SILVERLINK (HONG KONG) FINANCE LTD v. ZHANG SABINE SOI FAN AND OTHERS

HCA2783/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2783 OF 1998

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J U D G M E N T

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1. The plaintiff in the original action (“Silverlink”) is a Hong Kong company and is a subsidiary company of China Merchants Bank (“the Bank”), a mainland bank with its head office in Shenzhen.

2. Silverlink is a licensed moneylender under the Money Lenders Ordinance, Cap. 163.

3. It is seeking to recover the balance of a loan of $200 million which it claims it lent to Fortune Bell Venture Ltd (“Fortune Bell”) which was evidenced by a Facility Letter dated 9 October 1997.  Silverlink’s claim in the original action is made against Madam Zhang Sabine Soi Fan (“Madam Zhang”) who is the 1^st defendant in that action.  She was the major shareholder in Fortune Bell and it is Silverlink’s case that she entered into a guarantee in their favour guaranteeing the facilities being made available to Fortune Bell.

4. The 2^nd and 3^rd defendants in the original action are Goldman Sachs International and Goldman Sachs (Asia) LLC who can both conveniently be referred to as “Goldman Sachs”.

5. According to Silverlink the loan which it was making to Fortune Bell was intended to be used for acquiring through Goldman Sachs 20 million shares in China Telecom (Hong Kong) Ltd (“China Telecom”) which it intended to float on 23 October 1997 by way of an international placement.

6. Fortune Bell had an account with Goldman Sachs and it had been estimated that the offer price for the shares would be $10 per share.

7. Silverlink’s case against Goldman Sachs was based upon an agreement they claim was concluded at Goldman Sachs offices on 9 October 1997.

8. At this meeting it is claimed that Silverlink and those advising it had made it clear to Goldman Sachs that is was imperative that a representative of Silverlink be given exclusive control of Fortune Bell’s account with Goldman Sachs and that Goldman Sachs would not accept any instructions from any person other than the Silverlink’s representative.  The consideration for this agreement was the fact that Goldman Sachs would be acting as broker in the proposed transaction.

9. Madam Wang Da Wei, a director of Silverlink (“Madam Wang”), was appointed to be the representative for this purpose.

10. Goldman Sachs disputed the existence of this agreement.  Shortly after the first tranche of $130 million was advanced pursuant to the Facility Letter, Goldman Sachs accepted instructions from a representative of Fortune Bells other than Madam Wang and the account was thereby depleted.

11. There was also an issue concerning a computer printout produced at the meeting by an employee of Goldman Sachs which Silverlink claimed contained incomplete and inaccurate information and that the consequence of this had been detrimental to their interests.

12. Silverlink are also making a claim in the alternative for $38,743,600 in respect of a cheque which they claim was drawn by Madam Zhang and dishonoured on presentation.

13. A further aspect of Silverlink’s case is relevant to this introduction.

14. Towards the end of September 1997 Mr Nicholas Chu who is a director of Kingston Finance Ltd (“Kingston Finance”) deposited with Goldman Sachs $100 million with instructions that this sum should be applied towards the purchase of 100,000 shares in HSBC and that the balance of the moneys should be used for the subscription of shares in China Telecom.

15. It was Silverlink’s case that instead of complying with these instructions, Goldman Sachs paid the moneys into Fortune Bell’s account.

16. Kingston Finance were pressing Goldman Sachs to account for these moneys and it was claimed that on 9 October 1997 Madam Zhang informed Goldman Sachs that Fortune Bell would be receiving moneys which would enable them to account to Kingston Finance.  The relevance of this evidence if accepted would be that some person or persons in Goldman Sachs would have a definite interest in seeing that moneys were paid into Fortune Bell’s account as otherwise there would be insufficient funds for them to comply with the instructions which had been received from Kingston Finance.

17. The line taken by Madam Zhang in the Defence and Counterclaim was to claim that prior to the 9 October 1997 meeting she had entered into what was described as being a “Subscription Agreement” with Madam Wang who was representing the Bank as its agent.

18. By this agreement it was agreed that Madam Zhang would lend Fortune Bell’s account to the Bank to enable it to subscribe for the shares in China Telecom and any profits accruing from this venture would be split between her and Madam Zhang on a fifty-fifty basis.

19. Under this agreement the Bank would advance $200 million into Fortune Bell’s account with Goldman Sachs and Madam Wang would be the person who would operate this account.  No interest would be payable by Madam Zhang on the moneys so advanced.

20. It will be appreciated that according to this version of events there was no question of the Bank lending money to Fortune Bell or Madam Zhang.  They would simply be using their own money on the subscription.

21. Madam Zhang averred that the documents to a different effect which were produced at the 9 October meeting were Sham documents.

22. The counterclaim which was until recently pursued by Madam Zhang, Fortune Bell and another of the companies she controlled Sabine Enterprises Ltd (“Sabine”) was based upon the alleged breach of the Subscription Agreement and the loss of the profit she claims would have accrued to her or her companies had the agreement been implemented as proposed.

23. The offer price of the China Telecom shares on 23 October 1997 was $11.80 per share and the price on 23 November 1997 being the date when it had been proposed that the shares would be sold was about $13.25.

24. Madam Zhang was also claiming other moneys which she said she had advanced to Madam Wang.

25. On 18 November 2002, Master S. Kwang made an order that unless Madam Zhang filed and exchanged her witness statement within 14 days she would be debarred from giving evidence at the trial of the action.  Madam Zhang did not comply with this order and she was accordingly debarred from giving evidence at the trial.

26. At a pretrial review leading counsel representing Madam Zhang confirmed to the court that his client would not be attempting to apply for this bar to be uplifted.

27. One consequence of this was that so far as Madam Zhang was concerned, counsel agreed that the counterclaim should be dismissed which I so ordered.  At the trial I made a similar order in respect of Madam Zhang’s two companies as they did not appear.

28. It is perhaps pertinent to add that for approximately the last three years Madam Zhang has taken no part in the preparation of this case and it is only very recently that she gave instructions to her legal advisors to defend the action.

29. After the trial had got well underway Mr Adrian Huggins SC who represented Silverlink and Mr Mark Strachen who represented Goldman Sachs entered into discussions to settle the litigation so far as it related to their respective clients.

30. Their efforts met with success on the 6^th day of the trial and the agreement which was concluded between these parties was that there should be a stay of the proceedings.  The action, however, continued as between Silverlink and Madam Zhang.

31. As indicated in the introduction of this judgment an important aspect of this case was the role assumed by Mr Nicholas Chu, a director of Kingston Finance.

32. He gave evidence that Kingston Finance’s business was in the financial field.

33. Madam Zhang was one of the company’s clients in 1997.  She had attended upon him in July and offered to introduce him to one of the senior executives in Goldman Sachs, Mr Zhou Yi Zhang (“Mr Zhou”).  As a result of this introduction, Kingston Finance opened an account with Goldman Sachs.

34. Towards the end of September 1997, Mr Zhou informed Mr Chu that Kingston Finance would be given the opportunity of subscribing to the IPO of China Telecom.  As it was anticipated that the issue would be oversubscribed it appeared that this would provide a good opportunity to make some money.

35. On 30 September, Mr Chu deposited $100 million with Goldman Sachs with a direction that the moneys be deposited in Kingston Finance’s account and that 100,000 shares in HSBC be purchased and that the balance of the moneys be used for subscribing for China Telecom shares.

36. According to Mr Chu, his wife asked Ms Theresa Chow who was Mr Zhou’s assistant to let her have a receipt for the $100 million.

37. As repeated requests had not produced the receipt Mr Chu pressed Goldman Sachs to supply a receipt.  He was then informed, to his amazement, that the return of the balance of the moneys and the shares in HSBC could only be effected if the written authority of Madam Zhang was forthcoming as the moneys had been paid into an account controlled by her.

