CHINA STEM CELLS HOLDINGS LTD v. ZHENG TING AND OTHERS

HCA 1407, 1408, 1409, 1410/2022

[2024] HKCFI 481

HCA 1407/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1407 OF 2022

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HCA 1408/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1408 OF 2022

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HCA 1409/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1409 OF 2022

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HCA 1410/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1410 OF 2022

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J U D G M E N T

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1.  There are before the court 4 Actions commenced by the provisional liquidators[1] appointed by the Cayman Islands court over Global Cord Blood Corporation (國際臍帶血庫企業集團)  (“GCBC”)  on 22 September 2022 (“PLs”)  in the names of 3 indirect wholly owned subsidiaries of GCBC (together “Plaintiffs”)  namely:

(1)  China Stem Cells Holdings Ltd (中國幹細胞控股有限公司)  (“CSC Holdings”), a Cayman company, which is the plaintiff in HCA 1407/2022 and HCA 1410/2022;

(2)  China Stem Cells (South)  Company Limited (“South BVI”), a BVI company, which is the plaintiff in HCA 1408/2022; and

(3)  China Stem Cells (East)  Company Limited (“East HK”), a Hong Kong company, which is the plaintiff in HCA 1409/2022.  East HK is also named as the 4^th defendant in HCA 1410/2022.

2.  It is the Plaintiffs’ case that since 22 September 2022, the PLs have been the only persons with proper authority to take control and manage all the direct and indirect subsidiaries of GCBC, including the following 3 intermediate holding companies incorporated in Hong Kong whose shares are held by the Plaintiffs:

(1)  China Stem Cells (South)  Company Limited (“South HK”), the 4^th defendant in HCA 1408/2022; 

(2)  China Stem Cells (North)  Company Limited (“North HK”), the 4^th defendant in HCA 1407/2022; and

(3)  Favorable Fort Limited (贊堡有限公司)  (“FFL”), the 4^th defendant in HCA 1409/2022.

The above 3 companies together with East HK are collectively referred to as “HK Subsidiaries”.

3.  The PLs brought these Actions in the names of the Plaintiffs so as to take control over the HK Subsidiaries and their 5 subsidiaries established in the Mainland (collectively “Mainland Subsidiaries”)  pending determination of the dispute between the shareholders of GCBC in the “Cayman Petition” (as defined in §24 below).  The Mainland Subsidiaries are:

(1)  Beijing Jiachenhong Biological Technologies Company Limited (北京佳宸弘生物技术有限公司)  (“Jiachenhong”), a company established in the Mainland wholly owned by North HK[2]. It holds the right to operate the cord stem cell storage business in Beijing city.

(2)  Zhejiang Lukou Biotechnology Company Limited (浙江绿蔻生物技术有限公司), a company established in the Mainland with 90% of its equity being held by Jiachenhong.  It holds the right to operate the cord stem cell storage business in Zhejiang province. 

(3)  Guangzhou Municipality Tianhe Nuoya Bio-engineering Company Limited (广州市天河诺亚生物工程有限公司)  (“Nuoya”), a company established in the Mainland wholly owned by South HK.  It holds the right to operate the cord blood bank in Guangdong Province. 

(4)  Jinan Baoman Science & Technology Development Co., Kimited (济南鲍曼科技发展有限公司)  (“Baoman”), a company established in the Mainland wholly owned by FFL.

(5)  Shandong Province Qilu Stem Cells Engineering Company Limited (山东省齐鲁干细胞工程有限公司), a company established in the Mainland with 24% of its equity being held by Baoman.  It holds the right to operate the cord blood bank in Shandong Province.   

4.  Although various causes of action have been pleaded in the amended statements of claim filed in the actions, the issue as to who have proper authority to act for the HK Subsidiaries (and hence the Mainland Subsidiaries)  depends entirely on whether the “Impugned Documents” (as defined in §52 below)  were back-dated and therefore void or whether they were made by the directors in breach of fiduciary duties and therefore voidable.  For this reason and the fact that the defendants who have real interest in the Actions (i.e. CISIL, MS and Notake[3])  have not entered appearance to defend the Plaintiffs’ claims, this Court considered that there should be a trial on the preliminary issues identified in §53 below, which concern the validity of the Impugned Documents. 

A.  BACKGROUND

5.  Unless where otherwise indicated, the facts and matters below are taken from the Agreed Facts, Agreed Chronology and Agreed Dramatis Personae or facts which are not in dispute. 

A1.  GCBC

6.  GCBC is a company incorporated in the Cayman Islands in 2003.  Its shares was listed on the New York Stock Exchange in November 2009.  GCBC is an investment holding company and has not carried on any business in its own right.  GCBC holds all the shares in China Cord Blood Services Corporation, another Cayman Islands company which, in turn, holds all the shares in CSC Holdings.  CSC Holdings is a key company in the corporate structure in that it holds all the shares, directly or indirectly, in the HK Subsidiaries and the equity described in §3 above in the Mainland Subsidiaries. 

7.  The corporate structure of GCBC and all its direct and indirect subsidiaries (together “Group”)  can be seen from the chart prepared by Ms Eva Sit SC[4], counsel for the Plaintiffs, and is reproduced[5] as follows:

8.  The Group engages in cord blood banking services with most of its operations and assets located in the Mainland.  The business of the Group appears to be very profitable in that its revenue and net income for the year ended 31 March 2022 was RMB 1,243 million and RMB 501 million respectively.[6]

A2.  Corporate history of GCBC: Pre-2016

9.  Golden Meditech Holdings Limited (“GMHL”)  was a company listed on The Stock Exchange of Hong Kong Limited in 2001 (stock code 0801)  until it was privatised in 2020.  It held 100% shareholding in Golden Meditech Stem Cells (BVI)  Company Limited (“GMSC”), a BVI company.  GMSC in turn held 78,874,106 shares in GCBC (representing 65.4% of its issued shares)  (“Shares”)  until they were sold pursuant to the sale and purchase agreement dated 30 December 2016 made between Nanjing Ying Peng Hui Kang Medical Industry Investment Partnership (南京盈鵬蕙康醫療產業投資合夥企業(有限合夥)(“Ying Peng Partnership”)  (as purchaser), GMSC (as seller)  and GMHL (as guarantor)  (“2016 SPA”).   

10.  The founder of GMHL is Mr Kam Yuen (甘源)  (“Kam”), who was its majority shareholder, Chairman and an Executive Director.  Kam through GMHL controlled GCBC until the Shares were sold in January 2018.  

A3.  Parties

11.  Ms Zheng Ting (鄭汀)  (“Tina”):

(1)  is a qualified accountant and has substantial experience in managing business;

(2)  was appointed as an executive director of GMHL in September 2001 until she became a non-executive director in August 2012, a position she held until May 2019[7];

(3)  was appointed as an executive director and chairman of the board of GCBC in June 2009 and 2018 respectively[8].  She was appointed as GCBC’s Chief Executive Officer (“CEO”)  before 2016.  She remained a director and the chairman of the board of GCBC after the 2016 SPA;

(4)  has been responsible for the strategic direction, development and overall management of GCBC[9];

(5)  has 2 children with Kam[10]; and

(6)  is the 1^st defendant in HCA 1407, 1408 and 1410/2022 and the 5^th defendant in HCA 1409/2022. 

12.  Mr Chen Bing Chuen Albert (陳炳泉)  (“Albert”):

(1)  joined GMHL as its corporate finance vice president in 2005;

(2)  was appointed as a director and Chief Financial Officer (“CFO”)  of GCBC since 2009[11]; and

(3)  is the 5^th defendant in HCA 1407, 1408 and 1410/2022 and the 1^st defendant in HCA 1409/2022.

13.  Prime Intelligent Management Limited (天盛控股集團有限公司)  (“PIML”):

(1)  is incorporated in Hong Kong and is a corporate secretarial services provider;

(2)  was appointed as company secretary of each of the HK Subsidiaries pursuant to the “1^st and 2^nd Appointment Resolutions” (as defined in §52(4)  below);

(3)  is the 3^rd defendant in HCA 1407-1410/2022;

(4)  employs a consultant, Ms Chen Tsz Suen (“Chen”), who manages and oversees the work of the staff of PIML; and

(5)  is owned and controlled by Ms Lo Shing Choi Venus (“Lo”), who is its sole shareholder and director.   

14.  Ms Notake Minori (野武美乃里)  (“Notake”), a Japanese:

(1)  is the named allottee of new shares in each of the HK Subsidiaries pursuant to the “Allotment Resolutions” (as defined in §52(3)  below);

(2)  was appointed as a director of each of the HK Subsidiaries pursuant to the 2^nd Appointment Resolutions; and

(3)  is the 2^nd defendant in HCA 1407-1410/2022.

15.  China In Shine Investment Limited (中國盈時控股有限公司)  (“CISIL”), a company incorporated in the BVI:

(1)  is the named transferee of shares in the HK Subsidiaries in the “1^st Transfers Documents” (as defined in §52(1)  below); and

(2)  is the 6^thdefendant in HCA 1407-1410/2022.

16.  Ms Sonoe Muramatsu (“MS”), a Japanese whose address is in Japan:

(1)  is the named transferee of shares in the HK Subsidiaries from CISIL in the “2^nd Transfers Documents” (as defined in §52(2)  below);

(2)  was appointed as a director of each of the HK Subsidiaries pursuant to the various “1^st Appointment Resolutions” (as defined in §52(4)  below); and

(3)  is the 7^th defendant in HCA 1407-1410/2022.

17.  Although Notake, CISIL and MS are named as allottee or  transferees of shares in the HK Subsidiaries or were appointed as directors of the HK Subsidiaries (Notake and MS), they have not entered appearance or taken any step to oppose the interlocutory or final relief sought by the Plaintiffs in the 4 Actions.  The only parties who oppose the 4 Actions are Tina, Albert and PIML.

A4.  2016 SPA

18.  By the 2016 SPA GMSC sold all the Shares (i.e. 65.4% in GCBC)  to Ying Peng Partnership for RMB 5,764 million.  Ying Peng Partnership used a BVI company, Blue Ocean Structure Investment Company Limited (“Blue Ocean BVI”), to hold the Shares.  The sole shareholder of Blue Ocean BVI is Blue Ocean Creation Investment Hong Kong Limited, a Hong Kong company.   

19.  Ying Peng Partnership[12]:

(1)  is a limited partnership private equity fund established in the Mainland pursuant to the Partnership Agreement dated 1 December 2016;

(2)  has 2 general partners and fund managers namely, (a)  Nanjing Ying Peng Asset Management Co Ltd (南京盈鵬資產管理有限公司)  (“Ying Peng AMC”), and (b)  Shanghai Guotai Junan Haojing Investment Managing Co., Ltd; and

(3)  has various limited partners including Sanpower Nanjing Investment Co. Ltd and Nanjing Xinjiekou Department Store Co. Ltd.   

20.  Ying Peng AMC[13]:

(1)  is the executive general partner vested with all the powers to act for Ying Peng Partnership when dealing with third parties; and

(2)  is wholly owned by Sanpower Group Co. Ltd (三胞集團有限公司)  (“Sanpower”), a company established in the Mainland, which was founded by Mr Yuan Ya Fei (袁亞非)  (“Yuan”), who remains its ultimate owner and controller.

21.  The 2016 SPA was completed on 31 January 2018 and GCBC’s board was reconstituted as follows[14]:

(1)  Kam resigned as director;

(2)  all 5 directors nominated by Kam including Tina and Albert remained  as directors;

(3)  Blue Ocean BVI (as majority shareholder)  appointed one non-executive director, Mr Xu Ping (許平)  (“Xu”)  on 30 January 2018.  Xu is a director of Blue Ocean BVI and was formerly a senior vice president of Sanpower[15]; and

(4)  2 independent non-executive directors were appointed in late 2019 and early 2020.

A5.  Cellenkos Transaction & Cayman Petition

22.  On 29 April 2022, GCBC announced through a SEC filing that it had entered into a transaction to acquire 100% interest in Cellenkos Inc. (“Cellenkos”), a Delaware biotechnology company, together with certain rights under a licence agreement to market one Cellenkos product in Asia (“Licence Rights”)  (together “Cellenkos Transaction”), whereby[16]:

(1)  GCBC would issue 112,613,633 shares at a conversion rate of approximately 8 GCBC shares for one Cellenkos share as consideration for the sale of shares in Cellenkos;

(2)  GCBC would issue 12.4 million shares and pay US$664 million in cash as consideration for the Licence Rights; and

(3)  the “long stop date” for completion was 28 June 2022 (subsequently extended to 28 July 2022).

23.  Blue Ocean BVI was concerned about the propriety of the Cellenkos Transaction given that:

(1)  the cash consideration represented 63% of the Group’s cash and cash equivalents as at 31 March 2022;

(2)  Cellenkos appears to be a related party as its shareholders included GMHL (holding 30.5%)  and a director of Cellenkos/GMHL (holding 6.5%);

(3)  Xu (a director of GCBC)  was not aware of and did not  approve the Cellenkos Transaction; and

(4)  the shareholders were not notified of the Cellenkos Transaction. 

