consideration, so Fang caused a company HKM Metal Ltd (“HKM Metal”), incorporated in Hong Kong and of which Fang was sole beneficial owner, to advance on behalf of NAH sums totalling US$6,275,000 to Delco Asia. At the same time, NAH issued a promissory note in favour of HWH in the total amount of US$12,550,000.

25.  HKM Metal was also one of the Joint Venture’s suppliers, until early 2008 and in anticipation of the 2008 Listing Plan. But HKM Metal also transferred other sums of money to Delco Asia, before during and after the period when the sums totalling the US$6,275,000 were advanced.

26.  Chiho-Tiande (HK) Ltd (“CTHK”) had been incorporated in Hong Kong on 12 May 2004, with Fang as its sole shareholder. It was dormant until the intended reorganisation. CT was incorporated on 15 May 2008. On 29 August 2008, and as part of the 2008 Listing Plan, CTHK became an indirect wholly-owned subsidiary of CT. CTHK is a defendant to A2939.

27.  The 2008 Listing Plan was abandoned in the then unsuitable economic environment. As a result, the 4 CT shares transferred to NAH by Delco Asia were returned to it. But no money was returned by Delco.

28.  CT was subsequently successfully listed on the Stock Exchange of Hong Kong on 12 July 2010 (“2010 Listing”). After the 2010 Listing, each of Delco Asia and HWH held a 34.5% stake in CT directly.

29.  In the CT Global Offering document, in the section on ‘History and Development’, there is a section on CT Metals which states:

On 22 December 2001, the relevant authority’s approval was given for the transfer from Taian Recycling of its entire 73.75% interest in the registered capital of CT Metals to Mr Fang for a consideration of US$1,239,000 and the transfer from Delco Recycling of its 26.25% interest in the registered capital of CT Metals to Delco Asia for a consideration of US$441,000. All such transfers were made at the respective original investment cost and completed on 10 May 2002.

Following the increase in registered capital and various equity transfers referred to above, the registered capital of CT Metals then became owned by Mr Fang and Delco Asia as to US$3,000,000 each, representing equal shares in CT Metals.

On 8 October 2002, the board of CT Metals resolved that its registered capital be increased further from US$6,000,000 to US$10,882,000. Each of Mr Fang and Delco Asia made their pro rata contribution and, thereafter, each held US$5,441,000 of the registered capital of CT Metal, representing equal shares in CT Metals.

30.  The document also identifies that Delco Asia and HKM Metal were two of the five largest suppliers for the years 2007 to 2008. Raw materials were not purchased from Delco Asia after 1 August 2008 and from HKM Metal from the beginning of 2008. This matches a later passage relating to purchasing services arrangement with Delco Europe, which stated that since 1 August 2008, CTHK had taken up the metal scrap procurement operation, in terms of operation, staff and the relevant suppliers’ relationship from Delco Asia.

31.  Further, a BVI company Green Elite Ltd (“Green Elite”), owned by the Delco and Fang sides in equal shares, held another 6% of the shares in CT. This occurred after each side transferred 4 CT shares (so, a total of 8 shares) to Green Elite. The stated consideration was again US$12,550,000, or US$6,275,000 from each side.

32.  As at 21 June 2010, prior to the 2010 Listing, it was recorded that various companies under the Joint Venture – including Hefast, CT Metals, CT Foundry and CTHK – owed shareholders’ loans (1) to Fang in the sum of HK$223,671,266 and (2) to Delco Asia in the sum of HK$169,681,118 (“DA Shareholders Loan”). In passing, it can be noted that one of the elements comprising the DA Shareholders Loan was a sum loaned to CTHK, equivalent to approximately US$18 million.

33.  As part of the 2010 Listing exercise, Delco Asia, Fang and CT entered into a Shareholders Loan Assignment and Capitalisation Agreement dated 24 June 2010 (“Capitalisation Agreement”), under which part of their shareholders’ loans was capitalised into CT’s shares, and the uncapitalised portion was to be repaid in full by CT.

34.  The Capitalisation Agreement provided for capitalisation of equal portions of HK$111,854,000 of each of the Fang’s Loan and Delco Asia Loan. Pursuant to the Capitalisation Agreement, HK$111,854,000 (“Capitalised Portion”) of the DA Shareholders Loan was capitalised and 344,999,954 shares in CT were allotted to Delco (as Delco Asia’s nominee). Those were defined as all the outstanding loans (non-interest-bearing) advanced by Fang and his associates and Delco Asia respectively. In passing, it can be noted that one of the elements comprising the Delco Asia Loan was a sum loaned to CTHK, equivalent to approximately US$18 million.

35.  Delco Asia’s uncapitalised portion was in the amount of HK$57,827,118 (“Uncapitalised Portion”). The Uncapitalised Portion was not paid by CT to Delco Asia, but it (or a slightly smaller sum) was instead paid to Fang.

36.  The Uncapitalised Portions of the loan were the remaining parts of the Fang’s Loan and the Delco Asia Loan, namely HK$111,817,266 and HK$57,827,118 respectively.

37.  In October 2011, there was a restructuring on the Delco Group’s side. By an Assets and Liabilities Transfer Agreement dated 3 October 2011 (“ALT Agreement”), Delco acquired all assets and liabilities of Delco Asia as shown in the annual accounts of Delco Asia as of 31 December 2010. The purchase price under the ALT Agreement was set as being equal to the net equity value of Delco Asia as at 31 December 2010 as shown in its financial statements, namely HK$19,322,865 (though it was also provided that the purchase price would remain an interest-free debt owed by Delco to Delco Asia).

38.  In that context, Delco Asia and Delco also entered into three Agreements on transfer of receivables with each of (1) Fang, (2) HKM Metal, and (3) Chern. Each of those agreements identified a loan debt owed by Delco Asia as at 31 December 2010, and the agreements were to extract the permission of the respective lenders – being Fang, HKM Metal and Chern – for the transfer of the liability of the loans to Delco. The amounts of the loans transferred were stated to be HK$31,772,969, HK$72,345,000, and HK$65,730,897 respectively. Fang signed each of the agreements, namely for himself, for HKM Metal and for Chern.

39.  Subsequently, Delco Asia was dissolved.

40.  Beginning from 2012, Delco took steps to exit from CT.

41.  On 17 January 2012, Delco (10%) and HWH (6%) agreed to sell an aggregate of approximately 16% of CT shares to Sims Metal Management Dragon Holdings Ltd (“Sims”) at HK$4.50 per share.

42.  It seems that it was only after the agreement to sell those percentages to Sims was agreed that it was realised that HWH’s sale would reduce its shareholding below 30%, potentially causing HWH problems in the context of the Listing Rules. Therefore, by a written agreement also dated 17 January 2012 (“Transfer Agreement”), Delco sold approximately 1% of the shares in CT to HWH at HK$4.50 per share (“1% CT Shares”). The sale price was stated on the Transfer Agreement to be HK$46,883,466. However, Fang/HWH say that there was an oral side agreement that the price would be reduced by 10% to approximately HK$41,900,000.

43.  Subsequently, Delco and HWH agreed to reinvest into CT about two thirds of the proceeds of sale of the shares to Sims by subscribing for convertible bonds issued by CT. Delco purchased convertible bonds in the principal amount of HK$312.6 million at a coupon (interest rate) of 4% per annum with a maturity date of 1 March 2015 (“CB”). The CB had an exercise price of HK$6 per share, representing 52,100,000 shares upon conversion, if exercised.

44.  CT failed to pay Delco the first half yearly interest payment of HK$6,252,000 due on 1 September 2012 (“CB Interest”). The sum was actually paid to Fang, and it is a matter of dispute as to whether or not that was authorised in advance.

45.  On 2 April 2014, Delco sold 115,197,990 CT shares (11.02%) to Tai Security Holdings Ltd (“Tai Security”).

46.  On the same day, Green Elite also sold its CT shares (5.74%) to Tai Security for a total consideration of HK$150 million (not immediately paid to Green Elite, but subsequently in 2016 paid to Fang directly, who dispersed the funds to Mr Gu Liyong, Mr Fang Anling and Mr Ding Guopei’s nominee).

47.  All those CT shares sold on 2 April 2014 were sold at the price of HK$2.50 per share, the consideration for those sold by Delco totalling HK$287,994,975.

48.  Delco continued to look to sell its remaining shareholding in CT during 2014. A possible sale to a company called Feiyue fell through in December 2014. Thereafter, Fang/HWH agreed to purchase Delco’s remaining shares, essentially on the same terms as had been the proposed terms of the sale to Feiyue.

49.  On 23 January 2015, Delco and HWH entered into a Sale and Purchase Agreement (“January 2015 SPA”), under which Delco agreed to sell all its remaining 115,197,991 (approximately 10%) CT shares to HWH at the price of HK$2.50 per share (“January 2015 Sale”). In the month prior to 23 January 2015, the CT share price had ranged between HK$2.60 and HK$2.96.

50.  On 26 January 2015, Sims agreed to sell all its shareholding in CT (approximately 15.88%) at the price of HK$2.75 per share to Good Union Hong Kong Investment Ltd (“Good Union”) and Roundhill Asia Ltd (“Roundhill”). Good Union was at all material times wholly owned by Zhang Mingjie (“Zhang”).

51.  On 16 February 2015, CT announced that it had located a potential, though unnamed, investor for a placement of shares, and that CT had received a deposit of US$50 million from that investor.

52.  On 27 March 2015, it was announced that on 21 March 2015, USUM Investment Group Hong Kong Ltd (“USUMHK”) agreed to subscribe for 456.9 million CT shares (representing 30.32% of the enlarged issued share capital following allotment) at the price of HK$9.01 per share, giving net proceeds of HK$4,115,170,000. The closing price of CT shares on 20 March 2015, the day before the subscription agreement, was HK$6.73. Therefore, the HK$9.01 per share price was at a premium of almost 34% above market, and obviously much higher than the 23 January 2015 price of HK$2.94.

53.  USUMHK was a wholly owned subsidiary of USUM Investment Group Ltd (“USUM”), a company incorporated in the PRC. USUM was 38.65% owned by Loncin Holdings Co Ltd (“Loncin”), which was 100% owned by Tu Jianhua (“Tu”).

54.  Completion of the January 2015 Sale took place on 17 April 2015. On that day, the closing price of CT shares was HK$7.30. Prior to completion, Delco made no complaint about, nor attempt to renegotiate or get out of, the January 2015 Sale.

55.  On 29 April 2015, Tu was appointed executive director of CT. The closing price of CT shares on 29 May 2015, when USUMHK completed the subscription, was HK$9.08.

56.  On 8 July 2015, Zhang acquired sole ownership of Tai Security, thereby indirectly acquiring the CT holding sold to Tai Security in 2014. As a result, Zhang held (indirectly through Good Union and Tai Security) a total of 18.6% shareholding in CT. Zhang was appointed as an executive director of CT with effect from 22 August 2015.

57.  There were numerous business links between Tu and Zhang. Zhang was the executive director and president of Beijing Suncorps Financing Investment Fund Management Co Ltd from December 2012. That company was the 1% shareholder and Executive Partner into investment partnerships (established in 2013) 99% owned by Loncin. Zhang held senior positions in Sincere Land Holdings Co Ltd in 2011 and 2012, and in a 100% subsidiary which was a shareholder in USUM until at least August 2016. Zhang was also a partner in Zhonghao law firm from July 2001 to May 2012, which firm represented the Loncin group in disputes between 2004 and 2006.

58.  Earlier in 2015, a dispute had arisen between Delco and CT as to whether the maturity date of the CB had been automatically extended for two years to 1 March 2017. That dispute was resolved by Delco and CT entering into a letter of undertaking dated 3 March 2015 (“CB Undertaking”). Under the CB Undertaking, and as part of CT’s consideration in return for Delco’s agreement to acknowledge the extension of the maturity date of the CB to 1 March 2017, CT undertook to use its best endeavours to procure independent third parties to purchase the CB no later than 30 June 2015.

59.  On 17 June 2015, CT introduced Haitong International Securities Ltd (“Haitong”) to purchase the CB at its principal amount of HK$312.6 million, with interest. On the previous day, the closing price of the CT shares was HK$12.46. Delco chose not to accept Haitong’s offer (in circumstances which will be examined below). The share price at close of business on 30 June 2015 was HK$10.

60.  Also pursuant to the CB Undertaking, Delco had from 1 to 31 July 2015 the opportunity to find its own purchaser for the CB. It did not do so. Therefore, pursuant to the timetable set out in the CB Undertaking, the full principal amount of the CB was redeemed, with interest, paid in tranches between 1 September 2015 and 1 March 2017.

61.  By January 2016, HWH had transferred most of it shares in CT to USUMHK at the price of HK$3.50 per share. USUMHK and those acting in concert with it then took over control of CT. Therefore, after Delco’s and Fang’s respective exits, CT was controlled by a third party.

62.  In the context of the evidence of this case, it is also important to note that HDL and SVO had for some period of time not been seeing eye to eye as regards the Delco Group. Indeed, such was the deadlock between them that the Enterprise Court of the Amsterdam Court appointed an independent third party as an additional director, being Mr Erik Hammerstein (“Hammerstein”).

63.  It was Hammerstein who made most of the affidavits used for the various interlocutory applications, although he has not provided a witness statement and has not given factual evidence at the trial. It was also Hammerstein who made most of the verifications of the various Delco pleadings filed in these three actions, though plainly that verification was not based upon any personal or direct knowledge of the contemporaneous events (except, perhaps, as can be found in contemporaneous documents).

64.  I note that in his evidence, HDL accepted that by the middle of 2015 – and in particular at the time of the exchange of relevant emails relating to the various matters – HDL placed heavy reliance on FVL, to the extent of being prepared to do whatever FVL suggested. As HDL put it, FVL knew all the pros and cons of SVO, CT, Fang and himself.

D. Overview of Claims

65.  In A2943:

(1) Delco claims against HWH for sale price of HK$46,883,466 for the 1% CT Shares transferred under the agreement dated 17 January 2012 (“1% CT Shares Claim”). Subject to an argument about a 10% discount, which would reduce the claim to approximately HK$41.9 million, HWH’s defence is one of set-off.

(2) There is a corresponding counterclaim for HK$47,117,969, alternatively HK$17,250,786, said to be the outstanding sum after the setting off of the mutual debts (see below).

66.  In A3040:

(1) Delco claims against Fang the Uncapitalised Portion in the amount of HK$57,827,118 (“Uncapitalised Portion Claim”). Subject to an argument about an adjusted figure, where Fang says the adjusted figure should be HK$55,501,079, Fang’s defence is one of set-off.

(2) There is a corresponding counterclaim.

(3) Delco’s previous claim against CT for the Uncapitalised Portion has been discontinued in light of Fang’s admission that he took up the liability from CT. However, CT has a counterclaim for the Capitalised and Uncapitalised Portions, though the making of the counterclaim is dependent upon whether certain of Delco’s allegations about the Scheme (as defined below) are accepted as true.

67.  In A2939:

(1) Delco claims against Fang and HWH for the CB Interest in the sum of HK$6,252,000 (“CB Interest Claim”). Fang’s and HWH’s defence is one of set-off. In this action, there is no corresponding counterclaim.

(2) Delco claims against HWH and Fang for damages and/or breach of fiduciary duties/dishonest assistance in relation to the January 2015 Sale, by reason of Fang’s failure to disclose the potential investment of USUM in CT when he had knowledge of it prior to the January 2015 Sale (“Breach of Fiduciary Duty Claim”).

(3) Delco claims against CTHK for a loan of US$1 million advanced for the purpose of enabling CTHK to pay for the purchase of scrap metals from a US supplier known as Global Recycling (“US$1 million Claim”).

(4) Delco claims against CT for breach of the CB Undertaking, in that CT was in breach of its best endeavours obligation under the CB Undertaking (“Breach of CB Undertaking Claim”).

68.  Fang’s set-off is pleaded broadly as that, throughout the course of the Joint Venture, mutual debts were incurred by Delco’s Group and Fang’s Group against each other, resulting in outstanding balances between Delco’s Group and Fang’s Group which remain unsettled to date. Delco has taken up all the liabilities of Delco Asia including the Debts (as defined below), which remain owing to Fang.

69.  The actions also plead Fang/HWH’s averment as to the existence of (1) the “2010 Agreement”, and (2) the “Convention”:

(1) The 2010 Agreement is alleged to have been an agreement concluded between Fang (on behalf of himself and HKM) and Delco Asia in around late June 2010, whereby it was agreed that the Debts should be repaid by Delco Asia (a) as and when Fang demands, whatever the form of payments along as the payment is in satisfaction of the needs of Fang and/or his wholly-owned subsidiaries, or (b) when Delco Asia has sufficient funds.

(2) The Convention is alleged to have been adopted by Fang’s Group and Delco’s Group since July/August 2011, being the conventional practice that their mutual receivables and payables would not be immediately offset against each other, but would instead be recorded as receivables or payables (as the case may be) in the accounts, such that if either party were to demand payment of its debts at any time, the receivables and payables would be immediately set off against each other and only the net balance would be payable.

70.  In A2943, HWH avers that pursuant to the 2010 Agreement and/or the Convention, Delco is estopped from demanding the sum claimed in the action without first setting off the amounts payable by Delco’s Group to Fang’s Group against the amounts payable in the other direction. It is averred that after setting off, the net result is that Delco owes Fang and Fang’s Group approximately $17.25 million. That sum is also the subject of at least one alternative form of the counterclaim.

71.  In A3040 and A2939, Fang and HWH also plead reliance on the 2010 Agreement.

72.  CT has also raised counterclaims against Delco, Fang and HWH.

E. Overview of Issues

73.  Delco’s case on its claims against Fang/HWH is essentially a claim on a series of debts. The existence of those debts is largely undisputed, save as to some arguments about quantum, and the core issue on the claims is whether Fang/HWH can establish the existence of the cross-debts (defined below as “Debts”) so as to make good the defence of set-off.

74.  Delco’s main claim against CT is for breach of the CB Undertaking. CT’s defence rests on certain factual allegations against arguments as to the proper construction of the terms of the CB Undertaking.

75.  Delco’s claim against CTHK for the US$1 million is defended on the basis that there is no evidence that CTHK owed that debt, which in any event would be statute barred.

76.  Therefore, the issues to be determined in respect of the various claims can be broadly summarised as follows.

77.  As regards Delco’s claims against Fang and HWH:

(1) On the 1% CT Shares Claim, whether HWH is liable to pay the full Sale Price of HK$46,883,466 or a discounted price of HK$41,900,000.

(2) On Delco’s Uncapitalised Portion Claim:

(a) whether the Uncapitalised Portion had been adjusted from HK$57,827,118 to HK$55,501,079; and

(b) whether Delco has acquired from Delco Asia the right to recover the Uncapitalised Portion under the ALT Agreement.

(3) In relation to Fang/HWH’s defence to the 1% CT Shares Claim, the Uncapitalised Portion Claim and the CB Interest Claim:

(a) whether Delco was liable to pay Fang/HWH the alleged Debts, being the Fang Debt, the HKM Metal Debt and the Chern Debt (as all are defined below);

(b) relatedly, whether the Scheme (as defined below) existed;

(c) whether (i) HKM Metal’s alleged assignment of the HKM Metal Debt to Fang and (ii) Fang’s alleged oral assignment of the debt of HK$47,117,969.19 to HWH were invalid; and

(d) whether there was any valid defence of equitable set-off or estoppel by convention by reason of the 2010 Agreement or the Convention regarding the alleged mutual debts between Delco Group and Fang Group.

(4) Whether Fang/HWH’s counterclaim on the Chern Debt is barred by the Limitation Ordinance Cap 347 (“LO”).

(5) On the Breach of Fiduciary Duties Claim:

(a) whether Fang owed fiduciary duties to Delco;

(b) whether Fang breached his fiduciary duties by failing to disclose to Delco the potential investment of USUM in CT prior to the January 2015 Sale; and

(c) quantum of damages/equitable compensation.

78.  As between Delco and CT/CTHK, the issues are:

(1) On the US$1 Million Claim:

(a) whether CTHK owes US$1 million to Delco;

(b) whether Delco’s claim is barred by LO; and

(c) whether Delco has acquired from Delco Asia the right to recover the US$1 million under the ALT Agreement.

(2) On the CB Undertaking Claim:

(a) what the proper construction is of paragraph (a) of the CB Undertaking;

(b) whether paragraph (a) of the CB Undertaking should be rectified;

(c) whether Delco is estopped by representation or convention from asserting any construction of the CB Undertaking other than the one contended by CT;

(d) whether CT was in breach of paragraph (a) of the CB Undertaking;

(e) whether by accepting payment of the principal amounts under the CB together with all unpaid interest, Delco has given up its right to make the CB Undertaking Claim by reason of waiver / election / estoppel;

(f) whether Delco has failed to mitigate its loss; and

(g) quantum of damages.

(3) As for CT’s counterclaim in A3040:

(a) whether there was a failure of basis and/or consideration in the allotment of the shares in CT to Delco in that the Capitalised Portion is comprised of debts that were not genuine debts with repayment obligations or the Capitalisation Agreement is a sham; and

(b) whether CT is entitled to any proprietary remedies by reason of its restitutionary claim.

79.  As can perhaps be seen from the above summary, a number of these matters overlap, or the consideration of one may have some impact on the consideration of another. Therefore, whilst it is convenient to deal with the issues within independent sections of this Judgment, I do not lose sight of the bigger picture and the potential impact that conclusions on one area may impact the conclusions on another. Essentially, ultimate conclusions reached on any one issue may involve an iterative process by reference to the appropriate parts of consideration of other issues.

F. Factual Witnesses

F.1 Delco’s Witnesses

80.  Delco called as its witnesses of fact:

(1) FVL; and

(2) HDL.

81.  In addition, SVO was examined in a Netherlands Court, pursuant to a Letter of Request.

F.2 Fang/HWH’s Witnesses

82.  Fang/HWH called as his/its witnesses of fact:

(1) Fang;

(2) Chan Tung Tung Emily (“Emily Chan”); and

(3) Gu Li Yong (“Gu”).

F.3 CT/CTHK’s Witnesses

83.  Though CT/CTHK had filed witness statements as to fact, at trial they decided to call no factual evidence.

F.4 Approach to Witness Evidence

84.  In my approach to the fact-finding and assessment of credibility, I have adopted the well-established approach which focuses less on aspects of demeanour, and considerably more upon (1) the consistency of a witness’s evidence with contemporaneous written documents and documents which came into existence before the problems in question emerged, (2) consistency with undisputed or indisputable evidence, (3) the internal consistency of a witness’s evidence, and (4) comparative testing between a witness’s oral testimony and his witness statement. Of course, there can also be testing against what seem to be the inherent likelihoods and probabilities.

85.  I keep in mind that there is or may be a distinction between a witness’ reliability and his credibility. Further, when assessing credibility, I acknowledge that the finding that a witness has been dishonest in one regard does not necessarily lead to finding the entirety of that witness’ evidence to be dishonest. Instead, a finding of dishonesty in one regard is simply a factor to be brought into account when assessing the reliability or credibility of other parts of the evidence.

86.  Further, I accept the settled principles as to when it is permissible for a Court to draw adverse inferences where a person without explanation fails to call as a witness a person who might reasonably be expected to give direct evidence on a particular matter in question: see Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd (unreported, CACV 90-91, 93-96/2012, 17 September 2013) at §§106-107. If the Court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to called witness. However, there must be some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference; in other words, there must be a case to answer on that issue.

87.  I further accept that a Court is entitled to draw an adverse inference from the non-production of documents by party. This is because that tends to indicate, as the most natural inference, that the non-producing party fears to produce the document as it would expose facts not favourable to him. Of course, the Court will be careful to look at the explanation of circumstances. But, the non-production of evidence that would naturally have been produced by an honest and therefore fearless party permits the inference that its tenor is unfavourable to the party’s cause.

88.  I also keep in mind, as a salutary reminder, that there may be occasions where the truth may run against the grain having regard to all the facts that are known.

G. The Debts

89.  As the merits of Fang’s and HWH’s defence and counterclaim turn significantly on the true existence or otherwise of certain debts, it is helpful at this point to identify those debts.

90.  Originally, Fang and HWH relied on only two alleged debts for the purpose of set-off. Both debts are alleged to be with no fixed term, interest-free and repayable upon demand. They are:

(1) monies allegedly advanced by Fang to Delco Asia, from which Delco acquired all its assets and liabilities as of 31 December 2010. The sums are alleged to have been advanced from 2002 to 2005 and in 2010, and after taking into account partial payment are said to amount to HK$31,772,969 (“Fang Debt”); and

(2) monies allegedly advanced by HKM Metal to Delco Asia on 11 different dates between 27 September 2007 and 3 September 2008 in the total sum of US$9.275 million, equivalent to HK$72,345,000 (“HKM Debt”).

91.  By an amendment, a further alleged debt was pleaded as a further set-off in the sum of HK$65,730,897, said to be owed by Delco Asia to Chern (as an alleged nominee of Fang) (“Chern Debt”). In passing, I note that the particular amendment had originally been disallowed by me, but was allowed on appeal by the Court of Appeal (“CA”) on the basis that the case raised was arguable. As an aside, I also note that the CA gave leave to appeal to the Court of Final Appeal (“CFA”) on the question of law relating to equitable set-off and its relationship with a counterclaim, if a defendant properly raises equitable set-off relying on the debt which is time-barred, and whether he is precluded by section 35 of the Limitation Ordinance and a counterclaim (not an original counterclaim) for the same debt. However, as I can see, no date for the hearing before the CFA has been fixed.

92.  The three debts collectively total HK$169,848,866 (“Debts”).

93.  As it happens, the first reference to the sum of money which constitutes the Chern Debt was made in Delco’s pleadings. Essentially, as part of Delco’s pleading to Fang/HWH’s allegations as originally based upon (only) the Fang Debt and the HKM Debt, Delco pleaded the existence of a scheme (“Scheme”), on the basis of which Delco denied that those two debts were genuine or in fact existed. Following amendment and the pleading of the Chern Debt, Delco of course has since denied that any of the Debts were genuine or existed requiring repayment.

H. The Scheme

H.1 Preliminary point

94.  In light of the way part of the argument went in relation to the Scheme, it may be helpful to set out where the matters relating to the Scheme fit into the wider case.

95.  This was previously considered in an earlier interlocutory decision given by Godfrey Lam J (as he then was) dated 26 July 2019 at §§25 and 29. In the former paragraph, he pointed out that there is nothing in principle to prohibit Delco from adopting certain findings reached by the Dutch Tax Authority as its own averments in these proceedings, provided there is a sufficient evidential basis for them (other than the opinions of that authority, which are not evidence). In the latter paragraph, after summarising various aspects of the pleadings, he made the following points, which I adopt:

(1) The Scheme is pleaded not as the basis of any legal claim by Delco or anyone for relief in itself.

(2) Instead, the Scheme is pleaded for the purpose of explaining away certain accounting entries in Delco Asia’s accounts and audit confirmations that are relied upon by the defendants as a defence to the otherwise largely undisputed claims of Delco.

(3) The Scheme advanced did involve questionable practices such as double-invoicing, but the plea does not charge Fang with any fraud practised on or damaging Delco Asia.

(4) In fact, Delco’s suggestion is that these practices were done with the knowledge of both sides.

(5) The issue the Scheme goes to is whether or not the debts in fact existed.

(6) The Scheme is not, however, an ultimate issue in itself, in the sense that, whether or not the Scheme is eventually proved, the Court still has to decide separately whether or not the Debts in fact existed, as to which the burden of proof lies on the defendants, i.e. Fang/HWH.

96.  In short, the Scheme – importantly pleaded to be a ‘round tripping’ scheme – is put forward by Delco as the explanation as to how the Debts found their way into the books of account of Delco Asia. Put slightly differently, Delco relies on the Scheme to contend no or little weight should be given to the accounting entries in Delco Asia’s own accounts and the audit confirmations.

97.  I therefore reject the twin submissions that any inability to prove the Scheme is the end of Delco’s case to recover the debts owed to it, and that the burden is on Delco to establish the Scheme to negate the Debts.

98.  Nevertheless, there is some force in the submission made for Fang/HWH that Delco’s approach to the Scheme and its relative importance in these proceedings has been through some shift, though I reject the submission that it has gone so far that it has “officially taken a backseat”. At bottom, even if finding were to be reached that the Scheme has not been demonstrated – or there is significant doubt as to whether the Scheme really existed – that is not the end of the analysis relating to the Debts; whether the Debts are genuine and repayable does not turn solely upon whether there was the Scheme.

H.2 Round Tripping

99.  When considering the likelihoods of the existence of the Scheme, it is necessary to have a broad understanding of what is meant by a ‘round tripping’ scheme (looking at it in the context of the relevant period for present purposes, namely 2001 to 2008). At bottom, such a scheme involves the inflow to a country (here the PRC) of what is said to be foreign direct investment (“FDI”) but which is really the return of capital created in the PRC that has gone abroad escaping foreign exchange controls.

100.  In addition to tax and fiscal advantages that are provided to foreign investors, there are other incentives for round tripping, such as safety and risk management of capital, as well as accessing better financial services and the like. Though some commentators suggest that the degree of round tripping FDI into the PRC was significant, it was apparently tolerated. Such round tripping was certainly not a phenomenon unique to the PRC, and has been well-understood elsewhere. The explanation for the general toleration of it is that the more that developing countries are able to create new capital, the more income the developed economies will get from developing economies, and so the more FDI from developed economies that are likely to flow back to developing economies. Therefore, though there may be significant ‘capital flight’, that flight capital then forms the basis for some of the FDI flows, or the so-called round tripping FDI.

101.  Mis-invoicing is one obvious way to under-report profit, which profit can be taken offshore and subsequently round tripped as FDI. But, it may be that the under-reporting would be at the local (PRC) company level, so would logically involve exaggerating costs of sale/business against income from sale/business – so that the costs invoice would be issued to, and paid by, the PRC company at a higher price than the ‘true’ costs of sales/business.

102.  It also seems to me to be correct that any other method in the process of round tripping would likely also require the capital flight to an offshore destination, before that capital can be round tripped as FDI.

103.  Of course, I keep in mind that round tripping is different from transfer pricing arrangements. For example, I acknowledge that there are materials relating to the proposed business structure which are concerned with transfer pricing analysis, and tax advice was given by Morison Heng (“MH”) in 2001 to FVL on the various tax consequences, including tax incentives relating to foreign investors who reinvest their profits in China.

104.  With these characteristics of round tripping in mind, the particular characteristics of the Scheme as alleged can then be considered, first by reference to the pleaded case.

H.3 The Pleaded Case of the Scheme

105.  Delco’s pleaded case is that from about 2000 the profits generated by the operating companies of the Joint Venture, being CT Foundry and CT Metals, were significantly under-reported in the accounts of those operating companies. The profits proportionate to the interest of Delco’s Group in the Joint Venture that were not reported (“Unreported Profits”), and thus not taxed in the PRC, were attributable to Delco’s Group as a matter of mutual intention of that group and Fang’s Group and were, from 2001 to 2008 (1) transferred at the discretion of Fang from the operating companies to Fang or to companies or persons associated with him, and subsequently routed to Delco’s Group and reinvested in the Joint Venture; and/or (2) reinvested in the Joint Venture at the direction of Fang directly or via entities controlled by or associated with him, on behalf of Delco’s group.

106.  The pleading says that Delco understands that the under-reporting of profits was achieved by various methods such as through mis-invoicing the purchase and sale of inventory and false accounting, but that the reinvestment of the Unreported Profits took place as is set out below.

107.  The particulars of the Scheme as pleaded are as follows:

(1) there was systematic under-invoicing (i.e. invoicing goods at a lower price) by Delco Europe from 2001 in respect of shipments delivered to CT Metals;

(2) the under-invoicing was performed as follows:

(a) Delco Europe would issue an original invoice in respect of certain shipments, and the invoiced amount would be booked in the financial records of Delco Europe as turnover;

(b) CT Metals would pay for the original invoiced amount;

(c) however, the actual shipments included metals of varying quality, and Delco Europe would issue a second invoice at a higher amount for those metals based on quality and price, and the second invoice would be forwarded to China; and

(d) the difference between the invoiced amounts of the original and the second invoices were significant sums;

(e) for example, it is pleaded that based upon an under invoiced amount of 29% in the period 1 January 2002 to 12 April 2002, the entire under invoiced amount in 2002 was €5,678,724 and in 2003 was €6,668,678;

(3) hence, it is to be inferred that:

(a) of the two different amounts invoiced by Delco Europe, CT Metals (i) paid for the original invoiced amount; (ii) recorded in its accounts the higher amount of the costs of acquiring the goods, and (iii) on sold those goods to purchasers at or above market price, which collectively resulted in lower net profits being recorded in the accounts of CT Metals; and

(b) the difference between the invoiced amounts of the original and second invoices formed part of the total Unreported Profits.