38. He strongly denied that he had ever agreed to the moneys being deposited into one of Madam Zhang’s accounts.

39. On 9 October 1997, he complained to a senior manager in Goldman Sachs, Mr Oberoi, who promised to investigate the position.  On the same day Mr Chu received $25,806,141 and the shares in HSBC.  There was, however, a shortfall of $48,387,718 and Mr Chu took the matter up again with Mr Oberoi.

40. Mr Oberoi promised to pay the balance of the moneys due to him on 11 October and invited him to speak to a Mr Frank Law of the Standard Chartered Bank to obtain confirmation of these instructions.

41. He did eventually receive the balance which was due to Kingston Finance.

42. Mr Chu was not shaken in cross-examination on any of his evidence.

43. I was satisfied that he was a truthful and reliable witness and I accept that he has provided an accurate statement of what transpired.

44. Madam Wang was the main witness for Silverlink.  She was the senior representative of the company in Hong Kong.  She is a lady with impressive academic qualifications including a PhD in business administration from the Southern California University in the United States of America.

45. She explained that she was an employee of the Bank and that she was also an employee of Silverlink and Ocean Capital Limited (“Ocean Capital”).  These two subsidiary companies of the Bank shared office accommodation with the Bank’s office in Hong Kong, which was a small office staffed by herself, Mr Peng Sheng Wen (“Mr Peng”) and Mr Li Ming Tao (“Mr Li”).

46. She was in Beijing on 6 October 1997.  She received a telephone call from Mr Peng who informed her that he had been approached by a Mr Tan Xiang Dong of United Securities Ltd (“Mr X.D. Tan”), who was seeking a loan for $200 million to enable him to subscribe for shares in the imminent IPO of China Telecom.  She was interested in this as she had heard of United Securities which was a Shenzhen company and was aware that if shares were obtained in the IPO, they were likely to appreciate in value.  She asked Mr Peng to investigate the matter further and that she would meet Mr X.D. Tan on her return to Hong Kong.

47. The next day she received another telephone call from Mr Peng informing her that there was urgency attaching to the subscription for these shares.  She asked Mr Peng to set up a breakfast meeting on 8 October.

48. This was done and a meeting took place.  Mr X.D. Tan told her that his partner was Madam Zhang who had an account with Goldman Sachs who were underwriting the IPO.  She was also told that Madam Zhang had influential relatives in Beijing and that Mr X.D. Tan and Madam Zhang personally knew Mr Zhou, a senior executive with Goldman Sachs.

49. For these reasons there was a good prospect that Madam Zhang would be allotted shares albeit that the offering would very likely be substantially oversubscribed.  In addition to this the vehicle which would be used for the acquisition of the shares would be a British Virgin Island company thus enabling the application to be made in the international placement.

50. A decision was made to meet Madam Zhang at her office later in the morning.  In the meantime she had discussions with Mr Peng and Mr Li as to how they should proceed.

51. It was thought that Silverlink should be the lender of any loan granted as it was registered as a moneylender under the Money Lenders Ordinance.  It was also agreed that this was a situation where they might be able to share in profits accruing from the sale of shares acquired in addition to loan interest.

52. At the meeting Madam Zhang confirmed the favourable information which had been received and said that she was confident that she could get 20 million shares.  She also emphasized the urgency of the position and said that Mr Zhou had informed her that the money should be paid by 8 October.

53. There had been some discussions on the subject of the security which would be made available to Silverlink but nothing final was agreed.

54. It was shortly after this that Mr X.D. Tan dropped out of the picture.

55. There was a further meeting at Madam Wang’s office when details of the arrangement were discussed and it was agreed that the most important security would be the ability to exclusively control the account of Fortune Bell, the BVI Company.  In was also agreed that the question of the division of profits from the shares would be provided for in an agreement which would be entered into between Ocean Capital of the one part and Fortune Bell of the other part.  Madam Wang did not remember there being any agreement as to how losses would be dealt with.

56. She then requested Mr Peng and Mr Li to give instructions to the Bank’s solicitors Baker & McKenzie to draft appropriate documentation to enable the proposed arrangements to be implemented.

57. In view of the apparent urgency of the matter a meeting was held at Baker & McKenzie’s office at 5:00 p.m. on 8 October when there were further discussions as to how matters should proceed.

58. One proposal was that as there were existing assets in the Fortune Bell account at Goldman Sachs belonging to Madam Zhang she should vacate these assets and then authorise a representative of Silverlink to exclusively operate the account.  This proposal was not acceptable to Madam Zhang.  At the conclusion of the meeting there was no agreement between the parties.

59. Madam Wang’s party returned to their staff quarters to have dinner.  While having dinner a telephone message was received from Mr X.D. Tan when he requested Madam Wang to reconsider the position and she agreed to a further meeting on the following day, 9 October.

60. A meeting took place the following morning at Silverlink’s office.

61. Madam Zhang urged Madam Wang to loan the moneys to Fortune Bell.  She was prepared to give her personal guarantee for the loan and also to give Madam Wang signing rights over Fortune Bell’s account.  In addition to this she was prepared to offer a debenture in favour of Silverlink secured on the assets of one of her companies, Sabine.