24.  On 5 May 2022, Blue Ocean BVI presented a petition in the Cayman Islands court seeking to wind up GCBC on the just and equitable grounds relying on the assertions that the Cellenkos Transaction was a related party transaction and, in any event, given the magnitude of the Transaction and the dilutive effect on the shareholding of existing shareholders, the board ought to have obtained approval from the shareholders but failed to do so (“Cayman Petition”)[17].   

25.  On 9 May 2022, Blue Ocean BVI filed an ex parte application for an interlocutory injunction to restrain GCBC from proceeding with the Cellenkos Transaction.  On 12 May 2022, Richards J granted the injunction which was served on GCBC on the same day.  The injunction was subsequently varied pursuant to 2 consent summonses filed on 30 May 2022 and 23 June 2022 (“Cellenkos Injunction”)[18]. 

A6.  Dispute over ownership of Shares

26.  In October 2020, GMSC filed a stop notice in respect of the Shares, relying on (1)  a Charge Over Shares dated 30 March 2018 whereby Blue Ocean BVI charged its 78,874,106 shares in GCBC as a continuing security for the payment obligations under 2 loan agreements (“Share Charge”); and (2)  the 2 loan agreements dated 29 March 2018 and 30 March 2018 made between GMSC and Ying Ping Partnership (together “Loan Agreements”)[19]. 

27.  In December 2020, Blue Ocean BVI through its BVI lawyers wrote to GMSC’s lawyers alleging that the Share Charge was a fraud, the first time Blue Ocean BVI saw the Share Charge and the Loan Agreements was when GMSC filed the stop notice.  No further reliance was placed on the Share Charge until 12 May 2022[20] . 

28.  On 2 May 2022, Blue Ocean BVI served a Stop Notice on GCBC in respect of the Shares.  In response, on 12 May 2022, GMSC through its BVI lawyers wrote to GCBC (copied to Blue Ocean BVI)  alleging that an event of default had occurred under the Share Charge and instructed the share registrar to register GMSC as shareholder of the Shares[21].

29.  On 23 May 2022, GMSC made a SEC filing asserting that it held the Share Charge.  On 3 June 2022, Blue Ocean BVI and its supporters had reached the 75% shareholding threshold on the basis of GCBC’s total shareholding as stated in its SEC Form 6-K dated 28 February 2022.  On the same day, Blue Ocean BVI convened an EGM to be held on 16 June 2022 (“2022 EGM”)[22]. 

30.  Blue Ocean BVI disputes the authenticity and validity of the Share Charge and commenced Claim No. BVIHCV (COM)  2022/0101 in the BVI court (“BVI Proceedings”)[23].

31.  On 14 June 2022, GCBC made an ex parte on notice application to restrain Blue Ocean BVI from convening the 2022 EGM, or alternatively to restrain implementation of any resolutions purportedly passed at such EGM.  On 15 June 2022, Kawaley J granted an interim injunction to restrain Blue Ocean BVI from implementing any resolutions passed at the 2022 EGM (“EGM Injunction”)[24]. 

32.  At the 2022 EGM, resolutions were passed removing the existing directors and appointing new directors nominated by shareholders claiming to hold more than 75% shareholding in GCBC[25]. 

A7.  1^st Kawaley Judgment

33.  The Cellenkos Injunction, the EGM Injunction and GCBC’s application for validation order in respect of Stages 2 and 3 of the Cellenkos Transactions were listed to be heard Kawaley J on 13-14 July 2022. 

34.  In respect of the Cellenkos Injunction:

(1)  GCBC argued that balance of convenience was clearly in favour of discharging the Cellenkos Injunction as the Cellenkos Transaction had already been performed in part.  GCBC applied for a validation order to permit it to proceed with Stages 2 and 3 of the Cellenkos Transaction[26].

(2)  In support of GCBC’s application to discharge the Cellenkos Injunction, Albert sworn his First Affirmation on 7 June 2022 (“Albert First”)  where he said that Stage 1 of the Cellenkos Transaction had already been completed in that (a)  US$644 million cash had been paid on 29 April 2022; and (b)  12,363,636 new shares had been issued on 4 May 2022 and produced an updated Register of Members in support.  Albert also filed his (undated)  Fourth Affirmation (“Albert Fourth”)  in reply to Blue Ocean BVI’s evidence to which he exhibited a bank statement purportedly issued by China Guangfa Bank (“Guangfa Bank”)  as evidence of payment of the cash consideration. 

(3)  The Judge found that Blue Ocean BVI had established a good arguable case that the Cellenkos Transaction required shareholders’ approval.  However, on the basis of the evidence before the court, the Cellenkos Transaction had already been closed shortly after 29 April 2022 and the cash consideration paid, the discharge of the Cellenkos Injunction was more likely to maintain the status quo ante[27]. 

(4)  However, no order was drawn up by either party.  In his judgment dated 28 September 2022 (“2^nd Kawaley Judgment”), Kawaley J noted that he had discharged the Cellenkos Injunction but the order was not drawn up to give effect to his judgment[28]. 

35.  As for GCBC’s application for validation order, the Judge:

(1)  noted that the Cayman Petition expressly seeks to prevent GCBC from proceeding further with the Cellenkos Transaction, relying primarily on the arguments that shareholders’ approval was required but not obtained (for which Blue Ocean BVI had established a good arguable case)  and the Transaction is a related party transaction[29];

(2)  refused to grant a validation order in respect of the allotment of the shares on 4 May 2022 to the allottee under Stage 1[30];

(3)  held that GCBC’s evidence in support of the fortification application about the potential damage flowing from continuation of the Injunction “was largely incredible on its face”[31]; and

(4)  refused GCBC’s application for validation order to consummate Stages 2 and 3 of the Cellenkos Transaction as there was no evidential basis for concluding that they are ordinary course of business transactions, which is the main purpose of s.99 of the Act (equivalent to s.182 of our Cap. 32)[32].

36.  As regards GCBC’s application to continue the EGM Injunction:

(1)  the Judge observed that the document exhibited to Albert First “le[n]d credence to [Blue Ocean BVI’s] complaint that the Share Charge which is the subject of the BVI Proceedings was a concocted document” as (amongst other reasons)  it was “nonsensical for a charge against the assets belonging to [Blue Ocean BVI] to have been registered by the charge[e] in [GCBC’s] register of charges”, and “the putative chargee (GMSC)  would have failed to secure genuine liabilities in a more legally coherent and effective manner”[33];

(2)  the Judge found that (a)  GCBC does not maintain a share register which complies with the Companies Act or its articles of association. This makes it impossible to determine with ease as to when changes have been made to the share register; (b)  GCBC had inexplicably failed to produce contemporaneous evidence of the 4 May 2022 share register until after the end of the hearing scheduled to adjudicate on the issue; and (c)  GCBC adduced no direct evidence to show that the board had authorized the share registrar to record the new shareholders in the share register and issue the new shares to the allottee. Accordingly, the Judge declined to grant a declaration that the 2022 EGM was invalid at the interlocutory stage, but for good order continued the EGM Injunction until further order[34].

A8.  Appointment of PLs

37.  On 9 August 2022, Blue Ocean BVI discovered that the bank statement purportedly issued by Guangfa Bank was a forgery and filed evidence to that effect on 10 August 2022[35].  This was followed by an ex parte on notice application made on 22 August 2022 for appointment of provisional liquidators over GCBC, which was heard by Kawaley J on 22 September 2022:

(1)  In response to Blue Ocean BVI’s evidence, Albert filed his Sixth Affidavit on 9 September 2022 (“Albert Sixth”)  in which he denied the forgery allegation but said that GCBC was “not in the position to disclose further materials based on advice by [GCBC’s] PRC legal counsel and potential investigations in the PRC”[36]. 

(2)  GCBC did not attend the hearing.

(3)  The Judge held that it is difficult to see that the bank statement “can possibly be anything other than a forgery” and in particular, “the key amounts that were relied on by [GCBC] as having been paid on or about 29 April 2022 to consummate [the Cellenkos Transaction] simply were not in the relevant bank account, let alone paid out of it, at the time that [GCBC’s] deponent swore those monies were there and were paid”[37].

(4)  Having considered the materials before him, the Judge held that a prima facie case for winding-up had been made out[38], and Blue Ocean BVI has “almost an irresistible case” for setting aside the order he made on the grounds that it had been procured by fraud[39]. 

(5)  The Judge concluded that there was a strong case for appointing provisional liquidators, having regard to (a)  the fact that the best available evidence suggests that the CFO (Albert)  had misled the court by putting before the court a false bank statement pivotal to the matters the court was adjudicating at the 13-15 July 2022 hearing and the seeming silence on the part of independent directors in the face of the allegations about forgery, which showed that there was a “serious risk of mismanagement and misconduct” by GCBC’s directors; and (b)  the risk of dissipation or misuse of GCBC’s assets.[40]

38.  The Judge made the order appointing the PLs over GCBC at the hearing on 22 September 2022.  As a result of the appointment, the powers of the directors of GCBC have since 22 September 2022 been suspended, and only the PLs may act on behalf of GCBC or exercise any rights or powers vested in it.

A9.  PLs’ discoveries leading to Oct 2022 Injunctions

39.  Until 24 September 2022, CSC Holdings, South BVI and the HK the HK Subsidiaries were controlled by Albert and Tina who were their only directors and secretaries[41]:

Company	Director	Secretary
CSC Holdings	Tina & Albert (removed on 24/9/2022)
South BVI	Tina & Albert (removed on 24/9/2022)
North HK	Tina & Albert (resigned on 13/9/2022)	Tam Wing Ki (resigned on 13/9/2022)
East HK	Tina	Albert
South HK	Tina	Albert
FFL	Albert (resigned on 13/9/2022)	SBC Corporate Services Limited

40.  After their appointment, the PLs took steps to secure and take control of GCBC’s assets, including its offshore subsidiaries in that:

(1)  On 24 September 2022, Albert and Tina were removed as directors of CSC Holdings and South BVI and were replaced by the PLs.

(2)  On 28 September 2022, Albert was removed as the CFO of GCBC while Tina was removed as the Chairperson of GCBC.

(3)  On 28  September 2022,resolutions were passed to appoint 6 new directors to each of East HK, South HK and North HK.

(4)  On 5 October 2022,resolutions were passed to appoint 6 new directors to FFL. 

(5)  On 10 October 2022, 4 additional directors (totalling 10 directors)  were appointed to each of the HK Subsidiaries.

(6)  On 12 October 2022, special notices were given to remove Albert and Tina as directors of each of the HK Subsidiaries.[42]

(7)  On 14 October 2022, Mauve Limited was appointed as the new company secretary of each of the HK Subsidiaries.[43]

41.  In the course of taking these steps,on 5 October 2022, the PLs discovered that 30 unauthorised filings had been made at the Companies Registry (“CR”)  since 27 September 2022[44], which purported to notify the public on changes of director and company secretary (ND2A), allotment of shares (NSC1), change of registered address (NR1), change of company name (NNC2)  and amendment of articles (NAA1)  in respect of the HK Subsidiaries.[45]  All these CR filings (except the last NAA1 filed on 21 October 2022)  were presented by PIML. 

42.  When inquiries were made by the PLs, PIML only asserted that the Plaintiffs were not shareholders of the HK Subsidiaries.  This led to the PLs commencing the 4 Actions and applied for interlocutory injunction against Albert, Tina, Notake and PIML, being the only parties then known to have been involved.  The application was made on 25 October 2022 and the papers were subsequently served on Tina, Albert, Notake, PIML and the HK Subsidiaries. 

43.  At the hearing on 28 October 2022, only PIML appeared to oppose the Plaintiffs’ application.  After hearing the parties’ submissions, this Court granted interlocutory injunctions in the 4 Actions to (inter alia)  restrain (“Oct 2022 Injunctions”):

(1)  Tina and Albert from (a)  implementing the unauthorised allotments (identity of the allottees unknown)and other unauthorised corporate steps (including appointments of directors and secretary)and (b)  acting on behalf of the HK Subsidiaries; and

(2)  Notake and PIML from acting or holding out as director and secretary respectively.

44.  Notwithstanding the Oct 2022 Injunctions, by 2 written resolutions of Jiachenhong dated 3 November 2022 signed by Tina on behalf of North HK, it was purportedly resolved that (together “Jiachenhong Resolutions”):

(1)  廣州諾亞佳弘企業經營管理有限責任公司 (“Guangzhou Co”)  be admitted as a new equity holder and would inject RMB 2.8 million as capital into Jiachenhong, thereby increasing its paid-up capital from RMB280 million to RMB 282.8 million and reducing the equity held by North HK from 100% to 99%;

(2)  Tina be removed as director, and Yu Xin (于欣)  be removed as supervisor;

(3)  Yu Xin be appointed as director and Che Xinan be appointed as supervisor; and

(4)  To amend the articles of association of Jiachenhong (but without any proposed amendments).[46]

A10.  Ds’ disclosure leading to Feb 2023 Injunctions

45.  On 7 and 8 December 2022, Albert and Tina respectively filed their acknowledgements of service stating that they would oppose the 4 Actions.  However, they did not file any Defence or evidence until they were compelled by unless orders to do so, after late March 2023.