108.  It is then pleaded that the DA Shareholder Loan – that is, the HK$169,681,118 recorded as loans by Delco Asia to Hefast and CTHK – represented the Unreported Profits reinvested into the Joint Venture on Delco Group’s behalf. In the accounts of Delco Asia, it was necessary for the purposes of the Scheme to show corresponding liabilities, in particular prior to the audit of the Joint Venture in preparation for listing. Accordingly, it is said that Delco Asia booked a number of different payables totalling HK$169,843,599 to Fang, his wholly-owned or affiliated entities incorporated offshore, including HKM Metal, and a business associate of Fang, being Chern.

109.  The payables were entered in the accounts of Delco Asia as follows: (1) the sum of HK$31,772,969.19 booked as a liability owed to Fang (i.e. the Fang Debt); (2) the sum of HK$72,345,000 booked as a liability owed to HKM Metal (i.e. the HK Metal Debt); and (3) the sum of HK$65,730,897 booked as a liability owed to Chern (i.e. the Chern Debt). It is said that the effect of the arrangements was that Delco Asia was recorded as having received HK$169,843,599 (i.e. the Debts) from Fang’s Offshore Group (and accounted for these as liabilities) and had invested materially the same amount, HK$169,681,118 by way of shareholder loans to the Joint Venture (i.e. to Hefast and to CTHK).

110.  Therefore, it is pleaded, the Debts were not genuine debts with real repayment obligations to Fang, HKM Metal or Chern. Alternatively, the mutual intention of Delco Asia, Fang and HKM Metal was that the Debts would not be repayable by Delco Asia as the Debts represented the unreported profits attributable to Delco’s Group and repayment would not reflect the equal shareholding Fang’s Group and Delco’s Group held in the Joint Venture (and, following the listing, in CT).

111.  Leaving aside for the moment the question as to whether what is described in the pleadings is really round tripping, it is of course important to identify whether those facts have been established on the evidence. In this regard, Delco faces some significant problems, as it has not really been able to call any witness who can speak directly and from their own knowledge as to the factual existence of the details of the Scheme.

H.4 Evidence

112.  Nevertheless, in my approach to consideration of the evidential materials, I think it is fair to acknowledge that, in a scheme intended to evade tax, there may be difficulties in finding documentary agreements showing this directly. The documents and oral evidence overall need to be assessed holistically.

113.  The starting point is the verification of the pleaded case. But it was verified by Mr Hammerstein, who has no personal knowledge and who has not been called as a witness at trial. So that cannot advance the pleaded case towards an acceptance of the facts pleaded.

114.  The main factual witness called at trial in support of the existence of the Scheme was FVL. FVL is a tax adviser but not an accountant. Whilst familiar with bookkeeping, he is less familiar with accounting entries. He was employed by a Dutch tax and accounting firm and acted as Delco’s tax and strategic adviser from about 2001 to mid-2011. Since later in 2011, he acted as personal adviser to HDL. He accepted that when advising Delco how to deal with its accounts, his advice to the accountants was to report certain transactions in the correct manner, and in a way that would not be deceiving or evading any tax.

115.  I accept FVL had no interest in the outcome of these proceedings.

116.  I think FVL’s evidence in regard to the Scheme can fairly be summarised as follows:

(1) The Debts are not real debts to carry repayment obligations, and were recorded as liabilities solely for the purpose of balancing the books of Delco Asia in order to disguise unreported profits of the Joint Venture as part of a round tripping scheme.

(2) Both Delco Asia and Fang had knowledge of the Scheme and were engaged with it throughout the period 2001 to 2008.

(3) In so far as the way the Scheme is pleaded, he had no awareness of it. The Scheme of round tripping could relate to both under-invoicing to a Chinese company or to over-invoicing by a Chinese company, or it could be both. But had no knowledge of the exact details of how it worked.

(4) Related to the paper trail the subject of discussions with the Dutch tax authorities, essentially for a period up to 2003. But Delco Asia’s involvement in trading activities really began in 2004.

(5) Following an investigation by the Dutch tax authorities which took place between 2002 and 2005, and in order to “clean up” the affairs of the Joint Venture ahead of the intended listing, Delco and Fang decided to end the practice of round tripping, and hence to end the Scheme.

(6) Whilst the Scheme was operating, the profits made by the Joint Venture’s sales of scrap metal were underreported in the Joint Venture’s accounts. Unreported profits proportion to Delco’s Group’s interest in the Joint Venture were attributable to it as a matter of mutual intention, and were transferred offshore from the PRC to Fang-owned entities such as HKM Metal. Delco’s share of these profits was transferred and/or attributed to Delco Asia. The funds within used by Delco Asia and HKM Metal to purchase scrap metal and also to advance the Shareholder Loans, which were in part recorded as capital contributions to the PRC operating companies.

(7) In 2005, the Dutch tax authorities produced a report making a number of findings, as a result of which Delco Europe was ordered to pay significant tax in the Netherlands. The key conclusion of the tax report was that Delco Europe had been systematically under-invoicing the Joint Venture from 2001 onwards, and that the differences between the actual price of the goods and the lower sales price actually paid by the Joint Venture were ultimately accounted for by way of capital contributions in the books of the Joint Venture.

(8) FVL essentially accepted that the Dutch tax authorities may have been correct in the conclusion that there was under-invoicing, but he disagreed that that should give rise to Dutch tax as a result of under-reported Dutch-sourced profits.

(9) In discussions with the Dutch tax authorities, they appeared to accept that much of the effect of the round tripping would relate to Chinese sourced profits, thereby reducing the Dutch tax bill.

(10) The Dutch tax matters were ultimately the subject of settlement. As a result of the settlement, there was no real conclusion reached as to whether there was under-invoicing or not (at least for the period relating to the settlement up to 2003).

(11) After that settlement, the view of the Dutch tax authorities, that Delco had engaged in under-invoicing and the difference between the actual price and lower sales price was recorded as capital contribution, was explained to Fang’s adviser KS Heng. This was part of the desire to bring the process under the Scheme to an end before the proposed listing.

(12) It was also better for the proposed listing that there should be higher earnings, rather than saving of taxes.

(13) Of the directors, FVL was not aware that Mr Ybema or Mr Gu had any knowledge of the Scheme. He had never spoken to them about it, and never heard that they were familiar with it.

(14) FVL acknowledged the limitations on his knowledge of the Scheme, including absence of access to sufficient business accounting information relating to the PRC operating companies or Fang’s companies to form conclusions about the detail of how the Scheme operated.

(15) He also accepted that for the scheme to operate, someone would have to do the administration.

(16) Nevertheless, it remained his view that the Scheme did in fact exist. Whilst he did not have the primary underlying knowledge, his view was based on a number of features which logically fall into place.

(17) The arguments put forward to the Dutch tax authorities by him were precisely that, namely arguments intended to fight his client’s corner.

(18) The shareholders loans that were recorded in the books of Delco Asia were genuine loans made by Delco Asia, and the liability for repayment of those loans was shown as an asset of Delco in Delco’s books. But the source of those funds that were lent was, in large part, the underreported profit.

(19) The reason for creating what were said to be the non—payable Debts was to create a balance so as not to reveal that profit had in fact been made, or to reveal the profit which had not been reported. The way to do so was to create a nearly matching liability on the books which was not genuine.

117.  As regards his role in relation to the tax investigation by the Dutch tax authorities (see below), FVL considered he should challenge the suspicion of evading Dutch taxes and have discussions with the Dutch tax authorities about it. But in the provision of information, it would be correct information.

118.  In addition to the cross-examination by reference to the lack of materials demonstrating the Scheme, FVL was also cross-examined as to the unlikelihood of the Scheme by reference to the truth or otherwise of the individual elements of the Debts.

119.  As for HDL, his evidence was based on information provided to him by SVO and FVL, and he said he did not himself have involvement in the accounting activities of Delco Asia. However, he understood that the Scheme ultimately involved under-reporting profits in the Joint Venture for tax purposes, and that an aspect of the Scheme was for Delco to under-invoice the Joint Venture in the sale and purchase of scrap metal. HDL stated that he did not become aware of the existence of the Scheme and the practice of under-invoicing until around 2004 when FVL explained it to him following the conclusion on settlement of the Dutch tax authorities investigation, which had uncovered the practice of under-invoicing. In cross-examination, he confirmed that he did not know either that a scheme was implemented, or when it might have terminated.

120.  SVO unequivocally confirmed the existence of the Scheme. He made reference to the fact that Delco’s side had invoiced the Joint Venture at a somewhat lower price. The differences were then paid to Delco Asia via third parties, as arranged by Fang. As he put it, part of the difference was temporarily booked as a debt until a basis was found and it was resolved, which is why it is a debt that is in the books but which did not have to be repaid. As he also put it, they were booked as a debt, temporarily, to find another basis, with the clear intention and agreement that they would of course not be repaid, because it was temporary parking. Whilst administratively it was recorded as a debt, in practice it was agreed that it need not be repaid. Nevertheless, he did not mention the 29 Excel spreadsheets and the “tracker” retrieved from his own computer as part of his explanation, and when asked specifically about them he could not remember any relevant discussions about answers that Delco gave to the Dutch tax authority.

121.  SVO said that Gu, Fang, HDL, FVL and he had some knowledge of the Scheme. I note Mr Wong pointed out that this was inconsistent with the evidence of Delco’s other witnesses as to who had knowledge, from whom they derive their own knowledge, of the Scheme.

122.  SVO also stated that Fang was the architect of the Scheme, and Delco merely went along with it and cooperated with Fang. There was no written agreement, nor an explicit oral arrangement, but it happened that they started doing this way. I agree with Mr Dawes’ submission that this provides some explanation as to why Delco would not be able to describe the Scheme in minute detail.

123.  I also accept Mr Dawes’ submission that Fang has suppressed relevant documents in respect of the Joint Venture companies evidencing the Scheme. In his 4^th affirmation dated 2 December 2019, Fang said that he did not keep the books and records of the joint venture companies nor the offshore companies, and that when he left the CT Group, he did not bring with him any such documents. Yet he was able to produce a large number of documents in relation to the Joint Venture which he offered in support of his own case. There was a failure to produce the documents which would be most pertinent to the existence or non-existence of the Scheme, such as CT Metals’ financial statements or its ledgers recording the transactions with the Delco side. I do not accept that Fang produced such documents as he had only through asking an old staff member of CT to locate them. Rather, the inference is that he retained possession of documents, and only selectively disclose them. I accept the invitation extended by Mr Dawes to draw adverse inferences against Fang in those circumstances.

124.  Gu, who was the person on the Joint Venture side handling imports, firmly disagreed about the existence of any double-invoicing practice. He also sought to explain why such a practice was impossible, by reference to the set of complete procedures to carry out import trading in the PRC. He emphasised that the declarations made to the authorities (together with complete sets of original invoices and receipts and other supporting documents and proof), and the documents provided to the banks for arranging foreign currency payments had to match. There also had to be matching with the ledgers of the company. He said the price taken into the record and the ledgers would make it impossible to use another different price, as it must be consistent with the total amount that has been submitted and declared to the authorities. However, I think that evidence is of rather little weight, when it was an explanation first offered in re-examination, and no such evidence was included in the witness statements produced when the allegation of double-invoicing had been pleaded some time beforehand.

125.  Fang’s evidence was that no Scheme existed, and all cross-examination of Delco’s witnesses focused on what was said to be the absence of any direct evidence of such a Scheme as well as matters going to the existence of true debts shown in and frequently acknowledged by Delco personnel over an extended period, and the approach taken by Delco as regards a tax investigation.

126.  I have had regard to the Dutch Tax Authority audit report published on 20 September 2005 on Delco Europe and Delco Recycling. But in any event, I accept that there are clear examples of double invoicing, where two versions of an invoice have been created in relation to the same goods, albeit with two different invoice amounts arising from different unit prices per tonne.

127.  The documentation contains various Delco Europe invoices in the years 2001 to 2003, followed by a page showing the invoice details on the top half and a restatement of the weights and price on the bottom half of the page. At the bottom of each of those pages is a calculation of the average price difference per ton. Indeed, that seems the point of putting the apparently different invoice prices on one sheet. Whilst a few had a lower price on the ‘original’ invoice, the vast majority showed a higher price on the lower part of the page leading to a positive price difference. Each of the original invoices and the subsequent pages can be linked by the small reference number appearing on the page. These invoices seem to me to show a systematic approach over a lengthy period time.

128.  There are similar documents, showing another systematic approach to invoicing to CT Metals (albeit by reference to documents which have no printed heading). In his evidence, Mr Gu said that he had not seen documents in that form when working at CT Metals, and did not know why someone would go to the trouble to identify two different prices, and the price differential, between averages per tonne as are shown on those documents. But, clearly somebody had gone to the trouble of identifying two different prices for the same shipment, and doing so on a regular basis. That seems to me to show a consistent and deliberate practice.

129.  I accept that the specific example from amongst that series of documents, referred to by Mr Dawes in his closing submissions, serves as a good illustration of the double-invoicing practice. Delco’s expert witness, Mr Emmanuel Vignal, was able to match the invoices (with double invoice patterns) with the transactions listed in shipment summary is provided by Fang. There are, in essence, matching documents:

(1) One is an invoice numbered 0203-8031, divided into two parts. Both parts concern the same shipment as shown by the fact that they have the same weight of 2,312,740 (albeit that one describes individual weights of engine parts, and the other describes them compendiously as motor scrap). The upper part shows an invoice amount of US$531,930.20. The lower part shows an invoice amount of US$751,425.80. There is a calculation of the average per tonne and the net difference of US$94.91.

(2) There is a corresponding entry in Fang’s shipment summaries. The weight of the goods shipped is the same 2,312,740, and the invoiced amount is US$531,930.20. On the basis that the summaries in the table includes column entries relating to custom declarations, it would seem that that invoice amount was declared for customs purposes.

130.  Indeed, for the purposes of providing his expert opinion, Mr Vignal referred to the audited financial statements of Delco Asia for the years ended 31 December 2003 to 2008, the shipping summaries provided by Fang, and the Dutch Tax Authority’s report. From his review, he formed the view that Delco Europe issued lower invoices for certain shipments to CT Metals, which may have recorded the higher amount in its books as costs, resulting in lower profits, tax savings and the Unreported Profit.

131.  Mr Vignal expressed various observations from the financial statements and records indicative of the existence of the Scheme as alleged:

(1) From the annexes compiled by the Dutch Tax Authority in setting out its findings on double invoicing, he was able to locate five of the corresponding invoice amount in shipment summaries provided by Fang which referred to the lower of the two invoice amounts in the Dutch Tax Authority report. (Incidentally, this seems to me to be an example of a proper evidential basis for following or agreeing with the opinion of the Dutch Tax Authority, and not simply giving improper weight to and otherwise inadmissible opinion).

(2) There were examples of 29 Excel spreadsheets displaying two versions of invoices for various shipments, where the invoices detailed the same weight for the shipment but the unit prices per tonne were different, resulting in a different total amount.

(3) These findings are indicative of the existence of the under-invoicing element alleged to be part of the Scheme.

(4) The auditor’s opinion on Delco Asia’s audited financial statements across the period contained audit qualifications, and it is unusual for auditors to give a qualified opinion year-on-year for six years.

(5) The absence of consolidated financial statements may have permitted more easy concealment of the Scheme and variances in the separate accounts of Delco Asia and the Joint Venture Companies.

(6) Delco Asia generated significantly more cash than was reported as operational profits, consistent with an expectation which would arise from the operation of the Scheme.

(7) There was an increasing trend in the net amount owed to connected parties and other creditors by Delco Asia during the period from 2002 to 2008. This might indicate that the increases in net amount due to connected parties and/or other creditors were the result of fictitious entries designed to conceal the existence of the Scheme. (In this regard, I do not lose sight of the round-robin fund flow in 2008, dealt with elsewhere in this Judgment.)

132.  I accept that evidence to be significant in identifying a number of features, which are or would be consistent with the existence of the Scheme.

133.  I acknowledge that the main documentation produced relates to under-invoicing by Delco Europe, but I do not think there is any reason to think in the overall circumstances that the situation did not continue with the involvement of Delco Asia.

134.  Mr Wong complained that few questions were asked of Fang in cross-examination about the Scheme, such as where, why, when and how it was agreed with Delco, his alleged implementation of it, or its termination after the Dutch Tax Authority investigations. But, Fang was asked questions about the Scheme, including about double invoices and the shipment summaries. Whilst Fang could say that the Delco documents were not his documents, there seems little doubt that double invoices were issued to CT Metals.

135.  Mr Wong also relied on the fact that Delco Europe appealed against the findings in the Dutch Tax Authority report, making detailed representations challenging the very notion that there was under-invoicing by Delco Europe. However, it seems to me that there is no surprise that there was some pushback in the hope of paying less tax. I accept that FVL confirmed that he told the Dutch Tax Authority that there were not two invoices, but I do not think he was accepting in evidence that in fact there were not two invoices. The thrust of his evidence was clearly the other way. Looking at the materials, I do not think it can be seriously said that there were simply no second invoices – even if that was part of the argument deployed by Delco Europe to the Dutch Tax Authority at the time. The various evidential materials in the invoices showing the precise systematic variance in price for the same shipments provide the sufficient evidential basis to permit adoption of the findings made by the Dutch Tax Authority. I also do not think that the materials support the suggestion that the Dutch Tax Authority accepted Delco Europe’s explanations, or that the settlement was reached on the basis that there were no second invoices.

136.  One of the computer files found by the Dutch Tax Authority and relied on by it was marked “Invoice differences Fang”. It also referred to the files found on Delco Europe’s computer relating to price lists, with the prices itemised matching those on the second invoice.

137.  I reject the suggestion that the variance was because of estimates. Amongst other things, that is inconsistent with the title of the computer file “Invoice differences Fang”. It also makes little sense for Delco Europe to invoice a lower amount, if it was of the view that the scrap metals were worth more. Nor need estimates be separately given.

138.  Ms Chan Wai Hing, the expert called by Fang, opined that there is no evidence from the documents provided to her to support the existence or non-existence of the Scheme. It follows that she was also unable to provide any comments as to whether the Chern Debt (see below) was the result of the Scheme. As to the capital investments contributed by the respective parties into CT Metals, Hefast and CT Foundry, they were equally contributed by Fang’s Group and Delco’s Group. But it seemed that Delco Asia had under-recorded its capital investments and CT Metals in a sum of US$5,001,000 (or HK$39,007,800) in its accounts. From the various findings, she said, it appeared that the Chern Debt was the result of Delco Asia under-recording its capital investments in CT Metals.

139.  Ms Chan considered that there is “no concrete evidence” to show that CT Metals recorded a higher invoice amount in its books, and suggested that Mr Vignal’s opinion was based on speculation. However, I think the underlying materials demonstrate that it is not merely speculative.

140.  I otherwise accept Ms Chan’s opinion that there is perhaps little to be gained from a close analysis of the precise terms of the Settlement Agreement reached with the Dutch Tax Authority.

H.5 Conclusion on Scheme

141.  I reject Mr Wong’s submission that there has been no proper or genuine attempt by Delco to prove the Scheme. Nor do I think it correct to submit that Delco obviously knew that it could not prove the Scheme, and was seeking to withdraw from it. I acknowledge that Mr Dawes opened the case on the basis that the serious allegation advanced by reference to the Scheme would require appropriate evidence to meet the standard or threshold of proof, but he also pointed to the fact that this is not exactly a situation where Delco was charging the other side with a particular fraud. He posed the question rhetorically whether Delco Asia would be making this application if there were no evidence at all that might make it good.

142.  But it also seems to me that Delco has done what it is realistically able to establish the existence of the Scheme, by reference to the documentation on the Delco side to which it had access, as well as to the documents which were eventually produced by Fang himself. I find that Delco was able to show systematic under-invoicing as an enabling factor for the under-reporting or non-reporting of profits in the PRC. Further, as SVO said in evidence, once the Scheme was in operation it did not require a lot of intense involvement or significant further discussion between the parties (though of course it would have required administrative input). The detail of the PRC side of the Scheme would have been known within the PRC operating companies, and I find was dictated by Fang.

143.  There has also been the assistance provided by the expert opinion evidence, and it is possible to look at matters overall, to some extent putting bits and pieces of the jigsaw together to see what the big picture is. Even if some pieces of the jigsaw remain missing, it may still be possible to see the big picture, and to do so without “glossing over the gaps” (as was suggested by Mr Wong).

144.  Mr Wong submitted that the case on the Scheme begins from the alleged under-invoicing, so that if that crucial foundation could not be established on the evidence, then the Scheme simply could not have existed. But the corollary of that fact is that if under-invoicing has been demonstrated, that at least permits (and indeed goes some way towards) a finding that the Scheme did exist.

145.  I also consider that it is entirely appropriate to take into account, when assessing the existence or non-existence of the Scheme, the ‘flip-side’ point as to the genuineness of the Debts. To my mind, that does not give rise to any circularity or boot-strapping; it merely involves an iterative process looking at the evidence overall. Similar schemes were also obviously commonplace, as the significant amount of literature on the topic demonstrates, which at the very minimum identifies that what is being alleged was in no way unusual, and that it would have been highly likely well known to someone like Fang.

146.  Ultimately, I accept on the balance of probabilities that there was some sort of round tripping scheme, indeed the Scheme as explained above, which clearly affects the veracity of the accounting entries in Delco Asia’s accounts as relied upon by Fang/HWH.

I. Are the Debts Genuine?

I.1 General

147.  As regards the Debts, a number of general points can be made.

148.  First, it is striking that there is little or no documentary evidence from Fang which demonstrates how the Debts arose in the first place. The only real exception is in relation to a portion of the HKM Metal Debt, but (as traversed below) the documentary material in that regard tends more to show the round tripping of funds, rather than the creation of a true and repayable debt. The absence of documentary material is telling in the context of total loans and Debts said to be in excess of HK$169 million.

149.  I also do not accept the explanation offered by Gu for the absence of documentation, which seems to me inherently unlikely and not believable. He said he used to keep a record, but because his computer broke down just before CT Metals was listed in 2010, he lost all information and documents. As Mr Dawes submitted, blaming the absence of documentation on a computer breakdown is not unusual, and all too easy. But, even assuming such a breakdown, it would be expected that there would be at least some attempt to reconstitute the lost records and materials, by asking the various parties who would or might be in a position to help with that process. That did not happen, which casts significant doubt to say the least on the explanation of the computer breakdown.

150.  There is also the inherent unlikelihood that the Delco Group had borrowed the Debts in the amount of approximately HK$169 million from Fang, when it had at the same time lent the closely similar sum of HK$169 million to the Joint Venture (the Delco Asia Loans). Any argument based upon an alleged inability to afford, for example, a capital investment faces the problem that the allegedly impecunious person or entity was somehow able to afford to lend approximately the same amount.

151.  It is also relevant that the Fang Group made no request for payment in respect of the Debts prior to these various actions, notwithstanding that it was clear that Delco had funds available to have repaid them, if they were genuine, over many years. Nor indeed was there any attempted or purported set-off as might have been raised by HWH in relation to the sale of CT’s shares by Delco in January 2015.

152.  I also accept that Fang/HWH’s case has shifted over time. One example relates to the US$6,275,000, as a portion of the HKM Metal Debt, which was originally pleaded as having been advanced to Delco Asia for its business operation and development, but which discovery showed to have been advanced for a wholly different purpose, necessitating a change of tack.

153.  Insofar as it was part of Fang’s case that the Debts related to loans for Delco Group’s capital investment in the Joint Venture – primarily in relation to the Chern Debt – that is gainsaid by the relevant figures. On Fang’s own case, he only made capital contributions for Delco in the amount of HK$64,513,800, so at no point in time should it be said that Delco owed an amount to Chern exceeding that figure. However, the Chern Debt was recorded, as at 31 December 2008, as HK$83,930,161.

154.  I also take into account that the Debts were said to be comprised of three main elements – the Fang Debt, the HKM Metal Debt, and the Chern Debt – and to the extent that each element (or any part of each element) is shown to be either not true or unlikely, that may have a knock-on effect to the truth or likelihood of any other element (or part of that element).

155.  I also take into account that Fang did not originally rely on the Chern Debt as part of his set-off defence, in the pleading dated 11 May 2016. It was first mentioned in an amendment in December 2020, approximately 15 to 20 years after the debt was first alleged to have been incurred.

156.  I have, of course, also taken into account the fact that Fang is able to place reliance on Delco Asia’s own documents – such as the agreements on transfer is of receivables between Delco Asia, Delco and Fang, HKM Metal and Chern respectively, as well as the documentary and accounting materials. The agreement on transfer of receivable (relating to Fang) has no date but must have been made after 2010 as it refers to the Delco Asia accounts as at 31 December 2010, and it was signed by Ybema, SVO and Fang. The agreement on transfer of receivable (relating to HKM Metal) was also signed by Ybema, SVO and Fang. The agreement on transfer of receivable (relating to Chern) was also signed by Ybema, SVO and Fang. Part of the text identifies that [sic]:

DP has a loan payable to DA in the amount of HKD 116.816.054 (hereinafter: “the Debt”);

CSK [ie. Chern] is prepared to have its Loan transferred to DP subject to the fact it will take over from DA part of the Debt which DP has to DA for an equal amount of HKD 116.816.054 minus HKD 72.345.000 minus HKD 31.772.969 is HKD 12.689.085 and for the remaining amount of HKD 53.041.812 it agrees to the substitution of DP as debtor instead of DA under the same terms and conditions of the Loan

157.  Whilst I accept the submission that these documents cannot be thought to be fabricated (in the sense of being more recent forgeries), it seems to me that they must be assessed against the evidence overall in considering whether they did or did not evidence genuine and repayable debts. It is obvious that the transfer agreements were a necessary part of the transfer from Delco Asia to Delco, and of themselves would not affect the economic or commercial position as regards the Debts. Those agreements were in practical terms merely effecting the transfer of financial position of one company (whatever that position was in truth) to another company.

158.  In my introduction, I touched on the fact that Delco is now seeking to disown its own accounting documents, and I have kept that firmly in mind. But it seems to me that the various accounting documents and internal emails are in context either inherently unreliable and/or do not amount to kind of admission upon which proper reliance could now be placed. For example, where it was part and parcel of the Scheme as argued that there should be entries in Delco’s accounts in order to reconcile the various accounts, the fact that Delco has apparently confirmed the Debts in its accounts is also consistent with the contention that the Scheme existed. On overall consideration, I do not think these documents are of any great weight in identifying the Debts to be genuine.

159.  Though also relevant for other aspects of the case, especially as to the 2010 Agreement (see below) – and I take them into account in that regard – reference can also be made here to a chain of emails beginning with an email dated 17 June 2011 from FVL to Fang, referring to the meeting in Shanghai where there was discussion of Fang’s request to sell 3% of the CT shares held by Delco. FVL informed Fang that Delco was prepared to sell, but the sale should be put in a broader perspective of settling various other matters at the same time. The conditions for the sale were stated to be (a) the sales price of the CT shares should be paid in cash, (b) the receivable of approximately HK$55 million that was repaid already by CT at the listing should be paid to Delco, and (c) the US$1 million which Delco lent should be paid back to Delco. FVL stated that he preferred to see the payments (b) and (c) at the same time as the payment under (a).

160.  On the same day, Fang responded by email to confirm the sale price at HK$5.5 per share and stated:

I am going to start to contact banks and will close the deal by the end of August as well as the settlement for condition b) and c).

161.  Obviously, this implies that Fang was going to contact banks to raise finance to make the purchase – that is, he did not have the money without borrowing. This is inconsistent with a contemporaneous belief that he was owed HK$169 million. The statement that he was also going to pay the HK$55 million and US$1 million appears unequivocal.

162.  An email dated 23 August 2011 from FVL to Emily Chan, copied to Fang, stating:

During last meeting in Shanghai it was agreed that, upon your request, you would buy 3% of the CT shares for HKD 5,5 per share. In addition, Delco would receive approximately HKD 55 million and USD 1 mio that it had lent.

You confirm that these transactions were to be finalized before the end of August. Up to this moment we have not received any information or documentation to close these matters. Can you inform me when we can expect these?

163.  In Fang’s response (put into English by Emily Chan), he stated:

The global market is so volatile recently. I am not able to get funding from bankers in order to buy 3% of CT shares. Sorry that I am unable to conclude this deal.

HKD55million & USD1million, the arrangement will be ready at the earliest by 1^st week of September, all the latest by 2^nd week of September. I will try to arrange ASAP.

Thanks for your understanding!

164.  Again, I think that response is inconsistent with any contemporaneous belief that he or his company or nominee was owed around HK$169 million.

165.  The email chain seems to end with email dated 1 September 2011 from FVL to Fang, copied to Emily Chan, HDL and SVO, saying it is OK to make the payments of the HK$55,501,079 and US$1 million at the latest in the second week of September.

166.  This material is also inconsistent with Fang’s case on the 2010 Agreement or the Convention alleged by him. As will be seen below, I reject the contention that these clear admissions by Fang of the debt, and his promises to pay and to raise funds in order to do so, were only written by Emily on the instructions of SVO and not Fang.

167.  I have given weight to FVL’s statement that in many oral discussions with SVO, SVO confirmed that the Debts were initial liabilities but not payable. Subsequently, he stated that there has never been a question for him as to the true nature of the payables. To him, it made sense that they were not payable because there was no loan agreement, there was no interest paid, nor any request for payment even when Delco had funds. Hence, even the audit confirmations were simply to permit finishing off the financial statements, and to leave to later a solution to the liabilities. Indeed, whilst liabilities might be mentioned in a balance sheet, that does not mean that they are true parables, and it was his understanding that they were not.

168.  I have also taken into account the various emails internal to Delco – relied upon by Fang – where FVL, HDL and SVO talked about resolving the situation of the Debts, using language which can indeed be thought to be consistent with a recognition of true liabilities requiring actual repayment. But, in so doing, I have kept in mind the unusual factual matrix, some need to be cautious in case of potential scrutiny by the Dutch tax authorities, and the nature of the discussions (in circumstances where it might be said that if there were simply an agreement to set off mutual debts there would be no need for such discussion).

169.  It seems to me that little is to be read into the accounts underpinning the transfer from Delco Asia to Delco. The idea was simply that the assets and liabilities would be transferred on the same basis, without economic effect for the ultimate shareholders.

I.2 HKM Metal Debt

170.  The HKM Metal Debt is said to have consisted of 11 payments to Delco Asia made by Fang through HKM Metal in a total amount of US$9,275,000 or HK$72,345,000. The alleged loans as pleaded are:

	Dates	Amount (US$)	Amount converted to HK$
1	27 September 2007	1,000,000.00	7,800,000.00
2	22 November 2007	500,000.00	3,900,000.00
3	25 January 2008	1,000,000.00	7,800,000.00
4	11 July 2008	500,000.00	3,900,000.00
5	18 July 2008	500,000.00	3,900,000.00
6	24 July 2008	500,000.00	3,900,000.00
7	4 August 2008	1,000,000.00	7,800,000.00
8	29 August 2008	500,000.00	3,900,000.00
9	29 August 2008	1,000,000.00	7,800,000.00
10	2 September 2008	1,500,000.00	11,700,000.00
11	3 September 2008	1,275,000.00	9,945,000.00
	Total:	9,275,000.00	72,345,000.00

171.  It is convenient first to deal with part of that alleged debt, in the total amount of US$6,275,000 (approximately HK$48,945,000) – comprised by items 4, 5, 7, 8, 9, 10 and 11 in the table above.

172.  The table is consistent with an email from Emily Chan to SVO, HDL and FVL dated 3 September 2008, and with the subject “payment of 4% shares”, stating that the payment of US$6,275,000 has been arranged, with a breakdown as follows (with item numbers to match the pleaded transactions added by me for convenience):

Item	Date	Amount	Remarks
4	11 July 2008	US$500,000	HKM-SCB
5	18 July 2008	US$500,000	HKM-DBS
7	4 August 2008	US$1,000,000	HKM-DBS
8	29 August 2008	US$1,000,000	HKM-DBS
9	29 August 2008	US$500,000	HKM-SCB
10	2 September 2008	US$1,500,000	HKM-DBS
11	3 September 2008	US$1,275,000	HKM-SCB
		US$6,275,000

173.  Notwithstanding a rather convoluted exploration of matters at trial, it became common ground that Delco does not owe an outstanding liability of US$6,275,000 – a sum which Mr Wong even described as “now water under the bridge” – and so focus could perhaps just be placed on the remaining part of the HKM Metal Debt. But it is helpful to look at the this question first, as it sheds light on the alleged loan transactions generally.