62. Madam Wang agreed to these proposals.

63. Instructions were given to Baker & McKenzie to prepare the necessary documents.

64. A facility letter would be prepared to provide for the loan of $200 million.  The letter was in this form :

“	SILVER (HONG KONG) FINANCE LIMITED
	OCEAN CAPITAL LIMITED
	Fortune Bell Venture Limited
	(a company incorporated under
	the laws of the British Virgin Islands)[sic]
	9th October 1997
	Dear Sirs,
	HK$200,000,000 On Demand Loan Facility
	This letter sets out the terms upon which Ocean Capital Limited (‘Ocean Capital’) has arranged for Silverlink (Hong Kong) Finance Limited (the ‘Lender’) to make available to Fortune Bell Venture Limited (‘the ‘Borrower’) a loan (the ‘Loan’) of up to the principal amount of two hundred million Hong Kong dollars (HK$200,000,000) to be used exclusively in or towards satisfaction of the subscription price of 200,000,000 shares of China Telecom (Hong Kong) Limited (‘CCT Shares’) by the Burrower.
	1.	Drawdown and Conditions Precedent.
		The Borrower may draw down the Loan in two(2) [sic] drawings [sic] on any Banking Day (being a day, other than a Saturday, on which banks are open for business in Hong Kong) not later than three (3) days from the date of this letter provided that the Lender shall have received not later than 11:00 a.m. Hong Kong time on the day of the proposed drawing the following, each in form and substance satisfactory to the Lender:
		(a)	the attached duplicate of this letter duly counter-signed on behalf of the Borrower;
		(b)	certified true copies of the certificate of incorporation, memorandum and articles of association and business registration certificate of the Borrower and of resolutions of the board of directors of the Borrower authorising the Borrower to enter into and perform this agreement and the Debenture (as defined below) and authorising a person or persons to countersign this letter, to give the notice of drawdown on the Borrower’s behalf and to execute the Debenture (as defined below);
		(c)	a duly execute written notice of drawdown in the form set out in the appendix to this letter;
		(d)	a debenture (the ‘Debenture’) duly executed by the Borrower granting a floating charge over all its assets and property;
		(e)	a guarantee (the ‘Guarantee’) duly executed by Ms. Zhang Sabine Soi Fan (Zaire passport no.D0000762) (the ‘Guarantor’);
		(f)	a certified true copy of the Zaire passport of the Guarantor;
		(g)	a letter dated of even-date herewith (the ‘Broker Letter’) from the Borrower to, and accepted by, Goldman Sachs International (the ‘Broker’);
		(h)	a letter dated of even-date herewith from Ocean Capital to, and accepted by, the Borrower (the ‘Ocean Capital Letter’);
		(i)	such other documents as the Lender may reasonably require.
		The notice of drawdown once received by the Lender shall be irrevocable and the Borrower shall be bound to effect the drawing in accordance therewith.
	2.	Repayment.
		The Borrower shall repay the Loan in full on the date falling one (1) month after the date of the first (1st) [sic] drawdown of the Loan (the ‘Repayment Date’), together with all accrued interest and other monies then outstanding in connection with the Loan.  The Borrower may not prepay the Loan in whole or in part except as may be expressly required by this agreement.
		Notwithstanding the foregoing or any other provision of this agreement, this loan facility shall be terminable by the Lender at any time at its sole discretion by notice to the Borrower (a ‘Demand Notice’).  Upon the giving of a Demand Notice (unless otherwise provided therein) the Loan, accrued interest thereon and all other sums payable hereunder shall become immediately due and payable.
	3.	Interest.
		The Borrower shall pay interest on the Loan at the rate per annum conclusively determined by the Lender to be the aggregate of (i) the rate announced or applied by the Hongkong and Shanghai Banking Corporation Limited (or such other bank as the Lender may from time to time in its absolute discretion select) from time to time as its prime rate of interest in Hong Kong for lending of Hong Kong dollars to its prime corporate customers; and (ii) two per cent (2%).  Interest shall accrue from the date of drawdown from day to day on the basis of the actual number of days elapsed and a 365 day year and shall be paid in arrears on the Repayment Date.
	4.	Payments.
		All payments by the Borrower hereunder shall be made in Hong Kong dollar by 11 a.m. on the due date to such bank account as the Lender may from time to time specify.  If any sum would otherwise become due for payment hereunder on a day which is not a Banking Day, such sum shall become due on the next succeeding Banking Day in the same calendar month or, if none, on the immediately preceding Banking Day, and interest shall be adjusted accordingly.
	5.	No Deduction.
		All payments by the Borrower under this agreement shall be made in full without set-off or counterclaim or any deduction or withholding for or on account of any present or future taxes, duties, charges or fees of any kind.  If the Borrower is compelled by law to make any such deduction it will pay to the Lender such additional amounts as will result in receipt by the Lender of the full amounts which it would have received if there had been no such deduction or withholding.
	6.	Illegality.
		If it becomes unlawful for the Lender to give effect to its obligations hereunder, it shall notify the Borrower in writing and the Borrower shall, within such period as may be permitted by the relevant law, repay the Loan together with all interest accrued thereon to the date of repayment and other monies then payable hereunder.
	7.	Increased Costs.
		If any change in, or in the interpretation of or compliance with, any law or regulation subjects the Lender to tax in respect of sums payable by the Borrower hereunder (other than tax on the Lender’s overall net income), or increases the Lender’s cost of making available or maintaining on the Loan or reduces the amount of any payment receivable by the Lender hereunder, then the Borrower will pay the Lender on demand all amounts needed to compensate the Lender therefor.
	8.	Representation and Warranties.
		The Borrower represents and warrants to each of the Lender and Ocean Capital that the Borrower is a company duly incorporated with limited liability under the laws of Hong Kong and has the power and legal right and has taken all necessary corporate action and has obtained all necessary consents in order to borrow the Loan on the terms hereof and to enter into the Debenture and the Ocean Capital Letter and to perform its obligations hereunder and thereunder, and each of this agreement, the Debenture and the Ocean Capital Letter constitutes valid and legally binding obligations of the Borrower in accordance with their respective terms.
	9.	Undertakings.
		The Borrower undertakes to each of Ocean Capital and the Lender that so long as any sum remains owing hereunder it will:
		(a)	as soon as it becomes aware of the same, notify the Lender of any occurrence which could materially and adversely affect the ability of the Borrower to perform its obligations under this agreement, the Ocean Capital Letter or the Debenture;
		(b)	forthwith upon the acquisition of the CCT Shares by the Borrower, unconditionally and irrevocably instruct the Broker to deposit such CCT Shares into the account maintained by the Borrower with the Broker (account no: 011-05426-0358);
		(c)	instruct the Broker to sell, on or before the Repayment Date, all the CCT Shares at prevailing market price(s); and
		(d)	procure that none of the CCT Shares are sold other than in a transaction conducted at arm’s length and on market terms and which has been authorised in accordance with the terms of the Broker Letter.
	10.	Fees.
		The Borrower shall pay to Ocean Capital for its own account the fees specified in the Ocean Capital Letter in accordance with the terms stated therein.
	11.	Default Interest.
		If the Borrower fails to pay any sum payable hereunder on the due date, it shall pay interest thereon from the due date to the date of actual payment (both before and after judgment) at the rate per annum from time to time certified by the Lender to be two per cent (2%) above the rate specified in paragraph (3) above. So long as the default continues such interest may be compounded monthly. Interest at the rate determined as aforesaid shall accrue from day to day on the basis of the actual number of days elapsed and a 365 day year, and shall be payable from time to time on demand.
	12.	Default Indemnity.
		The Borrower shall indemnify the Lender and Ocean Capital against all losses, liabilities, damages and expenses which the Lender or Ocean Capital may sustain or incur as a consequence of any default by the Borrower, the Guarantor or the Broker in the performance of its obligations hereunder, under the Ocean Capital Letter, the Guarantee or the Broker Letter, as applicable.
	13.	Expenses.
		The Borrower shall pay all stamp duties, taxes, registration and other fees and reimburse the Lender on demand for all expenses (including all out-of-pocket expenses and legal fees on a full indemnity basis) arising from negotiating, preparing, executing and enforcing this agreement, the Debenture, the Ocean Capital Letter, the Guarantee and/or the Broker Letter.
	14.	Set-off.
		The Lender may apply amounts standing to the Borrower’s credit in any currency on any account with the Lender or its affiliates to reduce the Borrower’s obligations hereunder, even if the Lender has not demanded payment or the obligations are unmatured.
	15.	Assignment.
		The Borrower may not assign any of its rights or transfer any of its obligations hereunder.
	16.	Waiver and Severability.
		No failure or delay by the Lender or Ocean Capital in exercising any right, power or remedy hereunder shall operate as a waiver thereof. Rights, powers and remedies available under this agreement do not exclude those provided by law. If any provision herein becomes illegal, invalid or unenforceable then the remaining provisions of this agreement shall not be affected or impaired thereby.
	17.	Notices.
		Any notice or demand given or made in connection with this agreement shall be sent to (i) the Lender or Ocean Capital at Units 3 and 4, 18th Floor, Bank of America Tower, 12 Harcourt Road, Hong Kong or fax no. 2877-3859; or (ii) to the Borrower at the address given above, or, in each case, to such other address or fax number as the relevant party may from time to time notify to the other. Notices shall be in writing and made by letter or fax.
	18.	Governing Law and Jurisdiction.
		This agreement shall be governed by and construed in accordance with the laws of Hong Kong and the Borrower irrevocably submits to the non-exclusive jurisdiction of the courts of Hong Kong, and appoints Sabina Enterprises Limited as its agent for service of process and receipt of any documents or proceedings on its behalf. [sic]
	Please confirm your acceptance of the foregoing terms and conditions by signing and returning to use the duplicate of this letter within two (2) days of the date hereof, whereupon this offer shall expire.
	Yours faithfully,
	For and on behalf of
	Silverlink (Hong Kong) Finance Limited
	________
	For and on behalf of
	Ocean Capital Limited
	________
	We confirm our acceptance of the terms and conditions set out above.
	For and on behalf of
	Fortune Bell Venture Limited
	________
	Name: ZHANG SABINA SOI FAN
	Title:
	Dated   9   October 1997
	We hereby accept our appointment pursuant to paragraph 18 above.
	For and on behalf of Sabina Enterprises Limited
	________
	Name:”