46.  On 6 January 2023 and after multiple extensions of time, PIML filed Lo 1 in opposition to the continuation of the Oct 2022 Injunctions in which she disclosed, for the first time, the following documents[47]:

(1)  The registers of members of each of the HK Subsidiaries (“ROMs”)  showing the “Allotments” (as defined in §52(3)  below)  in favour of Notake allegedly on 13 September 2022;

(2)  The “1^st Transfers Documents” (as defined in §52(1)  below)  whereby the Plaintiffs transferred all their shares in each of the HK Subsidiaries to CISIL for US$1;

(3)  The “2^nd Transfers Documents” (as defined in §52(2)  below)  whereby CISIL transferred all their shares in each of the HK Subsidiaries to MS for US$1;

(4)  The “1^st Appointment Resolutions” (as defined in §52(4)  below)  to (a)  appoint MS as director and accept the resignation of Tina and/or Albert as directors of each of the HK Subsidiaries; and (b)  appoint PIML as company secretary and accept Albert and others’ resignation as company secretary of the HK Subsidiaries; and

(5)  The “2^nd Appointment Resolutions” (as defined in §52(4)  below)  to appoint Notake as additional director and PIML as company secretary of each of the HK Subsidiaries. 

47.  On 27 January 2023, PIML filed its Defence which referred to further resolutions and documents relating to the HK Subsidiaries.  In response to the Plaintiffs’ request, on 6 February 2023, PIML disclosed further documents including the “Allotment Resolutions” as well as other CR filings in respect of the HK Subsidiaries.[48]

48.  In light of these documents belatedly disclosed by PIML, on 7 February 2023, the Plaintiffs applied for (1)leave to join Tina/Albert (as the case may be),CISIL and MS as additional defendants; (2)  leave to amend the writs and statements of claim to add a claim to set aside the“1^st and 2^nd Transfers” (as defined in §52(1)-(2)  below); and (3)  further injunctions against, inter alios, Tina and Albert.

49.  In the affirmation in support of the applications (Chow 3), the Plaintiffs identified numerous inconsistencies and problems on the face of the Impugned Documents, the ROMs and other documents disclosed by PIML, which they said justify the conclusion that these Documents were all created ex post facto, after the PLs had removed or had commenced the relevant procedures to remove Tina and Albert as directors of CSC Holdings, South BVI and the HK Subsidiaries.

50.  At the hearing on 10 February 2023:

(1)  only PIML appeared and took a “neutral stance” to the application, but asked for leave to file evidence in response to Chow 3; and

(2)  this Court granted further injunctions against inter alios Tina, Albert, Notake and MS, restraining them from (a)  holding out or representing to any party or including any authority in the Mainland to the effect that they have authority to act on behalf of the HK Subsidiaries, and (b)  dealing with the shares purportedly allotted or transferred to them (collectively “Feb 2023 Injunctions”).

51.  On 27 February 2023, PIML filed Chen 1, which seeks to change the evidence in Lo 1.

B.  PRELIMINARY ISSUES

B1.  Plaintiffs’ case - Impugned Documents

52.  The Plaintiffs contend that the following documents, the subject matters of the 4 Actions, were created after the appointment of the PLs but back-dated to 12 or 13 September 2022 (collectively “Impugned Documents”)  and, therefore, are void and of no legal effect:

(1)  The “1^st Transfers” by the Plaintiffs of all shares in the HK Subsidiaries to CISIL, in each case for US$1.00, by (a)  instruments of transfer (“I/T”), (b)  bought and sold notes (“B/S”)  and (c)  written resolution of all directors, all bearing the date of 12 September 2022 (collectively “1^st Transfers Documents”).

(2)  The “2^nd Transfers” by CISIL of all the shares in HK Subsidiaries to MS again for US$1.00 in each case, by (a)  I/T, (b)  B/S and (c)  written resolutions of directors, all bearing the date of 13 September 2022 (“2^nd Transfers Documents”).

(3)  The written resolutions of sole shareholder bearing the date of  13 September 2022 (collectively “Allotment Resolutions”)  approving the allotments of new shares in the HK Subsidiaries to Notake (collectively “Allotments”).   

(4)  Written board resolutions of the HK Subsidiaries, all bearing the date of 13 September 2022 which were (a)  signed by Tina and/or Albert (as the case may be)  appointing MS as director of the relevant HK Subsidiaries and PIML as their company secretary (collectively “1^st Appointment Resolutions”); and (b)  signed by MS appointing Notake as director of the relevant HK Subsidiaries and PIML as their company secretary (collectively “2^nd Appointment Resolutions”). 

(5)  For ease of reference, particulars of the Impugned Documents are set out in Schedule A to this Judgment.

B2.  Defendants’ Case – 2019 Security Arrangement

53.  Mr Anson Wong SC[49], counsel for Albert, puts the case advanced by Albert in this way[50]:

(1)  Both Yuan and Sanpower acted as guarantors to guarantee Ying Peng Partnership’s obligations under the 2016 SPA[51]. 

(2)  By September and October 2019, Ying Peng Partnership was still unable to settle the outstanding purchase price due to GMHL.[52]  At that time, Ying Peng Partnership / Yuan / Sanpower remained substantially liable for: (a)  the outstanding consideration of RMB 2.3 billion, along with accrued interests and penalties, and (b)  other liabilities owed by Yuan / Sanpower directly to GMHL and Kam (collectively, the “Outstanding Debts”).[53] 

(3)  In October to November 2019, Kam and Yuan came to an agreement that, inter alia, the Outstanding Debts would be further secured by the shareholding of a number of companies within the Group (including CSC Holdings, South BVI, and the HK Subsidiaries), which would be held by Golden Meditech Technology (Shanghai)  Co. Ltd (“GM Shanghai”)  as security agent and trustee on behalf of GMHL (“2019 Security Arrangement”).[54] 

(4)  The 2019 Security Arrangement was documented in: (a)the Four-Party Agreement dated 20 November 2019 entered into between Kam, GMSH, Yuan and Blue Ocean BVI (“Four-Party Agreement”); and (b)the 2019 Guarantee dated 22 November 2019 executed by inter alios CSC Holdings, South BVI, and the HK Subsidiaries as guarantors (“2019 Guarantee”).  In particular:

(a)  The issued shares in the guarantors were part of the secured assets under the security agreements.  The security agreements also provided for broad rights in favour of the secured parties (i.e. including GMHL, Kam, and GM Shanghai as security agent)  — including rights of sale, disposal, management, and/or the right to act as absolute beneficial owner, etc.[55] 

(b)  The Preambles to the Four-Party Agreement and the 2019 Guarantee also confirm the Outstanding Debts at the time, including the outstanding consideration under the 2016 SPA[56].

(c)  Both the Four-Party Agreement and the 2019 Guarantee are governed by PRC law[57] and subject to arbitration clauses in favour of arbitration under the SIAC rules.[58]

(5)  In late August to early September 2022, Kam informed Albert that GMHL had decided to enforce the security (via GM Shanghai as security agent)  under the 2019 Security Arrangement.  In the week of 5 September 2022, Albert was provided with the relevant “enforcement documents” for his signature at GCBC’s Hong Kong office,[59] which  included his resignation letters and the 1^st Appointment Resolutions in respect of North HK and FFL dated 12 and 13 September 2022.[60]  By signing these documents, Albert effectively resigned as director of North HK and FFL.[61]

(6)  After Albert had signed the documents, they were returned to Ms. Kathy Chan, an administrative staff of GMHL.[62]  To Albert’s understanding, the documents were subsequently provided to PIML on 13 September 2022.[63]

54.  On behalf of Tina, Mr Neville Sarony SC[64], counsel for Tina, contends that the 2016 SPA is a “conditional agreement” between GMSC (as vendor)  and Ying Peng Partnership (as purchaser), and the failure by Ying Peng Partnership to “make good” the consideration for the sale of the Shares is what gave rise to the 2019 Security Arrangement[65].  The critical issue insofar as it relates to Tina concerns the 1^st Transfers Documents and the 1^st Appointment Resolutions bearing her signature[66], all of which were signed by Tina in late August 2022 and are referred to as “Completion Documents” in Tina 1[67]. 

55.  Although PIML claims to be neutral, Mr Anthony Chan SC[68] submits that the court can only presently proceed on the footing that Tina’s and Albert’s case that they signed the 1^st Transfers Documents and 1^st Appointment Resolutions before 12 September 2022 is correct[69].

B3.  Agreed Issues

56.  In the summonses dated 17 February 2023, the Plaintiffs identified 7 preliminary issues for determination.  In the Agreed List of Issues, counsel for the Plaintiffs, Tina, Albert and PIML agreed that the following issues require determination of the court at this trial:

(1)  Whether the 1^st and 2^nd Transfers Documents were created on a date or dates on or after 29 September 2022 and were backdated and, therefore, invalid for want of authority (Issue 1);

(2)  If the 1^st and 2^nd Transfers Documents were created on 12 and 13 September 2022, were the 1^st Transfers procured by Tina and/or Albert (as the case may be)  as directors of the relevant Plaintiffs in breach of fiduciary duties[70] (Issue 2);

(3)  If the above issues are answered in the affirmative in respect of the HK Subsidiaries (Issue 3):

(a)  What knowledge, if any, did CISIL have with respect to (i)  the backdating and want of authority in Issue 1 above or (ii)  the breach of fiduciary duties in Issue 2 above (Issue 3(a)); and

(b)  What knowledge, if any, did MS have with respect to (i)  the backdating and want of authority in Issue 1 or (ii)  the breach of fiduciary duties in Issue 2 (as the case may be)  (Issue 3(b));

(4)  Whether the Allotments took place on a date on or after 29 September 2022 and were backdated to 13 September 2022 (Issue 4);

(5)  If the Allotments did take place on 13 September 2022, were the Allotments procured by Tina, Albert, Notake and/or MS (as the case may be)  for the improper purpose of diluting the Plaintiffs’ shareholdings in the HK Subsidiaries (Issue 5);

(6)  Whether the 1^st and 2^nd Appointment Resolutions were created on a date or dates on or after 29 September 2022 and were backdated (Issue 6); and

(7)  If the 1^st and 2^nd Appointment Resolutions were made on 13 September 2022, were they procured by Tina, Albert, Notake and/or MS (as the case may be)  for the proper purpose of the relevant HK Subsidiaries (Issue 7).

B4.  Applicable principles on fact findings

57.  Where a party alleges fraud or makes serious allegations against the other parties, the allegations must be pleaded with sufficient particularity.  The primary facts to justify the inference of fraud or dishonesty must be pleaded.  It is not sufficiently particularized if the facts pleaded are consistent with innocence.  It is not open to the court to infer fraud or dishonesty from facts which have not been pleaded (Three Rivers DC v Bank of England (No. 3) [2003] 2 AC 1, §55 (Lord Hope); §§184-186 (Lord Millett); Grant & Mumford, Civil Fraud: Law, Practice & Procedure, 1^st ed., 2018, §§2-138 to 2-140).

58.  The burden is on the party who alleges fraud to prove the allegation.  The more serious the allegation, the less likely it is that the event occurred and hence the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability (Re H (Minors)  (Sexual Abuse: Standard of Proof) [1996] AC 563, 586E). 

59.  Where a given allegation, whether affirmative or negative, forms an essential part of a party’s case, the proof of such allegation rests on him.  The principle is stated in Phipson on Evidence, 20^th ed., §6-06:

“So far as persuasive burden is concerned, the burden of proof lies upon the party who substantively asserts the affirmative of the issue. If, when all the evidence is adduced by all parties, the party who has this burden has not discharged it, the decision must be against him. This is an ancient rule founded on considerations of good sense and should not be departed from without strong reasons.

This rule is adopted principally because it is just that he who invokes the aid of the law should be the first to prove his case; and partly because, in the nature of things, a negative is more difficult to establish than an affirmative. The burden of proof is fixed at the beginning of the trial by the state of the pleadings, and it is settled as a question of law, remaining unchanged throughout the trial exactly where the pleadings place it, and never shifting.

In deciding which party asserts the affirmative, regard must be had to the substance of the issue and not merely to its grammatical form; the latter the pleader can frequently vary at will. Moreover, a negative allegation must not be confused with the mere traverse of an affirmative one. The true meaning of the rule is that where a given allegation, whether affirmative or negative, forms an essential part of a party’s case, the proof of such allegation rests on him. An alternative test, in this connection, is to strike out of the record the particular allegation in question, the onus lying upon the party who would fail if such a course were pursued.” (underlined added)

60.  While an inference of fraud may be drawn on the basis of circumstantial evidence where direct proof is not available, such an inference must be properly grounded in the primary facts found, and the court must guard against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question.  There is a need for a disciplined approach to the drawing of inferences.  In particular, inferences of fraud or serious misconduct can only be drawn where such inferences are compelling (Ming Shiu Chung v Ming Shiu Sum (2006)  9 HKCFAR 334 at §§56, 78-79; To Pui Kui v Ng Kwok Piu, CACV 281/2012, 21 August 2014, §31; Lee Yuk Shing v Dianoor International Ltd (in liq) [2016] 4 HKC 535 (CA), §37). 