174.  In an email from FVL to MH about the Delco Asia 2009 draft statements, FVL made the distinction between the aspects of the apparent loans, as point 1:

In the unaudited balance sheet as at 31 December 2009 there is a mentioned “Loan – HKM Metal” HK$ 72.345.000. This relates for US$ 6.2750.000 (see specification note 16 re HKM Metal 1801443 USD 500.000 and all subsequent amount up to US$ 1.275.000) to money that HKM paid to DA on behalf of New Asset Holdings re the sale of 4% of the shares of CT Group. This 4% shareholding was sold in 2008 for US$ 6.275.000 by Delco Participation BV to New Asset Holding. So in fact this amount of US$ 6.275.000 should have been paid by HKM to DP. However it was for practical purposes directly paid to DA which used the money to lend funds to CTHK.

Conclusion: in my view the loan of US$ 9.275.000 should be split into two amounts:

a) a loan from HKM Metal of US$ 3.000.000

b) a loan from Delco Participation BV of US $ 6.275.000

175.  Anyway, Fang argued that that sum was paid to Delco Asia as consideration for Delco’s transfer of the 4 Shares in CT to New Asset Holdings Limited (“New Asset”) in 2008. It was said that when the 4 CT Shares were returned to Delco, Delco Asia was unable to repay the US$6,275,000 consideration and hence it became a debt due to HKM Metal.

176.  This aspect of the dispute is connected to the company Green Elite Limited (“Green Elite”), a company incorporated in the British Virgin Islands (“BVI”). The founding members of Green Elite were HWH and Delco, each holding one share. They obtained their shares on 2 February 2010 by applying for one share of US$1 at par for the consideration of US$1.

177.  At the time of the work for the 2010 Listing, a CT Reorganisation Memorandum included as Steps 6,7 and 11:

Step 6: HWH and Delco Participation transferring incentive Shares to New Asset

6.1 …

6.2 Each of HWH and Delco Participation transferred 4 Shares, for a total of 8 Shares on 28 August 2008 to New Asset for a consideration of US$12,550,000 to be satisfied as follows:

(a) HWH lent US$6,275,000 to New Asset and New Asset directed HWH to pay such amount to Delco Participation to satisfy Delco Participation’s half share of the consideration.

(b) To reflect the loan in 6.2(a) above and to satisfy the half share of the consideration payable by New Asset to HWH, New Asset issued a promissory note, with no commercial interest, to HWH for US$12,550,000.

…

Step 7: New Asset Transferring the incentive Shares back to HWH and Delco Participation

7.1 In view of the postponement of the application for the Listing in 2008, on 12 October 2008 and pursuant to the directions of the beneficiaries of the FDG Trust dated 12 October 2008 and the instruments of transfer executed by New Asset, HWH and Delco Participation respectively on 12 October 2008, New Asset transferred 8 Shares back to HWH and Delco Participation in equal proportion in consideration of the cancellation of the promissory note of US$12,550,000 issued by New Asset to HWH.

…

Step 11: Incorporation of Green And Transferring of 8 Shares from HWH and Delco Participation to Green Elite

11.1 Green Elite was incorporated in the BVI on 20 January 2010. The initial authorised share capital of Green Elite is US$50,000 divided into 50,000 shares of US$1.00 each.

11.2 1 share of US$1.00 was allotted and issued on 2 February 2010 to each of HWH and Delco Participation respectively for cash consideration of US$1.00 respectively.

11.3 Each of HWH and Delco Participation transferred 4 Shares, for a total of 8 Shares on 8 March 2010 to Green Elite for a total consideration of HK$0.08.

178.  There is an email dated 9 March 2010 from FVL to Emily Chan, copied to Paul Chow, HDL and SVO stating:

The documents re the transfer of the 4 shares by DP to Green Elite is OK and advise them to sign.

In this context, we discussed last time when DP acquired the shares that it would also take over the debt of USD 6,275,000. Now that the shares are transferred I want to make sure that this debt is also taken over. Although it is not mentioned in the document please confirm that DP has no longer that obligation when transferring the shares. That confirmation should come from HKM/Fang who is the creditor in this case. This can be done by email

179.  There is another email 30 March 2010 from FVL to an Ivan Tan at SH, copied to SVO, HDL and Emily Chan, which in part asked Emily to ask Fang to confirm that by transferring 4 shares of CT to Green Elite, Delco is also released from its liability to pay US$6,275,000, which liability it took up when acquiring the shares a few weeks before.

180.  Hence, during the 2010 Listing, Delco transferred the 4 CT Shares to Green Elite on 8 March 2010. After that, it was agreed that the Delco Group would be released from all its obligations arising from the debts of US$6,275,000.

181.  Oddly, even on Fang’s pleaded case, Delco no longer owed that sum to Fang, because whilst he averred a debt of that amount due from Delco to HKM Metal, he also pleaded that the Fang Group owed the same amount to Delco Group, representing the consideration to be paid for the transfer of the 4 CT Shares to Green Elite.

182.  This was confirmed in Fang’s affirmation evidence, but in particular during cross examination.

183.  There is also force in Mr Dawes’ submission that, on Fang’s case, any alleged debt was owed not to him or HKM Metal, but to New Asset.

184.  That is sufficient to deal with this part of the HKM Metal Debt.

185.  But, as or more importantly, the evidence also shows that the US$6,235,000 actually represented money which was subject to the round tripping. Indeed, much evidence suggests that HKM Metal and its bank account was commonly used as a staging post for sums sent on the round trip.

186.  HKM Metal’s Standard Chartered Bank (“SCB”) US dollar bank account records relevant transactions:

(1) on 11 July 2008, HKM Metal received the sum of US$999,998.70 (perhaps a round sum of US$1 million less charges) was received from CTHK, and immediately transferred out in three tranches, with at least US$500,000 being transferred to Delco Asia;

(2) on 24 July 2008, US$1 million was received from CTHK and two transfers of US$500,000 went out;

(3) on 1 August 2008, US$499,966.70 was received into the account, and US$500,000 was transferred out on 5 August 2008;

(4) on 4 August 2008, a transfer deposit of US$800,000 was received and on 7 and 12 August 2008 two transfers of US$500,000 and US$300,000 respectively went out;

(5) on 28 August 2008, US$400,000 was received from CTHK and US$500,000 was transferred out the next day;

(6) on 3 September 2008, US$1,300,000 was received from CTHK and US$1,275,000 was transferred out.

187.  Incidentally, a similar fund flow can be seen in Fang’s DBS Bank US dollar account, with repeated examples of funds being received into the account and the same or very similar sums being almost immediately transferred out of the account, frequently leaving a nil balance. Within the same account, but the Hong Kong dollar part of it, there is for example a transfer deposit of HK$8 million on 25 January 2008, followed by transfer withdrawal of HK$8 million on 28 January 2008, returning that part of the account to a nil balance.

188.  That can be seen in the following table (all funds in US$ except for January 2008 which is HK$):

Date	Transaction	Deposit	Withdrawal	Balance
September 2007
01 Sep 07	BAL C/F – BALANCE CARRIED FORWARD			0.00
10 Sep 07	CREDIT – 3509 TRANSFER DEP		100,000.00	100,000.00
10 Sep 07	DEBIT – 4561 OUTWARD TT	100,000.00		0.00
17 Sep 07	CREDIT – 3502 TRANSFER DEP		32,251.35	32,251.35
17 Sep 07	DEBIT – 4561 OUTWARD TT	30,000.00		2,251.35
20 Sep 07	CREDIT – 3569 OTHER CR		1,499,980.00	1,502,231.35
20 Sep 07	CREDIT – 3569 OTHER CR		1,951,030.00	3,453,261.35
20 Sep 07	DEBIT – 4502 TRANSFER W/D	3,463,261.35		0.00
21 Sep 07	CREDIT – 3509 TRANSFER DEP		1,347,580.20	1,347,580.20
21 Sep 07	DEBIT – 4561 OUTWARD TT	170,880.00		1,176,900.20
21 Sep 07	DEBIT – 4561 OUTWARD TT	567,000.00		609,900.20
21 Sep 07	DEBIT – 4561 OUTWARD TT	609,900.20		0.00
27 Sep 07	CREDIT – 3509 TRANSFER DEP		1,000,000.00	1,000,000.00
27 Sep 07	DEBIT – 4561 OUTWARD TT	1,000,000.00		0.00
November 2007
14 Nov 07	CREDIT – 3569 OTHER CR		1,000,000.00	1,090,093.69
19 Nov 07	DEBIT – 4502 TRANSFER W/D	1,090,093.69		0.00
21 Nov 07	CREDIT – 3509 TRANSFER DEP		500,000.00	500,000.00
21 Nov 07	DEBIT – 4561 OUTWARD TT	500,000.00		0.00
22 Nov 07	CREDIT – 3502 TRANSFER DEP		590,440.01	590,440.01
22 Nov 07	DEBIT – 4581 OUTWARD TT	500,000.00		90,440.01
January 2008
01 Jan 08	BAL C/F – BALANCE CARRIED FORWARD			0.00
25 Jan 08	CREDIT – 3502 TRANSFER DEP		8,000,000.00	8,000,000.00
28 Jan 08	DEBIT – 4502 TRANSFER W/D	8,000,000.00		0.00

189.  Similarly, in an email dated 18 July 2008 from Kimie Leung of MH to SVO and Ivy, she asked to which invoices various payments received in 2007 referred, including four sums of US$1 million, US$4 million, US$2 million and US$0.5 million received from HKM Metal in January, March, June and November 2007 respectively. In my view, these round sums were unlikely to be directly related to any particular individual invoice. Rather, they evidence the provision of round or lump sums from HKM Metal to Delco Asia.

190.  When pressed on this fund flow in cross-examination, Fang suggested that because CT owed money to HKM Metal, when HKM Metal received money, then HKM Metal had to pay Delco; when CT did not pay HKM Metal, then HKM Metal had no money to pay Delco; that was the reason for the fund flow; and upon receipt of money, payment would be made. I agree with Mr Dawes that that explanation in effect admits the intended round tripping of payment from CTHK to HKM Metal, Delco Asia and back to CTHK.

191.  I also agree that the explanation lacked commercial sense where CTHK was a dormant company until at least August 2008, and from the beginning of 2008 CT ceased to purchase raw materials from HKM Metal, which ceased carrying out any metal scrap trading business. Therefore, it is illogical to have suggested any commercial reason for CTHK to remit funds to HKM Metal in July/August 2008, when both companies were essentially dormant. When asked in cross-examination what HKM Metal was doing in 2008, and what transactions it was handling, Fang said that he took advice from his listing team in 2008 that it could not do business any further, so he closed it.

192.  The question also arises why there would be tranches of the payment of US$6,235,000, and why some of those tranches were paid even before the New Asset arrangement or scheme. The answer seems to be, as shown from the above by reference to the sum of US$500,000 transferred on 11 July 2008, that it was simply recycled from CTHK. The same is true of at least the sums of US$500,000 on 29 August 2008 and US$1,275,000 on 3 September 2008.

193.  Though I may not have expressly mentioned them before, I have taken these matters into my consideration of the allegations of round tripping (see above).

194.  As to the remaining part of the HKM Metal Debt – being HK$23,400,000 – I take into account that if one part of the HKM Metal Debt was clearly not a genuine outstanding debt, that at least calls into question the remaining part. In any event, I do not think Fang offered any convincing legitimate business reason as to why this sum was, or elements of it were, lent to Delco Asia (or the Delco Group).

195.  Reference can also be made to HKM Metal’s financial statements to 31 December 2007. The statement was signed by the sole director Yam Ping. The balance sheet shows turnover of HK$175,711,292 (2006) and HK$178,472,463 (2007). Included in the accounts receivables are amounts owed from related companies CT Metals and CT Foundry. HKM Metal’s financial statements to 31 December 2008 were again signed by Yam Ping. Consistent with what I have already indicated above, the balance sheet shows turnover had reduced to HK$8,024,706 (2008). This identifies that the US$3 million received into HKM Metal’s bank accounts cannot have come from business turnover, let alone from CTHK as part of any business conducted with it. The accounts also show an amount due to a director in the sum of HK$150,421,506.

196.  Lastly, in HKM Metal’s financial statements for the period from 1 January 2011 to 30 June 2013 (date of cessation), the ‘other receivables’ under current assets are shown to have reduced from HK$72,345,000 as at 31 December 2010 (apparently the HKM Metal Debt) to nil as at 30 June 2013. The reduction is not explained on the face of the financial statements.

197.  In conclusion, I do not accept that the HKM Metal Debt was a genuine debt. In reaching that conclusion, I have not overlooked the fact that there is a signed audit confirmation dated 15 August 2011 showing HK$72,345,000 due to HKM Metal, stating the amount due to unsecured, interest-free and repayable on demand, but that is not very weighty in the overall scheme of the evidence.

198.  Before leaving this topic, I can point out that by letter dated 3 October 2025, Fang/HWH’s solicitors sent to the court a copy of the decision of the Privy Council [2025] UKPC 47, on appeal from the BVI Courts. The solicitors suggested that: (1) the findings made in that decision were contrary to Delco’s pleaded case in A3040; (2) Delco has run inconsistent cases on the nature of the US$6,275,000 in Hong Kong and the BVI; (3) there was plainly no “Scheme”; (4) Delco would stand unjustly to obtain a windfall; and (5) to prevent Delco from benefiting twice from the disposal of the same CT shares, if Fang/HWH is found to be liable to Delco for any reason, Delco ought to give credit for the US$6,275,000 retained by it.

199.  Having given Delco’s solicitors the opportunity to respond, they provided the response by letter dated 8 October 2025. The solicitors point out: (1) those parts of the Privy Council decision referred to by Fang/HWH’s solicitors are merely reciting the background, and did not create new findings; (2) in any event, Delco’s position has been fully set out in its closing submissions and reply submissions after trial; (3) Fang accepted in his written and oral evidence that Delco no longer owed US$6,275,000 to Fang after Delco transferred the 4 CT shares to Green Elite in March 2010, and his closing submissions accepted that sum had to be taken out of the HKM Metal Debt; (4) Delco had not advanced inconsistent cases in Hong Kong and the BVI, and Delco is not even a party to the BVI proceedings nor is it bound by any findings of the BVI judgments.

200.  Having considered the contents of those letters, and the content of the Privy Council decision, I do not think that decision in any way affects the findings I have made above. Nor need there be any further opportunity for submissions, which would only unnecessarily cause further delay to this judgment.

I.3 Chern Debt

201.  Fang’s argument is that the Chern Debt originated from the capital contributions in the Joint Venture made by Fang on behalf of the Delco Group. It is suggested that:

(1) when CT Metals was incorporated on 24 December 1999, Delco Recycling’s contribution of US$220,500 was allegedly paid by Fang through a nominee;

(2) when CT Metals increased its registered capital on 18 February 2001, a further US$220,500 was paid by a Fang nominee for Delco Recycling’s capital increase payment;

(3) in around December 2001, CT Metals increased its share capital to US$6 billion and Fang agreed to lend the additional capital contribution of US$2,559,000 to Delco Asia;

(4) in October 2002, CT Metals increased its share capital further to US$10,882,000, and the additional capital of US$2,440,026 paid by Delco Asia was also lent by Fang through nominees;

(5) Fang also made contribution of US$3,250,000 for Delco Asia in respect of Hefast’s investment in CT Foundry in around 2003-2005.

202.  It can be noted that those payments were all completed by 2005 but, as will be shown below, the amount of the payables ultimately recorded as the Chern Debt (after it was finally designated as such) varied considerably over time in the accounting documents of Delco Asia. The closing balances were HK$54,669,268, HK$83,930,161 and HK$65,730,897 in 2007, 2008 and 2009 respectively. There are various audit confirmation forms in those fluctuating amounts, but there is no evidence that any of them were ever signed and returned.

203.  Anyway, this large fluctuation is not convincing of a static debt in an amount fixed in or before 2005.

204.  The Morrison Heng (“MH”) audit working paper schedule L500 dated 5 December 2008, relating to the year end 31 December 2007, shows the Fang Debt as HK$31,767,702, the HKM Metal Debt as HK$11,700,000 and “Unknown variance from current accounts” at HK$157,134,735, together totalling the figure of HK$200,602,437 taken into the (old) 2007 financial statements.

205.  The Note 7 to the “unknown variance” figure states [sic]:

In order to match with the current accounts of Hefast, Metals and Foundry, we’ve reallocated the variance arised to other payables. As we have been unable to obtain sufficient information to assess whether other payables of HK$157,134,735.29 is correctly stated.

206.  At the bottom of the page, following the finding of unknown amounts transferred from current accounts, is the conclusion that a qualified opinion is suggested, referring to Note 7.

207.  There is the revision of schedule L500, dated 14 June 2010. It is the first document identifying any aspect of a so-called debt owed to Chern. The amount of the Chern Debt is shown as HK$54,669,268. Note 1 reads [sic]:

Significant increase in the balance was due to the fund transferred from HKM Metal Ltd and the arise of the current account of Chern Shyn Kang.

208.  Note 7 reads [sic]:

In order to match with the current accounts of Hefast, Metals, Foundry and Delco Europe, as agreed with client, we’ve reallocated the variance arised to the current account with Chern Shyn Kang. Audit confirmation was sent.

209.  The notations on the working paper identify that the audit confirmation was sent, but there is no notation that there had been any confirmation received. The audit confirmation document sent is dated 14 June 2010. There is no evidence that it was ever actually signed, not even for Delco Asia, let alone by (or for) Chern, and returned.

210.  The MH audit working paper schedule L200 dated 3 August 2009 is for the year ended 31 December 2008. Amongst the debts, it records “Unknown variance from current accounts” of HK$72,783,219, and the relevant Note 7 reads [sic]:

In order to match with the current accounts of Hefast, Metals and Foundry, we’ve reallocated the variants arised to other payables. As we have been unable to obtain sufficient information to assess whether other payables of HK$176,895,921.66 is correctly stated.

211.  The revised schedule L200 is dated 14 June 2010. It identifies the Chern Debt in the sum of HK$83,930,161. The relevant Note 7 reads [sic]:

In order to match with the current accounts of Hefast, Metals, Foundry and Delco Europe, as agreed with client, we’ve reallocated the variance arised to the current account with Chern Shyn Kang. Audit confirmation was sent.

212.  Schedule L200 on the subject of ‘other payables’ for the year ended 31 December 2009 is dated 19 July 2010. The Chern Debt is shown as HK$65,730,897. The total of the Fang Debt, HKM Metal Debt and Chern Debt is shown (for the first time) as HK$169,843,599.

213.  Note 6 reads:

In order to match with the current accounts of Hefast, Metals, Foundry and Delco Europe, as agreed with client, we’ve reallocated the variants arised to the current account with Chern Shyn Kang. Audit confirmation was sent.

214.  However, no audit confirmation document was included in the evidence, or apparently produced by MH.

215.  Notes on the accounts for the year end 31 December 2009, still show ‘other payable’ as including ‘other creditors – unknown’ in the sum of HK$73,217,190.

216.  Ms Chan, the expert for Fang/HWH, considered the various relevant adjustments leading to the increase or decrease of the Chern Debt. Whilst it was her opinion that the reallocation from “unknown variance” to “Chern Shyn Kang” was supported by contemporaneous documentation, I do not accept the documents actually show that. Indeed, from the materials, it is impossible to see how MH could have changed their figures and opinions from one set of accounts to the reviewed or renewed set. Further, the various changes and entries in the accounts show that the elements constituting the Chern Debt were unrelated to any capital contribution in the Joint Venture. Ms Chan acknowledged this point, and fairly accepted that many of the kinds of adjustments could not be explained from the entries.

217.  In any event, I do not accept the underlying premise that the Chern Debt reflected the capital contributions into the Joint Venture, supposedly made by the Delco Group but in fact lent by Fang or his nominees. The preponderance of the evidence shows that the Delco side in fact made the contributions itself. Indeed, I reject the starting point that Fang would in 1999 have asked SVO and HDL to become only his nominees in the Joint Venture company. On balance, it seems far more likely that Fang wished to set up a business with a known large supplier of scrap metal material, and Delco Recycling fitted that bill. From the other side, the Delco Group would understandably have wished to build its relationship with the local PRC business partner, and to expand its business in the PRC. These matters point against a mere nominee relationship.

218.  Delco Recycling’s original 26.25% shareholding in CT Metals is more consistent with the fact of an actual capital contribution made. Further, CT Metals’ capital verification report stated that Delco Recycling held 26.25% of the share capital. Later, in CT’s Prospectus, it was stated that Delco Recycling had contributed US$220,500 to the registered capital of CT Metals.

219.  On Fang’s own case, the alleged nominee relationship ended when SVO and HDL wished to become real partners in the Joint Venture. It is inherently unlikely that real partners would not have been required to come up with real money by way of capital contribution.

220.  In any event, the contemporaneous documents show that Delco Asia had made the capital injections into the joint venture.

221.  There is banking evidence that Delco Recycling paid US$220,500 to CT Metals on 6 January 2000. There is evidence apparently showing the payment of US$220,500 to CT Metals on or around 13 April 2001. There is evidence showing payment by HDL of US$2.59 million to CT Metals as investment proceeds, with the value date of 27 December 2001. It was sent from a Swiss bank account.

222.  There is also an email dated 12 December 2001 from FVL to KS Heng of MH as regards the capital contributions. It talks about the transfer by Delco Europe of its receivables on Delco Asia to the two shareholders of Delco Asia, who will in turn convert those loans and capital. In other words, the US$440,000 assets are matched with the US$440,000 equity. The email also states that after completion of various steps, Fang and “the outsider” will each transfer US$3 million to the Joint Venture as capital contribution (to make sure that these funds can be repatriated to the shareholders in future). FVL said in oral evidence that the “outsider” was a reference to HDL, who was not specifically named because he had not reported the source of his funds to the Dutch tax authorities (and it can be noted that the transfer was made from a Swiss bank account). The email also stated that it was important that the increase in the value of the Joint Venture shares was not recorded in the books of Delco Asia, as it did not want a revaluation for Hong Kong book or tax purposes.

223.  In his evidence, SVO also confirmed that Delco made the capital contributions into the Joint Venture, as it seems to me it would be expected a joint venture partner would make.

224.  When faced with the material documents showing Delco contributions, Fang claimed that he had arranged for a nominee to transfer the money to the Delco Group, for it to pay for the capital investment. I reject as inherently unlikely, and frankly incredible, Fang’s attempt to explain away these various remittance records in that way. It can also be noted that there is no record showing any purported transfer from Fang or any nominee to the Delco Group for that purpose. There is no record of any repayment by Fang to his nominee for any such sums supposedly lent to the Delco Group. There is no record evidencing the supposedly arrangement between Fang, his nominees and the Delco Group.

225.  There is an email dated 10 February 2003 from Eric Chan at MH to FVL, identifying the view that the value of Delco Asia’s 50% equity in TAI should be US$5,441,000 because the total investment capital is US$10,882,000 which had been fully paid up by the two joint venture parties (i.e. Delco Asia and Fang).

226.  There is an email dated 11 February 2003 from Edward Hendrickx, a colleague of FVL, to SVO and staff at MH. In response to the previous email, it says that there had been discussions with SVO that for Dutch tax purposes Delco Asia did not yet want to make visible the high equity of the company as it could have adverse Dutch tax consequences. Therefore they insisted on rolling over the US$441,000 from Delco Asia to Hefast and by rolling over the US$441,000 by Fang to Hefast. SVO would contact Frank to discuss this with him.

227.  I note an email of 15 June 2010 from Emily Ng of MH to SVO, asking for the full name and his/her corresponding address for the balance of other payable of Delco Asia as at 31 December 2007 and 2008. The email dated 16 June 2010 from SVO to Emily Ng gave information simply as follows: “Chern Shyn Kang, 1688 Estate Drive, Los Altos, CA, 9024, USA”. The 17 June 2010 email from Emily Ng to SVO enclosed revised audit confirmations and asked him to arrange a director’s signature with company chop near the bottom on the left-hand side of each confirmation and to return them to MH’s office for them to send out to third parties themselves.

228.  I have not overlooked an email dated 7 December 2013 from FVL to a Stephen Wheatley on the subject of Presence Holding Ltd. In it, FVL stated that Delco had payables (€16 million) to Fang and his company as well as receivables (€12 million) from Fang and his companies. In his oral evidence, FVL stated that this was only about using the value of Delco to leverage an opportunity, and was merely referring to the book entries in Delco’s accounts. Indeed, it seems to me unlikely that Delco would have informed a third party in a prospective financing arrangement about fictitious debts in its accounts, and the email seems therefore to be neutral and of no or very little weight.

229.  I also take into account that during cross examination, Fang confirmed a number of occasions that the Chern Debt was owed by SVO personally, and not by Delco Asia. This is obviously inconsistent with Fang’s own case as pleaded and originally advanced. It also goes against the reliance placed in submission on behalf of Fang that there were numerous contemporaneous documents which recorded, confirmed, mentioned or dealt with the transfer of the Debts.

230.  Insofar as it may be necessary, I also record my finding that Fang failed to show on the balance of probabilities that Chern was in fact his nominee (see further, below). There was little material about Chern available at the trial, save such as to show him to have been an established businessman independent from Fang. Chern made no witness statement and did not give evidence.

231.  My conclusion is that Chern Debt was not genuine and repayable, but simply a book entry (or entries) made for other purposes.

I.4 Fang Debt

232.  Fang has pleaded that the Fang Debt comprises various sums advanced by Fang to Delco Asia, totalling HK$31,772,969, being:

(1) in 2002: the sums of HK$6,000, €3000, US$1,164,766, HK$18,144, US$440,000, and US$27,000;

(2) in 2003, the sum of US$192,649;

(3) in 2004, the sums of US$1,850,000 and US$1,000,000 through HKM Metal;

(4) in 2005, the sums of HK$200,000 HK$500,222, US$1,000,000 and HK$208,838;

(5) in 2010, the sum of HK$5,267.

233.  It can first be noted that not all of those figures were included in the original (actually the green re-amended) pleading of the defence in A2943, in that the figures in 2002 of HK$6,000, HK$18,144 and US$440,000 were added by amendment (actually purple re-re-amendment).

234.  Secondly, none of those figures is identified on the face of the pleading – or, for most of them, even in Fang’s witness statement – as having had any particular purpose. Instead, it is alleged that the total amount of the loans advanced by Fang to Delco Asia between 2002 and 2005 amounted to HK$45,134,110, and the further small sum was advanced in 2010. It is pleaded that the loans were made by Fang to Delco Asia upon the request of SVO and with the knowledge, agreement and acceptance by Delco Asia’s board of directors.

235.  It is then pleaded that between 2002 and 2003 Delco Asia partly repaid to Fang amounts totalling HK$13,366,408. How that repayment was made is not pleaded, nor was it explained in Fang’s witness statement. That figure might well be simply the arithmetical difference between the total amount said to have been lent and the sum supposedly later confirmed.

236.  Indeed, Fang expressly pleads reference to the audit confirmation dated 15 August 2011, by which it is said that Delco Asia confirmed to Fang that Delco Asia was indebted to Fang in the sum of HK$31,772,969.

237.  It is convenient first to address the sum of US$440,000 supposedly lent in 2002. Fang’s case is that that sum was lent to Delco Asia for its initial contribution in CT Metals. I can first point out that the purple pleaded addition of that sum was made at the same time as Fang in the same re-re-amendment exercise deleted the phrase “Delco Asia only ever paid USD440,000 as its capital investment into CT Metals. Other than the said USD440,000 …”, which was the prior pleaded acceptance that the capital investment of that amount had actually been made by Delco Asia.

238.  However, in any event, I have already identified above that the initial contributions to CT Metals were made in around January 2000 and April 2001 (not 2002), and the documentary evidence shows that those contributions were in fact made by Delco Asia, and not Fang.

239.  As to the remaining figures, there is simply little information about them, and no documents that really seem much to support them.

240.  I note Delco Asia’s financial statements for the period to 31 December 2004, showing Yam Ping as director and the appointment of Gu on 1 January 2005. The balance sheet shows “Other creditors” (not identified, but perhaps Fang) of HK$23,080,760, up from HK$881,399 from 2003.

241.  Obviously, the figure of HK$881,399 for the year ended 2003 (about US$113,000) is significantly less than the total of the sums alleged by Fang to have been lent by him to Delco Asia in 2002 and 2003. Indeed, it is significantly less than the US$192,649 alleged loan figure for 2003 alone. On the other hand, the figure of HK$23,080,760 for the year ended 2004 is significantly in excess of the total of the sums alleged by Fang to have been lent by him to Delco up to that point in time.

242.  Then, Delco Asia’s financial statements for the period to 31 December 2005 show “Other payables” (again not identified, but perhaps Fang) to be increased to HK$31,767,702. This is, of course, the amount of the Fang Debt as claimed, less only the sum of HK$5,267 said to have been lent in 2010. The same figure is carried through onto the balance sheet as at 31 December 2006.

243.  There are two sets of financial statements for Delco Asia for subsequent years. Delco Asia’s (old) 2007 financial statements are dated 12 December 2008. The auditors gave a qualified opinion because: (1) there had been no physical count of inventories/stock at 31 December 2007, and there were no practicable and satisfactory alternative auditing procedures that could be applied to obtain adequate assurance; (2) the auditors had been unable to obtain sufficient information to assess whether other payables of HK$157,134,735 was correctly stated; and (3) Delco Asia had not prepared consolidated financial statements as required.

244.  The balance sheet showed an increase of “Other payables” from the sum of HK$31,767,702 (2006) to HK$200,602,437 (2007). The inability to verify HK$157,134,735 of the latter figure is one reason for the auditors to have qualified the audit opinion.

245.  Delco Asia’s (new) 2007 financial statements are dated 22 June 2010. The audit qualification has been removed, and amongst the matters of emphasis leading to the revision of the financial statements is the reason that there has been reclassification of amounts between the amounts due from/to the associated companies and other payables.

246.  The balance sheet showed “Other payables” in the sum of HK$98,136,970 (a difference of HK$66,369,268 from the previous end of year). There is no note on the face of the statements explaining the change. Nor is there any explanation as to how the other reasons for qualifying accounts previously had been resolved. It is difficult to see how there could have been a physical inventory/stock check or some other alternative procedure in 2010 when that was not possible in 2008, or why the concern about the absence of consolidated financial statements could have been resolved.

247.  Delco Asia’s (old) 2008 financial statements are dated 31 August 2009. The auditors gave a qualified opinion because: (1) they were unable to obtain sufficient information to assess whether other payables of HK$72,783,219 was correctly stated; and (2) Delco Asia had not prepared consolidated financial statements as required. The balance sheet showed a decrease of “Other payables” from HK$200,602,437 (2007) to HK$176,895,921 (2008).

248.  Delco Asia’s (new) 2008 financial statements are dated 22 June 2010. The qualified opinion has been removed. The balance sheet shows an increase in “Other payables” from HK$98,136,970 (2007) to HK$188,042,863 (2008).

249.  The financial statements for the period to 31 December 2009 show the “Other payables” as having changed to HK$169,843,599. For the financial statements for the period to 31 December 2010, the figure is slightly increased to HK$169,848,866.

250.  There are also a series of one-page documents each headed ‘Delco Asia Company Limited – amount owed to Mr. Fang Angkong’. Though their provenance is not clear, they do seem to lend some support to the underlying figures found in the financial statements, and may be the source of the information pleaded by Fang:

(1) For 2002, the page shows several items relating to matters including:

(a) ‘initial deposit for opening bank accounts’, with amounts in pounds, euros, US dollars and Hong Kong dollars, together totalling HK$6,000;

(b) ‘cash advance less cash withdrawals in the bank accounts’, with a net total of HK$9,080,523;

(c) ‘allotment of initial capital’, in the total of HK$2;

(d) ‘acquisition of Taizhou Chiho-Tiande Metals’ in the amount of US$440,000;

(e) and ‘payment of directors’ remuneration’ in the sum of US$27,000.