65. A guarantee was prepared in this form :

“	Silverlink (Hong Kong) Finance Limited
	Units 3 and 4, 18th Floor
	Bank of America Tower
	No. 12 Harcourt Road
	Hong Kong
	9th October 1997
	Dear Sirs,
	1.	Guarantee.
		In consider of the Lender at my request granting the undermentioned facility to Fortune Bell Venture Limited (the ‘Borrower’), I, Zhang Sabine Soi Fan (Zaire passport no. D0000762) (the ‘Guarantor’) hereby unconditionally and irrevocably guarantee as primary obligor and not merely as surety to pay to the Lender on demand the principal, interest and all other monies, obligations and liabilities, now or hereafter due, owing or incurred to the Lender from or by the Borrower under the terms of a facility letter dated 9th October 1997 and accepted by the Borrower on 9th October 1997 as from time to time amended (the ‘Facility Letter’) or otherwise in connection with the facility granted thereby or any variation thereof, together with interest to date of payment, both before and after judgment, at the rates and on the terms set out in the Facility Letter and all other costs, charges and expenses (including legal and other fees on a full indemnity basis) incurred by the Lender in relation to such facility.
	2.	Indemnity.
		Without prejudice to the guarantee contained in paragraph 1, the Guarantor unconditionally and irrevocably undertakes, as a separate, additional and continuing obligation, to indemnify the Lender on demand against all losses, liabilities, damages, costs and expenses whatsoever arising out of any failure by the Borrower to make due and punctual payment under the Facility Letter or to duly and punctually observe and perform all its other obligations thereunder.  This indemnity shall remain in effect notwithstanding that the guarantee under paragraph 1 may cease to be valid or enforceable against the Guarantor for any reason whatsoever.
	3.	Demands.
		Demands may be made under this Guarantee from time to time and may be enforced irrespective of whether any steps or proceedings are or will be taken against the Borrower or any other person to recover the indebtedness claimed under this Guarantee.  Demands shall be made in writing and left or sent by post or telex to the Guarantor’s address given herein or such other address as it notifies in writing to the Lender.
	4.	Certificate Conclusive.
		Any statement of account of the Borrower signed as correct by any duly authorised officer of the Lender shall be conclusive evidence against the Guarantor of the indebtedness of the Borrower.
	5.	Indemnity.
		The Guarantor hereby undertakes to indemnify the Lender forthwith upon demand against all costs, charges and expenses (including legal fees on a full indemnity basis and all other out of pocket expenses) incurred in relation to or arising out of the enforcement or attempted enforcement of this Guarantee, any default or breach on the part of the Guarantor under this Guarantee and/or the preparation and execution of this Guarantee.
	6.	Payments.
		All sums payable by the Guarantor hereunder shall be paid in full in Hong Kong dollars to an account nominated in writing by the Lender without set-off, counterclaim or any restriction or condition or any deduction for or on account of any present or future taxes, duties or other charges or withholdings.  If the Guarantor is compelled by law to make any such deduction, the Guarantor will ensure that the amount deducted does not exceed the minimum legal liability therefor and will promptly pay to the Lender such additional amount as will result in the net amount received by the Lender being equal to the full amount which would have been received had there been no such deduction or withholding.
	7.	Continuing Security.
		This Guarantee is a continuing security and covers the ultimate balance from time to time owing to the Lender by the Borrower in relation to the Facility Letter in any manner whatsoever notwithstanding any settlement of account or other matter whatsoever.  Should this Guarantee cease to be continuing for any reason, no subsequent payment in or out of any account of the Borrower with the Lender shall reduce the liability of the Guarantor hereunder.  This Guarantee is an addition to, and independent of, any other guarantee or security or other remedy now or at any time hereafter held by the Lender.
	8.	Claims Against the Borrower.
		The Guarantor waives all rights of subrogation, indemnity and contribution against the Borrower or any co-guarantor and agrees not to claim any set-off or counterclaim against the Borrower or any co-guarantor or to claim or prove in competition with the Lender in the liquidation or bankruptcy of any of the same or to have the benefit of any share in any other guarantee or security now or hereafter held by the Lender until the Lender has receives all monies, obligations and liabilities actual or contingent now or hereafter due owing or incurred to it from or by the Borrower under the Facility Letter.  The Guarantor has not taken any security from the Borrower in respect of its liability under this Guarantee and agrees not to do so until the Lender received all monies payable under this Guarantee.  Any security taken by the Guarantor in breach of this provision and all monies received pursuant thereto shall be held on trust for the Lender as security for the liability of the Guarantor hereunder.
	9.	Liability Unconditional.
		The liabilities of the Guarantor under this Guarantee shall not be affected or discharged by:
		(a)	the granting of any time or indulgence to the Borrower, any other guarantor or any other person or any act or omission of the Lender or any other person which, but for this provision, would or might discharge the Guarantor;
		(b)	the death, bankruptcy, administration, insolvency or liquidation or any incapacity, disability or limitation, or any change in the constitution, ownership or status of, the Borrower or the Guarantor or any other person;
		(c)	any other guarantee or other security being held by or available to the Lender or by any of the same or any right or remedy of the Lender against the Borrower or any other person being or becoming void, voidable or unenforceable or by the Lender at any time exercising, enforcing, releasing or waiving (or refraining from exercising, enforcing, releasing or waiving) any of the same or any power, right or remedy the Lender may now or hereafter have from or against the Borrower or any other person.
	10.	Consents.
		The Guarantor has obtained and will maintain full force and effect all governmental and other approvals, consents, licences and authorisations required in connection with this Guarantee or desirable for the performance of its obligations hereunder.
	11.	Set-off.
		The Lender shall be entitled at any time without notice to the Guarantor to set off or transfer any monies standing to the credit of the Guarantor in any account at any of its branches, whether actual or contingent, subject to notice or not, mature or not and in whatever currency and shall have a lien on all property of any kind of the Guarantor from time to time held by the Lender whether for safe custody or otherwise.
	12.	Suspense Account.
		Money received by virtue of this Guarantee may be placed to the credit of a suspense account with a view to preserving the rights of the Lender to sue or prove for the whole of its claim against the Borrower.
	13.	Currency and Other Indemnities.
		No payment to the Lender shall discharge the Guarantor unless it is received in full in the currency in which it is payable.  If any such payment is received in a different currency, the Lender shall have a separate cause of action against the Guarantor for the amount of the shortfall following actual conversion of such payment into the currency in which the liability is payable.
	14.	Clawback.
		If any security, disposition or other payment granted or made to the Lender in reduction the liabilities hereby guaranteed have to be repaid by the Lender on the ground of fraudulent preference or any other ground, the Lender shall be entitled thereafter to enforce this Guarantee notwithstanding any discharged release or settlement which may have occurred.
	15.	No Waiver.
		No failure or delay by the Lender in exercising any power, right or remedy hereunder shall impair any of the same or operate as a waiver thereof.
	16.	Severability.
		If at any time any provision of this Guarantee is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, the legality, validity and enforceability of such provision under the law of any other jurisdiction, and of the remaining provisions of this Guarantee, shall not be affected or impaired thereby.
	17.	Successors and Assigns.
		The expressions ‘Guarantor’ and ‘Lender’ shall where the context permits include their respective successors and permitted assigns and any persons deriving title under them.
	18.	Laws and Jurisdiction.
		This Guarantee and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of Hong Kong and the Guarantor irrevocably submits to the non-exclusive jurisdiction of the Hong Kong courts and appoints Sabina Enterprises Limited of 903-4, Citibank Tower, Citibank Plaza, Hong Kong [sic] of Hong Kong to be its agent for service of process.
	IN WITNESS whereof this Deed of Guarantee was executed and is intended to be and is hereby delivered on the day and year first above written.
	SIGNED, SEALED, DELIVERED  )
	as a Deed                      )
	by ZHANG SABINE SOI FAN    )
	in the presence of                )
	FOK WING HWEN RICKY
	We hereby accept our appointment pursuant to paragraph 18 above
	GT02026.DOC
	For and on behalf of Sabine Enterprises Limited
	____________
	Name:”

66. A debenture would be prepared for execution by Sabine.  Necessarily this would have to be done when the document had been prepared.