61.  As regards the drawing of adverse inference where a person without explanation fails to call as a witness a person who might reasonably be expected to give direct evidence on an issue in the action, the relevant principles are set out in Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340:

“(1)  In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)  If a 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 call the witness.

(3)  There must, however, have been 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.

  (4)     If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn.  If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

62.  Further, in Prest v Petrodel Resources Ltd [2013] UKSC 34, §44, Lord Sumption stated the principle in this way:

“There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it. For my part I would adopt, with a modification which I shall come to[71], the more balanced view expressed by Lord Lowry with the support of the rest of the committee in R v IRC, ex parte TC Coombs & Co [1991] 2 AC 283, 300:

‘In our legal system generally, the silence of one party in face of the other party’s evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party’s failure to give evidence (or to give the necessary evidence)  can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified.

Cf Wisniewski v Central Manchester Health Authority [1998] PIQR 324, 340.’ ”

63.  Lastly, the approach of the court in fact finding and assessment of credibility has been sufficiently stated by DHCJ Eugene Fung SC (as he then was)  in Hui Cheung Fai v Daiwa Development Ltd & ors, HCA 1734/2009, 8 April 2014, §§77-83, and may be summarised as follows:

(1)  Generally, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility.  

(2)  In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events.  

(3)  In determining a witness’ credibility, it is important to consider the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence as between his oral testimony and witness statement.

(4)  The court has to guard against the danger of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses, or from the assessment of the witnesses’ character.

C.  ASSEMENT OF WITNESSES

C1.  Plaintiffs: Chow

64.  Chow is the Plaintiffs’ only witness.  She is one of the PLs.  She gives evidence in a straight forward and candid manner and answers all the questions put to her directly.  She accepts that she has no personal knowledge of the facts and events prior to the appointment of the PLs and matters to which she was not privy.  She readily makes concessions where appropriate, and remains unshaken throughout cross-examination.

(1)  During cross-examination, both Mr Sarony and Mr Wong criticise Chow for engaging in speculation[72]. The criticism is misplaced.  As is clear from her affirmations and as Chow explains in her oral evidence, the position she advances is based on the facts and matters ascertained by the PLs in the course of discharging their duties, and she has set out the basis of her belief where applicable. 

(2)  Mr Sarony makes much criticism about Chow’s reference to bank “statements” when in fact only one bank statement was shown to be a forgery.  When this is put to Chow, she readily accepts that it was a typo.  Mr Wong criticises Chow for failing to produce insurance policy[73], which has nothing to do with the issues in the Actions.  In any event, Chow explains in her evidence that she did not have possession of the relevant document at the time she made Chow 5[74]. I am unable to see how either of the criticism affects Chow’s credibility. 

65.  I accept Chow’s evidence in full. Where her evidence on a matter differs from that of Tina, Albert, Lo and Chen, I prefer the evidence of Chow over that of the other witnesses. 

C2.  PIML: Chen & Lo

66.  PIML is a corporate service provider and claims to be neutral[75].  However, far from being neutral, PIML has been opposing the Plaintiffs’ applications and claims at every turn:

(1)  It filed Chen 1 and Lo 1 in support of its contention that the Plaintiffs are not shareholders of the HK Subsidiaries[76], in effect to oppose the Plaintiffs’ applications for the Oct 2022 Injunctions and the Feb 2023 Injunctions. 

(2)  It filed a Defence in which it contends that the Plaintiffs are not shareholders of the HK Subsidiaries, and instructed Mr Chan as its counsel to attend the trial. 

67.  Chen and Lo attend the trial and are cross-examined by Ms Sit.  Neither of them is a truthful witness.

68.  As regards Chen, she claims to be the person who took instructions from the “client”, handled the receipt of the 1^st Transfers Documents and the 1^st Appointment Resolutions from “Mr Lam” (whose full name was not known to her or Lo), prepared the 2^nd Transfers Documents, the Allotment Resolutions and the 2^nd Appointment Resolutions and took instructions from “Mr Lam”.  Her evidence cannot be true or correct given that:

(1)  it is contradicted by Lo 1, where Lo did not mention the involvement of Chen at all.  Instead, Lo painted the picture that she was the person who dealt with “Mr Lam” and handled the matters relating to the Impugned Documents (no other person was identified in Lo 1 as the source of her information); and

(2)  neither her name nor her signature appeared in any of the Impugned Documents or any of the 30 documents filed by PIML at the CR.  

69.  The testimony of Chen is full of inconsistencies, consistent with a person who has no personal knowledge of the matters asked of her.  This can be seen from the following examples identified by Ms Sit:

(1)  Chen’s evidence that late stamping and filing at the CR was due to lack of manpower is contradicted by her evidence that PIML had 7 staff including herself and Lo;

(2)  her allegation that she was not concerned about making CR filings immediately to notify the public of changes in directors or company secretary of the HK Subsidiaries and only accumulated the forms and made the filings “in one go” to suit PIML’s convenience makes no sense.  It is also inconsistent with (a)  her own evidence that PIML is a licensed trust service provider and a professional company secretary provider entrusted by clients to prepare and file corporate documents; and (b)  Lo 1 where Lo said that PIML “had the relevant expertise and was thus capable of assisting Mr Lam and/or [MS] to deal with the aforesaid matters”[77]; and

(3)  under cross-examination, she repeatedly resorts to the same excuse that PIML was at some point of time using the office of another (unidentified)  firm and the situation was chaotic with papers all over the place.  However, this flies against her own evidence that the “papers” in fact only came to one 1.5x1.8m shelf and 2 drawers.  It also does not sit well with the fact that for the purpose of the 1^st and 2^nd Transfers, only 8 sets of papers[78] were handled by PIML. 

70.  That the evidence of Chen is wholly unreliable is reinforced by the fact that she is unable to provide any coherent or credible answers on the critical aspects of her own testimony. For example:

(1)  When being asked why she did not stamp both the 1^st and 2^nd Transfers Documents until 30 September 2022 when she claims to have both sets since 17 September 2022, she only says “I cannot recall why”;

(2)  When she is asked why the ND2A for PIML showed 27 September 2022 as date of appointment when that date did not appear anywhere, her only answer is “I cannot remember”;

(3)  When being asked why the ND2A reported the resignation of Anthony Tsang as director on 13 September 2022 when he was not even a director until 28 September 2022[79], and whether she simply prepared the ND2A based on instruction to report resignation of all directors on 13 September 2022, she simply denies the suggestion but unable to provide any explanation as to how the mistake came about; and

(4)  If she were the person in charge of dealing with “Mr Lam”, why all the forms filed at the CR bore Lo’s or Carey’s emails but not hers. 

71.  As submitted by Ms Sit, Chen clearly makes up her answers during cross-examination.  For example:

(1)  When being asked what client’s due diligence PIML conducted (being a licensed trust and company service provider and hence under such obligation), she claims that she had a video call with MS where she checked MS’s passport against the person in the call.  This is obviously a matter of importance but was never mentioned in Lo 1 or Chen 1.  Instead, both affirmations portrayed the picture that neither Chen nor Lo had ever met MS and they had only dealt with “Mr Lam”. 

(2)  Although the explanation given in Chen 1 §5 was that she was on a business trip hence could not do the first affirmation for PIML[80], under cross-examination, she claims that she did not do so because she thought it should have been prepared by a director of PIML.   

72.  For the above reasons, I find that Chen is not a truthful witness.  Her inconsistent and incoherent evidence shows that she was not the person who dealt with “Mr Lam” or handled any of the matters relating to the Impugned Documents.  Rather, she is being put forward by PIML in its desperate attempt to change the evidence in Lo 1.  I have no hesitation in rejecting the entirety of Chen’s evidence.   

73.  As regards Lo, she is the sole shareholder and director of PIML. She is not an honest witness. 

(1)  Throughout Lo 1, she gave the impression that she was the person who dealt with “Mr Lam”, obtained instructions from him and handled the matters relating to the Impugned Documents.  No other person was identified as the source of her information (as she said she would in §2 of Lo 1). 

(2)  I do not accept her belated allegation that in fact it was Chen who dealt with “Mr Lam”, obtained instructions and documents from him and handled the matters relating to the Impugned Documents.  Lo is unable to proffer any credible explanation as to why if it were Chen who handled the Impugned Documents such that she had no personal knowledge of the facts and matters, why she did not disclose such “fact” or identify Chen as the source of her information in Lo 1. 

74.  Further, as submitted by Ms Sit, Lo changes her evidence in the course of cross-examination and gives inconsistent answers on the same matters:

(1)  Having sought to “correct” Lo 1 §§10(vii)  & 12 to fit the story in Chen 1, she changes her story again (when being questioned on Lo 1 §6)  that she had never spoken to “Mr Lam” – firstly by saying that she was not in Hong Kong on the day “Mr Lam” called; then changed to say she was in Hong Kong just that she was not the one picking up the call.

(2)  In Lo 1 §7, she said that the only due diligence PIML claims to have done was on the HK Subsidiaries.  Under cross-examination, she comes up with a new story that PIML did due diligence on MS by asking her to fill out a KYC form on 13 September 2022[81]. Not only was this allegation never mentioned in Chen 1 or Lo 1, it is also inconsistent with Chen’s new story emerges under cross-examination that the due diligence done was through a video-call with MS[82].

(3)  Having portrayed a story of how there was first contact with “Mr Lam” on 20 August 2022; due diligence; quotation provided; and then on 13 September 2022 it was execution of service contracts and commencement of work[83], in cross-examination, Lo puts forward a new version that she only made the decision to take on “Mr Lam” on 13 September 2022, which contradicts her own evidence on the provision and acceptance of quotation before 13 September 2022.

75.  I agree with Ms Sit’s submissions that Lo simply makes up answers when it suits her:

(1)  On the service contracts, she first says that they were standard form pre-printed in bulk.  When a mistake in the service contract[84] is shown to her, she changes her evidence and says that the service contracts were not pre-printed but were produced on the computer.

(2)  When confronted with the fact that the signatures on the service contracts and PIML’s acceptance of appointment were not hers or Carey’s (being the only 2 persons she claimed to have authority to sign on behalf of PIML), she first insists that the signatures were Carey’s; and even when she is shown the ND2A filed at CR signed by Carey bearing a different signature[85], she alleges that Carey had 2 signatures.  Such allegation is obviously fallacious, there was no reason why Carey would not have appended the same signature on all documents concerning PIML.   

(3)  Unlike Chen (who said nothing other than “I disagree” or “Umm” when confronted with aspects of her evidence that she could not explain), Lo continues to press her answers to the illogical extreme.  For example, in the face of the inexplicable absence of any term governing payment for PIML in the service contracts, she insists that it was not her practice to set out the commission on the service contract, and she would just issue invoices to her clients.  The answer makes no sense given that on PIML’s own case, “Mr Lam” (and MS)  was a completely new client. 

76.  The totality of Lo’s evidence shows that, except the dates as to when the relevant events actually took place, what she said in Lo 1 §§7-11 largely represent the true position, which is (and I so find)  that:

(1)  Lo dealt with “Mr Lam”, who retained PIML to assist with the filing and stamping of the 1^st Transfers Documents and the 1^st Appointment Resolutions on or after 27 September 2022 (see also §95 below).

(2)  The 1^st Transfers Documents and 1^st Appointment Resolutions had already been prepared and were provided to Lo on the same day, which I find to be a date on or after 29 September 2022.  See Section D1 below.

(3)  PIML charged HK$5,000 as service fee for providing filing and stamping service. The modest service fee paid to PIML explains why Lo (or anyone in PIML)  was not concerned with and did not check the contents of the 1^st Transfers Documents and the 1^st Appointment Resolutions provided to her or did PIML carry out any meaningful due diligence of either “Mr Lam” or MS as it was only retained to deal with filing and stamping of the 1^st Transfers Documents and the 1^st Appointment Resolutions provided by “Mr Lam”.

77.  The introduction of Chen is no more than an attempt to change the evidence in Lo 1, including her evidence that the 2^nd Transfers Documents were provided by “Mr Lam” on 13 September 2022, and introduces a new story that the 2^nd Transfers Documents and the 2^nd Appointment Resolutions were prepared by PIML. Indeed, Lo agrees in cross-examination that after Chow 3 had identified the indicia of backdating in the 1^st and 2^nd Transfers Documents, a decision was made to shift the responsibility of creation of documents to PIML.

C3.  Tina

78.  Tina is a well-educated and sophisticated businesswoman.  She admits that she was in charge of the financial and internal control matters of GMHL during the period when she was a director.  She was a director of 2 listed companies (GMHL and GCBC)  and assumed important position as CEO of GCBC.  With such experience and background, Tina must have a good knowledge and understanding of proper corporate governance and the fiduciary duties owed by a director of a listed company, which required her to protect and act in the best interests of the listed companies and to exercise her power qua director for the proper purposes of the companies and not for any collateral or personal purposes of anyone including any shareholders.  Indeed, it is clear from her answers during cross-examination that Tina understands and accepts that she was under a duty to act in the bests interests of GCBC and the Group as a whole when exercising her power as director of GCBC.  