(2) The net total for 2002 on that page is the sum of HK$4,820,874.

(3) For 2003, there are two entries of (a) a cash advance and (b) the sum of US$192,649 said to be purchases during the year set off against trade deposit paid.

(4) The net total for 2003 is the sum of $891,399.

(5) For 2004, the entries relate to US$1,850,000 identified as fund received from Fang and a cash deposit in bank account of US$1 million under the heading HKM Metal.

(6) The net total for 2004 is the sum of HK$23,080,761.

(7) For 2005, the page shows fund received of HK$200,000, HK$500,222 and US$1 million, and the purchase of fixed assets paid by Fang of $208,838.

(8) The net total for 2005 is HK$31,767,702

251.  I also note the table of ‘Comprehensive Debt Restructuring’ which identifies (a) the totals payable by Delco Asia/Delco comprising the Debts totalling HK$169,848,866 (stated by reference to the balance sheet of Delco Asia as at 31 December 2009), and (b) the totals receivable by Delco Asia/Delco of HK$112,465,694. Amongst the debts receivable are (a) HWH’s debt of HK$46,883,466 (from the 1% CT Shares sale, and in that particular figure a matter I keep in mind below), (b) HKM Metal’s debt of HK$57,827,118 (resulting from the repayment of debt by CT at listing) and (c) HKM Metal’s debt of US$1 million (resulting from financing US investments). Setting off payables with its receivables leaves a balance of HK$57,303,182.

252.  Nevertheless, against these various documents, I note the evidence given by Fang. In his witness statement, he claimed that because CT Metals frequently delayed in paying its suppliers (including Delco Asia), then in order to help Delco Asia finance its supplies to CT Metals, CT and he (by his nominees) made loans, advance payments (or deposits or pre-payments) to Delco Asia regularly. I agree with Mr Dawes that the explanation offered there is illogical. If CT Metals could not pay Delco Asia for its supplies in the first place, it is impossible to see how CT Metals could then lend money to Delco Asia.

253.  In cross-examination, Fang appeared to say (differently) that when CT Metals did not have money to make payment, Fang would pay Delco temporarily on behalf of CT Metals. Indeed, at various points in his oral evidence, Fang confirmed that the Fang Debt was incurred as the result of his making payment on behalf of CT Metals. He specifically confirmed that in answer to a question from the Court. If that were right, then it would be CT Metals that owed repayment to Fang. A further illogical suggestion advanced by Fang was that when CT Metals had the money, it would pay Delco Asia again, instead of repaying Fang.

254.  I also accept there is a lack of explanation, and an obvious inconsistency, where some of the monies allegedly advanced to Delco were advanced via HKM Metal, yet there is no explanation as to why that was not regarded as a loan by HKM Metal forming part of the HKM Metal Debt (and not the Fang Debt).

255.  Even as to the accounting records, which I have canvassed above, they seem to do little to advance Fang’s case. For example, there is no obvious logic in Fang having lent Delco Asia US$27,000 for the payment of directors’ remuneration, when he was not himself a director or shareholder of Delco Asia. In his oral evidence, Fang could not clear up that issue. He also could not explain various other entries relating to individual companies, which had no connection with him and for which there is no logical reason for him to have advanced payments or loans.

256.  Ms Chan, Fang’s expert, I accept that she did not rely on the document relating to these various entries because she herself had doubts about it, not least arising from a lot of inconsistency, such as the date, such as the directors’ remuneration or remuneration for someone not known. She also thought it was probably not the final version. When she asked for instructions as to the content of the document, no one could give her an answer.

257.  In other words, what appears to be the documentary basis for at least part of the Fang Debt is expressly identified as unreliable by Fang’s own expert.

258.  Of course, I accept the concept of a running account between Fang and Delco Asia as a real possibility. For example, I see some sense in small amounts such as the HK$450 fee for the business registration certificate being paid by someone on the ground locally, and being set down as an amount owing in a current account. However, I do not think that it can be realistically suggested that Delco Asia would need to borrow such sums in 2010, or even earlier. Further, I do not think the possibility of some sums being genuinely recorded is sufficient to make the other records acceptable on the balance of probabilities.

259.  Ultimately, on balance, and though it seems to me that the case on it is somewhat stronger than the other two aspects of the Debts overall, I am not persuaded that the Fang Debt was genuinely repayable in the amount put forward by Fang.

I.5 Assignments of Debts

260.  Though strictly unnecessary in light of my earlier findings, I can also address the question of the assignment of the HKM Metal Debt to Fang and the assignment of that part of the Debts in the amount of HK$47,117,969 to HWH.

261.  For the purpose of using the defence of set-off, Fang/HWH asserted that there had been oral assignment of the Debts in the following respects:

(1) In or around June 2013, HKM Metal orally assigned its rights in respect of the HKM Metal Debt to Fang.

(2) On 3 March 2017, Fang orally assigned to HWH all his rights and interests in the amount of HK$47,117,969, being part of the Debts owed by Delco to Fang.

262.  If those assignments were not valid, then (1) Fang cannot rely on the HKM Metal Debt for the purpose of the equitable set-off defence and counterclaim in A3040, and (2) HWH cannot rely on equitable set-off in A2943 in respect of the 1% CT Shares Claim and cannot counterclaim against Delco for that.

263.  Delco took issue with the validity of the alleged oral assignments and with Fang/HWH’s rights to sue on the alleged assigned debts in A2943 and A3040. This was made perfectly clear in Delco’s solicitors’ correspondence (though it is also fair to note that Delco indicated that it would not take issue with the non-joinder of HKM Metal only if the assignment of the HKM Metal Debt by HKM Metal to Fang is judged to be valid).

264.  The principles relating to assignments are well-settled. Statutory assignment of a debt can be effected if the requirements under section 9 of the Law Amendment and Reform (Consolidation) Ordinance Cap 23 (“LARCO”) are satisfied, being:

(1) there must be an assignment of a debt or other legal thing in action;

(2) the assignment must be by writing under the hand of the assignor;

(3) the assignment must be absolute and not purport to be by way of charge only; and

(4) express notice in writing of the assignment must be given to the debtor from whom the assignor would have been entitled to claim such debt.

265.  An assignment of a chose in action could also take effect as an equitable assignment where there was a manifestation of an intention to assign the debt, and writing is not required. However, it is mandatory that the intention to assign must be manifested. The mere existence of some unexpressed intention in the breast of the owner of the property does nothing, and there must at least be some expression of that intention. Put another way, a person creates trust by his words or conduct, not by his innermost thoughts.

266.  Legal interests may be assigned in equity by way of gift if there exists an intention to make an immediate assignment and if the donor has done everything which, according to the nature of the property was necessary to be done in order to transfer the property and rendered the assignment binding upon him. For the assignment of a debt, the donor must do everything necessary for it to comply with the legal requirements for an assignment, that is those things the donor and only the donor can do must be done.

267.  In this case, Mr Dawes submitted that HKM Metal and Fang did not manifest any intention to assign the HKM Metal Debt or the Debts. The suggestion that Fang had orally assigned the debt from HKM Metal (a company owned by him) to himself and/or from himself to HWH (also a company owned by him) is contrived and artificial.

268.  I accept this point was echoed by Fang’s own evidence about the alleged assignment of the HKM Metal Debt when he said in cross-examination that he did not take any steps to effect the assignment, as it would have been impossible for him to sign an agreement between him and himself. He simply proceeded on the basis that it was transferred to him when he closed the company and the rights and liabilities would be borne by him personally.

269.  As to the alleged oral assignment of the amount of HK$47,117,969 to HWH, Fang did not mention this assignment at all in his witness statements. Further, when first asked whether he could confirm that at some point of time there was an assignment between him and HWH, he said that he could not remember, and asked to be shown a document. When shown the pleading, he first stated that his solicitors advised or suggested it to him. It is the pleading which is dated 3 March 2017, and when asked what he did on that date to effect the assignment from himself to HWH he said he could not remember that date but it was before that date and his solicitors told him part of the debt and the rights to be assigned and that it would be okay to be done by way of an oral assignment. When asked how he made the oral assignment or agreement with himself, Fang answered that the solicitors were present, he did not know about the loss, how it was orally assigned or transferred, but it was his solicitors who asked him to do it and when they did he said “Fine, okay”.

270.  This evidence was deeply unconvincing. First, it is highly unlikely that Fang’s solicitors would have advised Fang to effect an oral assignment, as opposed to a written assignment. Further, even had they done so, it is highly unlikely that they would not have taken steps to ensure that the necessary requirements for a truly effective oral assignment would have been complied with. I think Fang struggles with this area of evidence because he had not in fact done anything to effect an assignment, probably because he did not think he needed to. Or perhaps the absence of any real steps taken to effect an assignment are reflective of Fang’s knowledge that there was no genuine and repayable debt owed which might be assigned.

271.  In conclusion, I accept that the alleged assignments were neither effective statutory assignments under section 9 of LARCO nor effective equitable assignments.

J. The 2010 Agreement and the Convention

272.  The actions also materially plead Fang/HWH’s averment as to (1) the “2010 Agreement”, and (2) the “Convention”.

273.  The 2010 Agreement is alleged to have been an agreement concluded between Fang (on behalf of himself and HKM) and SVO (on behalf of the Delco Group) in around late June 2010, whereby it was agreed that the Debts should be repaid by Delco Asia (1) as and when Fang demands, whatever the form of payments along as the payment is in satisfaction of the needs of Fang and/or his wholly-owned subsidiaries, or (2) when Delco Asia has sufficient funds.

274.  The Convention, alleged to have been adopted by Fang’s Group and Delco’s Group since July/August 2011, is the alleged conventional practice that their mutual receivables and payables would not be immediately offset against each other, but would instead be recorded as receivables or payables (as the case may be) in the accounts, such that if either party were to demand payment of its debts at any time, the receivables and payables would be immediately set off against each other and only the net balance would be payable.

275.  In my earlier decision dated 31 December 2019 [2019] HKCFI 3136 at §47 (in a passage not doubted on appeal) I stated that I did not think that the fact that the mutual debts are said to have arisen out of the joint venture pursued by the parties, with their close connection evidenced and fortified by the 2010 Agreement and/or the Convention, provided the necessary “close connection” which would make it manifestly unjust to allow the plaintiff to enforce its own claim without taking into account the cross-claims. Of course, there was a joint venture which gave rise to various debts between various differing parties in differing directions from time to time. But the claims and cross-claims or set-offs identified differ significantly in parties, nature and timing. The Chern Debt is said to have been incurred by Delco Asia to Fang prior to 2005, in the course of the capital injection in relation to CT Metals and Hefast. However, Delco’s claim in A2943 arose in 2012 between Delco (not Delco Asia) and HWH (not Fang) on the sale of CT shares (not CT Metals/Hefast). In A3040, whilst Delco claims as assignee of Delco Asia, the claim arose in 2010 and originated from the shareholders’ loans that Delco Asia had against the joint venture (not Fang). In A2939, Delco’s claim accrued in 2012 because it (not Delco Asia) subscribed to the convertible bond issued by CT (not CT Metals/Hefast).

276.  In the following §48, I further stated that it is also right that Chern is not part of Delco’s Group or Fang’s Group, so it is difficult to see why he could take advantage of the conventional practice relating to mutual receivables and payables said to have arisen between those two groups. Indeed, I thought, that might explain why Fang’s and HWH’s original reliance was only on the Fang Debt and the HKM Debt, and might lend support to the suggestion that the belated attempted reliance on the Chern Debt was an opportunistic one. I remain of the same views. I do not accept that the defence of equitable set-off is open to Fang/HWH.

277.  Though I acknowledge that the Court of Appeal pointed out that, at least at the interlocutory stage, it was pertinent to have regard to the pleading that Chern is a nominee of Fang, I do not think that has been made out at trial.

278.  In any event, turning to the detail of the allegation, it is Fang/HWH’s case that in around late June 2010 and in anticipation of the repayment of the Uncapitalised Portion, Fang and SVO agreed orally that the Debts should be repaid by the Delco Group after the 2010 Listing. Acknowledging the dispute about the existence of the 2010 Agreement, it was submitted on behalf of Fang/HWH that the cases not simply Fang’s word against SVO’s word. Rather, it was submitted, the existence of the 2010 Agreement as evidenced by the fact that:

(1) The Uncapitalised Portion was paid by CT to Fang instead of to Delco. There is no suggestion that this was a loan or gift to Fang. Therefore, there is no other reason for Delco to have allowed the Uncapitalised Portion to go to Fang except for it being a part repayment of the Debts. In the draft financial statements of Delco Asia for the year ended 31 December 2010, the Uncapitalised Portion was set off against the Fang Debt, and was recorded as a separate asset and a separate liability only upon FVL’s insistence.

(2) The payment was authorised by Gu, then an executive director of CT and a director of Delco Asia, by his signing and instruction to CCB International Capital Ltd to pay the sum of HK$50 million to Fang. No complaint has been made against Gu for signing that instruction, in circumstances where complaint could be made of a breach of fiduciary duties owed to Delco Asia.

(3) Upon payment to Fang, CT’s liability to Delco for the Uncapitalised Portion was extinguished. That could only make sense if the 2010 Agreement existed.

279.  However, it seems to me to be clear on the evidence that the agreement from SVO that Fang could receive the Uncapitalised Portion was a somewhat reluctant acceptance given only after the event of payment, and in order not to cause immediate ructions between the parties. I find that Gu was instructed by Fang to divert payment to him without the authorisation of Delco, albeit that Delco was prepared to put up with that unauthorised diversion for a time. Nevertheless, it is clear that Delco repeatedly demanded Fang to prepaid the Uncapitalised Portion from only a short time after the diversion (see also below). That in itself is sufficient to negate the idea of the 2010 Agreement.

280.  I also accept Mr Dawes’s submission that the 2010 Agreement as pleaded is convoluted, illogical and artificial. It is difficult to see why it would expressly agree that the Debts should be repaid as and when Fang demanded, when it is his case that the Debts had always been repayable on demand. That part of the first pleaded limb is redundant. Similarly, there is an oddity in the other part of that limb, namely the proviso that the payment must be in satisfaction of the needs of Fang or Fang’s Group. When asked in cross-examination whether Delco might have been entitled to refuse payment if Fang could not establish his needs, Fang simply said he did not know what the condition was.

281.  As to the second pleaded limb, that the Debts should be repaid when Delco Asia has sufficient funds, I have already pointed out that there were numerous occasions on which Delco Asia plainly had sufficient funds, but there was never a call for repayment under the 2010 Agreement (or under the Convention).

282.  I have also already referred above to some of the emails in June to August 2011, involving Emily, Fang and FVL. I reject the argument, and the evidence of Emily, that she wrote those emails pursuant to the instructions of SVO, rather than on the instructions of Fang. I do not think that the fact that Fang did not then pay the HK$55 million or so (the Uncapitalised Portion) to Delco – such that it has become part of the claims in these actions – changes the nature of the emails. The email chain, and the contents of it, also significantly undermine the existence of the 2010 Agreement. It is highly unlikely that Fang would have agreed to repay the Uncapitalised Portion to Delco, without even referring to it or the Convention, had it truly existed.

283.  Of course, Fang does not now dispute that he received the Uncapitalised Portion, and that he took up CT’s liability to pay to Delco Asia. The argument is only one relating to quantum (see below) – and the claimed set-off, though the 2010 Agreement is not actually a set-off agreement.

284.  As to the Convention, it can be noted that the Convention did not appear in HWH’s original defence in A2943, and was only raised by an amendment in April 2017. This smacks of a forensic afterthought.

285.  It seems to me that Fang’s heavy reliance on Delco’s internal emails is misplaced. The emails do not mention any such Convention, nor any promise by Delco not to enforce its claim against the Fang Group without setting off the Debts said to be owed by the Delco Group. Further, I accept FVL’s evidence that the main reason for separating out assets and liabilities in the way he pursued was because of his understanding that the Debts were not genuine and did not require repayment.

286.  There are also legal hurdles facing Fang’s argument on estoppel by convention. The Convention applies where parties to a transaction act on an assumed state of facts or law. It does not apply to promises, representation or intentional representation of future conduct. Yet that is what the Convention was in essence: it was in essence a promise not to enforce Delco’s claim against the Fang Group without setting off the Debts said to be owed by the Delco Group. There is, therefore, no basis for an estoppel by convention.

287.  I reject Fang’s case for the existence of the 2010 Agreement and the Convention.

K. 1% CT Shares Claim

288.  This claim is made in A2943.

289.  The claim arises under the Transfer Agreement dated 17 January 2012. Under the Transfer Agreement, Delco agreed to transfer to HWH the 1% being 10,418,548 shares in CT, for the stated consideration of HK$4.50 per share. The Transfer Agreement was signed by Fang on behalf of HWH, and by SVO on behalf of Delco.

290.  The recitals to the Transfer Agreement provide:

Whereas

(A) Pursuant to the Sale and Purchase Agreement [ie the agreement to sell shares to Sims], HWH and Delco have each agreed to sell such number of Shares as represents 8% of the issued share capital of [CT] to Sims.

(B) Between themselves, HWH and Delco have agreed that Delco will transfer approximately 1% Shares to HWH, all in accordance with this Agreement.

291.  Although the total consideration is not stated on the Transfer Agreement, multiplying the number of shares by the share price gives the total of HK$46,883,466. However, clause 2.2 provides that the consideration shall be left outstanding, payable by HWH to Delco on demand. (Incidentally, Fang/HWH suggest that is consistent with or evidences the Convention, though I think this is of little or no weight to that analysis.) Importantly, clause 3.4 provides that the Transfer Agreement constitutes the whole and only agreement between the parties relating to the subject matter of it.

292.  HWH does not dispute its liability to pay the consideration under the Transfer Agreement (subject to the wider set-off defence). However, HWH asserts that, prior to the signing of the Transfer Agreement, an oral agreement was made between Paul Chow – CFO of CT, but allegedly acting for and on behalf of Fang as the sole director of HWH – and SVO for and on behalf of Delco, that a discount of around 10% would be given, to bring the sales price down to approximately HK$41,900,000.

293.  When the 1% CT Shares Claim was first pleaded in the statement of claim in A2943, the claim put forward was to the sum of HK$41,900,000. That claim was verified by HDL, and obviously matches what he said on affidavit when making the application for the freezing injunction (see below). Further, reference was made in the pleading to the letter dated 7 December 2015 sent by Delco’s former solicitors making a demand to HWH for immediate payment of “the sum of HK$41,900,000, being the adjusted Sale Price taking account of an agreed discount to [HWH] at about 10%”, to which demand there had been no response.

294.  The 7 December 2015 letter itself does not actually refer to any agreed discount. Rather there is reference to the total consideration of HK$46,883,466, for which the letter suggested there had been earlier demands (though none are particularised). The letter itself demanded “the sum of not less than HK$41,900,000” said to be payable “[a]fter taking account of adjustments incidental to the transaction”. The incidental adjustments are not otherwise described.

295.  Though not pleaded, there was also a prior demand made to Fang by a letter dated 5 November 2015 sent from Monkton Chambers. Indeed, in the absence of evidence to the contrary, it seems that letter may have been the first time since completion of the Transfer Agreement that any demand was made for payment under it – a period of almost 4 years. Amongst the demands made in that letter was the following:

4. The Project Metal Dragon (‘the Project’)

As part of the Project, [Delco] sold 10,418,548 CT shares to HWH on 17 January 2012 for approximately HK$41,900,000 in cash. These monies have not been received by the Claimants.

296.  The statement of claim was subsequently amended. Part of the amendment was to acknowledge that the previous demand had been to the adjusted sum, but to aver that there were in fact no such adjustments, so that the entirety of the Sale Price of HK$46,883,466 is repayable. Mr Hammerstein verified the amendments.

297.  There were also amended answers to the requested further and better particulars, provided following the amendment to withdraw the admission. There, Delco stated that the previous mistaken belief (that a commission was payable – note, not a discount – in respect of the sale of the 1% CT Shares) was discovered in late 2016 by Delco’s solicitors upon reviewing the case materials and conducting further investigation. No detail of which materials were reviewed or what investigations were made was provided. That it took an amendment based on what the solicitors thought is not very weighty, in the absence of specific evidence from anyone with actual direct knowledge. Further, the amended particulars were only verified by a statement of truth dated and provided during the trial itself, and only after I had enquired who had verified various pleadings. They were also verified by Mr Hammerstein.

298.  HDL – who verified the original statement of claim in A2943 – said in evidence that he was not aware of any discount being agreed, and SVO never mentioned any such agreement to him. However, in an affidavit dated 8 December 2015, filed in support of a freezing application based on the 1% CT Shares Claim, HDL described the action as one to recover the sale price “less minor adjustments including commission in the sum of HK$41,900,000”. As it happens, no one now suggests that any commission was paid or payable in relation to the 1% CT Shares, perhaps only emphasising the lack of HDL’s direct relevant evidence. Nevertheless, the application was to freeze that amount. Although the application was successful, no application has ever been made to vary the frozen amount upwards. The injunction was discharged upon the payment by HWH of HK$41,900,000 into court on 22 December 2015. That sum remains in court.

299.  In cross-examination, it was suggested that a discount of around 10% would not be unusual in the context of a block sale of shares. That may be correct in general terms. However, I think it would be unusual for such a discount to be agreed either (a) after a written agreement is made, or (b) if supposedly agreed before the written agreement, in terms contrary to a contemporaneous written agreement (containing an entire agreement clause).

300.  In his evidence, SVO said that he could not recall any discount given to Fang, or otherwise the adjusted price stated in the Transfer Agreement. But it is fair to note that SVO did not actually deny that a discount was given.

301.  In his evidence, Fang stated that it was necessary for the 1% CT Shares sale under the Transfer Agreement to appear to be at the same price as the price paid by Sims. This was because if Sims were to purchase CT shares at a higher price and around the same time CT shares were exchanged at a lower price, that would call into question whether the fair market value of the CT Shares acquired by Sims should be accounted for by Sims at the higher or lower price. It was, Fang said, unlikely that Sims would have proceeded with the transaction if Sims had immediately to write down the value of its investment.

302.  It was in those circumstances that Fang says Paul Chow agreed with SVO that the discount would be given. As he put it, the Transfer Agreement was in effect doing a favour for Delco, to ensure that Delco was able to sell some CT shares to Sims. Hence, it was appropriate for Delco to give a discount. Only after Paul Chow reported back to Fang about SVO’s agreement did Fang sign the Transfer Agreement. Fang said he trusted SVO, so did not request that the agreement or promise be documented separately in writing (and I think it fair to note here that SVO gave similar evidence as regards the relationship with Fang as part of the explanation for a few documents shown to him).

303.  On the other hand, where the purpose of the Transfer Agreement was to ensure that HWH’s shareholding did not fall below the 30% it required, it might be thought that the purpose of the agreement was to do a favour for HWH. Looked at that way, there would seem to be little commercial incentive for any discount to have been given by Delco. I also take into account that Fang admitted that he was very keen on having Sims purchase CT shares because Sims was the world’s biggest scrap metal player and he was proud to have Sims as a shareholder in CT. On that basis, the commercial imperative would seem to be on the HWH side, which would make it unlikely that Delco would suddenly have agreed to sell at a substantial discount of around HK$5 million.

304.  I reject HWH’s pleaded contention that the representation of the 10% discount was made with the intention of inducing HWH to enter into the Transfer Agreement. Such a pleading conflicts with the argument advanced on behalf of Fang on one of the technical points (see below), namely that the parties had already reached a consensus to sign the agreement to purchase the 1% CT Shares, and is contrary to the idea of an already orally agreed 10% discount.

305.  I also agree with Mr Dawes’ submission that the unlikelihoods are compounded by the idea that HWH would be selling 6% of the CT shares to Sims at HK$4.5 per share, whilst purchasing 1% of CT shares, Delco at a discount to that price. This problem could easily have been avoided by altering the arrangements so as to provide that Delco and HWH sell 11% and 5% to Sims respectively – and Fang in evidence it offered no explanation as to why that was not done.

306.  Further, where the price was supposedly agreed before the Transfer Agreement was signed, it seems to make little sense that the lower price was not reflected in that agreement. The explanation offered on behalf of Fang seems to be that in order to avoid having to amend the figures in the draft sale and purchase agreement with Sims, it was proposed and agreed on an urgent basis that Delco and HWH would enter into the Transfer Agreement, which was then urgently drafted to confirm and formalise that agreement. It is said that the terms of the Transfer Agreement had already been agreed, and emphasis was placed upon the importance of the “forthwith completion” provided for in clause 2.1, so as to ensure to avoid the serious consequences if HWH’s shareholding were to fall, even momentarily, below 30%. However, I am not sure why Sims would have needed to know the precise terms of the side arrangement between Delco and HWH, so I do not think the fear of amending the arrangement with Sims is established.

307.  In listing questionnaires filed for case management purposes, Paul Chow was originally listed as a witness who would give evidence on behalf of Fang/HWH. Indeed, as the person who supposedly made the oral agreement with SVO, Paul Chow was the obvious (and best) witness to speak to that agreement. However, Paul Chow was not called as a witness. Nor was any explanation offered at trial as to why he was not called, or could not have been called. In fact, Fang admitted that he did not even ask Paul Chow to testify. Nor – subject only to one point which I make below – is it clear to me why the CFO of CT would involve himself in negotiating a discount for the sale of CT Shares from one existing shareholder to another. It is even less clear to me why he would have taken it upon himself to do so, without being asked by Fang, as Fang suggested in evidence. That seems unlikely.

308.  The one point is that the 23 November 2015 Monckton Chambers letter to CT, dealing with the 1% CT Shares Claim, says the project was coordinated and arranged by CT (which may lend some support to the idea that Paul Chow was legitimately involved in the negotiation of the price), and it stated the claim to be “approximately HK$41,900,000 in cash”. But that point seems to me even to emphasise the importance of Paul Chow’s evidence, which was simply not called.

309.  I keep firmly in mind that documentary evidence which appears to show clear instructions being given to Delco’s lawyers that the amount payable and to be claimed was only for the HK$41.9 million (albeit on the basis of a commission, or adjustments, rather than an agreed discount).

310.  However, ultimately, on balance, I accept that the original amount claimed was the subject of a mistake. Again on balance, it seems to me that (1) the totality of the evidence, (2) the inferences to be drawn from that evidence, as well as (3) the inference which can be drawn from the absence of Paul Chow as a witness of fact, and (4) the inherent likelihoods and the commercial sense, lead to the conclusion that there was no orally agreed discount of 10%. I would also reach the same conclusion, even if no adverse inference is to be drawn from the fact that Paul Chow was not called as a witness, and the Court is left otherwise to resolve the disputed issue on the evidence available.

311.  In reaching that conclusion, I accept that there remains some confusion as to what other adjustments might have been in mind when the demands were originally made, but I do not think that lack of clarity changes the overall assessment of the evidence.

312.  Mr Dawes also relied on two more technical points. First, the alleged discount agreement actually pre-dated the Transfer Agreement itself. Secondly, there was no basis for any estoppel preventing claiming the original amount, rather than the allegedly agreed discount or adjustment amount.

313.  Delco relies on the entire agreement clause 3.4 of the Transfer Agreement. By reference to Inntrepeneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611, Mr Dawes submitted that the purpose of an entire agreement clause is to preclude a party to a written agreement raising any promises or assurance made in the course of negotiations as having any contractual force, save in so far as they are reflected and given effect in the written document. The operation of the clause is to denude what would otherwise constitute a collateral warranty of legal effect. Here, the assertion of the oral agreement directly contradicts the written terms of the Transfer Agreement, and so is precluded by clause 3.4.

314.  I have in effect already accepted this point on the facts.

315.  As to the connected estoppel point (a defence raised by HWH), Mr Dawes submitted that the scope of any estoppel defence cannot be so broad as to destroy the whole advantage of certainty for which parties stipulate when they agree upon a no oral modification clause: see MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 at §16. By analogy, Mr Dawes submitted, the reasoning must also apply to any purported departure from an entire agreement clause, which serves to increase legal certainty. Mr Dawes also relied upon the principles as to when a promissory estoppel arises, as delineated in Luo Xing Juan v Estate of Hui Shui See [2009] HKCFAR 1 at §55.

316.  On the basis of those authorities, Mr Dawes submitted that HWH’s promissory estoppel defence is unsustainable and bound to fail, because:

(1) the alleged promise by SVO to Paul Chow was made before the Transfer Agreement, and therefore cannot constitute a relevant promise for the purposes of promissory estoppel;

(2) in any event, the alleged informal promise cannot override the terms of the Transfer Agreement containing an entire agreement clause.

(3) there was plainly no unequivocal promise by SVO on behalf of Delco that it would not enforce the entire Sale Price against HWH.

317.  Mr Wong submitted that reliance on the MWB Business case is misplaced, since that case deals with “no oral modification clauses”, but there is no such clause in the Transfer Agreement – and, he asserted, the agreement of the 10% discount is not an ordinary modification of the Transfer Agreement in any event. Mr Wong also submitted that, in so far as the analogy with an entire agreement clause is concerned, if it is intended to mean that equity will not prevent a party who is estopped from denying his promise detrimentally relied upon by the counterparty, that takes the decision in the case too far, as it investigates the doctrine of promissory estoppel.

318.  But I accept Mr Dawes’ submission that Delco was not saying that equity will not prevent a party who is estopped from denying his promise detrimentally relied upon by the counterparty. Delco’s submission was that in order to constitute an unequivocal promise for the purposes of sustaining a defence of promissory estoppel, there must at least be some words or conduct unequivocally representing that the variation was valid notwithstanding the entire agreement clause, and that something more would be required than the informal promise itself. Therefore, I also accept that the alleged informal promise by SVO – of which he said in evidence he has no recollection, and thought unlikely (see above) – did not constitute an unequivocal promise for the purposes of the promissory estoppel defence.

319.  The 1% at CT Shares Claim succeeds on the amount in the written Transfer Agreement, namely HK$46,883,466.

L. Uncapitalised Portion Claim

320.  This claim is made in A3040.

321.  The claim was originally directed at both CT and Fang, but given that Fang admitted that he had taken up the obligation, CT dropped out of the picture, and the contest remained one solely between Delco and Fang.

322.  Pursuant to the Capitalisation Agreement, HK$111,854,000 (i.e. the Capitalised Portion) of the DA Shareholders Loan was capitalised and 344,999,954 shares in CT were allotted to Delco (as Delco Asia’s nominee). Delco Asia’s Uncapitalised Portion was in the amount of HK$57,827,118. The Uncapitalised Portion was not paid by CT to Delco Asia, but it (or perhaps a slightly smaller sum) was instead paid to Fang.

323.  There was also a dispute as to whether or not Fang’s receipt of the Uncapitalised Portion was pre-approved by Delco Asia. Fang relied on a letter signed by Gu (who was at the time both an executive director of CT and a director of Delco Asia), instructing the relevant bank to pay HK$50 million out of the listing proceeds to Fang.

324.  Fang also relied on part of the Global Offering document which states that approximately HK$50 million of the proceeds received into the settlement account of CCBIC shall be held by it, and that CT had given irrevocable instructions to apply such sums directly to repay the shareholders’ loan upon Listing. In my view, this simply cannot be regarded as a written record of the alleged agreement that CT’s liability to Delco for $50 million will be extinguished by CT paying that sum to Fang instead. It says no such thing. But anyway, that point now seems moot.

325.  Fang does not now dispute that he received the Uncapitalised Portion, and that he took up CT’s liability to pay to Delco Asia. But he relies on the defence of set-off to extinguish his liability. Further, he disputes the quantum, saying that the Uncapitalised Portion was adjusted to HK$55,501,079, by reason of alleged payments made by CT to Delco/Delco Asia after the Capitalisation Agreement.

326.  Delco’s main point on this claimed adjustment is that Fang has failed to adduce any relevant invoices or evidence in support of the alleged payments, or to explain the context in which the alleged payments were made. Further, where Fang seeks to deviate from the unequivocal wording of the Capitalisation Agreement and to argue that there was an adjustment to the lower figure, he bears the burden of proof on his averments.

327.  However, Fang argues that there are ample contemporaneous documents to explain why the Uncapitalised Portion was adjusted to the lower figure.

328.  Fang points out that the definition of “Delco Asia Loan” in the Capitalisation Agreement identifies that the amount of the loan was HK$169,681,118 as at 21 June 2010. Part of that amount was the loan due from CTHK to Delco Asia in the amount of HK$140,489,411 as at that date (that figure being handwritten on the table mentioned below). However, as shown in a table or ledger working paper, there were subsequent payments and debts, resulting in a net reduction of HK$2,472,641, so reducing CTHK’s loan payable to Delco Asia to HK$138,376,770 (which figure is also handwritten).