67. The profit sharing agreement was to be reduced to writing and Ocean Capital would be the recipient of the profit which was to take the form of being an arrangement fee.  The letter was as follows :

“	OCEAN CAPITAL LIMITED
	To : Fortune Bell Venture Limited
	9th October-1997
	Dear Sirs,
	HK$200,000,000 on demand loan facility:
	Facility Letter dated 9th October 1997
	1.	We refer to the above facility letter (the ‘Facility Letter’) from Silverlink (Hong Kong) Finance Limited (the ‘Lender’) to, and accepted by, Fortune Bell Venture Limited (the ‘Borrower’).
	2.	Terms defined in the Facility Letter shall have the same meanings when used herein.
	3.	This is to confirm our mutual agreement that, in consideration of our arrangement, in consideration of our arranging for the Lender to make available to the Borrower the HK$200,000,000 loan facility pursuant to the Facility Letter, on the Repayment Date:
		(a)	in the event the Net Sale Proceeds exceeds the Investment Amount and:
			(i)	the Silverlink Amount exceeds the Interest Amount, the Borrower shall pay to us, on the Repayment Date, the amount by which the Silverlink Amount exceeds the Interest Amount; or
			(ii)	the Silverlink Amount is less than the Interest Amount, and provided all amounts due under the Facility Letter shall have been paid in full, we shall pay to the Borrower, on the Repayment Date, the amount by which the Interest Amount exceeds the Silverlink Amount;
		(b)	in the event the Investment Amount exceeds Net Sale Proceeds, and provided all amounts due under the Facility Letter shall have been paid in full, we shall pay to the Borrower, on the Repayment Date, an amount equal to the aggregate of (i) Silverlink Amount and (ii) the Interest Amount; and
		(c)	in the event the Investment Amount equals the Net Sale Proceeds, and provided all amounts due under the Facility Letter shall have been paid in full, we shall pay to the Borrower, on the Repayment Date, an amount equal to the Interest Amount.
	GT01103.DOC/1
	4.	In this letter:
		(a)	‘Interest Amount’ means the aggregate of all interest paid to, and received by, the Lender under paragraph 3 of the Facility Letter;
		(b)	‘Investment Amount’ means two hundred million Hong Kong dollars (HK$200,000,000);
		(c)	‘Net Sale Proceeds’ means the aggregate proceeds from the sale(s) of CCT Shares in the Securities Account up to and including the Repayment Date less all related transaction costs and expenses; and
		(d)	‘Silverlink Amount’ means the amount equivalent to fifty per cent (50%) [sic] of the difference between the Net Sales Proceeds and the Investment Amount.
	5.	The Borrower agrees and undertakes that it shall instruct the Broker to sell, on or before the Repayment Date, all the CCT Shares at prevailing market price(s)
	The agreement shall be governed by and construed in accordance with the laws of Hong Kong and you hereby irrevocably submit to the non-exclusive jurisdictions of the courts of Hong Kong.
	For and on behalf of
	Ocean Captial Limited
	__________
	Name:
	Title:
	We confirm our acceptance of the above offer.
	For and on behalf of
	Fortune Bell Venture Limited
	__________
	Name:
	Title:
	GT01103.DOC/2”

68. Madam Wang gave evidence that in her opinion the most important form of security to provide for the protection of Silverlink’s interests was the requirement that a representative of the Company should have exclusive right or mandate to control Fortune Bell’s account with Goldman Sachs.

69. Madam Wang learnt that some problems were being encountered in relation to this.

70. She was informed that the draft form of mandate which Mr Gregory Tan of Baker & McKenzie had submitted to Goldman Sachs had not been in a form which was acceptable to them.

71. They had insisted that their standard form of mandate should be used and that if there was any deviation from this form, approval must be obtained from their Legal Department.  Obtaining this approval would take three or four days.

72. This was unacceptable to Madam Zhang who was insistent that Goldman Sachs required the moneys that afternoon.

73. With this in mind it was agreed that the parties and the solicitors from Baker & McKenzie who had been assisting in the matter should all proceed to the offices of Goldman Sachs in an endeavour to resolve this apparent impasse.

74. Everyone went to Goldman Sachs offices.  They were shown into a conference room and a Mr Edward Tam, an Employee of Goldman Sachs, shortly thereafter entered the room.

75. After formal introductions the meeting got underway.

76. There were essentially two outstanding matters which had to be resolved.

77. One was the issue of the form of the mandate and the other was providing exclusive control of the Fortune Bell account to Silverlink.  Interposed on this was the extreme urgency of the situation and the apparent requirement that the drawdown of the loan should be effected that afternoon.

78. Madam Zhang eventually was prepared to cede ground and give Madam Wang exclusive control over the Fortune Bell account.  However there was informal agreement that so far as the existing shares in the account were concerned Madam Wang agreed that she would, at the request of Madam Zhang, give instructions for the sale of any of these assets on condition that the proceeds of sale remained in the account.

79. So far as the mandate was concerned a solution was proposed by Mr Edward Tam.  He expressed the opinion that if Madam Wang was authorised to operate the account by virtue of Goldman Sachs’ standard form this would provide the necessary exclusive control of the account to Madam Wang.  He then went out of the room and obtained a standard form and asked Madam Zhang to sign it.  The form is as follows :