79.  Ms Sit submits that Tina is very careful in her answers and at times deliberately coy in her answers by repeatedly resorting to “I disagree”, without providing any explanation or elaboration.  She submits that Tina’s answers under cross-examination are permeated by inconsistencies on key issues and are wholly incredible and unworthy of belief for the following reasons:

(1)  First, there is a direct inconsistency between the evidence of Tina and Chen on whether the 1^st Transfers Documents had already been dated when they were signed by Tina.[86] When this is put to her, she does not offer any explanation, and simply says “Now I know”; she then “disagree” with the suggestion that she is not telling the truth, again without offering any explanations[87].

(2)  Second, another obvious falsity is her evidence that the dates on the I/T and B/S in respect of the 1^st Transfers had been printed rather than handwritten[88]. This is wrong, since all the dates on the I/T and B/S in respect of the 1^st Transfers are handwritten.  Again she has no explanation when the same is pointed out to her.

(3)  Third, Tina’s evidence in relation to some of the key issues is obviously incredible:

(a)  When it is put to her that on no view could the alleged risk that GCBC’s business would be impacted by Sanpower’s financial difficulties justify giving away the HK Subsidiaries for nothing, Tina alleges that she “did not know what consideration was to be paid” for those subsidiaries.  She further claims that she relied on Yuan’s judgement on the potential impact on GCBC’s business resulting from Sanpower’s financial difficulties[89]. It is wholly incredible that a person as sophisticated as Tina would sign the 2019 Guarantee on behalf of (inter alios)  the HK Subsidiaries without applying her own mind to the commerciality of the 2019 Security Arrangement, especially given her apparent commitment to the business of GCBC (she claims to be a “founder” and was the reason for the success of the cord blood business).

(b)  Likewise, her evidence that it is in GCBC’s interest to grant a charge over effectively all of its assets to secure the debts allegedly owed by an indirect shareholder (be it Ying Peng Partnership, Yuan or Sanpower)  is extraordinary[90].

(4)  Fourth, Tina is also evasive.  For instance, it is only after repeated questions that she confirms that no board resolution was passed by GCBC board to approve the 2019 Security Arrangement[91].

(5)  Fifth, Tina’s assertions relating to the change in the shareholding of Jiachenhong are constantly shifting – another hallmark of unreliability:

(a)  She originally claimed in Tina 1 §48 that the change in the shareholding of Jiachenhong “has nothing to do with” her.  This is false, since Tina (which she now admits)  signed the Jiachenhong Resolutions dated 3 November 2022.

(b)  After filing Tina 1, she modified her case.  In Jones Day’s letter dated 7 July 2023 to the PLs’ solicitors, she said that she signed the Jiachenhong Resolutions before her resignation as North HK’s director on 13 September 2022.  However, this cannot be true, since the Jiachenhong Resolutions refer to a company known as 廣州諾亞佳弘企業經營管理有限責任公司(i.e. Guangzhou Co)  which was only established on 1 November 2022.  The Jiachenhong Resolutions were clearly created after 1 November 2022, and Tina could not possibly have signed them before 13 September 2022. 

(c)  In cross-examination, Tina provides yet another explanation that the Jiachenhong Resolutions were dated 3 November 2022 because that was when they were submitted to the Administration for Market Regulation (“AMR”).  Again, this is wrong because the date 3 November 2022 on the Jiachenhong Resolutions is expressly stated as the date on which the shareholders’ decision was made, notthe date when they were submitted to the AMR. 

80.  Mr Sarony submits that Tina’s evidence is “measured” and “sang with the ring of truth”, but is not able to refute any of the criticisms  made by Ms Sit.

81.  It seems to me that Tina’s evidence on the 1^st Transfers Documents and the 1^st Assignment Resolutions is plagued with inconsistencies and is unreliable.  In particular, I reject Tina’s evidence that the 1^st Transfers Documents and the 1^st Appointment Resolutions were signed by her in late August 2022[92] which I find to be untrue. 

(1)  It is inconceivable that as the person “responsible for the strategic direction, development and overall management of GCBC”[93], Tina would not have raised the matter at the board of GCBC and sought its approval before she executed the 1^st Transfers Documents and the 1^st Appointment Resolutions.  This is particularly so when (a)  the 2019 Security Arrangement had never been considered or approved by GCBC’s board or disclosed to the shareholders; and (b)  the effect of the 1^st Transfers Documents was to transfer all the HK Subsidiaries (hence all the interests in the Mainland Subsidiaries)  away from the Group.

(2)  At the minimum, one would expect Tina to insist on GCBC issuing a public announcement on the giving away of all the HK Subsidiaries as GCBC had just in the same month (on 16 August 2022)  filed its Annual Report for the year ended 31 March 2022 (“2022 Annual Report”)  informing the shareholders and the public that the Group still owned all the direct and indirect subsidiaries in the Group without any qualification, let alone any reference to the 2019 Security Arrangement or the 2019 Guarantee. 

(3)  Tina has not put forward any credible explanation as to why she did not notify or seek approval from the board of GCBC or cause GCBC to make an announcement about execution of the 1^st Transfers Documents and the 1^st Appointment Resolutions. 

82.  I also find that Tina’s evidence that she signed the Jiachenhong Resolutions before her resignation as director of North HK on 13 September 2022 to be false.  The indisputable fact is that Guangzhou Co only came into existence on 1 November 2022, and she could only have signed the Jiachenhong Resolutions after 1 November 2022.  It also affects the general credibility of her evidence, including her assertion that after execution of the 1^st Transfers Documents and 1^st Appointment Resolutions in late August 2022, she ceased to have any involvement in the HK Subsidiaries[94].

C4.  Albert

83.  Ms Sit submits that Albert is an unsatisfactory witness and his evidence should be rejected.  Various aspects of Albert’s evidence are clearly incredible:

(1)  First, when being asked why the 2019 Guarantee said to have been executed in furtherance of the 2019 Security Arrangement was not approved by GCBC’s board, Albert says, for the first time under cross-examination, that he was told by Xu that he (Xu)  would inform other GCBC directors and obtain their approval[95], whereas in Albert 2, he stated that Xu only represented to him on the disclosure requirement.[96]

(2)  Second, he claims that he learnt about the Four-Party Agreement when reading the preamble of the 2019 Guarantee[97]. Had that been the case, there was no reason why (and he has not tendered any reason when asked)  Albert would have omitted to refer to both documents in his Defence. 

(3)  Third, in Albert Sixth (made on 9 September 2022)  filed in opposition to the Cayman Petition, Albert never stated that at the time the Cellenkos Transaction was entered into[98], the Group no longer held South HK/Nuoya and hence the indirect equity in Shanghai GM Life Bank Co., Ltd and Shanghai GM Diagnosis Co., Ltd,[99]; which would have been the position had the 1^st Transfers Documents been signed in the week of 5 September 2022.  Albert is unable to provide credible answer to this other than asserting that the transfers of the HK Subsidiaries was not relevant to the contents of Albert Sixth[100]. Mr Wong contends that it is “unfair” for the Plaintiffs to seek to draw any inferences of backdating against Albert on this basis particularly when Albert Sixth was not shown to him to refresh his memory[101]. I disagree.  It is Albert’s evidence that he signed the resolutions approving the transfers of North HK and FFL in the week of 5 September 2022 by way of enforcement of the 2019 Security Arrangement.  The Plaintiffs are entitled to test the credibility of his evidence including putting to him previous statements contained in Albert Sixth to see if he has any explanation for the inconsistencies.   

84.  Ms Sit submits that Albert is also highly evasive and deflective in his answers.  For example:

(1)  He is coy and very careful in his answers.  The majority of his answers are “I disagree”, without offering any explanation.  For example, when it is put to him that it made no commercial sense to put a golden goose (GCBC)  into liquidation, Albert simply “disagrees”[102].

(2)  When being asked why he believes that GCBC (indisputably very profitable)  would be wound up just because the majority shareholder (Blue Ocean BVI)  was in financial trouble, instead of answering the question, Albert tries to deflect by saying this was what Xuhad told him[103].

(3)  Albert originally emphasises that a “main consideration” for procuring the 1^st Transfers in September 2022 was the contractual obligations under the 2019 Guarantee, before eventually concedes that that was in fact the “only consideration”[104].

85.  Mr Wong does not advance any submissions to contradict the criticisms made by Ms Sit.  The main plank of his submission is that this Court should not making any findings on the veracity or validity of the 2019 Guarantee or the 2019 Security Arrangement, notwithstanding that both Tina and Albert rely on and give evidence that they signed the 1^st Transfers Documents and the 1^st Appointment Resolutions to enforce or complete the 2019 Security Arrangement.  While I agree that the veracity or validity of the 2019 Guarantee and the 2019 Security Arrangement do not fall within the preliminary issues, I do not see why the Court cannot make any findings on the credibility of Albert’s and Tina’s evidence insofar as it relates to their case and the issue as to when they actually signed the 1^st Transfers Documents and the 1^st Appointment Resolutions.  

86.  In my view, Albert is not a truthful witness and his evidence regarding the date when he signed the resolutions approving the 1^st Transfers and the 1^st Appointment Resolutions in relation to South HK and FFL is unreliable for the reasons advanced by Ms Sit, and the reason set out in §81(2)  above (which applies equally to Albert).  I reject Albert’s evidence that the resolutions approving the 1^st Transfers and the 1^st Appointment Resolutions in respect of North HK and FFL were signed by him in the week of 5 September 2022. 

D.  DISCUSSION ON ISSUES

D1.  Issues 1, 4 & 6: Whether Impugned Documents were backdated

87.  Ms Sit accepts that the Plaintiffs bear the burden to prove, by cogent and strong evidence, that the Impugned Documents were backdated, and any inferences must be based on proven facts.  She submits that the facts are overwhelming, they show that the Impugned Documents were not created on 12 and 13 September 2022 but on or after 29 September 2022.  The findings of backdating of the Impugned Documents are amply justified, even on Re H standard, having regard to (1)  the anomalies and discrepancies appearing on the face of the documents themselves; (2)  the inconsistencies with contemporaneous documents including the filings at the CR; (3)  the objective facts[105]; (4)  the inherent probabilities; and (5)  the internal inconsistencies in the defendants’ evidence.

88.  For the reasons explained below, I agree with the Plaintiffs’ arguments, and I find that the Impugned Documents were only created on or after 29 September 2022.

D1.1  Objective facts

89.  The following objective facts show that all the steps taken by PIML to implement the Impugned Documents only took place on or after 29 September 2022:

(1)  The date chop “29 SEP 2022” applied on the I/T in respect of East HK for the 1^st Transfers, which was crossed out by hand and inserted by hand with “12-9-2022”.

(2)  All the I/T and B/S in respect of the 1^st Transfers were stamped on 30 September 2022. 

(3)  All the I/T and B/S in respect of the 2^nd Transfers were stamped on 11 October 2022.

(4)  All the ND2A reporting the changes in directors pursuant to the 1^st Appointment Resolutions were only filed at the CR on or after 10 October 2022. 

(5)  All the ND2A reporting the appointment of PIML as company secretary pursuant to the 1^st Appointment Resolutions were only filed on or after 3 October 2022. 

(6)  The ND2A reporting the appointment of PIML as company secretary of South HK filed at the CR on 3 October 2022 itself stated that PIML was only appointed on 27 September 2022.

(7)  Anthony Tsang was only appointed by the PLs as a director of North HK, South HK and East HK on 28 September 2022[106], but the three ND2As filed by PIML at the CR on 10 October 2022 reported (erroneously)  that he resigned as director of North HK, South HK and East HK on 13 September 2022.   

(8)  All the NSC1s (returns of allotment)  reporting the Allotments were only filed at the CR on 10 October 2022. 

90.  The above objective facts are consistent with and support the Plaintiffs’ prima facie case that the Impugned Documents were only created on or after 29 September 2022 but not before. 

91.  I do not accept the account given by Tina, Albert, Chen and Lo as to why the objective facts show that all the steps were only taken on or after 29 September 2022, for the reasons explained in Sections C2-C4 above and the further reasons explained below.

92.  First, in respect of the date chop “29 SEP 2022” (§89(1)  above), Ms Sit submits (and I agree)  that: 

(1)  There is no conceivable reason why the date chop, if really applied on 13 September 2022, would have shown a future date, as opposed to the date upon which it was supposedly applied or a past date.   

(2)  There is no substance in Chen’s belated allegation that the date chop was previously used by Carey to post-date documents for another client and Carey then left it on the table which was then applied to this I/T[107], given (a)  this allegation only surfaces for the first time in cross-examination even though the date chop has been put in issue since 7 February 2023 (Chow 3); and (b)  Chen is not able to explain why this was not mentioned earlier in Chen 1 or Lo 1.  