329.  There are also Morison Heng’s audit working papers on the amounts due from related companies of Delco Asia for the year ended 31 December 2010. Those papers also show a further adjustment to add interest income and to deduct a small (immaterial) difference, resulting in the amount being set off as HK$138,523,392. Deducting the difference between that amount and the amount shown on the Capitalisation Agreement results in the figure of HK$55,501,099 (HK$20 more than that pleaded by Fang). Although it is not known how the small discrepancy arose, the working papers show the amount of HK$55,501,079 being reallocated to Fang’s current account.

330.  Reliance has also been placed on Delco’s apparent contemporaneous understanding, agreement and acknowledgement that the Uncapitalised Portion had been adjusted to HK$55,501,079.

331.  There is an email dated 31 August 2011 from FVL to Morison Heng, in which FVL set out a computation of the Uncapitalised Portion giving the amount of HK$55,501,079. In the same email, FVL stated:

This remaining amount was paid by CT immediately after the listing to Mr Fang. Although Mr Fang suggested to set off this payment against the receivables he had on Delco Asia, Delco Asia never agreed to that. We have had a discussion with Mr Fang and he confirmed in writing that this amount of HKD 55.501.079 will be paid to Delco Asia at the latest in the second week of September 2011. I will send you a copy of that email.

This implies that the set-off which is currently reflected in the accounts of Delco Asia is not correct. There should not be a set-off. The accounts should record a receivable on Mr Fang of HKD 55.501.079. As a consequence the liability side of the balance sheet should be changed as follows [with reference to a loan from Mr Fang of HK$31,767,702].

332.  FVL required that the accounts should mention a separate asset and a separate liability, which would not change the P&L. In his oral evidence, he explained that he was stating that a true receivable ought not to be set off against a fake liability. It can also be noted that this email is evidence against the existence of the 2010 Agreement and/or the Convention.

333.  There are various other documents in which Delco Asia appeared to acknowledge the sum of HK$55,501,079 as the Uncapitalised Portion. They include: (a) Delco Asia’s audit confirmation dated 15 August 2011, agreeing and confirming that amount as owed by Fang to it; (b) the written resolution of directors approving the financial statements for the year ended 31 December 2010; and (c) those financial statements, signed by Gu on behalf of Delco Asia’s board of directors.

334.  It can also be noted that there is an email dated 4 March 2011 from Emily Chan to FVL, with the topic of reconciliation with Fang and Delco current accounts, stating that Fang will pay HK$55 million to Delco. The relevant attached table shows an amount of HK$55,354,477 as the Uncapitalised Portion.

335.  There is also an email dated 1 September 2011 from FVL to Fang, copied to Emily Chan, HDL and SVO, saying it is OK to make the payments of the HK$55,501,079 and US$1 million at the latest in the second week of September.

336.  Mr Dawes submitted that no reliance should be placed on the table or spreadsheet showing adjustments to the Uncapitalised Portion, because despite referring to his witness statement Fang said during cross-examination that he had no personal knowledge of the table, and because Fang has failed to adduce any relevant invoices for evidence in support of the payments, or to explain the context in which they are said to have been made. Whilst Fang mentioned that he was informed about the alleged adjustments by a Winnie Yeung, there was no documentary evidence supporting any such conversation and Winnie Yeung was not called as a witness.

337.  Mr Dawes also referred the error in figures, because the handwritten amount of 140,849,410 is different from the amount of the CTHK Loan of HK$140,489,411. Mr Wong described that incorrect figure as a “typo”, because the correct mathematical calculation to reach the Delco Asia Loan of HK$169,681,118 requires an input figure of HK$140,849,410, consistent with the handwritten figure on the table.

338.  I note that the Monckton Chambers letter dated 5 November 2015 making claims against Fang included claim (3) being the Uncapitalised Portion Claim in the sum of HK$57,827,119. However, this is some years after the event, and I have already accepted that the figures claimed in that letter may not be accurate, even if they were the subject of instructions.

339.  On balance, it seems to me that the preponderance of evidence identifies that the correct figure for the Uncapitalised Portion is HK$55,501,079.

M. CB Interest Claim

340.  This claim is made in A2939.

341.  Delco’s case against Fang/HWH is as follows:

(1) CT failed to pay Delco the first half-yearly interest payment of HK$6,252,000 due on 1 September 2012 (i.e. the CB Interest).

(2) Instead, on the instructions of Fang, and without Delco’s consent, CT made payment of the CB Interest to HWH’s account (in effect, to Fang himself).

(3) Since Delco and Fang enjoyed a long-standing relationship, Delco decided after the event to cover Fang’s wrongdoing. To that end, SVO on behalf of Delco issued a backdated written instruction purporting to instruct CT to transfer the CB Interest payment to HWH.

(4) It was the agreement between Delco and Fang/HWH that Fang/HWH would repay the CB Interest to Delco in consideration for Delco’s relinquishing its claim against CT and signing the backdated instructions.

(5) In breach of the agreement, Fang/HWH failed to make the CB Interest payment to Delco.

342.  The starting point is to note that Fang has expressly accepted in his pleading that he owed Delco the CB Interest. His defence is only as to set-off and/or estoppel by convention. I have already rejected those defences. But, as a matter of context and overall witness assessment, it may remain relevant to deal with the factual questions which were raised.

343.  I accept that in around August 2012, Fang was in urgent need of money. He sent an email to SVO on 16 August 2012 asking for a loan from SVO urgently. (Incidentally, this email speaks loudly against the existence of 2010 Agreement and/or the Convention.) I accept that this need for money provides the explanation as to why Fang instructed CT to transfer the CB Interest to himself/HWH without Delco’s prior authorisation. That was a breach of Fang’s directors’ duties owed to CT.

344.  I accept that Delco decided to cover up that breach by issuing a backdated instruction letter dated (in fact backdated to) 28 August 2012, signed by SVO. In it, Delco authorized the transfer of the first CB coupon interest (i.e. the CB Interest) to HWH “with effect from 07 September, 2012”. That particular wording seems to me clearly to evidence that the authorisation was granted after the event, as the payment documents identify that Emily Chan made the request for payment to DPS on 7 September 2012, and the transfer was in fact effected on that day. There is no other convincing reason why the authorisation would otherwise have been identified as taking effect from that date, when the coupon interest payment was actually due on 1 September 2012, and the date of payment request on 7 September 2012 would not have been known on 28 August 2012.

345.  In his evidence, SVO confirmed that he signed the backdated instructions only after the payment had been made to Fang. He also specifically rejected the suggestion that Fang’s liability to Delco for the CB Interest had been extinguished due to the 2010 Agreement or in part repayment of the Debts, whether pursuant to the 2010 Agreement or otherwise. He also said in terms that there was no 2010 Agreement, that such an assertion was in any event illogical in light of their dealings, and that Fang was lying. I accept that evidence.

346.  I acknowledge that SVO told the Enterprise Division of the Amsterdam Court of Appeal that the CB Interest had been paid by CT to Fang/HWH with approval from HPL and SVO, and recorded as such in Delco’s books. But that passage does not identify when the approval was given, and was not addressing the question of chronology.

347.  Therefore, contrary to the submission made otherwise, there is direct evidence in support of and substantiating the backdating of the instructions, and the decision of Delco to cover up Fang’s wrongdoing by arranging for that backdating. There are also numerous emails after the event which lend further support.

348.  There is an email dated 3 May 2013 from HDL to Fang, copied to SVO, Emily Chan and Paul Chow, about the first CB interest payment due 1 September 2012. HDL stated that following his previous letter of 30 April 2013, CT has not paid the interest, and urged that it be paid. It seems that there was no reply from Fang, and the absence of a reply does not support the 2010 Agreement of the Convention. Nor does it support the alleged pre-approval from SVO.

349.  This email post-dates an email dated 25 April 2013 from FVL to HDL and SVO, in which FVL expresses his understanding that “you have signed off on CT having paid the first interest payment to Fang with your approval”. It is not clear whether that is a reference to prior approval, or approval after the event, but the evidence overall points to after the event approval.

350.  There is an email dated 30 April 2013 from HDL to Fang, Emily Chan and SVO, saying that CT had not yet paid the CB coupon/interest due on 1 March 2013. The email also deals with a possible solution to arrange additional financing for CT at short notice, and the introduction of the possibility of a special financing programme. Though it is not central for present purposes, I note that in oral evidence Fang said he turned the suggestion down, and this ended up in a big argument at the Kowloon Shangri-La Hotel.

351.  More pertinent is an email on 20 September 2013, from HDL to SVO stating that CT did not complete its first interest payment (a reference to the CB Interest) to Delco, but gave it “rather to Fang without informing us”. HDL stated that that was a “cardinal sin to a CEO, yet we covered for him by stating that the interest was paid by CT and that we can now claim this from Fang”. That is, of course, entirely consistent with Delco’s claim, as well as being consistent with FVL’s email to both HDL and SVO on 25 April 2013.

352.  In an email from FVL to HDL dated 30 October 2013, it stated that Delco had “covered for CT by item not making waves, or covering CT/Fang by providing written approval (see agreement for the first interest instalment)”.

353.  Together with an email dated 10 January 2015 from FVL to HDL, FVL included an “overview re the receivable from Fang et al”. The point of doing so was to see how certain 2014 figures might match how the payables to and receivables from Fang et al were built up. For present purposes, it is to be noted that the receivables included the CB Interest of HK$6.24 million.

354.  I reject the assertion made by Fang that the CB Interest had been paid to him as a part payment or in order to set off the Debts, or pursuant to the 2010 Agreement or Convention.

355.  Ultimately, there is no answer to Delco’s claim for the CB Interest, and the claim succeeds.

N. Breach of Fiduciary Duty Claim

N.1 Introduction

356.  This claim is made in A2939.

357.  The summary of Delco’s case as to breach of fiduciary duty by Fang is:

(1) As a matter of law, a director purchasing the shares of a shareholder is in a position of special advantage which, in appropriate circumstances, may give rise to fiduciary obligations.

(2) Fang undertook the task to look for potential third parties to purchase Delco’s shareholding in CT, and Delco reposed trust and confidence in him.

(3) There should be no difficulty in finding that Fang was under a fiduciary duty to disclose material facts in relation to the purchase price of CT shares to Delco.

(4) The potential investment of USUM in CT was material information relating to the price of CT Shares. The materiality is evident from the change in trading price.

(5) Fang breached his fiduciary duty in failing to disclose the potential investment of USUM in CT prior to the January 2015 Sale, when he had knowledge of it.

(6) HWH (the company solely owned and controlled by Fang) also was guilty of dishonestly assisting Fang to breach his fiduciary duties by entering into the January 2015 SPA whereby it purchased Delco’s CT shares at an undervalue.

358.  The summary of Fang/HWH’s defence to this claim can be summarised as follows:

(1) The claim is frivolous as even on Delco’s case it is impossible for Fang/HWH to pass what Delco considered to be inside information to Delco. There is no positive duty to breach the law with criminal consequences in order to comply with so-called fiduciary duties in a strict commercial context.

(2) Even had Fang disclosed the potential investment to Delco on before 23 January 2015, Delco could not have lawfully used inside information to bargain for a higher price as it would be a criminal offence to do so.

(3) There is no evidence to suggest that Delco had no access to any inside information, when it had a representative on the board of directors, namely SVO.

(4) The evidence demonstrates that Delco chose to proceed with the transaction despite having knowledge (through the relevant announcements published by CT) of USUMHK’s potential investment in CT.

(5) There is a material commercial difference between USUMHK’s subscription, where the subscription money would be kept within CT and to which USUMHK would have substantial control after the subscription, and a simple sale of Delco’s shares for which Delco was to receive cash consideration.

(6) Fang undertook to do no more than try to find potential buyers for Delco. Fang did not owe any fiduciary duties to Delco as they were in a purely commercial relationship, dealing with each other as principals at arm’s length.

(7) The claim would inevitably fail on causation in any event. USUMHK’s potential investment in CT became public knowledge and known to Delco before completion of the January 2015 Sale, but Delco failed to find out more or to renegotiate or to pull out of the sale. Indeed, no complaint was made until the commencement of A2939.

(8) Even if Fang were a fiduciary, which is denied, Delco has failed to prove that Fang actually had inside information on or before 23 January 2015, such that a duty to disclose would have arisen.

(9) There is no evidence for any proper assessment of the amount of any equitable compensation, and the evidence relied upon by Delco is fundamentally misconceived and of no utility.

359.  I keep all these matters in mind in my analysis below.

360.  As will also become clear below, it is fair to include as part of the introduction to this claim that the evidence upon which it falls to be determined was added to significantly and materially through late disclosure immediately before or during the trial.

N.2 Applicable Principles

361.  The person attracts fiduciary duties where he undertakes an obligation to act in the interests of another. The essence of a fiduciary relationship is that one person exercises power on behalf of another and pledges himself to act in the best interests of the other.

362.  Hence, fiduciary relationships involve duties of trust, confidence and loyalty. Those duties are, in general, attracted by and attached to a person who undertakes or who, depending on all the circumstances, is treated as having assumed, responsibility to act on behalf of, or for the benefit of, another person.

363.  In general, directors do not owe fiduciary duties to shareholders, but over them to the company. However, in some special circumstances, fiduciary duties which carry with them a duty of disclosure can arise so as to place directors in a fiduciary capacity vis-a-vis the shareholders.

364.  Essentially, directors have (or, if not all of them, some directors may have) inside knowledge of the company’s affairs, and intimate knowledge of all the advantages and implications of any plan that they might have to acquire the shares of other shareholders. Hence, a director purchasing the shares of a shareholder is in a position of advantage and that advantage is of a special kind which, in appropriate circumstances, may give rise to fiduciary obligations.

365.  In Peskin v Anderson [2001] 1 BCLC 372 at §34, Mummery LJ sought to give examples of the type of situation or special circumstances in which fiduciary obligations might be generated, especially in those cases in which the directors, for their own benefit, seek to use their position and special inside knowledge acquired by them to take improper or unfair advantage of the shareholders. The examples he gave included the directors of a company (1) making direct approaches to, and dealing with, the shareholders in relation to a specific transaction and holding themselves out as agents for them in connection with the acquisition or disposal of shares; and (2) failing to make material disclosure to them of inside information in the context of negotiations for a take-over of the company’s business.

366.  Ultimately, the test is whether having considered all the circumstances the director has undertaken, or is treated as having assumed, responsibility to act for the benefit of the shareholder. The test is an objective one.

367.  In his submissions, Mr Wong placed emphasis on the settled law that where a fiduciary committed a breach of fiduciary duty, there must be some causal connection between the breach and the loss for which compensation is recoverable: see Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at §§73-82, and AIB Group (UK) Ltd v Mark Redler & Co Solicitors [2015] AC 1503 at §§133-138.

368.  Of course, I accept the requirement that loss must be caused by the breach of trust, in the sense that it must flow directly from it, and that that requirement is also the key to determining whether causation has been interrupted by the acts of third parties. But I agree with Mr Dawes’ submission that the relevant paragraph of the Libertarian case is §93. Where a plaintiff provides evidence of loss flowing from the relevant breach of duty, the burden is on the defaulting fiduciary to disprove the apparent causal connection between the breach of duty and the loss apparently flowing from it.

369.  In every case, there must be shown to be some causal connection between the breach of trust and the loss.

370.  The aim of equitable compensation is to provide a monetary equivalent of what has been lost as a result of a breach of duty. The plaintiff’s actual loss as a consequence of the breach is to be assessed with the benefit of hindsight, and foreseeability is not a concern in assessing compensation. But, to echo the requirement for causation, it is essential that the losses made good are only those which are a common sense view of causation were caused by the breach.

N.3 Whether Fiduciary Duties Owed

371.  I accept that Fang undertook, or should be treated in light of all the circumstances as having assumed, responsibility to act for the benefit of Delco in the January 2015 Sale. That triggered the assumption of fiduciary duties. This is apparent from the circumstances as a whole, as follows.

372.  Delco and Frank had been partners in the Joint Venture for many years prior to the January 2015 Sale. The unchallenged evidence of HDL, which I accept, is that Delco reposed trust and confidence in Fang during the subsistence of the Joint Venture.

373.  When Delco intended to exit from CT, after CT had been listed, Fang undertook the role of looking for potential third parties to purchase Delco’s shareholding in CT – which is not the same as merely no more than trying to find potential purchasers. Fang expressly accepted this in cross-examination, and there is contemporaneous documentation in an email dated 17 June 2011 from Fang to FVL, where Fang stated that he would find any potential third parties for Delco, and asked FVL to advise the price preference. Fang explained in cross-examination that he undertook the role because he was in the relevant industry and managing CT in Hong Kong, so often had contacts with investors. Fang knew that Delco was in effect dependent on him on matters relating to its exit from CT.

374.  On a number of occasions, Fang in fact introduced purchasers or potential purchasers to Delco:

(1) In January 2012, Fang introduced Sims to Delco, and Sims acquired 10% of the shares in CT from Delco.

(2) In April 2014 – as Fang initially denied but subsequently accepted – Fang introduced Tai Security to Delco and Tai Security acquired 11.02% of the shares in CT from Delco. Either HWH (on basis of contemporaneous documents), or Kong Wei (on Fang’s evidence) received a HK$2 million introduction fee.

(3) In early December 2014, Fang introduced Mr Qiu Jibao of the Feiyue Group to purchase Delco’s remaining shareholding in CT. An email from SVO to HDL dated 10 December 2014 suggests that, for the transaction, Fang would charge a commission of HK$0.3 per share – though Fang denied that he would receive commission. Insofar as it is at all relevant, I find that he had suggested that he would charge a commission. However the Feiyue transaction did not come to fruition.

(4) Ultimately, Fang himself, using HWH, agreed to purchase Delco’s remaining shares, essentially on the same terms as had been the proposed terms of the sale to Feiyue.

375.  It is not disputed that Fang was in control of CT’s business which was based in China, whereas HDL and SVO resided in the Netherlands, without direct and day-to-day involvement in CT’s operations. I accept SVO’s evidence where he confirmed that his role as director of CT was limited, and his knowledge of what was going on was based on the information provided to him by Fang. Hence, Fang had all the relevant and material inside knowledge of CT’s business and affairs, and I accept Mr Dawes’ submission that Fang was as a result in a position of advantage by reason of his office in CT to negotiate a favourable purchase price with Delco.

376.  In any event, the duty was admitted by Fang in his cross-examination, when he described himself as having the “diligent duty to help him, I mean [SVO] and Delco, to sell his or their shares”. He also accepted that when he got information, he must tell them. Though he said he must do it as a friend, I think the overall circumstances identified that he assumed the duty to do it as a fiduciary.

377.  To look at whether Fang owed fiduciary duties to Delco only by reference to the January 2015 Sale, being a sale between Delco and HWH (Fang’s wholly owned vehicle), is looking at matters too narrowly. It may be right that between ordinary commercial parties, the buyer would want to pay as little as possible, whereas the seller would want to receive as much as possible, for the goods or services. But to look at the January 2015 Sale as the focus point for the assessment of whether fiduciary duties were owed, as Mr Wong submits, is to look at the wrong point of focus. The fiduciary duties were assumed by Fang when he agreed to help Delco sell its shares. In those circumstances, Fang had to act in the best interests of Delco – and he cannot escape that duty by pointing to the fact, which he chose, and which is the very subject of complaint, that he interposed himself/HWH as the ultimate purchaser of Delco’s shares.

378.  I accept Mr Dawes’s submission, based upon the Peskin case, that the circumstances were such as when fiduciary allegations are generated because the directors, for their own benefit, seek to use their position and special inside knowledge acquired by them to take improper or unfair advantage of the shareholders. As it was also put, there was an informational asymmetry between Fang and Delco in relation to CT’s affairs, and that existed notwithstanding that SVO was a member of CT’s board (see below).

379.  I do not think it necessary or helpful to dive into cases relating to insider information, as that arises in other types of case. Even if, for the sake of argument, Fang had inside information that he could not tell Delco, that would not mean he could personally use that information to make a profit for himself at the expense of Delco.

380.  Of course, I accept as a matter of principle that Delco also could not make use of inside information, in the usual sense of stealing a march on other participants in the market. But that is not the situation relevant to the present analysis. Rather, the analysis is looking at the situation of what information was and/or should have been known to two persons or entities engaged not in a sale of shares in the market, but in the sale of shares as between themselves.

N.4 Whether there was a Breach of Duty

381.  The idea for HWH who required Delco’s CT shares came up on 15 December 2014. An SFC waiver application was prepared by Stephenson Harwood (“SH”).

382.  The January 2015 SPA was ultimately made on 23 January 2015, which is the key date as regards knowledge and disclosure. It provided for Delco to sell to HWH 115,197,991 CT Shares, at the price of HK$2.50 per share. It also had an entire agreement clause (clause 7.6). It can be noted that the agreement was signed (a) for Delco by SVO, witnessed by a solicitor from SH, and (b) for HWH by Fang, witnessed by Kong Wei (which can be contrasted with what Fang has since said about contact with Kong Wei in the period – see further below).

383.  A breakdown of payments in relation to the consideration received by Delco for the January 2015 Sale, amongst other things identifies an ‘introduction fee’ of HK$2 million payable to HWH. This may make little apparent sense, but I do not think the matter is material to the present analysis.

384.  By way of introduction, Fang said in his witness statement evidence in terms that at the time of the January 2015 Sale, there were not yet any discussions about USUMHK’s investment into CT. He said it was only sometime in late January 2015 that Kong Wei raised with CT the possibility of approaching Tu to see if USUMHK would be interested in investing in CT with a view of using CT as the platform to expand the China metal recycling business. The correspondence and other documents now available, and the inherent likelihoods and probabilities, allow seeing if the reality is a different story.

385.  One of the things to consider when assessing what Fang did, and what Fang did or did not know, prior to 23 January 2015, is to see what his or CT’s lawyers did and what they knew. The relevant Hong Kong lawyers were SH, and on his own evidence (filed an affirmation in other proceedings – see below) the lead partner and first point of contact for the client was Voon Keat Lai (“Lai”). The main solicitor at SH working with Lai was Victor Lee. The relevant PRC lawyers were Zhong Lun, and in particular Kong Wei.

386.  It is appropriate to note at this point that I wholly reject the suggestion repeatedly made by Fang during his oral evidence that the lawyers frequently conducted themselves or engaged in discussions and negotiations and drafting without instructions. I expressly reject any suggestion that the tail was wagging the dog. As he was forced to concede in response to direct questions from the Court, it is the client (here, Fang and/or CT) that gives the instructions to the lawyers, and it is the lawyers who act on the instructions of the client – not the other way round. The attempt to pass responsibility to the lawyers was neither attractive nor convincing.

387.  The disclosure of the relevant documents from the files of SH has been less than satisfactory, but it may not be necessary for present purposes to go into the detail. It suffices to say that the disclosure has been made late and on a piecemeal basis, including on the last working day before the trial began and continuing during the trial itself. It can also be added that Delco’s persistence was justified in pursuit of this particular discovery, and in its belief that the absence of documents relating to the USUM investment prior to 16 February 2015 was implausible. As well as various email exchanges and draft transaction documents, one document produced was a chronology but together by SH (“SH Chronology”).

388.  On the basis of how the new documents came to be discovered, it seems entirely clear that they were not placed before Fang when he made his witness statements, and presumably he thought that they would not see the light of day.

389.  In his witness statements, Fang said (in summary):

(1) By December 2014, CT’s position was precarious, after announcing on 11 November 2014 a realised loss of HK$760 million. The CB was going to expire in March 2015, and Fang was desperate to look for funding. Furthermore, as Delco desired to exit, Fang feared that any unexpected move of Delco would cause market confidence in CT to collapse. He therefore decided to purchase Delco’s remaining CT shares, hoping this would give some market confidence.

(2) Fang was reluctant to purchase Delco’s CT shares because money was tight, and he had to borrow money for the purchase.

(3) The January 2015 SPA was signed on 23 January 2015, and three days later Sims agreed to sell its CT shares to Good Union and Roundhill. Sims had not told about the sale prior to the announcement made on 27 January 2015.

(4) After the January 2015 Sale, and only in late January 2015, Kong Wei raised with him the possibility of approaching Tu of USUM to see if it would be interesting in investing in CT. A preliminary meeting then took place in late January 2015 in Chongqing, when Kong Wei and Fang met Tu. There was no discussion as to how and at what price USUM would invest into CT, but Fang told Tu about the proposition for CT to acquire Sims.

(5) After the meeting, Fang had not heard anything from Kong Wei until shortly before 16 February 2015, when Kong Wei suggested bringing his Hong Kong lawyer to Chongqing for a further meeting with Tu. Fang was under the impression that Tu was serious about investing in CT, but he did not know what to expect from the meeting.

(6) At that meeting, Fang told Tu about the urgent need for CT to obtain funding, the forthcoming CB maturity, CT’s plan to do a placement in order to raise funds for its existing business, and as regards the proposed acquisition of sins. Tu agreed to provide US$50 million, but on the condition that if the placement did not happen by 30 June 2015, CT would repay the sum to USUM.

(7) Prior to the announcement made on 16 February 2015, there was no agreement, understanding or even a solid indication from USUM that it would invest in CT. At the stage when CT’s announcement was made on 16 February 2015, there was still no indication as to the price at which USUMHK would invest into CT.

390.  Now that the documents have finally seen the light of day, they are illuminating. They tell a different story.

391.  There is an email at 12:59 on 13 January 2015 from Victor Lee to a colleague at SH, asking her to draft a share subscription agreement, and saying:

As discussed, [CT] (the “Company”) proposes to place an aggregate of 19.9% new shares to independent third-party(ies) which the Company is in the process of identifying. The subscription does not require shareholders’ approval but is subject to the approval of the HKSE for the listing of, and permission to deal in, the new shares on the HKSE

392.  That email identifies that SH had been instructed as regards CT’s proposed placement or subscription, at least by the morning of 13 January 2015.

393.  In response to Victor Lee’s request on 13 January 2015, by email at 18:44 on 15 January 2015, the requested solicitor at SH produced a first draft (dated 15 January 2015) of a Subscription Agreement for new shares in CT. It seems the draft was later sent by email to Kong Wei, on or before 20 January 2015.

394.  Indeed, it is also clear that Kong Wei was involved, and that SH knew that Kong Wei was involved. A 14 January 2015 email from Victor Lee to Kong Wei, copied to Lai, with the subject ‘Proposed transactions’, refers to a telephone conversation the previous day (i.e. 13 January 2015) and SH’s understanding that Kong Wei would like to know the relevant requirements and procedures for the proposed sale of CT Shares held by two substantial shareholders of the company, designated Vendor A and Vendor B. There is significant detail provided about the relevant vendors, and the proposed transactions. From that context, it is clear that Vendor A is Delco, and that Vendor B is Sims. The proposal for Vendor B is that it sell its approximately 15.88% shareholding to two third party purchasers (Good Union and Roundhill).

395.  In my view, even though Vendor B is not identified by name, the details would have clearly identified to CT’s regular Hong Kong solicitors that it was Sims. That SH knew about Sims’ proposed sale of its entire shareholding in CT to two third parties must have been from information or instructions coming from CT, and likely from Fang. The idea that the Sims sale came as a surprise to Fang is a nonsense. That this price sensitive information was known also indicates that the entire arrangements were part of a package deal or overall plan. The discussions related to 3 separate transactions to be concluded at the same time, namely: (1) the sale of CT shares by Delco to HWH; (2) the sale of CT shares by Sims to Good Union/Roundhill; and (3) the placement of 19.9% of new CT shares.

396.  There is a further email of 14 January 2015 at 19:25 from Victor Lee to Kong Wei, copied to Lai, referring to a telephone conversation earlier that afternoon, and setting out a ‘high level summary’ of the steps involved in the sale and purchase of shares in a Hong Kong listed company and the placing of new shares by that company under its general mandate.

397.  An email at 07:53 on 15 January 2015 sent from Lai to Kong Wei identified that they would meet later that evening. Though not apparent from that email alone, the meeting was to include Fang. A further email of the same date makes clear that Paul Chow was also aware of the discussion that would take place between Lai and Kong Wei and Fang that evening.

398.  At 11:54 on 15 January 2015, Victor Lee sent to Lai, at the request of Paul Chow, the CBD pole and warrant instrument, which were related to the sale of CT shares by Sims (one of the three deals) for Lai’s discussion with Fang and Kong Wei later that evening.

399.  The SH Chronology identifies that the meeting indeed took place between Lai, Kong Wei and Fang, in which Lai updated the others on the “deal structure”.

400.  As noted above, the January 2015 SPA was made on 23 January 2015. It was signed on behalf of by HWH by Fang, witnessed by Kong Wei. That it was witnessed by the PRC lawyer, rather than a lawyer or other person in Hong Kong, seems to suggest that it was signed by Fang in the PRC (whether on or before 23 January 2015). In any event, wherever it was actually signed, Fang was apparently physically present together with Kong Wei at the time. This at least casts significant doubt on – and in my view gives the lie to – Fang’s suggestion that it was only after 23 January 2015, and towards the end of that month, that he and Kong Wei met.

401.  On 26 January 2015, Sims announced the sale of its shareholding in CT to Good Union and Roundhill. As already pointed out above, contrary to the impression intended to be left by Fang in his witness statement, this was certainly not a surprise to him. Nor could it have been a surprise to Lai or Victor Lee.

402.  There is then an email dated 29 January 2015 from Victor Lee to Michael Fung of Cheung & Lee, solicitors for Sims, notifying that the SFC had requested CT to disclose whether the purchasers in the Sims transactions had any relationship with HWH, Delco or their respective ultimate beneficial owners. Victor Lee stated that Sims’ advisors would only disclose the identities of the Purchasers pending the consent of the client. By return email of the same date, Michael Fung identified the relevant purchasers as Good Union and Roundhill, and stated that neither of them had any relevant relationship.

403.  On 2 February 2015, CT signed a ‘PRC Counsel Engagement Letter’(“Engagement Letter”), said to be appointing Zhong Lun to advised on the proposed capital raising and share issuance by CT. The identified scope of services included advice on the introduction of investors, albeit that Zhong Lun was supposedly engaged to provide PRC legal advice and services. The Engagement letter mentioned that the proposed capital raising would be in the amount of no less than US$500 million, and at clause 5 provided that Zhong Lun would receive a US$5 million payment as “legal fees” if the transaction succeeded. In cross-examination, Fang said that the US$5 million was a payment of introduction continues for Zhong Lun/Kong Wei, which they would receive if the deal succeeded, and the amount was not for legal fees.

404.  The Engagement Letter was signed by Fang for CT. There is no suggestion in the evidence that Fang sought any wider authority or approval from any other directors before making this agreement. This again suggests that Fang considered himself to have full authority to engage in whatever discussions he felt appropriate for his aims and/or that he wished to be in control of the information flow.

405.  By an email at 12:57 on 13 February 2015, Victor Lee sent Lai (copying Alex Chung, a trainee solicitor at SH) a draft subscription agreement. There is also an email at 14:47 on 13 February 2015 from Alex Chung to Victor Lee, providing draft board resolutions about the subscription agreement.

406.  There is an email at 16:28 on 15 February 2015 from Lai to Kong Wei, with the subject ‘Sample Announcement’, asking the question “something like this?” about the enclosed draft, which reads:

The Company announces that it is considering undertaking a placing of its shares to fund potential overseas expansion of its business. Such placing will only take place if the Company is able to identify potential foreign investment opportunities connected with the business.

The size and target of the placing (if it were to take place) has not yet been determined, but the size of the placing will be determined, among others, by reference to the size of the identified potential investment opportunity. It is unlikely that any placing will result in a change of control of the Company.

The Company has secured a commitment from an independent third party to invest at least USD 50 million if the Company were to proceed with the placing. A deposit of USD 50 million has been received by the Company.

If the Company does not proceed with the Placing by 30 June 2015, the deposit shall be returned to the potential investor.

Shareholders are asked to exercise caution as the placing may not take place.

407.  That email gives the lie to the suggestion that the subscription and the US$50 million deposit were only first discussed and secured at a meeting in Chongqing on 16 February 2015.

408.  In fact, there is another earlier email at 08:08 on 16 February 2015 from Lai to Victor Lee saying:

I am flying to Chongqing with KW and F.