“	1.	(Ms Zhang Sabine Soi Fan)___________________ _
	Director of _(Fortune Bell Ventured Ltd)__________________ (‘the Company’) a company duly organised and existing under the laws of ______(BVI)______________________________ do hereby certify that the said resolutions set forth below were duly adopted by the Board of Directors of the Company on ______(Oct. 9)_______ 19 __(97)_ and that said resolutions are now in full force and effect.  I further certify that said resolutions are in conformity with the provisions of the memorandum and articles of association or other applicable charter and by-laws of the Company and within its corporate and lawful powers and that the signatures set forth on the accompanying signature card are the specimen signatures of the persons empowered by said resolutions.
	RESOLVED
	First:
	That the following named officers and directors and their successors in ….. the other persons specified below, to wit:
	Name     (Wang Dawei) Title       (Authorized Signatory) Name Title Name Title Name Title
	and each of them, are hereby authorised and empowered for and on behalf of the Company to establish and maintain one or more accounts with any one or more of Goldman Sachs International, Goldman Sachs Equity Securities (U.K.), Goldman Sachs Government Securities (U.K.) and/or any  …. respective affiliates (each such entity hereinafter the ‘Broker’) for the purpose of purchasing, investing in, selling, transferring, borrowing, lending, exchanging or otherwise disposing of, and generally dealing in and with foreign currency and any and all forms of investments within the meaning of Schedule 1 to The Financial Services Act 1986, including, but not limited to, shares, stocks, listed or over-the-counter options, futures, bonds, debentures, notes, scrip, evidence of indebtedness, participation certificates, mortgages, mortgage-backed securities, contracts for differences, certificates of deposit, commercial paper, ‘when-issued’ securities, subscription rights, warrants, and certificates of interest of any and every kind and nature whatsoever, secured or unsecured, whether represented by certificate or otherwise.
	Second:
	Each of said officers or agents is hereby granted the fullest authority to act on behalf of the Company with respect to each of said accounts, including authority (without limiting the generality of the foregoing):
	1.	To give written or oral instructions to the Broker with respect to the matters referred to above;
	2.	To obligate the Company for the carrying out of any contract, arrangement or transaction entered into with or through the Broker.
	3.	To pay the Broker such sums as may be necessary in connection with the account;
	4.	To deposit securities, funds and other property of the Company with the Broker;
	5.	To order the transfer or delivery of any securities, funds or other property of the Company to any person (including said officer or agent) and to order the transfer of record ownership of any securities or other property, to any person (including said officer or agent) and in any name whatsoever;
	6.	To endorse any securities, stock powers or other instruments in order to pass title to securities or other property and to direct the sale, transfer, exchange or exercise of any rights with respect to any such securities or other property of the Company;
	7.	To agree to any terms or conditions regarding the account and to execute on behalf of the Company any agreement, release, power of attorney, assignment or other document in connection with the account and the property therein;
	8.	To direct the Broker to surrender securities to any party for the purpose of effecting any exchange or conversion or for any other purpose;
	9.	To withdraw and accept delivery of securities, funds and other property the Company;
	10.	To receive oral or written confirmations, statements of account, notices, demands and other documents relating to the account on behalf of the Company;
	11.	To appoint any other person to do any and all things which the said officer or agent is hereby empowered to do; and,
	12.	Generally to do and take all action in connection with the account which is deemed necessary or desirable by said officer or agent with respect thereto and the Broker may deal with each said officer or agent as though they were dealing with the Company directly.
	Third:
	That the authority of each of said officer or agents and their successors in office shall continue until the Broker shall receive from the Company a written notice of the revocation thereof.
	Fourth:
	That the Secretary or other proper officer* of the Company is hereby authorised and directed to certify in writing to the Broker:
	1.	A true copy of these resolutions;
	2.	Specimen signatures of each person empowered by these resolutions;
	3.	That the Company is duly organized and existing and that these resolutions are in conformity with the provisions of the memorandum and articles of association or other applicable charter and by-laws of the Company and within its corporate and lawful powers;
	4.	A copy of the certificate of incorporation and memorandum and articles of association, or charger and by-laws, or other governing documents of the Company as then in effect; and
	5.	Any changes in the office or powers of persons hereby empowered, which notification, when received, shall be adequate both to terminate the powers of the persons therefore authorised, and to empower the persons thereby substituted.
	Strike out the entire next paragraph if account(s) is/are to be cash account(s) only with no margin transactions permitted.
	Fifth:
	That in addition to the foregoing powers, each of said officers or agents is hereby granted the fullest authority to establish and maintain margin accounts with the Broker, to sell (including short sales), loan, borrow, pledge, or grant a security interest in any and all forms of securities and other property on behalf of the Company; to borrow money, securities and other property from or through the Broker or others and to secure repayment thereof with the property of the Company; to agree to any terms or conditions regarding the foregoing and to execute on behalf of the Company any agreement, release, power of attorney, assignment or other document relating thereto.
	IN WITNESS WHREOF, I have hereunto affixed many signature and the seal of the Company in the present of ________[insert name of witness]____________________ an officer or director of the Company, this ____________________day of ______________, 19 _____
	Signature and Title (Signed) Witness Signature and Title (Signed)
	*These resolutions should be certified by a senior officer other than the Secretary If: 1) the Secretary is the sole person authorised by these resolutions to act on behalf of the Company, or 2) the Secretary, as a authorised signer, executes the agreements contained herein on behalf of the Company.”

80. It will be noted that there is nothing in the mandate to indicate that it is exclusive or that previous mandates are revoked.

81. Before signing this document Madam Zhang insisted on her solicitor Mr Kwan attending and approving the form of it before she signed it.

82. Madam Wang emphasised that both she and Mr Li sought assurances from Mr Edward Tam that the mandate would have the effect he claimed it would and he gave the assurance sought.  She said that at no time during the meeting did Goldman Sachs or Madam Zhang permit anyone in her party including the solicitors to examine the mandate.

83. Madam Wang said that on several occasions during the meeting Mr Zhou came into the room and inquired whether the moneys had been received.

84. After the mandate was signed by Madam Zhang all of the other documents which had been brought to the meeting where duly executed.

85. Minor amendments had to be made to the documents to reflect the fact that it had not been possible for Silverlink to make all of the $200 million available that afternoon.  Only $130 million was available and the balance of $70 million was to be made available on the following Monday.  Madam Zhang had agreed to this.

86. Madam Wang then instructed Mr Peng to go to J&A Securities, Silverlink’s stockbrokers, and procure the transfer of the funds to Fortune Bell’s account.

87. At the conclusion of the meeting Mr Edward Tam introduced Madam Wang to Mr Zhou and said that she was from then on the sole signatory of the account.  Mr Zhou was said to be the person in charge of the account.

88. Mr Li then left the room to obtain a computer printout to show the present state of the Fortune Bell account.

89. The particulars which were given to Mr Li were :

90. Madam Zhang signed the printout to certify that it accurately reflected the true position.

91. It will be appreciated that the details in this account give a wholly misleading account of the true position as it omits to refer to the moneys which were paid out to Kingston Finance referred to earlier in this judgment.

92. On 13 October, the second tranche of $70 million was transferred to Fortune Bell’s account.  These moneys had been obtained from the Bank of America.

93. It is of some significance to observe at this juncture that it was at about this time that the financial crisis which was being experienced in Asia began to have a severe impact upon the stock market in Hong Kong.  One consequence of this was to radically change market sentiments and there was undoubtedly a possibility that instead of profits accruing to subscribers of the China Telecom IPO there was the distinct possibility that losses might also be incurred.

94. Madam Wang insisted in her evidence that Silverlink had not agreed that it would share any loss which might arise if the price of the shares fell below the issue price.

95. However on 14 October she received a letter from Madam Zhang which read :

“	Madam Zhang Sabine Soi Fan
	903-4 Citibank Tower
	3 Garden Road
	Hong Kong
	14th October 1997
	Silverlink (Hong Kong) Finance Limited
	12th Floor Hutchison House
	10 Harcourt Road
	Hong Kong
	Attn : Miss Wang Dawei
	Dear Madam
	Re:  HK$500,000,000.00 Loan Facility to Fortune Bell Venture Limited
	Refer to the telephone conversation between your Miss Wang Dawei and myself earlier today, I confirm in writing that I myself and on behalf of Fortune Bell Venture Limited are happy to be responsible for the loss suffered from the value difference of fine shares of China Telecom (Hong Kong) Limited, legal charges and all the interest incurred as a short term loan in the event that the opening marketing price of the above-mentioned shares goes down below the Hong Kong offering price of HK$12.60 due to the unstable stock and share exchange atmosphere.
	.	Thank you for your assistance
			Yours faithfully,
			signed
			ZHANG Sabine Soi Fan”

96. This letter had reassured her and led her to believe that Madam Zhang was being reasonable.

97. Also at this time Madam Zhang submitted some accounts to her which she said she had received from Goldman Sachs from which it appeared that the account was in good order.  It was only later when Madam Wang took maters up with Goldman Sachs that she was told that the accounts had not emanated from them and were forgeries.  The account had indicated that $130 million had been paid into the account when this had not been the case.

98. On 23 October Madam Zhang paid $800,000 in cash to Silverlink to cover interest and expenses and this also tended to lull Madam Wang into a sense of false security.

99. A further sum of $250,000 in cash on account of interest was paid by Madam Zhang and also she indicated that she wished to purchase more shares in China Telecom and sought permission from Madam Wang to sell shares which had originally been in the Fortune Bell account to provide for the purchase price.  Madam Wang had agreed to this as, according to the forged accounts she has been given by Madam Zhang, there were ample funds available.

100. On 30 October, the Debenture to be given by Sabine was executed and so far as Madam Wang was concerned she was satisfied with the situation.

101. On 7 November, Madam Wang telephoned Madam Zhang to remind her that under the Facility Letter the loan should be repaid on 9 November.

102. Madam Zhang had said that she had been advised by Goldman Sachs that if all of the shares were sold in one lot this could be disruptive to the market.  At that time China Telecom shares were trading at approximately $13.60.

103. Madam Zhang had proposed a revised repayment schedule and suggested initially 6 million shares should be transferred to Silverlink and that a price of $11.80 should be fixed for the shares.  This transfer would be deemed to be valued at $70,800,000, thus leaving a balance of $129,200,000 outstanding.  Madam Wang agreed to this and Madam Zhang promised to pay this balance on 18 November.