93.  Second, as regards the fact that the I/T and B/S in respect of the 1^st Transfers and 2^nd Transfers were only stamped on 30 September 2022 and 11 October 2022 respectively (§89(2)-(3)  above), as submitted by Ms Sit, the only explanation for the “late” stamping is alleged lack of manpower on PIML’s part,[108] but that is incredible:

(1)  PIML held out to be a professional company secretarial service provider, which duties must include stamping the transfer documents timeously.  This was particularly so when the resolutions approving the 1^st Transfers were stated to be “subject to the receipt of a duly executed and stamped instrument of transfer”.  It is inconceivable that PIML would have failed to perform the simple task of having the I/T and B/S in respect of the 1^st Transfers be stamped, had those documents been provided to PIML on 13 September 2022. 

(2)  PIML’s alleged lack of manpower due to moving office is also incredible.  The totality of PIML’s papers was not voluminous and the stamping could easily have been done.  This cannot possibly explain why the I/T and B/S in respect of the 1^st Transfers were not stamped had they been created and provided to PIML on 13 September 2022. 

(3)  When it is put to Chen that if PIML were unable to render its services timeously, it would have declined to accept the appointment, she is unable to provide any answer[109].  Indeed, Lo 1 said that the reason for PIML agreeing to take up the matters was because it had “the relevant expertise” and was “capable of assisting” Mr Lam and/or MS to deal with the matters[110].

(4)  The excuse put forward by Chen is also inconsistent with and contradicted by the fact that during the 3 weeks’ period of delay in stamping, PIML was able to carry out other steps concerning the HK Subsidiaries and filed some (unidentified)  ND2As at the CR on 27 September 2022.   

(5)  It is wholly inexplicable that if PIML already had (on its case)  possession of the 2^nd Transfers Documents on 17 September 2022, the natural thing to do would be to stamp all the I/T and B/S in respect of the 1^st and 2^nd Transfers in one go.  The fact that the I/T and B/S for the 1^st and 2^nd Transfers were stamped on 30 September 2022 and 11 October 2022 respectively is only explicable by and consistent with the fact that when PIML stamped the I/T and B/S in respect of the 1^st Transfers on 30 September 2022, the 2^nd Transfers Documents had not yet been created. 

94.  Third, in respect of the ND2As reporting the changes in directors pursuant to the 1^st Appointment Resolutions filed at the CR on or after 10 October 2022 (§89(4)  above):

(1)  On PIML’s case, all the 1^st Appointment Resolutions were provided to it on 13 September 2022 and MS was PIML’s client who (through “Mr Lam”)  instructed PIML to take care of these filings.  It is inconceivable that PIML would have waited until 10 October 2022 to file the ND2As reporting the appointment of MS on 13 September 2022.

(2)  Chen alleges that PIML did not file the forms earlier because in its view “there was no urgency in filing with the CR”.[111]  The allegation makes no sense.  Under cross-examination, Chen accepts that (a)  in order to protect the client’s interest, PIML should have made filings as soon as possible; (b)  it was easy to file the ND2As for appointment of PIML as the company secretary; and (c)  it was necessary to file the ND2As first before PIML could make other filings[112].

(3)  Chen’s allegation is also contradicted by the fact that PIML was able to and did file the requisite forms at the CR the next day after the change had taken place.  For example, the resolutions to change the articles of association were passed on 20 October 2022, and Form NAA1s dated 20 October 2022 were submitted to the CR on 21 October 2022.

(4)  There is also no coherent or plausible explanation as to why PIML filed the forms at the CR in drips.  The fact that the forms were filed in drips is consistent with PIML having received instructions to make specific types of filings on different dates, and is inconsistent with PIML having obtained all the 1^st Transfers Documents and the 1^st Appointment Resolutions on 13 September 2022.

95.  Fourth, as for the ND2As reporting the appointment of PIML as company secretary filed at the CR on or after 3 October 2022 (§89(5)-(6)  above):

(1)  The ND2A filed in respect of South HK itself stated that PIML was only appointed on 27 September 2022.  Chen’s allegation that this was a “clerical mistake”[113] is incredible.  PIML must have known when it was supposed to have been appointed secretary.

(2)  PIML tried to change the date of appointment by filing other ND2As on 10 October 2022, which only goes to show that PIML did not want to reveal the actual date of its appointment (27 September 2022).

(3)  It is inherently improbable that, had the 1^st Appointment Resolutions been provided to PIML in one go on 13 September 2022, the relevant CR filings would (a)  only have been made on and after 10 October 2022 and (b)  in drips with different forms filed on 10, 13, 19, 21 October 2022.

96.  Fifth, the ND2As reporting the alleged cessation of directorship of Anthony Tsang on 13 September 2022 (§89(7)  above)  shows that PIML only started to prepare the ND2A forms reporting the changes of directors of the HK Subsidiaries after 28 September 2022, which was the date when the name of Anthony Tsang first appeared in public record as a director of North HK, South HK and East HK.[114]

97.  Sixth, as regards the NSC1s (returns of allotment)  filed at the CR on 10 October 2022 (§89(8)  above), there is no explanation from PIML as to why they were only filed on 10 October 2022 but not before.

98.  There was a mistake in the Allotment Resolution in respect of South HK – although the share capital is denominated in USD, the purported increase was to HKD100.   

(1)  What currency the share capital is denominated in is a matter of public record and can readily be ascertained from the NAR1.  Had the Allotment Resolutions been prepared by PIML as alleged, it is inconceivable that PIML would not have done such a basic check (Lo says she did[115])  and would have got it wrong.

(2)  PIML explains that the mistake came about because PIML was “busy reviewing the documents and letters issued and filed by the JPL”.[116]  However, the first letter sent by the PLs to PIML was on 10 October 2022.  This only goes to show that if the Allotment Resolutions were prepared by PIML as alleged, it was only created on 10 October 2022.   

(3)  This also explains why the NSC1 (return of allotment)  for South HK was only filed on 10 October 2022. 

D1.2  No contemporaneous document in support of defendants’ case

99.  There is no contemporaneous document or evidence to displace or contradict the prima facie case established by the Plaintiffs.  This is a significant consideration given that:

(1)  Much time and opportunity have been given to the defendants to identify and adduce evidence to displace the Plaintiffs’ prima facie case, and to support the assertions advanced by (a)  Tina that the 1^st Transfers Documents and the 1^st Appointment Resolutions were signed by her in late August 2022; (b)  Albert that he signed the 1^st Transfers Documents and the 1^st Appointment Resolutions in relation to North HK and FFL in the week of 5 September 2022; and (c)  PIML that the 1^st Transfers Documents and the 1^st Appointment Resolutions were provided to PIML on 13 September 2022.   

(2)  On the case advanced by Tina, Albert and PIML, no less than 10 persons were involved in creating, signing and handling the 1^st Transfers Documents and 1^st Appointment Resolutions (viz., Kam, Tina, Albert, MS, “Mr Lam”, Kathy Chan,[117] the unidentified person who signed on behalf of CISIL, Chen, Lo and Carey, leaving aside the unidentified attesting witnesses)  who worked in different offices located in at least 3 different cities.  Yet not a single contemporaneous document, be it email, WhatsApp, WeChat, any form of electronic communications or record of delivery of documents, has been adduced by the defendants.  Had the 1^st Transfers Documents, the 1^st Appointment Resolutions been created and signed by 13 September 2022, the defendants would have been able to produce some contemporaneous records of communications between these 10 persons as evidence of the dates when they actually dealt with the documents.  This has not been done and no explanation has been provided.

(3)  At the minimum, one would expect the defendants to produce the document metadata of the Impugned Documents and PIML’s service contracts, which would show the dates when the documents in question had been created and modified.  The failure to adduce the document metadata and the absence of any explanation cast doubt on the credibility of the assertions of Tina, Albert and PIML that the Impugned Documents and PIML’s service contracts were created and signed on or before 13 September 2022. 

(4)  The aforesaid reasons apply equally to the Allotment Resolutions, the 2^nd Transfers Documents and the 2^nd Appointment Resolutions which PIML alleges were created and signed on 13 September 2022. 

(5)  On PIML’s case, it did not meet MS in person (who was based in Japan at the relevant times as the only address stated in all the documents was an address in Japan), and the Allotment Resolutions, the 2^nd Transfers Documents and the 2^nd Appointment Resolutions were prepared by PIML on 13 September 2022 and provided to Mr Lam on the same day.  However, it would have been impossible for Mr Lam to provide these documents to MS for her to sign in Japan[118] within the same day, even assuming the documents could have been signed by CISIL on the same day.  There is no suggestion (or evidence)  that MS or Notake signed these documents electronically.  

D1.3   MS, CISIL and Notake did not contest Plaintiffs’ claims

100.  MS, CISIL and Notake, the defendants who supposedly would be concerned about upholding the validity of the Impugned Documents and will be bound by the judgment given by this Court, did not enter appearance to defend or dispute the Plaintiffs’ claims.  Their interest and involvement are real in that:

(1)  MS is (a)  the only transferee named in the 2^nd Transfers Documents, (b)  the only director appointed to the HK Subsidiaries (replacing Tina and/or Albert)  in the 1^st Appointment Resolutions, (c)  the person who signed the Allotment Resolutions, the 2^nd Transfers Documents and the 2^nd Appointment Resolutions, and (d)  the client supposedly provided instructions to PIML to handle and implement the 1^st Transfers Documents and the 1^st Appointment Resolutions, and to prepare the Allotment Resolutions, the 2^nd Transfers Documents and the 2^nd Appointment Resolutions. 

(2)  CISIL is the transferee named in all the I/T and B/S in respect of the 1^st Transfers, and the transferor named in all the I/T and B/S in respect of the 2^nd Transfers.

(3)  Notake is the only allottee named in the Allotment Resolutions and the only additional director appointed to the HK Subsidiaries in the 2^nd Appointment Resolutions.

101.  Had the Impugned Documents been signed by MS and CISIL and the relevant consents to act as directors been signed by Notake by 13 September 2022, it would have been a straight forward matter for MS, CISIL and Notake to say so but they never did.  This goes to show that MS, CISIL and Notake did not consider that there is proper ground to dispute the Plaintiffs’ claims. 

D1.4   Internal inconsistencies in Tina’s, Albert’s & Lo/Chen’s evidence

102.  First, the internal inconsistencies between Tina’s and Chen’s evidence: 

(1)  Tina claims that when the 1^st Transfers Documents and the 1^st Appointment Resolutions were provided by Kam to her in late August 2022, some of them were (a)  already post-dated to 12 or 13 September 2022[119]; and (b)  those dates were printed[120].

(2)  However, Chen’s evidence is that when the I/T and B/S in respect of the 1^st Transfers were provided to PIML on 13 September 2022, they were undated, and Chen was expressly instructed by Mr Lam to date them to 12 September 2022[121].

103.  Second, Tina, Albert and PIML’s evidence that the 1^st Transfers Documents and the 1^st Appointment Resolutions were not backdated are internally inconsistent and inherently improbable. 

(1)  There is a direct and irreconcilable contradiction between Tina’s and Chen’s evidence (§102 above), which is unexplained and incapable of explanation.

(2)  Albert’s story that he signed the 1^st Transfers Documents and the 1^st Appointment Resolutions in respect of North HK and FFL in the week of 5 September 2022 is wholly inconsistent with the position he put forward in Albert Sixth (see §83(3)  above).

(3)  There is no substance in Tina’s reliance on the removal of GCBC’s name plaque from the BOC Address to support her allegation of no backdating.[122] As Albert accepts, GCBC was defending the application for appointment of the PLs all the way up to 22 September 2022[123].  Thus, the need for more aggressive measures on Tina/Albert’s part only materialized after the PLs had been appointed.

104.  Third, the evidence of PIML on the whole is inherently improbable (in addition to Chen and Lo’s evidence being incredible, see Section C2 above).

(1)  The change in evidence between Lo 1 and Chen 1, which seeks to change what PIML allegedly received from its “client” and what it created on instructions. The effect of that change is that:

(a)  all the dating anomalies (identified in Chow 3)  in the Impugned Documents became PIML’s “errors” or fault; and

(b)  PIML “took the blame” of the time gap between the date of the I/T and B/S and the date when they were stamped.

(2)  There is no plausible explanation for the fundamental change in what were supposedly straight forward factual matters.  The only explanation put forward is that Lo in fact did not handle the matter; it was Chen who had personal knowledge but she was away on business and so could not have filed any evidence for PIML at the time.[124] But this explanation cannot be true given that:

(a)  PIML had 10 weeks to file its evidence; if Lo did not have personal knowledge, the details she deposed to could only have come from Chen, whether she was in Hong Kong or not;

(b)  the CR filings made by PIML stated that they were  handled by Carey or Lo[125]; and

(c)  when the PLs approached PIML, they were directed to “the senior” identified as “Ms Venice” (presumably a reference to Lo)  for inquiry.

(3)  The stark fact is, and I so find, that there was no “error” in Lo 1 (filed on 6 January 2023).  It was only after the problems in the Impugned Documents were identified in Chow 3 (filed on 7 February 2023)  that a decision was made to have PIML “take the blame”, and Chen 1 was filed (on 27 February 2023)[126] to justify the change of story by PIML.  Under cross-examination, Lo accepts this to be the case (see §77 above).