Some changes to the proposal. No placing today but the proposed investor will deposit USD$50m.

I have prepared a short inside information announcement. See below. You will need to top and tail.

Please delete the bit about change of control under the placing.

Can I have the proposed announcement as soon as possible?

Please also brief Paul?

409.  This email clearly identifies that Lai was about to fly to Chongqing with Kong Wei and Fang, but that there had already been in place a proposal about placing. Whatever the previous proposal had been, it was then subject to some changes of plan. Whilst it may have been anticipated that there would be an actual placing that day, instead the proposed investor would deposit US$50 million.

410.  It also seems to me to be important that the deletion of “the bit about change of control under the placing” in the announcement drafted by Lai shows that it was already understood that the placement would likely result in a change of control of CT. The reference to briefing Paul must be to briefing Paul Chow.

411.  There is an email at 16:28 on 15 February 2015 from Lai to Kong Wei, with the subject ‘Sample Announcement’, asking the question “something like this?” about the enclosed draft, which reads:

The Company announces that it is considering undertaking a placing of its shares to fund potential overseas expansion of its business. Such placing will only take place if the Company is able to identify potential foreign investment opportunities connected with the business.

The size and target of the placing (if it were to take place) has not yet been determined, but the size of the placing will be determined, among others, by reference to the size of the identified potential investment opportunity. It is unlikely that any placing will result in a change of control of the Company.

The Company has secured a commitment from an independent third party to invest at least USD 50 million if the Company were to proceed with the placing. A deposit of USD 50 million has been received by the Company.

If the Company does not proceed with the Placing by 30 June 2015, the deposit shall be returned to the potential investor.

Shareholders are asked to exercise caution as the placing may not take place.

412.  That email gives the lie to the suggestion that the subscription and the US$50 million deposit were only discussed and secured at a meeting in Chongqing on 16 February 2015.

413.  In fact, there is another email at 08:08 on 16 February 2015 from Lai to Victor Lee saying:

I am flying to Chongqing with KW and F.

Some changes to the proposal. No placing today but the proposed investor will deposit USD$50m.

I have prepared a short inside information announcement. See below. You will need to top and tail.

Please delete the bit about change of control under the placing.

Can I have the proposed announcement as soon as possible?

Please also brief Paul?

414.  This email clearly identifies that Lai was about to fly to Chongqing with Kong Wei and Fang, but that there had already been in place a proposal about placing. Whatever the previous proposal had been, it was then subject to some changes. Whilst it may have been anticipated that there would be an actual placing that day, instead the proposed investor would deposit US$50 million.

415.  It also seems to me to be important that the deletion of “the bit about change of control under the placing” in the announcement drafted by Lai shows that it was already understood that the placement would likely result in a change of control of CT. The reference to briefing Paul must be to briefing Paul Chow.

416.  By email at 10:17 on 16 February, Alex Chung wrote to Victor Lee attaching revised board minutes for his review. The draft board minutes stated that 20% of shares in CT would be allotted. The email identifies that Alex Chung was proceeding on the basis that there would be a subscription of 20% of CT shares shortly. It is also significant that the 20% figure is very close to the number of proposed placement shares (19.9%) mentioned by Victor Lee in his email at 12:59 on 13 January 2015. I draw the inference that the proposed placee was the same person or entity all along – i.e. USUM.

417.  Indeed, it seems to me to be highly likely (and I find) that by mid-January 2015, USUM was already negotiating with Fang and Kong Wei on the placement – and that it was part of a bigger overall deal-making process or structure. I acknowledge that the email from Victor Lee on 13 January 2015 can be read as suggesting that CT was still in the process of identifying any possible placee, but I find that negotiation between USUM and CT had started by then, with negotiation as to the amount of CT should be place already specified. It may be that Victor Lee was not one of the “high-level” persons with the relevant knowledge – they being Lai, Fang and Kong Wei – or it may be that the correspondence was kept deliberately without specific names, even though the names of at least some of the participants and the anticipated arrangements were obvious to those with the relevant knowledge.

418.  Of course, it may have turned out that a different placee would have been identified (in addition to, or as an alternative to, USUM), but that does not mean that the negotiations with USUM had not already started. It seems to me that the evidence overall shows that it had likely started, looking at the emails and the fact of the meeting on 15 January 2015 (as to which Fang could only say in evidence that he did not recall the placement of the CT shares being discussed in mid-January 2015). It is not likely that there was no discussion at the mid-January 2015 meeting in Chongqing as to how and at what price USUM would invest into CT. Further, the Engagement Letter proposed raising capital in an amount of no less than US$500 million, equivalent to approximately HK$3.9 billion, which is consistent with the approximately HK$4.1 billion that CT ultimately raised from USUMHK. This strongly suggests, and I find, that the price and extent of the subscription had been discussed between USUM and Fang prior to the Engagement Letter’s date of 2 February 2015.

419.  What happened in mid-February 2015 was a sudden change of the foreseen arrangements, when the placement deal was close to being finalised.

420.  Also on 16 February 2015, by a slightly earlier email at 09:51 from Victor Lee to Lai, he attached a draft inside information announcement, and asked if Fang would hold the board meeting as scheduled that afternoon to discuss about the proposed placing and approve the announcement.

421.  By email at 12:24 on 16 February 2015, Lai asked Victor Lee to organise a call for him with Daisy and Paul ASAP, as the briefing for the directors meeting that day. The reference to Daisy is to Daisy Yu of Chartac Secretaries Ltd.

422.  The Minutes of CT’s directors meeting at 4:30pm on 16 February 2015 show that most participants attended by telephone, including SVO and Gu. Fang was absent with apology. Victor Lee of SH was in attendance. Also present was Paul Chow, who briefed the meeting, and the minutes include:

In this regard, Mr Chow reported that the management of the Company is considering undertaking a placing of securities to independent third party(ies) to secure capital to finance for potential China and overseas expansion of the Company’s business (the “Proposed Placing”). The Proposed Placing will only take place if the Company is able to identify potential investment opportunities connected with the business of the Company and its subsidiaries. The size and issue price of the Proposed Placing (if it were to take place) have not yet been determined, but the size of the Proposed Placing will be determined by reference to, among others, the size of the identified potential investment opportunity. The Company has secured commitment from an independent third party (“Potential Investor”) to invest at least US$50 million if the Company were to proceed with the Proposed Placing. A deposit of US$50 million would be received by the Company today. If the Company does not proceed with the Proposed Placing by 30 June 2015, the deposit shall be refunded to the Potential Investor.

Mr Lai and [SVO] would like to know the identity of the Potential Investor. Mr Lai would also like to know if the Potential Investor was connected to any existing shareholders of the Company. Mr Paul Chow informed the Board that he had no information about the identity of the Potential Investor, but he understood that the Potential Investor is a group of companies privately held by unknown party(ies), instead of one single enterprise. Mr Chow further understood that the Potential Investor was not connected to any existing shareholders of the Company.

423.  The Board resolved to approve the Announcement, and the CT Announcement dated 16 February 2015 matched the proposal put forward at the board meeting, namely that it was considering undertaking the placing of its securities to independent third party(ies) to secure capital to finance for potential PRC and overseas expansion of its business etc.

424.  The SH Chronology of events, which it seems might have been prepared around the time Lai made his affirmation in other proceedings (see below). Though the individual events have been canvassed above, the SH Chronology helps to place some things in context, and it reads as follows:

Date	Event
2014.12.01	Email from SH (VL) to Mr. van Oojien (VOJ) setting out the scope of work in relation to the proposed sale of shares in the Company.
2014.12.03	VOJ confirmed the instructions on behalf of Delco.
2014.12.04	1st draft SPA sent to VOJ for comment. The sale was to be carried out in 2 batches and sold to an independent third party.
2014.12.08	SH (VL) sent an email to Paul Chow (PC) setting out its view on the automatic extension of the CB and the warrants.
2014.12.15	An idea for HWH to acquire Delco’s shares came up. Prepared the 1st draft SFC waiver application for VKL’s consideration.
2014.12.19	Circulated the draft waive application to PC for comment.
2014.12.23	Submitted the waiver application to the SFC.
2014.12.23 – 2015.01.15	Dealt with comments from the SFC on the waiver application.
2015.01.14	VL sent an email to Kong Wei (KW) regarding the high level summary of the steps involved in the sale and purchase of shares in a listed company and placing of new shares under general mandate.
2015.01.15	PC requested VKL to discuss the automatic extension with Fang and KW.
2015.01.15	VKL met with Fang and KW and updated the deal structure
2015.01.16	VL sent to VKL the draft SPA in relation to the sale of 9.9% interests in the Company by Delco to an independent third party.
2015.01.16	VL sent to VKL the revised draft SPA in relation to the sale of all shares and CB by Delco to HWH.
2015.01.18	VKL sent to VOJ the draft SPA which contained share sale only. VKL met with VOJ and discussed about the draft SPA
2015.01.19	VL prepared the ancillary documents for the sale of shares by Delco to HWH. VOJ came to SH office to execute the documents in relation to the share sale in the presence of PC to be held on escrow. VOJ mentioned about the automatic extension of the term of the CB and the warrants.
2015.01.20	VL sent a sample subscription agreement to KW for reference.
2015.01.21	VOJ requested to have a copy of the deed poll in respect of the CB. VL sent to VOJ a copy of the deed poll together with SH’s advice to PC on 2014.12.08 regarding the automatic extension.
2015.01.22	VOJ sent back the board resolutions of Delco signed by SVO Company B.V. and HPL Metals B.V.
2015.01.22	VL sent the execution version of the SPA and Escrow Agreement to Emily Chan (EC) to arrange for execution by HWH
2015.01.23	HWH executed the SPA and the Escrow Agreement. The agreements were dated 23 Jan 2015.
2015.01.30	HWH transferred HK$10 million to the designated bank account
2015.02.02	Delco delivered the escrowed documents to SH
2015.01.29	VOJ sent an email to PC enclosing the letter from the legal advisers of Mr. de Leeuw regarding the automatic extension of the CB
2015.01.30	VL and VKL met with PC to discuss about the strategy
2015.02.02	PC approached Michael Lion (ML) to help liaise with Sims

425.  I can also turn to Lai’s affirmation itself, as Fang placed reliance on it. I find that the reliance was misplaced. The affirmation is dated 2 January 2019, and it was made in opposition to Delco’s application in HCMP 1553/2018, seeking discovery of documents from SH in support of an intended claim for alleged breach of duty. Amongst other things, Lai affirmed:

7. I wish to make clear at the outset of this Affirmation that SH had no knowledge whatsoever about USUM’s intended investment in CT before the Plaintiff entered into the SPA on 23 January 2015. We stated this unequivocally in our letter dated 31 January 2018 to the Plaintiff’s solicitors, Clifford Chance. It is unfortunate that the Plaintiff commenced the present proceedings in apparent disregard of this clear and unequivocal statement. As I explain in further detail below, SH only became aware of an intended subscription of shares in CT on 15 February 2015, and of the identity of USUM on 16 February 2015. Therefore, any allegations that SH breached its duty as the Plaintiff’s solicitors are completely groundless. SH never possessed any information or documents in relation to USUM’s intended subscription of the shares in CT whatsoever before 15 February 2015, and none of the information or documents which came into SH’s possession after 15 February 2015 at all. The present proceedings are therefore entirely misconceived and should be dismissed accordingly.

…

The new investor: USUM

21. On 15 February 2015 i.e. 3 weeks after the SPA was entered into and the day before CT made the announcement headed “Possible Fund Raising” (see exhibit EH-7 to EH’s Affidavit) (“16 Feb Announcement”), I was approached by Mr. Kong Wei (“Mr. Kong”), the PRC legal advisor of CT, for advice in relation to the drafting of public announcement in respect of a new investor who had indicated an intention to invest in CT. I gave my advice as the corporate lawyer of CT. The contents of my legal advice are privileged in favour of CT; that privilege has not been waived by CT and I am not at a liberty to reveal them. However, for the purpose of the present proceedings (and without any waiver of privilege), I wish to emphasise the following matters:

a) I was always the first contact point between CT and SH for all requests for legal advice by CT at all material times. Therefore, I would be the first person in SH to be informed by CT of any matters that gave rise to the need for legal advice;

b) Mr. Kong’s approach to me on 15 February 2015 was the origin of SH’s knowledge and involvement in what subsequently turned out to be the Subscription Agreement between CT and USUM;

c) My advice given on 15 February 2015 led to the publication of the 16 February Announcement, which contained the entirety of the information that SH was given as of its publication;

d) Under the Listing Rules, all the directors bear individual and collective responsibility for the accuracy of an announcement. Therefore, while we were not involved in getting the requisite consent of the CT Board of Directors (which was the responsibility of CT’s Company Secretary), we expected that all directors of CT (including Mr. Vanooyen) would have been informed of the proposed third party investments and the terms therein;

e) Mr. Kong did not inform me of the identity of the potential investor on 15 February 2015, but on 16 February 2015. Accordingly, SH was completely unaware of any negotiation between CT and USUM prior to 16 February 2015;

f) From Mr. Kong’s approach to me on 15 February 2015 onwards, SH advised CT as CT’s corporate counsel thereafter and all advice given to CT and all documents generated for that purpose were therefore privileged in favour of CT, which has not waived such privilege. SH is therefore not at liberty to reveal any of such privileged information or documents; and

g) In any event, SH was only requested to provide legal advice, including preparation of the relevant documents for the transaction and advice in relation to regulatory matters. Any documents generated in that process have no relevance to the Plaintiff’s decision to enter into the SPA on 23 January 2015 at all. SH had no involvement in the negotiation of any of the commercial terms of the Subscription Agreement.

426.  The affirmation may be very carefully drafted, as it seems to focus on a subscription agreement specifically with USUM. But the following points are at least difficult to reconcile with what has been revealed by the late disclosure of documents:

(1) the unequivocal statement in §7 that SH only became aware of an intended subscription of shares in CT on 15 February 2015, and

(2) the statement in §21(b) that Kong Wei’s approach on 15 February 2015 was the origin of SH’s knowledge and involvement in what subsequently turned out to be the Subscription Agreement between CT and USUM.

427.  In fact:

(1) SH became aware of an intended subscription of shares in CT on, or more likely before, 13 January 2015;

(2) SH was from that time aware of and directly involved with advising on a potential share subscription/placement;

(3) when SH also knew that the share subscription was being discussed in the context of an apparent package of deals, where the identity of those involved must have been understood.

428.  In so far as the Lai affirmation also leaves the impression that the first relevant contact between Lai and Kong Wei was only on 15 February 2015, that is at best unfortunate because the impression is misleading. There had been numerous relevant emails passing between SH and Kong Wei for over a month before that date. I reject the Lai affirmation as providing an accurate and materially full summary of events. It does not.

429.  As to the events in Chongqing on 16 February 2015, Fang suggested that, before he travelled to Chongqing for that meeting, he did not know what to expect. He suggested that it was only during the meeting that he asked Tu for the money and Tu agreed to provide US$50 million to CT as a deposit for the placement. That evidence is given the lie by the email exchanges identified above. As to the project to acquire Sims, it seems to me to be obvious that that would have been discussed for a lengthy period of time before the meeting in Chongqing on 16 Febuary 2015, and that it was extensively discussed during the meeting. For example, the arrangements were of some complexity, and even Fang’s evidence recognised that the draft letter between USUMHK and HWH (see below) documented the understanding reached at the meeting. I reject as inherently unlikely, and commercially unreal, Fang’s suggestion in his cross-examination that the project to take over Sims was discussed only by his lawyers (Kong Wei and Lai) with Tu, and did not involve him because he stepped out of the room.

430.  I also reject the suggestion that by this stage of the CT Announcement on 16 February 2015 (see below), there was still no indication as to the price at which USUM HK would invest into CT. That is also contradicted by the draft letter between USUMHK and CT (see below), which indicated the target placing price between HK$9.01 and HK$9.69 per share.

431.  It is common ground that after the meeting in Chongqing on 16 February 2015, CT announced that it had located a potential investor and received a deposit of US$50 million from that investor.

432.  Amongst the tardily disclosed documents was the second draft of an agreement between USUM and CT, and apparently created by SH at 13:01 on 17 February 2015, the first draft having been created slightly earlier at 11:15 that day. Version 2 bears the date of ‘__ February 2015’ and reads as follows:

STRICTLY PRIVATE & CONFIDENTIAL

From: 渝商投资集团(香港)有限公司

To: Chiho-Tiande Group Limited

(Attention: Mr. Fang An Kong)

Dear Sirs,

I refer to our discussion whereby you outlined to us your wish to use Chiho-Tiande Group Limited (the Company) as a platform to expand scrap metal recycling business overseas.

To secure capital for this expansion, I understand that the Company is also considering undertaking a placing of its shares. The Company is looking for potential investors in this proposed placing (the Placing) which will only take place if the Company is able to identify potential foreign investment opportunities connected with the metal recycling business.

The size and target price of the Placing (if it were to take place) has not yet been determined, but the size of the Placing will be determined, among others, by reference to the size of the identified potential investment opportunity.

The target price of the Placing will be determined by the Company in consultation with potential investors but the Company shall target a placing price which is between HKD 9.01 and HKD 9.69 per share (the Placing Price).

We confirm our interests in supporting the Company’s overseas expansion plan. In this regards, we undertake to subscribe for shares under the Placing only when the Company decide to proceed with the Placing at the Placing Price.

To secure our undertaking set out in this letter, we shall forthwith deposit with the Company an amount of USD 50,000,000 (the Deposit). If the Company decides to proceed with the Placing at the Placing Price but we do not subscribe for shares under the Placing, the Deposit shall be forfeited as liquidated damages. Otherwise, the Deposit shall be set-off against our actual subscription of shares in the Placing. If the Company does not proceed with the Placing by 30 June 2015, the Deposit shall be returned to us.

Notwithstanding the above, in the event that Sims Metal Management Dragon Holdings Limited (SIMS Dragon) requests repayment of the outstanding convertible bonds (CBs) due 1 March 2015 issued to it and the Company so request, we agree to purchase SIMS Dragon’ CBs and if we do so, the Deposit can be used as part payment for such CBs.

In accordance with our declaration of independence under the Hong Kong Listing Rules, we confirm that we are:

a) not a director, chief executive or substantial shareholder of the Company or its subsidiaries or any of their respective associates and that we are not an existing shareholder of the Company;

b) independent of and are not connected or acting in concert with any of the persons as stipulated in paragraph (a) above and we shall provide written confirmation of our independence in the event that the Stock Exchange makes such request;

c) not directly or indirectly funded or backed by the Company or its directors, its substantial shareholder(s), its chief executives or any of their respective associates;

d) not (a) person(s) who is/are accustomed to take instructions from a connected person or the Company itself in relation to the acquisition, disposal, voting or any other disposition of securities in the Company;

e) not within the types of investors restricted by the Securities and Futures Ordinance of Hong Kong to subscribe for shares in the Company; and

f) not a U.S. person.

For the avoidance of doubt:

(1) We shall be entitled to assign our rights under this letter to one of our related parties.

(2) We confirm our understanding that the Company has the sole discretion whether to undertake the Placing and the Placing Price. If the Placing were to proceed, our subscription of shares shall be for no less than the amount of the Deposit.

(3) The other terms of the Placing (if it were to proceed) shall include rights for our shares to be redeemed/repurchased if the Company were not able to fulfill its expansion plans, board representations and otherwise be on such market terms as common for companies listed on the Main Board of the Hong Kong Stock Exchange.

We understand that this it is important for confidentiality to be maintained while the Company explores potential acquisition targets as well as investors. We undertake to maintain confidentiality of this letter and will not disclose it except with the Company’s approval or as required by law or any order of a court or governmental authority. Furthermore, we undertake not to deal in the shares of the Company until information (if any) relating to the Placing has become public knowledge or under after 30 June 2015 (if earlier).

Please confirm your acceptance of the terms of this letter by signing a copy of this letter.

This letter is legally binding and shall be governed by the Hong Kong laws. We hereby agree to submit to the jurisdiction of the Hong Kong courts.

433.  Hence, the document stated that:

(1) USUMHK undertakes to subscribe for shares under a placing when CT decides to proceed with it at the same target placing price between HK$9.01 and HK$9.69 per share.

(2) USUMHK shall forthwith deposit a sum of US$50 million which shall be set off against the actual subscription price if placing takes place. If CT does not proceed with the placing, the deposit shall be returned to USUMHK.

(3) In the event that Sims requests repayments of the outstanding CB due on 1 March 2015 issued to it and CT so requests, USUMHK agrees to purchase SIMS’ CB and if so the deposit of the US$50 million can be used as part payment of such CB.

434.  Another document, of which disclosure in full was given only during the trial, and which bears a date of ‘__ February 2015’ reads as follows:

STRICTLY PRIVATE & CONFIDENTIAL

From: HWH Holdings Limited

To: 渝商投资集团(香港)有限公司

Dear Sirs,

We refer to your agreement to support a proposed share placing of Chiho-Tiande Group Limited (the “Company”). The purpose of the placing is to provide capital for the purposes of funding PRC and overseas expansion of the Company.

The Company is currently exploring ways to obtain a controlling interest in SIMS Metal Management Limited (“SIMS”) (the “Project”).

The Company has issued and outstanding convertible bonds (“CBs”) in the amount of HKD 815.8 million due 1st March 2015. The CBs are convertible into the Company’s shares at HKD 6 per share, subject to adjustments in accordance with the terms of the CBs. Under certain conditions, maturity of the CBs is extendable to 1 March 2017. The Company is presently in discussion with the bondholders for confirmation of the CB’s extension.

At the date of this letter, we are the controlling shareholder of the Company. In order to support the Company’s capital raising and the Project, we have agreed to provide this undertaking you.

In consideration of you agreeing to provide capital to support the Project, we undertake to use our voting rights to procure as follows:-

1. In the event that Sim Metal Management Dragon Holdings Limited (“SIMS Dragon”) (being one of the holders of the CBs) wishes to redeem the CBs instead of converting the CBs into shares in accordance with the terms of the CBs, we will use our best efforts to procure SIMS Dragon to sell their CBs to you at face value (of HKD 315.6 million) or another entity nominated by you (the “New Bondholders”) instead provided that the New Bondholders shall only have the right to convert such CBs into shares at the prevailing conversion price and not seek redemption of the CBs for cash from the Company.

2. The share placing agreement shall provide that in the event that the Company fails to obtain over 50% of the voting rights in SIMS within the first anniversary of the application to the Australian Foreign Investment Committee for the acquisition of SIMS, and such failure to obtain control is not a result of the directors and/or shareholders of the Company themselves voting against the transaction, then, you may have the following options at your sole discretion:-

a. by written notice to us given no earlier than the Reference Date to seek a repurchase of your shares at the Reference Price (as defined below). We will use our voting right to support and procure the Company to dispose of their interests in SIMS and use the proceeds of the disposal to repurchase you shares; or

b. if the average closing price of the Company’s shares in the last 20 trading days prior to the Reference Date (the “Reference Price”) is lower than the share placing price (the “Share Placing Price”), the difference between the Reference Price and the Share Placing Price will be compensated by the Company issuing additional shares to you at a price which is no higher than 90% of the Reference Price.

3. We will use our voting right to support the following:-

a. the appointment of an additional executive director (who shall be the chairman) to be nominated by you;

b. the resignations of Michael Lion and Stephanus Maria Van Ooijen as directors of the Company as soon as possible, in each case no later than the next annual general meeting of the Company before end May 2015, their vacancies to be filled by one director to be nominated by you;

c. as and when independent non-executive directors of the Company (“Independent Directors”) resign or are replaced, we shall support your proposed choice of replacement Independent Directors provided that (i) we are only required to support up to two Independent Directors proposed by you from time to time, and (ii) each such person fulfills the criteria of eligibility and independence set out in the Hong Kong listing rules and such other rules and regulations prescribed by the Stock Exchange of Hong Kong;

d. if there is a deadlock in the board of directors of the Company, the chairman of the board shall have a casting vote;

e. subject to their overriding fiduciary duties to act in the best interest of the Company, our nominated directors and your nominated directors act together in relation to any resolution proposed at board meetings.

For the avoidance of doubt:-

A. The proceeds received from you from the share placing will only be used for the Project, unless otherwise agreed with you.

B. Nothing set out in Paragraph 2 affects your right to deal with your shares without enforcing your right under Paragraph 2,

C. The right under Paragraph 2 is personal to you and cannot be assigned to any third party including third party purchasers of your shares.

D. The rights set out in this letter shall be enforceable only if the share placing is completed upon such terms as the Company shall decide.

E. Pursuant to the corporate governance obligations of the Company under the Hong Kong listing rules, the Company has constituted a nomination committee to assist in the selection of directors. All directors proposed by you (i) must be able to fulfill the eligibility criteria set out by the nomination committee from time to time, and (ii) must be a fit and proper person to be a director of a company listed on the Stock Exchange of Hong Kong.

F. In relation to paragraph 3(e), you will also use your voting right to provide that subject to their overriding fiduciary duties to act in the best interest of the Company, your nominated directors and our nominated directors act together in relation to any resolution proposed at board meetings.

This letter is confidential. By counter-signing this letter, you undertake to maintain confidentiality of this letter and will not disclose it except with our approval or as required by law or any order of a court or governmental authority. Furthermore, you undertake not to deal in the shares of the Company until information (if any) relating to the share placing has become public knowledge or under after 30 June 2015 (if earlier).

Please confirm your acceptance of the terms of this letter by signing a copy of this letter.

This letter is legally binding and shall be governed by the Hong Kong laws. We hereby agree to submit to the jurisdiction of the Hong Kong courts.

435.  It seems to me that this document establishes several things:

(1) the primary purpose for raising the capital was to explore obtaining a controlling interest in SIMS;

(2) the subscription proceeds would be used only for that purpose, unless USUM otherwise agreed with HWH;

(3) USUM’s agreement to support the share placing came at a price to HWH;

(4) the price included that Fang would cease to be chairman of CT, and the new USUM appointed chairman would have a casting vote at directors’ meetings;

(5) HWH would seek to procure SIMS to sell its CBs to USUM or its nominee at face value, which is precisely what later happened;

(6) though confidential, the agreement reached between HWH and USUM was intended to be or become legally binding; and

(7) this agreement ties in with the other agreement drafted at the same time.

436.  A CT Announcement dated 27 March 2015 announced the two subscriptions of new shares, for 203.9 million and 202.3 million Shares totalling approximately 33.05% of the issued share capital of CT as enlarged. The subscription price was HK$9.01 per Share, and the total subscription amount was approximately HK$4.1 billion. The announcement stated that the proceeds of the subscriptions would be used by CT as initial capital for the purposes of investing or co-investing in large overseas recycling businesses which CT believed would be able to contribute value to the expansion of its group’s existing business and the recycling business in China. I note that there is no reference to raising funds for general capital purposes, and the stated purpose is clearly a reference to the project or intention to buy Sims.

437.  In a CT Announcement dated 19 October 2015, it was stated:

The Company was informed by USUM, HWH and Mr Fang that they are currently discussing certain potential financing arrangements which may involve (1) USUM, as lender (the “Lender”), entering into a facility agreement with HWH as the borrower (the “Borrower”) for a loan in the aggregate amount of HK$1,360,000,000, (2) the Borrower granting to the Lender the right to require the Borrower to transfer to the Lender (or its nominees) all but not part of the 389,787,256 Shares held or to be held by it for a total price of HK$1,364,255,396 (that is, HK$3.5 per Share), and (3) as security of these obligations of the Borrower, the Borough granting a share charge in respect of all of the 389,787,256 Shares held or to be held by it (the “Financing Arrangements”). The Company has been informed that as at the date of this announcement, the relevant parties have not entered into any definitive agreements in relation to the Financing Arrangements.

438.  I place some reliance on the point made by Mr Stephen Weatherseed, Fang’s own expert, which seems to me to make sense in the overall scheme of things, and which point I accept. He stated, on the basis of his many years of experience in the financial market, that the sale of CT shares by Delco to HWH in January 2015, and the transaction between HWH/Fang and USUMHK, were part of a series of arrangements to facilitate the ultimate taking of control of CT by USUM, and the transaction between HWH/Fang and USUMHK was in fact a sale and purchase of the CT shares pre-agreed back in January 2015.

439.  There is also evidence in the affirmation of Shi Lei dated 19 January 2021, filed in A2939, who spoke of a conversation with David Xu, a former senior member of the management of USUM/USUMHK. David Xu stated that, based on his recollection, a memorandum of understanding (“MOU”) on the proposed acquisition of a major stake in CT in around 2014/2015 had been signed in December 2014. However, he could not remember the details. I accept that this is hearsay evidence, and it is certainly correct that no such MOU as being produced. But I think it not unlikely that some form of understanding was reached between the parties at a relatively early stage in very late 2014 or very early 2015.

440.  As to Fang’s explanation as to the reasons for purchasing Delco’s remaining CT shares, I do not think they make commercial sense. Buying shares from Delco would not have put money into CT, and would not have affected CT’s balance sheet, hence any ability to repay the CB maturing in March 2015. Further, it was well known in the market that Delco had been reducing its shareholding for some time, so I do not think it likely that the sale of further shares by Delco to someone else would reduce market confidence in CT, let alone make it collapse. Also, where Fang had to borrow against the Pledge of his CT shares in order to purchase Delco’s CT shares, his explanation for doing so seems even more unlikely. It seems to me that the overall picture painted by the above evidential material identifies that Fang/HWH wished to purchase Delco’s CT shares primarily in order to profit from the purchase, knowing that USUM was going to invest substantial money into CT.

441.  As I have already indicated, I do not think the sale of CT shares by Sims on 26 January 2015 came as a surprise to Fang. The emails make it clear otherwise. Indeed, in cross-examination, Fang said that Zhang (of Good Union) approached him and he introduced Zhang to Sims before – and no doubt leading to – Sims’ sale of ET shares to Good Union/Roundhill.

442.  As Mr Dawes pointed out, it is telling that Fang introduced Zhang to purchase Sims’ CT shares, but did not introduce him to purchase Delco’s CT shares, notwithstanding that Fang suggested he wanted a new shareholder to replace Delco and to put money into CT and his own money was tight such that he had to borrow money to purchase Delco’s CT shares. Fang had no sensible answer to this point when it was put to him in cross examination.

443.  I also accept that USUM acted in concert with Zhang to acquire CT. I have dealt above with the business links between them. I accept that the acquisition of CT shares by Good Union/Roundhill from Sims was discussed between Fang and his lawyers at the same time as Fang’s purchase of Delco’s CT shares and USUM’s subscription of CT shares.

444.  Ultimately, I accept that with the benefit of the known potential investment of USUM, Fang began to consider acquiring Delco’s remaining CT shares himself, with the view to earning a profit from the transaction. He anticipated that USUM’s potential or impending investment in CT would push up the share price. By mid-January 2015, the negotiation between Fang and USUM was at a sufficiently advanced stage for SH to be instructed by Fang to prepare a draft share subscription agreement, or an allotment of about 20% (the maximum percentage authorised by CT’s directors under the general mandate). The negotiation also involved the plan for CT to acquire Sims using the proceeds raised from the share subscription, about US$500 million at the estimated subscription price of HK$9.01 to HK$9.69. However, USUM caused a last-minute change, instead providing only the deposit of US$50 million on 16 February 2015.

445.  I find that Fang kept these matters, in particular the negotiation with USUM, to himself and did not share them with the other members of the board of CT, because he would not want SVO to find out.

446.  Ultimately, the intended substantial profit was obtained. HWH purchased Delco’s shares at the price of HK$2.50 per share. HWH sold 51,330,000 shares at HK$5.30 per share on 16 September 2015. HWH transferred its remaining shareholdings in CT to USUMHK at the option price of HK$3.50 per share on 17 December 2015.

447.  It is, of course, correct that a share placement is different from a share sale. Hence, I accept that what USUMHK agreed to do was to inject funds into CT and to acquire control over it, including the disposal of the injected funds. It may also be correct to say that USUMHK would not have bought out an existing or outgoing shareholder like Delco at around HK$9 per share. But Fang would have known, as his expert Mr Weatherseed also accepted, that the substantial investment of USUM into CT would almost certainly materially affect the share price of the company – and hence the price at which an existing shareholder might be agreeable for him to sell his shares. Mr Weatherseed agreed that it was absolutely right that an investor may think that an injection of HK$4.1 billion may generate value of more than $4.1 billion, because that sum can be used for further investment and create an opportunity for the company.