104. On 14 November, Madam Wang requested Mr Peng to inquire of Goldman Sachs on the procedure to be adopted for transferring the 6 million China Telecom shares to Silverlink.  Ms Theresa Chow told him that she wished to speak to Madam Wang, which she then did.

105. She informed Madam Wang that there were no China Telecom shares in the Fortune Bell account.

106. This information distresed her greatly.

107. It transpired that there had been numerous unauthorised dealings on the account which had been undertaken by Madam Zhang and that the accounts which this lady had been producing to her were forgeries.

108. There was however approximately $86 million in the account.

109. In the evening of 14 November, Madam Zhang had telephoned her and attempted to place all the blame for what had occurred on Mr Zhou.  She said that he had sustained heavy losses in trading on the stock market.

110. Madam Wang and her team had two meetings with Goldman Sachs.  The first was not attended by Madam Zhang but the second was.

111. At the first meeting the representatives of Goldman Sachs put all the blame on Madam Zhang.  They contended that all of the instructions they had received had been validly adhered to.  Madam Wang’s mandate had not been an exclusive mandate and Madam Zhang’s earlier mandate had not been revoked.

112. At the second meeting Goldman Sachs suggested to Madam Wang and her team that they should look to Madam Zhang to make good the losses they had sustained.

113. Madam Wang demanded immediate repayment failing which Silverlink would commence legal proceedings.

114. Madam Zhang put forward a proposal for the settlement of the matter along these lines :

(1)	Fortune Bell would immediately transfer the $86 million to Silverlink.
(2)	Madam Zhang would acquire 6 million China Telecom shares from the market and these would be transferred to Silverlink at a notional price of $11.80 which was the equivalent of $70,800,000.
(3)	She would give Silverlink her personal cheque for $43,743,600.

115. Goldman Sachs transferred to Silverlink the $86 million by two tranches, the first of $56 million and the second of $30 million.

116. On 20 November, Madam Zhang gave her a cashier’s order for $5 million and it was agreed that the cheque for $43,743,600 should be replaced by a cheque for $38,743,600.  This was eventually dishonoured on presentation and is the cheque referred to earlier in this judgment.

117. Madam Zhang did not implement her promise to transfer the 6 million China Telecom shares to Silverlink.

118. In general terms I found Madam Wang to be a truthful and reliable witness.

119. I accept her evidence that a loan of $200 million was being made to Fortune Bell to enable Madam Zhang to subscribe for the shares in China Telecom IPO.

120. I also accept her evidence concerning the meeting with her colleagues on 8 October when it was decided that if the proposal was to go forward Silverlink would be the party which would lend the money.  I reject the submission made by Mr Jason Pow SC for Madam Zhang that Madam Wang was acting as an agent for the Bank.

121. Madam Wang gave a plausible explanation concerning the way in which the Bank and its subsidiaries conducted their business.

122. While the Bank only had a small representative office in Hong Kong, Madam Wang was emphatic that a clear distinction was drawn between the functions performed by the Bank and its subsidiaries.  She had been acting for Silverlink as regards the loan and she had been representing Ocean Capital in relation to the fee arrangement contained in the letter referred to earlier in this judgment.

123. I also accept Madam Wang’s evidence relating to the negotiations leading up to the decision to grant the loan and basically as to what transpired at the meeting in the afternoon of 9 October at Goldman Sachs offices.

124. I believe the she did receive the assurances she referred to by Mr Edward Tam.  I am not so sure that she entirely accepted them at their face value.

125. I think that it is more likely that in the atmosphere of haste and urgency she was prepared to place a measure of trust in Madam Zhang and Mr Edward Tam and that it was on account of this that she was prepared to proceed with the matter.

126. I fully accept her evidence concerning the subsequent conversations she had with Madam Zhang and the fact that forged accounts were given to her by Madam Zhang to give her a false sense of security.

127. I also believe that the context of these conversations revolved around the fact that moneys had been advanced to Fortune Bell and Madam Zhang’s statements and actions were predicated on the premise that the moneys which had been advanced would be repaid.

128. Her evidence regarding the meetings which took place after she discovered that assets had been removed from the Fortune Bell account are entirely credible.  I accept that Madam Zhang did make the payments referred to in Madam Wang’s evidence and that they were for the purpose stated.  Also I accept all the evidence concerning Madam Zhang’s promises to repay the money which bad been lent and the failure of Madam Zhang to implement her promises.

129. On the subject of the sharing of losses I am inclined to think that prior to the stock market in Hong Kong reacting to the Asia financial crisis no one really focused their minds on the possibility of the shares trading at a lower price than the offer price.  What was on everyone’s mind was the profit which would be made and how this would be divided.

130. Whatever may or may not have been discussed, what is of importance is what is provided for in the documentation.  This will be dealt with later in this judgment.

131. Mr Peng gave evidence that at the relevant time he was an employee of the Bank and that his duties mainly involved conducting research on the Hong Kong securities market for the Bank and one of its subsidiary companies, China Merchants Security Ltd.  In addition to this he also assisted in the business operations of Silverlink and Ocean Capital.

132. On 6 October 1997 when he was in Shenzhen, he met Mr X.D. Tan, an old friend of his.  During conversation he told him about his friends, Madam Zhang and Mr Zhou and that through them he was hoping that it might be possible to obtain 20 million shares in the forthcoming China Telecom IPO.

133. In the evening Mr Peng received a telephone call from Mr X.D. Tan informing him that he was in Hong Kong and that he had encountered difficulty in raising the necessary funds to participate in the subscription for the China Telecom shares and was there any chance of the Bank being interested in making available a loan.

134. Mr Peng said he telephoned Madam Wang who was then in Beijing and briefed her on the position.  She requested him to follow the matter up.

135. He attended a meeting at Madam Zhang’s office on the morning of 7 October which was attended by a number of people including Mr X.D. Tan.  Madam Zhang boasted of her connections and claimed to be extremely wealthy.

136. She was confident that she could obtain 20 million shares in the China Telecom IPO and emphasised the urgency of proceeding expeditiously.  She also said she controlled an overseas company and this being the case the application could be made in the international placement.

137. Mr Peng reported all of this back to Madam Wang who then asked him to organise a breakfast meeting with Mr X.D. Tan on the morning of 8 October.

138. The meeting took place and Madam Wang appeared to be satisfied that the matter should be pursued.

139. After the meeting there was discussion between Madam Wang and himself and Mr Li.

140. Initially it was contemplated that if a loan was to be made it should be made to United Securities.  The loan should be made by Silverlink which had a moneylending license and that Silverlink should obtain control over the account with Goldman Sachs into which moneys would be paid.  There was also a suggestion that Silverlink might take a debenture from the Company to be used.

141. There were also discussions concerning the sharing of profits from the subscription in addition to the usual interest being payable.  It was also agreed that it would be necessary for there to be a meeting with Madam Zhang as neither Madam Wang nor Mr Li had yet met her.  A meeting was set up later in the morning.

142. The discussions at this meeting were inconclusive as Madam Zhang was reluctant to give up control over the operation of the account with Goldman Sachs or to charge the assets of the company which would be used.

143. Mr Peng and Mr Li went to Mr Gregory Tan of Baker & McKenzie who were the Bank’s solicitors.  Various ideas were discussed. However it was not possible at that time to overcome the objections which had been raised by Madam Zhang.

144. That evening while Mr Peng, Madam Wang and Mr Li were having dinner, Madam Wang received a telephone call from Mr X.D. Tan who suggested a meeting the following morning as he hoped that Madam Zhang would reconsider the objections she had previously raised.