105.  The inconsistencies in Tina, Albert, Chen’s evidence show that their evidence cannot be relied upon.  I do not accept the evidence of Tina and Albert regarding the dates when they signed the 1^st Transfers Documents and the 1^st Appointment Resolutions. Nor do I accept Chen’s and Lo’s evidence that (1)  the 1^st Transfers Documents and the 1^st Appointment Resolutions were provided to PIML on 13 September 2022, and (2)  the Allotment Resolutions, the 2^nd Transfers Documents and 2^nd Appointment Resolutions were prepared by PIML, signed by MS and CISIL, and took effect on 13 September 2022.   

D1.5  Pleadings point

106.  In his Opening and Closing, Mr Chan raises a pleadings point[127]. Ms Sit submits that the argument is wholly unmeritorious for the following reasons: 

(1)  The argument conflates between (a)  allegation of backdating as a cause of action; (b)  backdating as a fact[128] (which may give rise to different causes of action, for each element would have to be pleaded)  and (c)  evidence to support that fact (which need not be pleaded).   

(2)  The backdating plea is a material fact, which gives rise to different causes of action, namely want of authority (ASOC §§17C, 17E, 17F)  and conspiracy (ASOC §§17G).  These causes of action are not the subject of the preliminary issues.

(3)  That PIML has confused cause of action with material fact is further evidenced by its reliance on the conspiracy claim in Opening §17.

(4)  Nor do the authorities cited by PIML support its contention.  Three Rivers (No. 3)and Grant & Mumford at §§2-138 to 2-140 concern situations where dishonesty (a state of mind)  – being an element in the cause of action – is to be inferred from primary facts, and ought to be pleaded.  This is not the situation here.  It is not necessary for the Plaintiffs to allege fraud or dishonesty in the backdating issue,[129] as PIML accepts that backdating per se is not objectionable.[130]  The fact in issue is when the Impugned Documents were created and signed.

(5)  PIML’s objection in the course of Lo’s cross-examination on the Plaintiffs’ challenge over the other documentary evidence adduced by PIML (e.g. service contract)  underscores its misunderstanding over cause of action, fact and evidence.  Those documents are evidence relied on by PIML to support its case that the 1^st Transfers Documents and the 1^st Appointment Resolutions were provided to them on 13 September 2022, which the Plaintiffs are entitled to challenge and query. 

(6)  There can be no complaint of unfairness, given the Plaintiffs’ allegation of backdating has been pleaded at the outset[131], and the evidence relied upon by the Plaintiffs including details of the indicia of backdating set out in Chow 3[132] filed on 7 February 2023.

107.  I agree with Ms Sit’s submissions. 

108.  It seems to me that the arguments advanced by Mr Chan, Mr Sarony and Mr Wong in their Closing are premised on assumption that the Plaintiffs bear the burden of proving that the Impugned Documents were backdated and disproving the assertions advanced by Tina, Albert and PIML.  This cannot be right. 

109.  While the Plaintiffs bear the burden of proving that the Impugned Documents were created on or after 29 September 2022 and backdated to 12-13 September 2022, which I consider has been discharged for the reasons stated in Section D1.1 above, Tina, Albert and PIML bear the evidential burden of proving their assertions that (1)  the 1^st Transfers Documents and 1^st Appointment Resolutions were signed and delivered to PIML by 13 September 2022; and (2)  the Allotment Resolutions, the 2^nd Transfers Documents and the 2^nd Appointment Resolutions were created by PIML, signed by MS and CISIL and took effect on 13 September 2022 (see the authorities cited in §59 above).   

110.  For the above reasons, I find that the Impugned Documents were created on or after 29 September 2002 but backdated to 12 or 13 September 2022. The answers to Issues 1, 4 and 6 are in the affirmative.   

111.  As Tina and Albert had already been removed as directors of the HK Subsidiaries by 24 September 2022, they had no authority to act on behalf of the HK Subsidiaries on or after 29 September 2022, and the 1^st Transfers Documents and the 1^st Appointment Resolutions signed by them are void for want of authority. 

112.  In the absence of any valid resolution to appoint MS as director of the HK Subsidiaries, all the acts carried out by MS purportedly as director of the HK Subsidiaries including the Allotment Resolutions, the 2^nd Transfer Documents and the 2^nd Appointment Resolutions signed by her are void and of no legal effect. 

D2.  Issue 2: Whether Tina & Albert acted in breach of fiduciary duties

113.  The issue only arises if, contrary to my findings, the 1^st Transfers Documents were created and signed by Tina and Albert on 12 or 13 September 2022 when they remained directors of the HK Subsidiaries. 

114.  The principles are well established.  A director is a fiduciary and owes a duty to act bona fide in the interests of the company:

(1)  The duty is generally subjective, in that the question is whether the director honestly believed that his act or omission was in the interests of the company.  This is an issue as to the director’s state of mind (Cyberworks Audio Video Technology v Mei Ah (HK)  Company Limited[2020] HKCFI 398 at §69). 

(2)  The court is entitled to test the director’s assertion of good faith against the objective circumstances.  Where the director’s alleged belief that a particular course of action was beneficial to the company is unreasonable, it may be evidence that such belief was not in fact honestly held at the time (Extrasure Travel Insurance Ltd v Scattergood [2003] 1 BCLC 598 at §90). 

(3)  Where a director acts perversely or irrationally in considering what steps would be in the company’s interests (in that no reasonable director would have considered that an act or omission would benefit the company), he would also be in breach of his duty of good faith (Mortimore, Company Directors – Duties, Liabilities, and Remedies, 3^rd ed., §12.21; Re Southern Counties Fresh Foods Ltd[2008] EWHC 2810 (Ch), §53).

115.  Further, a director owes a duty to exercise his powers solely for the purposes of the company concerned (Gore-Browne on Companies, 45^th ed., §15[9]).  In the context of the fiduciary power to allot new shares, the directors cannot use their power to issue shares for a collateral or ulterior purpose.  Where the exercise of the power of allotment is being challenged, the court will examine the substantive purpose for which the shares were allotte.  If the purpose was to destroy an existing majority or to create a new majority which did not previously exist, even if it is not for the self-interest of the directors, the allotment would be unconstitutional and unlawful,and the aggrieved shareholder has a personal right to apply to set aside the same (Wong Kam San v Yeung Wing Keung[2007] 2 HKLRD 267, §76; Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, 837D-838A).

116.  Where a director has caused his company to enter into a contract in pursuit of his own interests, and not in the interests of the company or its members as a class, and the other contracting party had notice of that fact, the contract is void (GHLM Trading v Maroo[2012] 2 BCLC 369 at §171; Bowstead & Reynolds on Agency,22^nd ed., §8-221).   

117.  Finally, where it is shown that a director has given away company assets for no or nominal consideration, this was prima facie a use of his powers for an improper purpose.  Once a prima facie case is shown that the director has acted in breach of fiduciary duties in misapplying company assets, the evidential burden shifts to the director to demonstrate the propriety of the transaction (Bishopsgate Investment Management Ltd (in liq)  v Maxwell (No 2) [1994] 1 All ER 261, 265d-f, 269d-e). 

118.  Tina and Albert approved the 1^st Transfers which had the effect of giving away the HK Subsidiaries for nominal consideration.  This was prima facie a use of their powers as directors for an improper purpose and constituted a misappropriation of the Plaintiffs’ assets.  The burden is on Tina and Albert to justify giving away the HK Subsidiaries for US$4. 

119.  The only reason put forward by Tina and Albert is that the 1^st Transfers were made to complete or enforce the 2019 Security Arrangement:

(1)  According to Tina:[133] “… given my execution of the 2019 Documents, I had no grounds or reasons to resist the execution of the Completion Documents.  Accordingly, I signed the Completion Documents as requested by Mr Kam …”; and

(2)  According to Albert:[134] “… the relevant share transfers constituted a valid exercise of enforcement of security, in light of the outstanding indebtedness of Yuan/Sanpower/Ying Peng [Partnership]…”.

120.  Both Tina and Albert claim that it was in the best interests of the Group to enter into the 2019 Security Arrangement (and the 2019 Guarantee)  because without such Arrangement:

(1)  the Group would “become the target of Sanpower’s debt recovery”;[135]

(2)  Ying Peng Partnership would “have no alternative but to  cause Blue Ocean [BVI] (as the controlling shareholder of GCBC)  to put the entire GCBC Group into liquidation”; [136]

(3)  the business of GCBC was particularly “sensitive in nature” such that “any negative news of financial failure or liquidation within the GCBC Group would have catastrophic consequences for the entire corporate group”[137]; and

(4)  the “2019 Documents” allegedly signed were “necessary for the survival of the entire GCBC Group”[138] and without them the Group’s “business would not be preserved”.[139]

121.  In my judgment, Tina and Albert have failed to discharge the burden of showing that there was any justification for procuring or approving the 1^st Transfers for nominal consideration.

122.  First, there was no proper basis for Tina and Albert to assume or proceed on the basis that the 2019 Security Arrangement, which included the 2019 Guarantee signed by (1)  Tina on behalf of CSC Holdings, South BVI, the HK Subsidiaries and the Mainland Subsidiaries, and (2)  Albert on behalf of FFL, was binding or enforceable upon GCBC or any of the subsidiaries concerned given that:

(1)  As Tina and Albert admit under cross-examination, the 2019 Guarantee was never considered or approved by the board of directors of GCBC. 

(2)  Nor is there any evidence to suggest that the boards of directors of CSC Holdings, South BVI, the HK Subsidiaries or the Mainland Subsidiaries have ever considered or approved the 2019 Guarantee. 

(3)  For this reason alone, it has not been shown by Tina and Albert that the 2019 Guarantee was binding upon GCBC or any of the subsidiaries concerned.

123.  Second, even if(which is not case here)  the 2019 Guarantee were approved by the boards of GCBC, CSC Holdings, South BVI, the HK Subsidiaries and the Mainland Subsidiaries, it was approved by the directors for the improper purposes of benefitting Kam/GMHL/GMSC and Ying Peng Partnership/Yuan/Sanpower, and without any regard to the interests of GCBC or the subsidiaries concerned, having regard to the following facts and matters:

(1)  On Tina’s and Albert’s case, the Outstanding Debts were owed by Ying Peng Partnership/Yuan/Sanpower.  Neither GCBC nor any of its subsidiaries were liable to pay the Outstanding Debts.   

(2)  By entering into the 2019 Guarantee, CSC Holdings, South BVI, the HK Subsidiaries and the Mainland Subsidiaries assumed liability to pay the Outstanding Debts and, at the same time, encumbered all of their assets as security for the Outstanding Debts even though such Debts were completely unrelated to GCBC or any of its subsidiaries.

(3)  There was no simply basis for the directors to believe that it would be in the interests of GCBC, CSC Holdings, South BVI, the HK Subsidiaries or the Mainland Subsidiaries to guarantee the Outstanding Debts said to have been owed by the ultimate beneficial owner of Blue Ocean BVI (i.e. Ying Peng Partnership, Sanpower and Yuan). 

124.  Third, none of the reasons proffered by Tina and Albert for believing that the execution of the 2019 Guarantee was in the best interests of the companies concerned withstands scrutiny:

(1)  The so-called “concerns” that the Group would have been in financial peril and its survival at risk if the 2019 Guarantee had not been entered into are wholly without basis.  

(2)  The assertion that Ying Peng Partnership/Yuan/Sanpower had been in default of paying the purchase price for the Shares by September / October 2019 is contradicted by the statements in GMHL’s annual report for 2017/2018[140], which stated that (a)  KPMG had inspected evidence of receipt of consideration under the 2016 SPA; and (b)  the full consideration (and extension fee)  had been received, and indeed partly spent.  The annual report was approved by the board of directors of GMHL (which included Kam and Tina), and Albert was its corporate finance vice president.  Although Tina claims that in the notes to GMHL’s 2020 annual report, it was stated that Ying Peng Partnership had not fully paid the relevant amount[141], it seems that if the statements in the 2017/2018 annual report were correct, the amount referred to in GMHL’s 2020 annual report could not have been a reference to other debts owed by Ying Peng Partnership.  

(3)  Even if the purchase price for the Shares remained outstanding by September / October 2019, at most, it would only result in GMHL/GMSC/Kam taking enforcement action against (a)  Ying Peng Partnership/Yuan/Sanpower and/or (b)  the Shares.  Such enforcement action would not have any impact on GCBC or any of its subsidiaries.   

(4)  It is impossible to see how Ying Peng Partnership/Blue Ocean BVI could put GCBC into liquidation when the Outstanding Debts were owed by Ying Peng Partnership/Yuan/Sanpower.

(5)  It is in any event nonsensical to suggest that Ying Peng Partnership/Blue Ocean BVI would put GCBC (a highly profitable company)  into liquidation, only to realise the depressed value in a fire sale.  It is not in dispute that the value of the Group[142] far exceeded the Outstanding Debts.

(6)  Even if there were a sale of the Shares, there was no basis for Tina and Albert to believe that a change in the shareholder of GCBC would affect the business or operation of the Group.  This was particularly so when the majority shareholder of GCBC had only been changed from GMHL to Ying Peng Partnership in January 2018, and Tina accepts that GCBC’s business in the Mainland had not been affected by the change[143].