448.  I do not accept that the fact that Delco completed the January 2015 Sale on 17 April 2015, without seeking to complain about it, or to escape from it, means either that there was no breach or that there is no causation. First, HDL said in evidence that had he and SVO known about USUM’s potential investment at the time Delco was negotiating with Fang, Delco would not have sold the shares except for a higher price. HDL specifically disagreed with the proposition put to him that he considered the January 2015 Sale to be a good deal because that was the only opportunity for Delco to sell without several months’ delay. Secondly, whilst the potential investment instantly became known to Delco on 16 February 2015 and 27 March 2015, the January 2015 SPA was entered into on 23 January 2015 and was a binding agreement, and there could be no exit from it without commencement of court proceedings. I do not think it matters that Delco did not attempt to renegotiate the January 2015 Sale for a higher price, and I do not think it appropriate to proceed on the basis that Delco must have known its rights at all times. It is also entirely speculative to think that Delco could have used its bargaining position relating to the CBEs to renegotiate a higher price for the January 2015 Sale.

449.  I do not accept that the effect of any non-disclosure on the part of Fang was neutralised by CT’s disclosure only in February/March 2015 of USUMHK’s potential investment. I reject the idea that the state of Fang’s actual knowledge as asserted by Delco is based entirely upon speculation. I have made the relevant findings by drawing what seem to me to be the appropriate inferences from the totality of material.

450.  Therefore, Fang was in breach of the fiduciary duties owed to Delco, and HWH (solely owned by Fang and in effect his alter ego) dishonestly assisted Fang’s breach by purchasing Delco’s CT shares at a lower price than would have been paid had the information available to but kept by Fang been otherwise available to Delco.

N.5 Quantum

451.  As Fang/HWH were in breach, Delco submitted that equitable compensation should be payable to Delco on the basis of the difference between the amount it actually received under the January 2015 Sale and the amount it ought to have received had all material facts relating to the sale been reflected in the sale price.

452.  The parties called expert evidence on this point. Delco relied on the evidence of Keith Pogson and Fang/HWH on the evidence of Stephen Weatherseed.

453.  But, before turning to a consideration of the expert evidence, it is appropriate to address a point raised on behalf of Fang/HWH, namely that the approach advanced by Delco’s pleaded case requires the experts to assume an unlawful scenario whereby Fang ought to have disclosed inside information to Delco so as to enable Delco to use the inside information in dealing with CT’s shares, i.e. to dispose of them at a higher price.

454.  As I have already indicated above, I do not think this analogy or criticism is apposite. The relevant analysis is not in a situation where Delco was proposing to have sold its shares on the market, or to an outsider. The relevant question is in relation to dealings between Fang/HWH and Delco. The quantification of the compensation is by reference to what it is assumed the parties to the January 2015 Sale would have agreed the relevant price to be, had they not suffered from the information imbalance, but instead were both fully informed. Though the experts have looked at the price by reference to how the market might have reacted, that seems to me to be in essence the proxy. That does not require the experts to assume any unlawful scenario.

455.  Mr Pogson’s methodology was as follows:

(1) He considered the assessment period between 2 January 2015 and 30 March 2015, based on the movements in the daily closing price and trading volumes of CT shares before and after that assessment period.

(2) He then compared the movements in the daily closing price of CT shares against the movements in the Hang Seng Index and comparable industry competitors identified in market analysis reports, in order to assess whether underlying market factors contributed to the movements in the CT share price during the assessment period.

(3) He then focused on the trends or unusual spikes in the daily closing price and trading volumes of the CT shares in the assessment period and considered them in conjunction with news announcements or events relevant to the industry of CT, market analyst reports on CT, announcements made by CT relevant to the USUM investment, and other announcements made by CT during the assessment period.

(4) Lastly, he analysed movements in the share price of CT following news, announcements and/or events, in order to measure their potential impact, and assess the amount which Delco ought to have received had full material facts relating to the January 2015 Sale been reflected in the sale price.

456.  Mr Pogson noted that CT’s share price was relatively flat in the period before 2 January 2015 and in the period shortly after 30 March 2015, suggesting that the factors which led to the increase in the share price in the overall period of those that took place between 1 January 2015 and 30 March 2015. Hence, his view that the period between those dates was the appropriate assessment period.

457.  He also noted that between 23 January 2015 and 30 March 2015 CT’s share price increased by some 150%, whereas over the same period the Hang Seng Index was virtually flat. Further, by comparison with nine comparable industry competitors (as identified in market analyst research reports) only the closing price of CT showed a significant increase whilst the share price of only one of the nine comparable industry competitors showed any significant increase during the assessment period. Hence, Mr Pogson concluded that the increase in CT’s share price between January 2015 and late-March 2015 was attributable to stock specific factors, and not to movements in the underlying market.

458.  Mr Pogson divided the assessment period into the periods before and after the 23 January 2015 date of the January 2015 SPA, which he termed Period A and Period B respectively. He noted that the trading volumes in Period A were low in comparison with the remainder of the assessment period, and the share price traded in a narrow band between HK$2.75 and HK$2.96. During Period B, the share price increased by almost HK$4.50 from a low of HK$2.94 on 23 January 2015 to a high of HK$7.43 on 30 March 2015. Trading volumes in Period B were also noticeably higher than during Period A, with an apparent “spike” in trading volumes on Friday, 20 March 2015. That “spike” was followed by suspension in the trading of CT’s shares between Monday 23 March 2015 and Friday 27 March 2015, pending the release of an inside information announcement relating to the placing of CT’s shares. Once that announcement had been released on 27 March 2015, and CT’s shares had resumed trading on 30 March 2015, CT’s share price reached HK$7.43.

459.  Having considered the various analyst reports on CT, Mr Pogson concluded that the stock moving upwards after the January 2015 Sale was counterintuitive to the market’s appraisal of the CT shares, and consistent with his view that the principal factors that appear to have impacted CT’s share price between 23 January 2015 and 30 March 2015 were the matters disclosed in the three announcements relating to the USUM Investment made on 16 February, 23 March and 27 March 2015. He expressed the opinion that the news in the announcements, significant from an investor’s perspective, was knowledge likely to have contributed to increases in trading volumes and share price. He also noted potentially unusual trading patterns prior to the three announcements, which may indicate that insiders were trading on non-publicly available news prior to each of the announcements.

460.  Mr Pogson concluded that the total potential share price impact was +2.89, which added to the selling price per share in the January 2015 SPA leads to the conclusion that Delco ought to have received a price of HK$5.39 per share had all material facts been reflected in the sale price (and the commission to Fang).

461.  On this basis, the calculation of equitable compensation would be in the amount HK$332,922,194.

462.  Mr Weatherseed identified that the purpose of his valuation was to determine the valuation of CT shares as at 23 January 2015, on the assumption that the following information had been known to the seller and the buyer: (1) the information relating to the potential investment of USUM; (2) the potential investment of USUM plus other information in the public domain which would appreciate the value of CT’s shares and materially alter its business prospects at 23 January 2015; and (3) the potential investment of USUM plus other information in the public domain which would depreciate the value of CT’s shares and materially alter its business prospects at 23 January 2015.

463.  Mr Weatherseed adopted two methodologies. His principal basis of valuation was that of ‘equitable value’, that is the estimated price for the transfer of the relevant shareholding between identified knowledgeable and willing parties that reflects the interest of those parties. This is a broader concept than ‘market value’, since it takes into account matters which would have to be disregarded in the assessment of market value. Essentially in the primary approach, Mr Weatherseed added the cash proceeds from USUMHK’s subscription to the equity value of CT based on the agreed price of HK$2.50 (which he did not think unreasonable if reached on an arm’s length basis taking into account publicly available information at the time). He then divided the result by the enlarged number of CT shares, and concluded that the value per share would be HK$4.47, assuming knowledge of the USUM investment was known to both parties. On this approach, he excluded potential project returns from the anticipated use of the new funds in CT.

464.  On the primary approach, Fang/HWH should pay equitable compensation in the amount of HK$226,940,042.

465.  I note that as a cross-check to his primary valuation approach, Mr Weatherseed used hindsight information and analysed market data after 23 January 2015, looking at the cumulative returns recorded five trading days before and five trading days after certain announcements.

466.  On Mr Weatherseed’s alternative methodology, assuming the potential subscription by USUM and the ultimate taking control over CT with the agreement and cooperation of HWH was known and disclosed to Delco at that time, CT’s shares should be worth HK$3.50 per share, being the agreed transfer price between USUM and HWH.

467.  On the alternative approach, Fang/HWH should pay equitable compensation in the amount of HK$115,197,991.

468.  Ultimately, I prefer the approach adopted by Mr Pogson. I do so for the following main reasons, as were variously canvassed across the evidence and in cross-examination:

(1) It was common ground between the experts that the starting point for valuing shares in a listed company is the actual quoted share price, and the market approach should be adopted.

(2) There was a reasonable liquidity of the CT stock in the marketplace, and it would not be correct to regard it as very thinly traded, hence the quoted price gave a good indication of the view of investors trading in the market in CT shares.

(3) The primary approach adopted by Mr Weatherseed is, however, not a market approach.

(4) The market would likely not value the stock by simply adding the subscription proceeds to the original capital of the company, and then divide that by the enlarged number of shares.

(5) Instead, the market would look at many factors including potentially thinking that a significant injection of funds may generate a value of more than that injection amount, as Mr Weatherseed agreed to be right (though I accept he also made the point that there was no information at the time as to how the HK$4.1 billion was going to be used).

(6) Indeed, as an aside, it can be noted that within the CT Annual Report 2015, it was stated that following the completion of the Subscriptions, the Proceeds of HK$4.1 billion had significantly improved the overall financial position of the Group as compared with the year 2014. This seems to me to be the sort of information which the market would, in general, expect to view favourably.

(7) Mr Weatherseed’s cross-check calculation is based on an assumption that the sale of CT shares by Delco to HWH was relevant to USUM’s investment, but I do not think the market would perceive that to be relevant, and if it is not then the calculation falls away.

(8) No discount is applicable to the sale of Delco’s ‘block’ of 10.98% shares, because there was a known acquirer in the marketplace who was probably looking to gain control of the company, and such an acquirer would obviously be willing to take Delco’s block.

(9) I do not accept that the matter must be approached on the basis that USUMHK was not interested in buying out an outgoing shareholder. In fact, USUMHK did buy out Sims’ CB and ultimately bought out all of HWH’s shares, which seems to have been part of the overall original planning (as Mr Weatherseed acknowledged).

(10) Selling the 10.98% block would not necessarily have a depressive effect on the price of the shares, because knowledge of a potential acquirer might push up the price through people moving head of the market in anticipation of obtaining a short-term profit.

(11) Any question of premium for control is irrelevant (and Mr Pogson did not take into account any such premium in his valuation).

(12) No reliance can be placed upon the selling price of HK$2.50 per share in the January 2015 SPA, as that price was reached or agreed as a result of the information imbalance, when Delco was not at the time aware that there was an acquirer in the market looking to take over CT. Indeed, the valuation exercise is precisely to take those matters into account.

(13) It is not suggested that, if Mr Pogson’s methodology is adopted, then his valuation is inaccurate.

469.  Hence, I accept Mr Pogson’s valuation. As I say, though it is looking at matters through the market, that is a suitable proxy for the dealing between Fang and Delco if on a fully-informed basis.

470.  The quantum of equitable compensation payable by Fang/HWH is HK$332,922,194.

471.  I see no reason why this sum should not attract pre-judgment interest as from 23 January 2015. The only relevant question would be the appropriate rate of interest. In the exercise of my discretion, I adopt the relatively usual rate applicable to commercial cases, namely Hong Kong dollar prime +1%. I shall adopt the same rate across any successful claims.

O. Fang/HWH’s Counterclaims

472.  In A2943, HWH counterclaims against Delco the sum of HK$47,117,969. Alternatively, HWH counterclaims the sum of HK$17,250,786 after the alleged setting off of the mutual debts between the Delco Group and the Fang Group.

473.  In A3040, Fang counterclaims the sum of HK$57 million, alternatively the difference between the HK$57 million and Delco’s Uncapitalised Portion Claim.

474.  On the basis of my findings relating to the Debts, namely that they were not genuine debts with repayment obligations, the counterclaim must fail.

475.  Further, I have already held that the alleged assignments of part of the Debts were not valid. As a result, (1) Fang cannot rely on the HKM Metal Debt for the purpose of the equitable set-off defence and counterclaim in A3040, and (2) HWH cannot rely on equitable set-off in A2943 in respect of the 1% CT Shares Claim and cannot counterclaim against Delco for that.

476.  Fang’s and HWH’s counterclaims are dismissed.

P. Breach of CB Undertaking Claim

477.  This claim is made in A2939.

P.1 The CB Undertaking

478.  The CB Undertaking came about to resolve a dispute as to the maturity date of the CB. Its terms were as follows:

The Board of Directors

Delco Participation B.V.

3 March 2015

Dear Sirs,

4% coupon convertible bonds in the aggregate principal amount of HK$815,800,000 (the “Bonds”) issued by Chiho-Tiande Group Limited (the “Company”)

We refer to the Bonds issued by the Company on 1 March 2012.

Delco subscribed for and currently holds Bonds in the aggregate principal amount of HK$312,600,000 (the “Delco Bonds”).

Based on the advice received by the Company in respect of the terms of the deed poll (the “Deed Poll”) constituting the Bonds, it was initially expected that the Bonds (including the Delco Bonds) would be automatically extended to the fifth anniversary of the date of issue of the Bonds, i.e. 1 March 2017.

However, differences have subsequently arisen between Delco and the Company whether the Delco Bonds can be redeemed at their initial maturity date, i.e. 1 March 2015. Delco took the view that the Delco Bonds had matured and thus become redeemable on 1 March 2015 in accordance with the terms of the Deed Poll, while the Company maintained the view that the maturity date of the Bonds had been automatically extended for two years to 1 March 2017 in accordance with the terms of the Deed Poll.

In consideration of Delco providing the Company with its confirmation acknowledging the extension of the maturity date of the Bonds to 1 March 2017 (the “Confirmation of Acknowledgement”):

(a) The Company hereby agrees to use its best endeavours to procure independent third party(ies) to purchase the Delco Bonds no later than 30 June 2015 (the “Long Stop Date”).

(b) If for whatever reason the Company is unable to procure purchaser(s) for the Delco Bonds by the Long Stop Date, the Company irrevocably undertakes to redeem the Delco Bonds. If the Company redeems the Delco Bonds, the full principal amount of the Delco Bonds plus interest will be repaid by the Company no later than 31 July 2015.

(c) The Company’s obligation under the undertaking as set out in paragraph (b) above will terminate if completion of the sale and purchase agreement (the “SPA”) dated 23 January 2015 entered into between HWH Holding Limited (“HWH”) and Delco in respect of the sale by Delco to HWH of an aggregate of 115,197,991 shares (the “Sale Shares”) in the share capital of the Company has taken place where Delco has received from HWH the full consideration for the sale and purchase of the Sale Shares on or before the First Completion Date (as defined in the SPA) (i.e. 30 April 2015) in respect of the First Completion (as defined in the SPA), and on or before the Second Completion Date (as defined in the SPA) (i.e. 31 July 2015), in respect of the Second Completion (as defined in the SPA).

(d) In consideration of the undertaking given by the Company in paragraph (b) above, Delco shall not at any time on or before the Long Stop Date:

(i) dispose of any of the Delco Bonds other than to such parties as the Company shall introduce pursuant to this undertaking; or

(ii) convert the Delco Bonds into shares of the Company pursuant to the terms of the Bonds.

(e) If for whatever reason Delco continues to hold the Delco Bonds after 31 July 2015, the Company shall on such date as set out in column (1) below pay such amount (the “Instalment Payments”) as is equivalent to the principal amount of the Delco Bonds as set out in column (2) below together with all unpaid interest accrued thereon from 1 March 2015 up to such date of payment:

Date of payment	Principal amount of the Delco Bonds (HK$)
1 September 2015	44,500,000
1 December 2015	44,500,000
1 March 2016	44,500,000
1 June 2016	44,500,000
1 September 2016	44,500,000
1 December 2016	44,500,000
1 March 2017	45,600,000
	Total: 312,600,0000

in consideration of which:

(i) Delco undertakes not to dispose of any of the Delco Bonds at any time after 31 July 2015 other than to the Company or to such parties as the Company shall introduce and shall waive (i) the right of redemption of the Delco Bonds upon the maturity of the Delco Bonds on 1 March 2017; (ii) the right to receive interest on the Delco Bonds from 1 March 2015; and (iii) the right to convert the Delco Bonds, under the terms of the Deed Poll; and

(ii) the Company shall have the right to require Delco to sell to it or such parties as the Company shall introduce the Delco Bonds at any time after 31 July 2015 at a price equivalent to the principal amount of the Delco Bonds together with all unpaid interest accrued thereon up to such date of purchase by delivering a notice in writing to Delco (the “Purchase Notice”). Such purchase shall be completed within one month from the date of the Purchase Notice. Upon completion of such purchase, the obligations of the Company to make the Instalment Payments which remain outstanding shall cease.

(f) In the event that the Company is in default of its payment obligations as set out in paragraph (e) above, all the Instalment Payments which remain outstanding together with all unpaid interest accrued thereon shall become immediately due and payable.

The Company acknowledges that Delco provides the Confirmation of Acknowledgment in consideration of the undertakings given by the Company in this letter, and therefore the Company shall not be entitled to rely upon the Confirmation of Acknowledgement if the Company shall be in breach of its undertaking in this letter.

This letter shall be governed by and construed in accordance with the laws of Hong Kong.

479.  Hence, the material obligation accepted by CT was for it to use its best endeavours to procure an independent third party to purchase the CB no later than 30 June 2015.

480.  Broadly, it is Delco’s case that:

(1) On a proper construction of the CB Undertaking, CT had an obligation to use its best endeavours to procure the third party to purchase the CB at its best possible price, which should reflect the value of the conversion right under the CB.

(2) However, CT simply asked the potential buyer to purchase the CB at its principal amount, as opposed to its fair value.

(3) Had CT performed the best endeavours obligation, there would have been a potential purchaser offering to purchase the CB at its fair value. Alternatively there would have been a real and substantial chance that a potential purchaser would have offered to purchase the CB at its fair value.

(4) Delco would have accepted such an offer and would have received the value of the CB on or before 30 June 2015, instead of holding onto it until it is maturity, as in fact happened.

(5) Delco has therefore suffered the loss in the amount of the difference between the fair value of the CB and the actual repayments it received from CT.

481.  Broadly, it is CT’s case that:

(1) On the proper construction of the CB undertaking, CT had no obligation to use its best endeavours to procure an independent third party to purchase the CB at more than its principal amount, together with any unpaid interest.

(2) Further or alternatively, paragraph (a) of the CB Undertaking should be rectified so as to read :

The Company hereby agrees to use its best endeavours to procure independent third party(ies) to purchase the Delco Bonds at its principal amount together with any unpaid interest no later than 30 June 2015 …

(3) Further or alternatively, Delco was stopped by representational convention from asserting any other construction than that CT’s obligation was to use its best endeavours to procure a buyer at the principal amount together with any unpaid interest.

(4) By accepting payment of the principal amounts under the CB together with all unpaid interest from 1 September 2015 to 1 March 2017, Delco waived its right to complain, elected to require CT to perform its obligation under paragraph (e) of the CB Undertaking, or otherwise is estopped from denying that CT has duly performed paragraph (a) of the CB Undertaking.

(5) Delco has failed to mitigate its loss or damage.

482.  The first question relates to the proper interpretation of the agreement.

P.2 Proper Construction of CB Undertaking

483.  The applicable principles of contractual interpretation are well-settled, and need not be ventilated at length. Essentially, interpretation is a unitary exercise, but involving an iterative process. Where there are conflicting interpretations, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense.

484.  The Court will be alive to the possibility that one side may have agreed to something which, with hindsight, did not serve its interest, or that a provision may be a negotiated compromise, or that negotiators were not able to agree more precise terms. Some agreements can be interpreted principally by textual analysis. Others may require greater emphasis on the factual matrix. Even negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties the compromise in order to reach agreement. In any event, commercial common sense and surrounding circumstances should not be used to undervalue the importance of the language of the provision which is to be construed, and the mere fact that a contractual arrangement if interpreted according to its natural language has worked out badly for one of the parties is not a reason for departing from the natural language.

485.  As to the principles applicable on the interpretation of the best endeavours clause, I agree with the analysis found in Pui Ying Middle School of Hong Kong v Hong Kong Council of the Church of Christ in China [2021] HKCFI 692 at §102:

(1) Such clauses require the obligor to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted, or to do all that it reasonably could.

(2) The obligor need only do that which has a significant or real prospect of success in procuring the contractually-stipulated outcome.

(3) If there is an insuperable obstacle to procuring the contractually-stipulated outcome, the obligor is not required to do anything more to overcome other problems which also stood in the way of procuring that outcome but which might have been resolved.

(4) The obligor is not always required to sacrifice its own commercial interests in satisfaction of its obligations, but it may be required to do so where the nature and terms of the contract indicate that it is in the parties’ contemplation that the obligor should make such sacrifice.

(5) And obligor cannot just sit back and say that it could not reasonably have done more to procure the contractually-stipulated outcome in cases where, if it had asked the obligee, it might have discovered that there were other steps which could reasonably have been taken.

(6) Once the obligee points to certain steps which the obligor could have taken to procure the contractually-stipulated outcome, the burden ordinarily shifts to the obligor to show that it took those steps, or that those steps were not reasonably required, or that those steps would have been bound to fail.

486.  It was common ground between Mr Dawes and Mr Man, and I agree, that the key question is therefore what is the “contractually-stipulated outcome” set out in paragraph (a) of the CB Undertaking.

487.  Mr Dawes submitted that the contractually-stipulated outcome would surely not be a purchaser purchasing the CB at nominal or no consideration. Hence, in the absence of any stipulation as to price, the natural interpretation must be that the purchase price should be what the CB is worth objectively.

488.  He submitted that CT could gain no assistance from paragraph (e)(ii) of the CB Undertaking, which provides that if Delco continues to hold the CB after 31 July 2015, CT shall have the right to require Delco to sell the CB to CT or parties introduced by CT at a price equivalent to the principal amount of the CB together with all unpaid interest accrued thereon. That provision is obviously for a call option at a fixed price after 31 July 2015. But, Mr Dawes submitted that because that qualification as to price is not present in paragraph (a), the presumption should be that the paragraph it is not subject to the same qualification.

489.  Mr Dawes also place reliance on the background matrix, which included that:

(1) On 16 February 2015, CT announced that it had received a deposit of US$50 million from an independent investor and there would be possible fundraising from that investment by placing of shares.

(2) From 23 January 2015, the share price of CT increase substantially from HK$2.94 per share to HK$5.70 per share on 27 February 2015. The closing price of CT shares was still at HK$5.59 per share on 2 March 2015, the day before the signing of the CB Undertaking.

(3) These facts were known to Delco and CT, and demonstrated the distinct possibility that the trading price of CT shares would exceed the exercise price of the conversion right (i.e. HK$6.00 per share) in the next few months.

(4) The purchaser of the CB would have the right to exercise the conversion right.

(5) Therefore the objective manifested intention of the parties was that the CB should be accorded with its full economic value when being sold to the third party procured by CT.

490.  Mr Man submitted that there was no requirement for CT to procure a sale at a price exceeding what Delco would have received had the CB been redeemed on 1 March 2015. He pointed to the fact that differences had arisen between Delco and CT over whether the CB would mature on 1 March 2015 or be extended to 1 March 2017. The differences arose out of the interpretation of Condition 3.5 of the Deed Poll. The dispute concerned whether Delco would be able to recover the principal sum of the CB (plus interest) on 1 March 2015 or whether it would have to wait longer to do so. Further, Delco knew that CT had liquidity problems so that it might have to default if it had to redeem the CB. It was for that reason that SVO and FVL thought it did not make sense for CT to redeem.

491.  Hence, the CB Undertaking was entered into against the context that the best Delco could hope for was to obtain a redemption of the CB. As Mr Man put it, the commercial purpose of the CB Undertaking was to resolve the differences by providing an agreed arrangement for the time and manner in which Delco would be able to achieve its desired outcome of being able to recover the principal it invested together with interest, either from CT or from others.

492.  Mr Man also submitted that the various outcomes stipulated sought to put Delco in a position approximating a redemption of the CB, and there is nothing concerning enabling Delco to monetise any “conversion value” in the CB.

493.  However, I think that point overlooks that the value of the CB included its conversion value, whatever that might be from time to time. It seems to me that any purchaser would know of, and would likely place some reliance as to what it considered to be an appropriate valuation of the conversion rights, which were part of the terms of the CB. It can also be noted that in the CB Undertaking Delco undertook not to convert any of the bonds into shares, thereby ensuring that the full conversion rights remained available for potential exercise by any purchaser of the CB.

494.  Looking at the structure of the CB Undertaking, it might be thought that it provided for a cascade of potential events, through which Delco might ultimately obtain sale or redemption of the CB:

(1) paragraph (a) provides for finding a purchaser for the CB by the long stop date;

(2) paragraph (b) provides that if no purchaser is found by the long stop date, CT will itself redeem the CB for the full principal amount plus outstanding interest, payable no later than 31 July 2015;

(3) paragraph (c) provides that the undertaking in paragraph (b) will terminate if the share sale arrangement between Delco and HWH is completed;

(4) paragraph (d) provides that as consideration for CT’s undertaking in paragraph (b) Delco will in essence retain the CB (by not disposing of it other than to a party introduced by CT, and by not converting any part of the bond into shares);

(5) paragraph (e) provides for the situation when Delco continues to hold the CB after 31 July 2015, when Delco shall receive the principal amount of the bonds in instalment payments – but in circumstances that (i) Delco undertakes not to dispose of the bonds and waives rights including conversion rights, and (ii) CT has a call option a fixed price of the principal amount together with all unpaid interest.

495.  The overall flavour of the agreement, at least from paragraphs (b) to (e), is that Delco will one way or another come out of the arrangement with the payment of the principal amount of the CB plus any unpaid interest. That amount might be paid sooner or later, in one go or in instalments, but that is the amount that will be obtained. Therefore, there is some force in the suggestion that the arrangements provided for in paragraph (a) should match.

496.  Further, it might be thought that paragraph (a) is there to permit the possibility that Delco – as a preferred or first choice – could sell the CB to a purchaser, who might be willing to pay more than the principal amount. But I do not think that that commercially sensibly would impose an obligation on CT to procure a third party to purchase at any particular price, let alone one necessarily in excess of the principal amount. In any event, paragraph (a) does not prevent Delco turning down a purchase offer from a third party procured by CT – as in fact happened – even if that third party offers (only) the principal amount.

497.  It also seems to me to be commercially unlikely that the arrangement required CT to find a third party purchaser of the CB at what it was “worth objectively”. But it seems to me to be even more commercially unlikely that the arrangement would require CT itself to engage in a valuation process so that it might identify for itself the “objective worth” of the CB, and then look for a purchaser at that price.

498.  Overall it seems to me that, by the CB Undertaking, CT was in effect saying to Delco, “I will use my best endeavours to find a purchaser of your CB by 30 June 2015, but if there is no such purchaser or you cannot agree the price with the purchaser, then I will redeem the CB by 31 July 2015. If however, for whatever reason, you still hold the CB after that date, I will redeem it in instalments spaced out between now and the agreed extended maturity date”.

499.  Ultimately, therefore, I reject the interpretation put forward on behalf of Delco.

P.3 Rectification

500.  In light of my finding on the proper construction or interpretation of the CB Undertaking, the question of rectification does not seem to arise. However, CT’s alternative case is that the CB Undertaking should be rectified, as indicated above. I can briefly deal with this point.

501.  There is no dispute as to the applicable principles of rectification, as confirmed by the Court of Final Appeal in Kowloon Development Finance Ltd v Pendex Industries Ltd (2013) 16 HKCFAR 336 at §31, approving the principal set up by the Court of Appeal in the same case in its judgment at §§25-36. The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instruments ought to be rectified; (4) by mistake, the instrument did not reflect the common intention.

502.  The fact that the party intends a particular form of words in the mistaken belief that it is achieving its intention does not prevent the Court from giving effect to the true common intention. The question is what an objective observer would have thought the intentions of the parties to be.

503.  On the evidence (see further below), the terms of the CB Undertaking were apparently negotiated between SVO (representing Delco) and Paul Chow and Emily Chan (representing CT). They were assisted by Victor Lee and Lai of SH. From the materials, Mr Man argued that there was a common understanding between SVO and Lai that CT’s obligation was to procure a buyer to purchase the CB, apparently at principal amount. That is why SVO stated that seeking a higher figure was to seek a higher price than had previously been agreed.

504.  But, SVO explained that email in his cross-examination, and said that the common intention was for the CB to be sold under the best conditions, instead of at its principal amount.

505.  In the circumstances, I do not think there was the necessary outward expression of accord as would justify rectification.

P.4 Whether Breach

506.  Even if the obligation was to procure a third party purchaser of the CB at the price for what the CB was “worth objectively”, in reality the objective worth was ultimately only that which a prospective purchaser was willing to pay. How the prospective purchaser identified what he might be willing to pay could be the result of an extremely complicated calculation process, or simply a quick ‘look-sniff’ test type valuation. The only offer apparently received was at the principal amount, and I do not think it is possible to say that that is not what it was “worth objectively”. On that basis, there would have been no breach of the CB Undertaking.

507.  But it is also possible to review the factual circumstances, to see what actually happened and whether that identifies that to have been any breach (or any perceived breach).

508.  By an email dated 17 June 2015, Ms Vivian Poon of SH, then acting for CT, informed SVO and HDL that CT had found a purchaser for the CB, namely Haitong.

509.  By email the following day, 18 June 2015, Lai of SH asked SVO (and HDL in copy) whether Delco would like SH to prepare the sale and purchase agreement for the sale of the CB. On the same day SVO replied (copying in HDL) in the affirmative. Lai thanked SVO and said he would contact Haitong.

510.  In an email from FVL to HDL dated 18 June 2015, FVL noted a number of hurdles to converting under the CB, including (a) the inability to sell the shares as a block through the stock exchange, (b) the impossibility of finding a western investor, (c) the cost of finding an investment bank to sell the stake, and (d) recognition that a block sale would require a discount of at least 20% on the price, or possibly even higher given the high level of illiquidity. In the same email, FVL expressed the opinion that the then share price was very high, with no apparent underlying relation. Whilst the share price could rise, so could it also fall. FVL thought the rising share price to be the result of small-time traders who by CT shares after a billionaire has stepped in, and even a drop in the share price to 9 would still yield vast unrealised profits. A brief calculation of the possible sale at 12 or 9 was still “a lot of money!” FVL made reference to the CB Undertaking as having now become very important. He briefly recapped its terms and concluded that a brief window existed between 30 June and 31 July where Delco may decide within which Delco could elect to convert the bond. But there may be value in seeking to sell the CB to another buyer. The email concluded:

In view of all the difficulties involved in actually converting and selling the shares, I’m thinking along the lines of a deal with Fang that would see us paid part of the latent conversion profit as a sale price for the bond. Plus, we should also make hay now in terms of tying off the loose ends.

511.  In an email from SVO to HDL on 21 June 2015, SVO confirmed agreement that there was no desire to convert under the CB, not least as they were too removed from CT properly to judge whether the then share price was a fair reflection of its actual value, and because there is nothing more volatile than a share price. SVO pointed out that as CT’s share price had since enjoyed a significant boost, HDL appeared to have come to regret his decision and now appeared keen on obtaining a higher price than had previously been agreed. He stated his view that they should stay true to their word, although he thought HDL clearly took a different view of that. SVO confirmed that he was perfectly happy with what was currently agreed in respect of the bond, though if a better price could be negotiated, he would be happy to get it.

512.  However, it can be pointed out that when the email was put to SVO in cross-examination in the Dutch Court, he explained that he was under the wrong impression that the conversion right under the CB had lapsed when he wrote the email. He said the common intention of Delco and CT was for the CB to be sold under the best conditions, instead of at its principal amount.

513.  SVO’s email was apparently forwarded by HDL to FVL, who replied to HDL stating:

The most important bit is down at the bottom. We are at least allowed to try and see if we can get more out of this. But just having it redeemed is fine, too. All the other stuff is spilt milk, really. I mean, creating the wrong impressions and all that etc.

514.  By email dated 23 June 2015, copied to SVO, HDL requested Lai to ask the potential buyer of the CB to reconsider his offer, as the offered price at par was far below market value. In a reply on the same date, Lai said that the intention under the CB Undertaking was that CT either finds a buyer for the bonds or repay the bonds at its principal amount, and it should not be a matter of paying more for the bonds because of the higher share price when CT finds a buyer. He warned that if a different view was taken by Delco, that would give rise to a conflict and he would have to cease acting for Delco.

515.  On 25 June 2015, HDL expressed not understanding that response to the extent it suggested a possible conflict. He referred to the fact that CT agreed to seek a third party purchaser for the CB, and that Delco now wished to negotiate a fair price for the sale. He pointed out that the purchaser would acquire the bond including the conversion right, and in view of the then current stock price, the conversion right represented a substantial value of more than HK$300 million. That value is not reflected in the offer currently on the table, so that the offer was not attractive.

516.  In an email dated 29 June 2015, Lai informed HDL of his understanding that CT would use its best endeavours to find a buyer for the CB at its principal amount, and if a buyer could not be found to redeem the CB and repay the amount. He stated that, in accordance with the agreement, CT introduced a potential buyer to Delco for the CB, which Delco did not accept by the deadline. He stated his understanding that the buyer was neither prepared to increase the consideration nor to extend the timeline, and the offer had lapsed.

517.  I accept that, on the materials, it is clear that though HDL thought a higher price should be paid, there was no complaint from Delco at the time about CT’s performance of its obligations under the CB Undertaking. FVL also appears to have thought that it was worth trying to get more, but redeeming it for principal value was also fine.

518.  Ultimately, I conclude that there was no breach of the CB Undertaking.

P.5 Valuation

519.  In light of my above findings, the valuation exercise is moot. However, I can address the valuation point as follows.

520.  Delco’s primary case is that its loss should be quantified as the difference between the market value of the CB as of 30 June 2015, as assessed by the expert, and the repayments it subsequently received on the CB from CT.

521.  CT called Mr Niall Poole as its expert to give an opinion on the market value of the CB on the dates between 30 June and 31 August 2015. His conclusion was that the market value of CB throughout the period was no more than HK$312.6 million, being the principal amount of the CB (plus the amount of any accrued but unpaid interest on the CB as at the sale completion date).

522.  In his executive summary, he stated that: (1) “market value” was commonly accepted to mean the price at which an asset could be bought or sold for at a particular time; (2) the market value of the CB depends on a number of factors and risks and should be based on a holistic consideration, weighing all relevant factors and risks; (3) the risks associated with a purchase of the CB included (a) the ability of CT to generate sufficient cash to service the interest on the CB and repay the principal on the Maturity Date, (b) a continuing underperformance of CT’s business, and (c) a rapid reversal of its sudden and significant increase in the share price.

523.  He considered that the value a potential buyer would have been prepared to pay for the CB, including any value attributed to the conversion option, would have depended on the potential buyer’s holistic assessment of (1) the creditworthiness of CT, (2) CT’s future prospects, (3) the historical and likely future share price of CT, and (4) the risk that CT’s share price would be lower than the estimated future price. Any value attributed to the conversion option would have been dependant upon the potential buyer’s estimate of the “upside” of converting the CB into shares in the future which would yield a higher value if sold and the price the potential buyer had paid. The probability of realising any such upside would take into account a long-term assessment but within the timeframe allowed for conversion.

524.  If an issuer’s share price has shown a good historical trend of growth over a reasonably long period of time, resulting in the CB being, and remaining to be, “in the money” and that growth trend is expected to continue, Mr Poole would expect a potential buyer to be willing to pay more than the principal amount of the CB in order to require it. On the other hand, if the issuer’s share price does not have a reliable history of growth and there are doubts about the issuer’s future share price performance, a potential buyer may be less willing to pay more than the principal amount of the CB in order to acquire the CB.

525.  He considered that a potential buyer would have been wary of the risk that a further significant fall in the share price could mean that the buyer may suffer a loss before being able to finalise the legal and administrative procedures associated with acquiring the CB, converting the CB into shares and then selling the shares on the market. In addition, the daily volume of CT’s shares traded was ordinarily less than 10 million, so a buyer would have been mindful of the possibility that it could take several days to sell the 52 million conversion shares without a potential detrimental impact on the price achieved.

526.  On a slightly different note, it can be noted from a graph produced by Mr Poole that there was a significant jump in the share price after the involvement of USUMHK.

527.  Mr Pogson was the expert called by Delco on the CB valuation issue. He assessed the value of the CB applying the Binomial Tree methodology, in particular through consideration of the potential dilutions impact on the share price if Delco was to exercise the conversion option during the life of the CB. He summarised his methodology and assumptions broadly as follows:

(1) He adopted the commonly used assumption that the issuer’s stock price followed a Geometric Brownian motion, assuming volatility remains unchallenged.

(2) The life of the Binomial Tree set up to be the life of the convertible bond, the value of which are the final loads of the tree is calculated based on the numerical evaluation of any of the conversion options that the holder has at that time.

(3) Analysis is then rolled backwards through the tree. At nodes where the terms of the instrument allow for conversion, whether conversion is optimal is tested.

(4) Also tested is whether the position of the issuer can be improved by calling the bonds and whether the position of the holder can be improved by putting the bonds. If so, the assumption is made that the bonds are called or put and whether conversion is optimal is retested.

(5) On that basis, the value at a node is equal to the following formula Max (Q_put, Q_convert, Min (Q_call, Q_hold)).

(6) Q_hold is the value given back, assuming that the bond is neither converted at the node.

(7) Q_convert is the value if conversion takes place.

(8) However, the call price and put price are not relevant for present purposes.

(9) He assumed volatility within the range of 45% to 55%, by reference to implied volatility and historical volatility.

(10) He applied a credit rating of “B”.

(11) He assumed a credit spread of between 6% and 8%.

(12) He used the unadjusted closing stock prices for the relevant dates during the CB assessment period, and a risk-free rate, and a dividend yield of 0% (because CT did not declare any dividends in the two years before 30 June 2015).

528.  Based on the methodology and those parameters, Mr Pogson assessed the value of the CB ranges from HK$352 million-HK$562 million during the CB assessment period. Both figures are higher than the principal amount of HK$312.6 million.

529.  In passing, I note that on 9 April 2015, the date when Sims sold its CB at par value, the share price was $7.70. It can also be noted that the peak share price was $12.46 on 16 June 2015 and $12.38 on 19 June 2015, thereafter essentially dropping steadily (albeit not in a complete straight-line) to $8.55 on 16 July 2015 and $5.43 by 31 August 2015. In the intervening period, HWH sold its CB on 22 July 2015 when the share price was $7.96.

530.  On the valuation date of 30 June 2015, the share price was exactly $10. The assessed historical one-year and two-year volatility was 54% and 46% respectively.

531.  It seems to me that it is necessary to take into account that the USUMHK subscription of CT shares completed on 29 May 2015 resulted in net proceeds of about HK$4.1 billion being injected. As CT’s Annual Report 2015 stated, this significantly improved its financial position. The subscription proceeds would have enabled CT to pay off its outstanding CB, and to make new investment and expand its business. Those matters would realistically have been taken into account by market participants. Further, where the placement price was in excess of HK$9 per share, market participants might not have thought that the share price rise in June was abnormal, or an unexplained spike. On the other hand, it did appear to be back on the way down as at 30 June 2015 (though not yet approaching the conversion price of HK$6). Mr Pogson’s model rightly did not take into account matters of hindsight, namely share price movement after 30 June 2015.

532.  Ultimately, where necessary, I would prefer the approach adopted by Mr Pogson. But I would make an award at the bottom of his range, namely HK$352 million. That would give a price differential, and a calculation of loss, at HK$40 million. Were it an award actually made, I accept that it would attract pre-judgment interest, which in the exercise of my discretion I would set at Hong Kong dollar prime +1%.

Q. US$1 million Claim

533.  This claim is made in A2939.

534.  The pleading of this claim asserts that on or around 16 April 2009 Delco Asia advanced to CTHK a loan of US$1 million for the purpose of enabling CTHK to pay for the purchase of scrap metals from a US scrap metal supplier, Global Recycling (“Global”). The pleading further refers to an email dated 17 June 2011 from FVL to Fang demanding repayment of the loan. It is then pleaded that Delco acquired the assets and receivables of Delco Asia, including the US$1 million loan pursuant to the ALT Agreement, but CTHK has failed to repay the loan.

535.  There was no request for further and better particulars of that pleading. But in CT/CTHK’s Re-Amended Defence and Counterclaim, reference was made to a previous request made in correspondence which failed to elicit any particulars in response to CTHK’s request for information about the manner and circumstances in which the alleged loan agreement was made, the identity of the individuals who made it, its terms, and which entity was liable to make repayment of the alleged loan. The pleading also raises the legal points identified in the description of issues (above).

536.  In his oral evidence, HDL sought to explain what he meant in his witness statement when he stated that by around 2009, CT was increasingly purchasing materials from suppliers including Global, and he recalled that SVO approached him in 2009 and explained that Fang had requested that Delco advance a loan to CTHK, because Global was asking Fang for advance payments which was creating cash flow issues. His clarification was that in his discussions with SVO he would simply talk about CT – being a reference generally to the CT Group of companies – rather than talking about a specific company within the group. However, it was his understanding that the payment was made from Hong Kong, and CTHK would likely be the corporate entity to do so, which is why he thought the loan was repayable to CTHK.

537.  Certainly, the Prospectus stated that, since 1 August 2008, CTHK had taken up metal scrap procurement operation the Joint Venture and that it had also obtained the Supplier Registration Licence in December 2008.

538.  The witness statement also refers to an email dated 24 August 2011 in which Fang agreed to make repayment within the first two weeks of September 2011. However, the lack of clarity as to the precise borrower was also reflected in the subsequent letters of demand.

539.  Delco Asia’s SCB account statement dated 30 April 2009 shows a withdrawal of US$1 million, but without identifying the payee. There is a hand written note (apparently from FVL) making reference to Global, and to see an email from Ivy. The relevant email from a staff member of CTHK states that she got a call from SCB and confirmed the payee was Global. There is also a 2009 Global Recycling audit confirmation form, showing a loan of US$1 million.

540.  There is an email dated 25 March 2010 from Kimie Leung, Delco Asia’s bookkeeper, to Vincent van Ooiyen about ‘Unknown Transactions of Delco Asia’. Point 3 relates to the transfer of US$1 million to Global Recycling, as a settlement paid by Delco Asia on behalf of “Chiho Tiande” (without specifying any particular company).

541.  There is an accountant’s working trial balance of Delco Asia for the period 1 January to 31 March 2011 which records a current asset of HK$7.8 million (i.e. US$1 million) as a loan receivable. But though it states “Loan Receivable-Global Recycling”, the same document shows “ - ” where there would be recorded an amount due from the related company CTHK. However, it can be said this was not a “0” as with other entries, so the sign might mean nil, or might reflect an unknown or an uncertainty.

542.  FVL’s recollection was also that the US$1 million was a loan (for Fang or one of the CT companies) requested by Fang on an urgent basis in order to meet payment under supplier contracts.

543.  There is also a resolution of Delco Asia dated 6 September 2011 showing, amongst other things, the amount due from CTHK (as a related company) was HK$138,523,393 as at 31 December 2009, but apparently reduced to nil as at 31 December 2010. This may be consistent with a CTHK 2010 trial balance sheet showing payable to Delco Asia as reduced from around HK$138 million to nil.

544.  On 5 November 2015, a letter was written from Monkton Chambers to Fang, asserting various claims against Fang on behalf of claimants HDL, Delco and HPL Metals (HDL’s company). One of the claims related to the sum of US$1 million and was asserted as follows:

On 14 April 2009 the Claimants transferred US$1,000,000 to you by way of loan. This loan has not been repaid and is hereby demanded and due to the Claimants.

545.  On 23 November 2015, a further letter was written from Monkton Chambers, but this time addressed to the directors of CT. The letter stated that it was making a demand on CT for various monies owed, amongst which was a claim to the sum of US$1 million, which was asserted as follows:

On 14 April 2009 Delco transferred US$1,000,000 to [CT] by way of loan. This loan has not been repaid by [CT].

546.  Neither of these demands is very helpful to Delco on the pleaded claim when they now pursue repayment of this amount neither from Fang nor from CT but from CTHK – there being also no suggestion that there was any other US$1 million sum loaned by Delco in April 2009.

547.  On behalf of CTHK, Mr Man described the US$1 million Loan Claim as being fraught with difficulties, including for three independently sufficient grounds: (1) there is no evidence to show the existence of the alleged outstanding loan, or the liability of CTHK for it; (2) there is no evidence to show that Delco acquired the right to sue for the loan; and (3) the claim was time-barred by the date of the writ in A2939.

548.  As to whether the claim is time-barred because the cause of action accrued on 16 April 2009, Mr Dawes argued in his opening submissions that to be incorrect. He pointed to emails dated 17 June 2011 and 24 August 2011 from Fang (when chairman of CT, one written from his CT email address) to FVL acknowledging the US$1 million debt. So, Mr Dawes submits, by virtue of section 23 and 24 of the LO, the claim shall be deemed to have accrued within six years before the date of the writ in A2939 (i.e. before 10 November 2016). He did not add to those points in his closing submissions.

549.  But that may be because, as Mr Man pointed out in his closing submissions, there is no entitlement to run a new argument based on sections 23 and 24 of the LO, where Delco has failed to plead the two emails, nor any acknowledgement of the US$1 million Loan on the part of CTHK. Indeed, I also accept that it became clear in the course of evidence that the emails said to have provided the acknowledgement did not in fact contain any acknowledgement made on behalf of CTHK. In those circumstances, the limitation argument is insuperable.

550.  But I also accept the problems facing Delco on the identity of the debtor. There seems to be clear evidence that Delco Asia withdrew US$1 million for the purpose of paying the company Global Recycling. But – other than the general statement in the Prospectus, and HDL’s assumption – there is little real evidence to show that it was CTHK who took on the obligation to repay that sum. The amount appears to have been booked in Delco Asia’s accounts as a receivable from CT Metals. Later, amounts due from CTHK seem to have reduced from around HK$138 million (apparently not including the US$1 million) to nil by the end of 2010.

551.  I have also already referred to the numerous documents which appear to indicate that Delco had the view that Fang was the true debtor of, and liable to repay, the US$1 million loan. This is shown in the email correspondence, as well as the letters of demand, though the demands only add confusion by suggesting repayment due from CT (not CTHK). No evidence was led from SVO about this aspect of the case, leaving only that documentary evidence.

552.  There is force in Mr Man’s connected point that, reading clauses 1 and 2 of the ALT Agreement, Delco acquired from Delco Asia only the assets and liabilities mentioned in the adopted financial statements of Delco Asia, but those statements confirmed the amount due from CTHK was nil.

553.  Therefore, I am not satisfied that this claim has been proved on the balance of probabilities, even if it does not fall foul of a limitation problem. The US$1 million Loan Claim is dismissed.

R. CT’s Counterclaim

R.1 Against Delco

554.  Though it may not necessarily impact its merit, CT’s counterclaim against Delco smacks of a rather opportunistic flavour.

555.  If Delco’s allegations regarding the Scheme are found to be true, CT’s case is that each of Delco and Fang had been unjustly enriched in that there was a failure of basis and/or consideration in relation to the Shareholders Loan Assignment and Capitalisation Agreement. CT’s case is that if the Scheme did exist, there would been a failure in the basis for CT’s (1) allotment of 344,999,954 shares to Delco and (2) paying Fang the Uncapitalised Portion out of the listing proceeds.

556.  Mr Man submitted that the basis failed in that the Delco Asia Loans were not actually repayable for the following reasons: (1) they were not genuine debts, and the 24 June 2010 Agreement does not have the effect of creating an independent obligation for CT to repay them; (2) they were tainted by illegality under Hong Kong law; and/or (3) they were tainted by illegality under PRC law.

557.  As to the argument on illegality, I accept Mr Dawes’s submission that it is not open to CT to rely on illegality for its counterclaim, by virtue of the way it has pleaded its case:

(1) It is correct that the Counterclaim at §15 pleads that “The Defence above is repeated in its entirety”. It may also be correct that it makes no sense to require CT to repeat word for word the plea is in the Defence. But I do not think that has the effect of allowing everything pleaded in the Defence to stand as a specific basis of its counterclaim.

(2) First, that is contrary to the requirement of RHC Order 18 rule 8, which requires illegality to be specifically pleaded.

(3) Secondly, the Counterclaim at §16 specifically pleads that in the event that the Court finds in favour of the existence of the Scheme, “CT will rely on the pleas in the paragraphs below in support of its counterclaim”.

(4) The only substantive paragraph “below” which raises the relevant counterclaim against Delco of a failure of basis and/or consideration is §20.

(5) That paragraph pleads only that (a) the Capitalised Portion was comprised of debts that were not genuine debts with repayment obligations, or alternatively (b) the Capitalisation Agreement was a sham in that it was created solely or predominantly for the purposes of perpetrating and/or concealing the Scheme.

(6) That paragraph resembles §7G of the Defence, which pleads matters relating to the Uncapitalised Portion and the fact that the Delco Asia Loans were not genuine debts with repayment obligations, or that any provision in the Capitalisation Agreement which had the effect of creating an obligation for CT to pay the Uncapitalised Portion was a sham.

(7) That is distinct and different from a plea of illegality.

(8) The distinction is also apparent from CT’s Counterclaim at §22 against Fang, where express reference is made to §§7G to 7J.

(9) On the face of the pleading, and whether it was intentional or not, the counterclaim against Delco is more limited than that against Fang.

(10) It is limited to the two aspects identified in §20.

558.  I will, therefore, not address the illegality point, and there is no need to weigh questions of expert opinion evidence in that regard.

559.  Instead, I will deal with the only pleaded case of CT, that the failure of basis and/or consideration was because the Capitalised Portion was comprised of debts that were not genuine debts with repayment obligations, or alternatively the Capitalisation Agreement was a sham in that it was created solely or predominantly for the purposes of perpetrating and/or concealing the Scheme.

560.  A “sham” arises out of acts done or documents executed by the parties to the sham which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create: see Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802C-F. Further, the intention must be a common intention: see Hitch v Stone [2001] STC 214 at §69. The consequence of finding that a transaction is a sham is that it is null and void and of no effect: see Chen Yung Ngai Kenneth v Ho Yuk Wah David [2020] HKCFI 2518 at §95.

561.  In the present case, Mr Dawes submitted that the Delco Asia Loans represented the Unreported Profits reinvested into the Joint Venture. Therefore, he submitted, it should be beyond dispute that Delco Asia must have intended those debts to be repayable to it. This is not the case of a sham, because the parties plainly intended to create the same legal rights and obligations as stated in the books and the Capitalisation Agreement. I agree.

562.  The position is not changed by reference to the (unpleaded) point raised by Mr Man in submission that, under the Scheme is pleaded by Delco, the Unreported Profits arose from systemic under-invoicing by Delco Europe as opposed to Delco Asia. As Mr Dawes submitted, and I accept, the Scheme pleaded is that the Unreported Profits were attributable to Delco’s group (which includes by pleaded definition Delco Asia) as a matter of mutual intention of Delco’s group and Fang’s Group. Eventually, the arrangement implemented was for Delco Asia to extend genuine and repayable loans to the Joint Venture, which represented the Unreported Profits.

563.  I dismiss CT’s counterclaim against Delco.

564.  In the circumstances, I do not need to address the quantum of any restitution damages. Suffice it to say that I would not have found in favour of the quantum advanced by CT. Further, I would not have made any declaration that CT is entitled as constructive trustee to the traceable proceeds of the Capitalised Portion shares.

R.2 Against Fang/HWH

565.  CT has counterclaimed against Fang/HWH for a declaration in relation to Tax Claims made by public authorities against CT and its subsidiaries arising out of the alleged Scheme. CT has also counterclaimed against Fang in relation to the Uncapitalised Portion.

566.  On the issue of the Tax Claims, CT relies upon a letter of indemnity (“Letter of Indemnity”) executed as a deed by Fang and HWH, under which they undertook to CT (for itself and on trust each of its subsidiaries) to indemnify CT and its subsidiaries (each being an “Indemnified Person”) against the following:

all losses, liabilities … suffered, made or incurred arising out of, in relation to or in connection with the investigation, dispute, defence or settlement of or response to any third party claims against the Indemnified Persons (“Third Party Claims”) or the enforcement of any such settlement or any judgment obtained in respect of any Third Party Claims which may be made or incurred or suffered by an Indemnified Person as a result of the Third Party Claims, Provided that:

(A) none of the Indemnified Persons (other than by virtue of Mr Fang’s knowledge) is aware of such Third Party Claims; and

(B) such Third Party Claims arise from the misconduct, fraud or breach of fiduciary duties of Mr Fang whilst acting in his capacity as the Chairman and Executive Director of the Company.

567.  Mr Man submitted that it is indisputable that any Tax Claims would fall within the meaning of the Third Party Claims under the Letter of Indemnity. Nor, he submitted, could there be any dispute that the two requirements under the proviso to the indemnity are satisfied.

568.  This counterclaim was not addressed by Fang/HWH in their written opening or closing submissions. However, they pleaded a number of defences to the counterclaim.

569.  First, it was pleaded that the Tax Claims would not fall within the meaning of Third Party Claims because the under-reporting profits was not conducted after CT was incorporated on 15 May 2008, nor whilst Fang was acting in his capacity as the Chairman and Executive Director of CT. Mr Man submitted that argument was misconceived because the Scheme as pleaded extended to cover not only the under-reporting of profits by the PRC Operating Companies, but also the reinvestment of those profits into the Joint Venture from 2001 to 2008 and the arrangement of certain “adjustments” in the accounts to reconcile the mismatch which arose as a result of the Scheme and the reflection of such adjustments in the Capitalisation Agreement.

570.  However, the relevant pleaded adjustments were made to the books of Delco Asia. Further, I have already found that the under-reporting and the Scheme essentially concluded prior to the listing attempt in 2008. Therefore, it is not simply “debatable” (Mr Man’s word) whether any part of the activity complained of took place after CT was incorporated on 15 May 2008 (with Fang as its Chairman and Executive Director), it seems to me that no part of that activity in fact took place after CT was incorporated. Further, I do not think the finding as to the existence of the Scheme amounts ex hypothesi to a finding that Fang caused CT to enter into the Capitalisation Agreement with his knowledge that the Delco Asia Loans were not genuinely repayable. Indeed, I have found that they were genuinely repayable.

571.  This is dispositive of this aspect of counterclaim. However, I can consider the other aspects raised on the pleadings.

572.  Second, Fang and HWH pleaded that no Tax Claims have been threatened or commenced and none of CT or any of its subsidiaries has suffered any losses and liabilities. However, I accept Mr Mann’s submission that the power to grant declaratory relief is derived from the inherent jurisdiction of the court, and there is no legal requirement for a plaintiff to have suffered any loss before it can apply for such relief. Nevertheless, it also does seem to me that any potential tax claim after such a lengthy period of time is at least extremely unlikely.

573.  Third, Fang and HWH pleaded an argument as to prematurity of granting the declaration before any claim had arisen, and there had been compliance by the Indemnified Persons with their obligations under the Letter of Indemnity. I also accept Mr Man’s submission that this plea is without merit.

574.  Nevertheless, because of my first finding, CT’s counterclaim under the Letter of Indemnity is dismissed.

575.  As to the counterclaim against Fang alone relating to the Uncapitalised Portion, I shall reserve that to be dealt with in a separate decision.

S. Conclusion

576.  By reason of all the above, I order:

(1) Fang/HWH to pay equitable compensation in the sum of HK$332,922,194 to Delco, plus pre-judgment interest (at prime + 1%) from 23 January 2025.

(2) HWH to pay HK$46,883,466 plus pre-judgment interest (at prime + 1%) from 5 November 2015.

(3) Fang to pay HK$55,501,079 plus pre-judgment interest (at prime + 1%) from 4 March 2011.

(4) Fang/HWH to pay HK$6,252,000 plus pre-judgment interest (at prime + 1%) from 20 September 2013.

(5) Delco’s claims against CT and CTHK be dismissed.

(6) The counterclaims by Fang, HWH and CT against Delco be dismissed.

(7) The counterclaim by CT against Fang and HWH brought on the Letter of Indemnity (as defined above) is dismissed.

577.  As to costs, I reserve the question for determination on paper submissions, after the parties have had an opportunity to consider the content of this Judgment.

578.  I leave the parties to agree an appropriate timetable for costs submissions, and failing agreement to offer an appropriate timetable for the approval of the Court.

T. Post-Judgment Mareva Injunction

579.  By order of DHCJ Hall-Jones dated 30 October 2019 (“30 October 2019 Order”), Fang and HWH were restrained from disposing of their assets up to the value of HK$64,079,118 and HK$6,252,000 respectively, including the sum of HK$64,067,118 (“Escrow Amounts”) held on escrow with Stephenson Harwood as escrow agent, pursuant to an Escrow Agreement dated 17 December 2015. The 30 October 2019 Order was granted based on the Uncapitalised Portion Claim and the CB Interest Claim only.

580.  After trial of the actions, Fang/HWH rejected Delco’s invitation to consent to an extension of the 30 October 2019 Order for 28 days after the handing down of the trial judgment. As a result, there could be or could have been an absence of a court order preventing Fang/HWH from disposing assets upon the handing down of the trial judgment, even if it were to be in Delco’s favour.

581.  In the circumstances, Delco applied for a prospective post-judgment Mareva injunction to restrain Fang/HWH from disposing of their assets up to the value of the Escrow Amount, if the Breach of Fiduciary Duty Claim is successful.

582.  Mr Dawes submitted that this was a straightforward application. It was plainly in the balance of convenience to maintain the status quo for at least a period after the handing down of the trial judgment, and it would be inconceivable that Fang/HWH would suffer any irreparable harm if Delco’s application were to be granted. On the other hand, Mr Nip (acting in this regard on his own) submitted that the application was premature, and in any event Delco had failed to demonstrate any real risk of dissipation.

583.  Having heard the argument, I reserved my decision to be handed down together with the trial judgment.

584.  The relevant principles applicable to the grant of a post-judgment Mareva injunction are well-established. Of course, the mere fact that a judgment has been obtained does not of itself justify the grant of such an injunction. But if one is otherwise justified, it may be granted. Indeed, the Court might be expected more readily to grant such an injunction once the plaintiff has become a judgment creditor entitled to enforce the judgment by executing on the assets of the defendant.

585.  Nevertheless, there must be a risk of dissipation, to be demonstrated upon the usual principles applicable on applications for Mareva injunctions. The ultimate question remains whether the plaintiff has succeeded in showing objectively that there is a solid basis for concluding that there is a real risk of unjustified dissipation of assets by the defendant. Materials need to be looked at holistically – remembering the assessment is one of risk of dissipation, and not necessarily the fact of actual dissipation – likely requiring some element of evaluative and predictive judgment.

586.  Mr Dawes submitted that:

(1) Under the terms of the application, the post-judgment Mareva injunction would take effect only if Delco has succeeded in its Breach of Fiduciary Duty Claim, so obviously the usual requirement for a good arguable case would have been satisfied.

(2) The Escrow Amount is within the jurisdiction.

(3) There is a demonstrated risk of dissipation.

(4) The latter can been seen from a number of features including that the application would proceed on the basis of a finding of a form of equitable fraud, Fang has demonstrated few qualms in giving false evidence and suppressing material documents, Fang’s conduct in BVI proceedings reinforces the concern is the lack of commercial morality, and the fact that the Escrow Amount is highly liquid identifies heightened risk of quick dissipation.

(5) The balance of convenience is firmly in favour of the grant of the injunction (not least where Delco is willing to give the usual undertaking as to damages).

587.  On the other hand, Mr Nip submitted that:

(1) The application sought to ‘jump the gun’, demonstrated by seeking to draft an order in terms that would only take effect if the Breach of Fiduciary Duty Claim succeeds.

(2) That is contrary to the jurisdiction which is not intended to provide for a potentially would-be judgment creditor.

(3) Further, there is no justification for making the application was to trial judgment was pending.

(4) There had to be a then current risk of dissipation to justify the application, but no such risk could arise until later.

(5) Reliance on the BVI injunction discharge ignores the other parts of the decision where Fang/HWH were found not to have made any dishonest representation.

(6) The liquid nature of the Escrow Amount is not a significant factor, and does not evidence or demonstrate a real risk of unjustified disposal.

(7) The argument that the Court should more readily infer a risk of dissipation after judgment has been given would not apply prior to any judgment.

588.  As it happens, this application is being dealt with at the same time as the trial judgment, with the findings made in it. But, in any event, where the application was essentially contingent on a particular result in the trial judgment, I do not think it can be said that the application was premature. Now that I have decided that there was a breach of fiduciary duties, the necessary merits hurdle is obviously well satisfied. As to risk of dissipation, that had already been demonstrated in the grant of the original injunction, and the risk is even more apparent now – particularly in light of the findings I have made above. The balance of convenience is clearly in favour of granting the injunction as sought, to preclude any window for dissipation of the Escrow Amount, and I accept that to have applied only after the trial judgment is handed down might be too late to prevent the dissipation of which there is plainly a real and substantial risk.

589.  Connected to this application was a further summons which has been termed the EOT Summons. Essentially, that fell away leaving only the question of costs. On that question I accept that the costs should be dealt together with the costs of the injunction application.

590.  In the circumstances, I grant the application, and I make an order in the terms of Annex 1 to Mr Dawes’ skeleton argument, save that I extend the period to what seems to me to be more appropriate in light of the location of the parties and potential complexities thrown up by developments post-trial, namely:

Upon the undertaking that if the Court later finds that this Order has caused loss to the Fang Ankong also known as Fang An Kong (“Fang”) or HWH Holdings Limited (“HWH”) or any other party and decides that they should be compensated for that loss, will comply with any order the Court may make

1. If Delco Participation B.V. (“Delco”) succeeds in the Uncapitalised Portion Claim (as set out in paragraph 11(b) of the Decision of DHCJ Hall-Jones dated 30 October 2019 (“Hall-Jones Decision”)), until 28 days after the date of the judgment in the Action or further order of the Court, Fang must not, whether by himself or through others acting on his behalf or on his instructions or with his encouragement:

(a) remove from Hong Kong any of his assets which are within Hong Kong whether in his own name or not, and whether solely or jointly owned, up to the value of HK$57,927,118, including the amount presently deposited with Messrs. Stephenson Harwood (“SH”) as the escrow agent pursuant to an Escrow Agreement dated 17 December 2015 between HWH, USUM Investment Group Hong Kong Limited and SH (the “Escrow Amount”); or

(b) in any way dispose of or deal with or diminish the value of any of his assets, which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned up to the value of HK$57,927,118.

2. If Delco succeeds in the CB Interest Claim (as set out in paragraph 11(c)(i) of Hal-Jones Decision), until 28 days after the date of the judgment in the Action or further order of the Court, Fang/HWH must not, whether by himself or through others acting on his behalf or on his instructions or with his encouragement:

(a) remove from Hong Kong any of his assets which are within Hong Kong, whether in his own name or not, and whether solely of jointly owned, up to the value of HK$6,252,000, including the Escrow Amount; or

(b) in any way dispose of or deal with or diminish the value of any of his assets, which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned up to the value of HK$6,252,000.

3. If Delco succeeds in the Breach of Fiduciary Duties Claim (as set out in paragraph 11(c)(ii) of Hall-Jones Decision), until 28 days after the date of the judgment in the Action or further order of the Court, Fang and HWH must not, whether by himself or through others acting on his behalf on his instructions or with his encouragement:

(a) remove from Hong Kong any of his assets which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned, up to the value of HK$64,067,118, including the Escrow Amount; or

(b) in any way dispose of or deal with or diminish the value of any of his assets, which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned up to the value of the Escrow Amount.

4. For the avoidance of doubt, the above orders are cumulative in effect, subject to the caveat that the total amount of assets pf Fang/HWH frozen shall not exceed HK$64,179,118.

5. Costs of the Summonses dated 25 January 2022 and costs of the Summons dated 23 February 2022 be to the Plaintiff, with certificate for 2 counsel, to be taxed if not agreed.

U. Other Matters

591.  As I have indicated above, the counterclaim brought by CT against Fang relating to the Uncapitalised Portion shall be reserved to be dealt with in a separate decision.

592.  I will also deal separately with the outstanding issues in respect of the contribution and third-party claims commenced by Fang and HWH in A3040.