125.  In the absence of any justification for entering into the 2019 Guarantee, even if (which has not been established)  the 2019 Guarantee had been approved by the boards of directors of CSC Holdings, South BVI, the HK Subsidiaries and the Mainland Subsidiaries, such approval was made by the directors in breach of fiduciary duties and, therefore, voidable as against the subsidiaries concerned.  It follows that the 2019 Guarantee cannot provide any justification for Tina’s and Albert’s act in procuring the 1^st Transfers.

126.  Fourth, the evidence shows that Tina and Albert never considered whether it would be in the best interests or for the proper purpose of the Plaintiffs before they signed the 1^st Transfers Documents:

(1)  Albert’s evidence is that by 2022, the “2019 Documents” (appears to be a reference to the I/T, B/S and resolutions said to have been signed but not produced by Albert or Tina)  could no longer be used (“唔啱使”)  given there had been restructuring within the Group[144]. 

(2)  On Tina’s and Albert’s own case, by late August 2002 or early September 2022, it was necessary for new documents to be signed so as to complete or enforce the 2019 Security Arrangement.   

(3)  Prior to late August 2022, there were material changes in circumstances in that:

(a)  There had been a dispute over the ownership of the Shares between Kam’s camp and Blue Ocean BVI, in reliance on the Share Charge, which dispute was recorded in the 1^st Kawaley Judgment; and

(b)  The Cayman Petition had been presented against GCBC on 5 May 2022, and publicized in GCBC’s annual report released on 16 August 2022;

(4)  Thus, whatever “concerns” Tina and Albert had in October 2019, by late August 2022, those “concerns” no longer existed or were relevant. 

(5)  At the minimum, as directors of the Plaintiffs, Tina and Albert were under a duty to consider whether it would be in the best interests or for the proper purpose of the Plaintiffs to execute the 1^st Transfers Documents before they signed them in late August 2022 or early September 2022. 

(6)  Neither Tina nor Albert did that:

(a)  On Tina’s evidence[145], she signed the 1^st Transfers Documents in late August 2022 when being asked by Kam to do so.  She did not apply her mind to consider whether it would be in the interests or for the proper purpose of the Plaintiffs to sign them.  Under cross-examination, Tina says that it was a judgement made by the 2 shareholders (i.e. Kam and Yan)  and she simply trusted them[146].

(b)  On Albert’s evidence[147], he was asked to sign the resolutions approving the 1^st Transfers in respect of North HK and FFL at the request of Kam and according to his instructions.  Under cross-examination, Albert claims  that the only matter he considered in September 2022 was that the Plaintiffs had already signed the 2019 Guarantee[148].   

127.  Mr Sarony, Mr Wong and Mr Chan argue that the veracity or validity of the 2019 Security Arrangement is not within the scope of the preliminary issues, such that it is not open to the Court to make any findings on them.  I disagree.   

(1)  It is the pleaded defence as well as the evidence of Tina and Albert that they signed the 1^st Transfers Documents and the 1^st Appointment Resolutions to give effect to the 2019 Security Arrangement which arose because of the Outstanding Debts.

(2)  The issue as to whether in executing the 1^st Transfers Documents and the 1^st Appointment Resolutions, Tina and Albert acted in breach of their fiduciary duties fall within the scope of Issue 2.   

(3)  There is no inconsistency between the above and the PLs not inviting this Court to resolve the competing factual allegations between Blue Ocean BVI and Tina/Albert.  It is not the Plaintiffs’ pleaded case that the 2019 Security Arrangement did not exist or that it was invalid.  Rather, it is Tina and Albert’s pleaded case that they signed the 1^st Transfers Documents and the 1^st Appointment Resolutions to complete or enforce the 2019 Security Arrangement.  Having pleaded and relied on the 2019 Security Arrangement in their defence and evidence, Tina and Albert bear the evidential burden to prove their assertions. The Plaintiffs are entitled to challenge the case and evidence advanced by Tina and Albert.

128.  For the above reasons, I find that the 1^st Transfers were procured by Tina and Albert in breach of their fiduciary duties as directors of the Plaintiffs. 

129.  It follows that even if, contrary to my view, the 1^st Transfers Documents were created and signed before 13 September 2022, they are voidable as against the Plaintiffs and should be set aside. 

D3.  Issue 3: Knowledge of CISIL and MS

130.  As CISIL and MS have not filed any defence or evidence to defend the  claims, the Plaintiffs only need to prove their case against CISIL and MS. 

131.  On the evidence before the court, it is clear that CISIL and MS were nominees of Kam.  In any event, they were involved in signing the Impugned Documents and, therefore, must have had knowledge of the backdating of the Impugned Documents and the breach of fiduciary duties on the part of Tina and Albert in procuring the 1^st Transfers. 

132.  As to CISIL :

(1)  In the circular issued by GMHL, CISIL was described as a party acting in concert with Kam and held some of the GMHL shares in concert with Kam after GMHL’s privatisation.[149] CISIL is a 12.73% shareholder in a BVI company called Meditech Global Group Limited, of which Kam is the sole director, which in turn holds 16.55% shares in GMHL.[150]

(2)  Each of the 1^st Transfers in respect of the HK Subsidiaries was only for US$1.   

(3)  On Tina and Albert’s case, the 1^st Transfers were made to complete or enforcement the 2019 Security Arrangement in favour of Kam.  Thus, the corporate vehicle (CISIL)  used to take the shares in the HK Subsidiaries must be Kam’s nominee, and Kam’s knowledge (see §134 below)  should be attributed to CISIL.

133.  As for MS:

(1)  On the face of the 2^nd Transfers Documents, the 2^nd Transfers took place within one day of the 1^st Transfers.

(2)  The consideration for each of the 2^nd Transfers was US$1.

(3)  Since the 1^st Transfers were made in favour of Kam and the same consideration was stated in each of the 2^nd Transfers, the only inference which can be drawn is that MS was also a nominee of Kam, as it is inconceivable that Kam would allow the HK Subsidiaries to be transferred away for US$4. 

(4)  MS never entered appearance and defended the Actions, even after Lo had allegedly informed her “agent” (Mr Lam)  of the same. If MS were an independent party from Kam/Tina/Albert, it would be inconceivable that she did not come forth to defend her rights and interests in the HK Subsidiaries.

134.  Since Tina and Albert were procured by Kam to sign the Impugned Documents,[151] Kam must have knowledge of (1)  the backdating of the 1^st Transfers Documents and the want of authority; and (2)  the breach of fiduciary duties on the part of Tina and Albert.  Thus, on the additional basis that CISIL and MS are Kam’s nominees (as I so find), Kam’s knowledge should be attributed to CISIL and MS. 

135.  As CISIL and MS have had knowledge of (1)  the backdating of the Impugned Documents, and (2)  the breach of fiduciary duties on the part of Tina and Albert in signing the 1^st Transfer Documents and the 1^st Appointment Resolutions, even if (contrary to my findings)  the Impugned Documents were not backdated, they are still void (see §116 above).   

D4.    Issue 5: Whether Allotments were procured by Tina, Albert, Notake and/or MS for improper purpose

136.  This issue only arises if, contrary to my view, the Allotments took place on 13 September 2022 or on a date before the appointment of the PLs and the appointment of MS as director of the HK Subsidiaries was valid.

137.  In my judgment, the Allotments to Notake[152] were procured by MS for the improper purpose of diluting the shareholdings of the Plaintiffs in the HK Subsidiaries:

(1)  Tina and Albert claim that they have no knowledge of the Allotments.[153] On the face of the Allotment Resolutions,  the Allotments were approved by MS as the sole director of the HK Subsidiaries. 

(2)  On the basis of the evidence before the Court, it can be inferred that Notake was Kam’s nominee:

(a)  On the face of the ROMs, the Allotments took place on the same date as the 2^nd Transfers; 

(b)  The Allotments to Notake were at par value, which did not reflect the true value of the HK Subsidiaries; 

(c)  Notake appears to be a carpenter in Kinoma, Fujimi-cho, Nagano Prefecture;[154] and

(d)  Notake was served but she has not entered appearance or defended the 4 Actions.

(3)  There cannot be any conceivable reason as to why new shares in the HK Subsidiaries should be allotted to a Japanese individual (Notake), who has no connection with the Group, allegedly on the same date of the 2^nd Transfers.

(4)  More importantly, there is no evidence to suggest that MS had ever applied her mind to consider whether the Allotments would be in the interests of the HK Subsidiaries or whether the prices of the Allotments properly reflect the value of the HK Subsidiaries. 

(5)  The irresistible inference is that the Allotments were procured by MS for the improper purpose of diluting the Plaintiffs’ shareholdings in the HK Subsidiaries, so as to frustrate the steps taken by the PLs in taking control of the HK Subsidiaries (and hence the Mainland Subsidiaries).

138.  For the above reasons, I find that the Allotments, even if made on 13 September 2022, were procured by MS for the improper purpose of diluting the Plaintiffs’ shareholding in the HK Subsidiaries.  It follows that the Allotments are voidable and should be set aside.   

D5.  Issue 7: whether 1^st and 2^nd Appointment Resolutions were procured by Tina, Albert, Notake and MS for improper purpose

139.  This issue only arises if, contrary to my findings, the 1^st and 2^nd Appointment Resolutions were made on 13 September 2022. 

140.  Tina’s and Albert’s case is that the 1^st Appointment Resolutions were signed for the purpose of completing or enforcing the 2019 Security Arrangement for the benefit of Kam.  For the reasons stated in Section D2 above, this constitutes an improper purpose and renders the 1^st Appointment Resolutions voidable.   

141.  In the absence of any justification provided by MS, it can be inferred that the 2^nd Appointment Resolutions were signed by MS for the same improper purpose as that of the 1^st and 2^nd Transfers, namely to benefit Kam and, in turn, prevent the PLs from being able to take control of the HK Subsidiaries (and the Mainland Subsidiaries). 

142.  I find that the 1^st and 2^nd Appointment Resolutions were procured by Tina, Albert and MS for improper purpose and they acted in breach of fiduciary duties owed to the HK Subsidiaries.  The 1^st and 2^nd Appointment Resolutions are voidable and should be set aside. 

E.  DISPOSITION AND COSTS

143.  For all the reasons above, in respect of the preliminary issues, I hold that:

(1)  Issue 1: The 1^st and 2^nd Transfers Documents were created on or after 29 September 20022 and were backdated to 12 or 13 September 2022 and, therefore, are void for want of authority.

(2)  Issue 2: Even if (contrary to my view)  the 1^st and 2^nd Transfers Documents were created before 13 September 2022, the 1^st Transfers were procured by Tina and Albert in breach of fiduciary duties and, therefore, are voidable.

(3)  Issue 3: CISIL and MS knew that (a)  the 1^st and 2^nd Transfers Documents were backdated and void for want of authority, and (b)  the 1^st Transfers were made by Tina and Albert in breach of fiduciary duties and are voidable.

(4)  Issue 4: The Allotments Resolutions were created on or after 29 September 2002 and were backdated to 13 September 2022 and, therefore, are void for want of authority.

(5)  Issue 5: Even if (contrary to my view)  the Allotments Resolutions were created on 13 September 2022, the Allotments were procured by MS for the improper purpose of diluting the Plaintiffs’ shareholdings in the HK Subsidiaries and, therefore, are voidable.

(6)  Issue 6: The 1^st and 2^nd Appointment Resolutions were created on or after 29 September 2022 and were backdated to 13 September 2022 and, therefore, are void for want of authority.

(7)  Issue 7: Even if (contrary to my view)  the 1^st and 2^nd Appointment Resolutions were made on 13 September 2022, they were procured by Tina, Albert and MS improper purpose and, therefore, are voidable.  

144.  In view of the findings summarized in the preceding paragraph and to avoid any further arguments on the effect of the Impugned Documents, it would be appropriate for the Court to grant declarations and other consequential relief set out in the prayers of the ASOC. For this purpose, I direct the parties to submit, within 14 days of this Judgment, a draft order setting out the terms of the order which the parties are able to agree and identify the differences between the parties to the extent that they are not able to agree.

145.  As for costs, I make an order nisi that:

(1)  CISIL, MS and Notake do pay 20% of the costs of and occasioned by the 4 Actions, including all costs reserved, to the Plaintiffs, to be taxed on a common fund basis and with certificate for 3 counsel; and

(2)  Tina, Albert and PIML do pay 80% of the costs of and occasioned by the 4 Actions, including all costs reserved, to the Plaintiffs, to be taxed on an indemnity basis and with certificate for 3 counsel. 

146.  It is appropriate to order costs on a higher scale having regard to the following matters:

(1)  the serious nature of the conduct on the part of Tina, Albert, PIML, CISIL, MS and Notake which involved backdating of the Impugned Documents;

(2)  the evidence given by Tina, Albert, Chen and Lo, all of which the court finds to be incredible and unreliable; and

(3)  the breach of fiduciary duties on the part of Tina and Albert in signing the 1^st Transfers Documents and the 1^st Appointment Resolutions.

SCHEDULE A

Particulars of Impugned Documents