145. Madam Zhang and others attended the meeting at the Bank’s offices.  It appeared at this juncture that Mr X.D. Tan would no longer participate in the proposals and Madam Zhang would herself be the only party involved through a company controlled by her Fortune Bell.  She agreed to cede control of the Fortune Bell account to Silverlink.  Mr Harvey Lau from Baker & McKenzie was in attendance to assist with the documentation.  A draft form of mandate was faxed over to Goldman Sachs but it was learnt that they would not agree to any variation being made to their standard form unless it was approved by their Legal Department.

146. Arrangements were then made for the party to proceed over to the offices of Goldman Sachs in an endeavour to resolve the position.  Mr Gregory Tan who had been attending another client was able to join the meeting later on.

147. The officers they met at Goldman Sachs were Mr Edward Tam and Ms Theresa Chow.

148. Madam Wang briefed Mr Edward Tam on the agreement which had been concluded between the parties and emphasised the importance of Silverlink being able to exercise exclusive control over the Fortune Bell account with Goldman Sachs.

149. Mr Edward Tam then informed her that no amendment could be made to the standard form of mandate unless the approval of their Legal Department was obtained.  This would involve some delay.  He suggested as an alternative that a fresh standard form of mandate should be signed by Madam Zhang authorising Madam Wang to operate the said account.  This would provide the protection which was being sought by Madam Wang.

150. There was some discussion as to whether Madam Zhang could subsequently issue a fresh mandate appointing someone else but she promised that she would not do this.  Madam Wang asked Mr Edward Tam to inform her if any such fresh appointment was made.

151. Madam Zhang insisted upon her solicitor approving any document she signed and her solicitor, Mr Kwan, was called to the meeting.

152. While all this was going on, Mr Zhou came in to the meeting on several occasions asking whether the moneys were yet available.

153. The documents were then signed and Mr Edward Tam took them away.  Madam Wang instructed Mr Peng to go to the offices of J&A Securities and arrange for $130 million to be transferred to Goldman Sachs account.  It had been agreed that the $200 million should be divided into two parts of $130 million and $70 million.  The $130 million being held by J&A Securities represented the proceeds of the sale of shares belonging to Silverlink.

154. On his return to the office he saw Mr Zhou and told him the moneys had been remitted, and he appeared to be very relieved.

155. The second tranche of $70 million was transferred to Fortune Bell on 13 October.

156. Mr Peng said that Madam Zhang kept in touch with Madam Wang on the phone on an almost daily basis.  He also referred to the forged accounts which they had received from Madam Zhang.

157. It was not until 14 November that Mr Peng learnt that there were no China Telecom shares in the Fortune Bell account.

158. When this information was received, Madam Wang instructed him to go to Madam Zhang’s office to find out what had happened and instructed Mr Li to go to Goldman Sachs’ office. When Madam Zhang heard that Mr Li had gone to Goldman Sachs’ office she telephoned him on her cell phone and ordered him to return to his office.

159. Madam Zhang did not attempt to deny what Mr Peng had learnt from Goldman Sachs.  She insisted that she had been cheated and laid the blame on what happened on various senior executives in Goldman Sachs.  She promised to resolve the problem and settle the indebtedness.

160. Mr Peng, Madam Wang and Mr Li attended the meeting at Goldman Sachs’ office on 18 November.  Madam Zhang did not attend this meeting.

161. The representative of Goldman Sachs insisted that they had at all times acted in conformity with the instructions they received which had been given in accordance with the authorities they held.  They placed all the blame on Madam Zhang and insisted that Silverlink should look to Madam Zhang for satisfaction of any claim they may have.

162. The Silverlink party attended another meeting with Goldman Sachs in the afternoon of 18 November when Madam Zhang was in attendance.  On this occasion Madam Zhang promised to make good the losses which had been sustained by Silverlink.

163. I found Mr Peng to be an honest and reliable witness.

164. I accept his evidence concerning the way in which Madam Zhang came into the picture and more particularly the fact that the arrangements which were being made were in conformity with the documentation which had been prepared by Baker & McKenzie.

165. I accept that Mr Peng did take part in the meeting on the morning of 8 October when the relevant arrangements were discussed.

166. I also accept his version of the events which took place subsequent to the meeting and how eventually it transpired that Madam Zhang took over the role which it had originally been envisaged would be assumed by Mr X.D. Tan.

167. I accept his evidence concerning what transpired at the 9 October meeting at Goldman Sachs office and in particular his evidence of attending at J&A Securities office and giving instructions for the transfer of the $130 million to Goldman Sachs.  In this connection, I accept his evidence that these moneys represented the proceeds of sale of shares belonging to Silverlink.

168. I also accept his evidence of the events following the 9 October meeting and of his attendance at the meetings with Goldman Sachs and Madam Zhang.  His evidence supported Silverlink’s case that a loan had been made to Fortune Bell which was controlled by Madam Zhang and that Madam Zhang had agreed to repay the balance of the moneys which were outstanding.

169. Mr Li gave evidence that he was an employee of the representative office of the Bank in 1997.  As it was a small office he also performed duties for the two subsidiary companies of the Bank Silverlink and Ocean Capital.  His duties mainly related to financial matters although he was in fact the Secretary of the two subsidiary companies.

170. His first involvement in the matters the subject of this litigation was on the morning of 8 October 1997.

171. He learnt that Madam Wang and Mr Peng had attended a meeting with Mr X.D. Tan of United Securities and that what had been proposed was that moneys should be advanced to United Securities to enable them to subscribe for 20 million shares in the forthcoming IPO of China Telecom.

172. Mr X.D. Tan had a partner Madam Zhang who had an account with Goldman Sachs and that she was friends with a senior executive in that company.  In addition to this, she had a number of influential connections in Beijing.  It was on account of this that she was confidant that she could obtain shares in the IPO notwithstanding the fact that it was almost certain that the placement would be greatly oversubscribed. 

173. United Securities had the necessary funds in Renminbi but funding would be required in HK dollars.

174. The purpose of the meeting he attended on 8 October was to discuss what would need to be done if the scheme was to go forward.  Silverlink should be the lender.  The loan could be secured if control could be exercised over the account of the Company subscribing for the shares.  The account would be with Goldman Sachs.

175. They would need to require that the said account was “clean” namely that any assets or liabilities were removed from the account.

176. It was also suggested that Mr X.D. Tan should acquire a 50% shareholding in the Company to be used for this purpose and that this interest could then be charged to Silverlink.

177. They also discussed how any profits arising from the subscription over and above interest receivable should be shared between the parties.

178. Mr Li, Madam Wang and Mr Peng then all went to Madam Zhang’s office.

179. She confirmed the information which had already been received and proposed that her company Fortune Bell should be the vehicle to be used to subscribe for the shares.  Fortune Bell was a BVI. company and as such would be eligible to subscribe for shares on the international placement being undertaken by Goldman Sachs.  She did however emphasize the importance of proceeding expeditiously.

180. Mr Li said that he and his colleagues put to Madam Zhang the ideas which had been discussed by them prior to this meeting.  They did not appeal to Madam Zhang as Goldman Sachs would gain the impression that she needed to borrow money for the proposed transaction.

181. There was a further meeting with Mr X.D. Tan and his friends when the division of anticipated profits was discussed.  At that juncture, no one considered the possibility that the issue price of the shares may be less than the initial offering price.

182. Arrangements were then made for instructions to be given to Baker & McKenzie for the preparation of the necessary documentation.  They explained the proposed scheme to Mr Gregory Tan and suggested that control of the account might be obtained if two signatures were required, one from Madam Zhang and the other from a representative of Silverlink.

183. There was also discussion concerning the sharing of profits and it was suggested that Ocean Capital should be the vehicle for this.

184. Over and above all of this, the urgency of the matter was impressed upon Mr Gregory Tan.

185. Mr Gregory Tan suggested that a debenture also be entered into so as to take the loan out of the ambit of the Money Lenders Ordinance, Cap. 163.

186. Madam Zhang was consulted and she was not prepared to “clean” Fortune Bell’s account nor to give Silverlink the control it was seeking over the Fortune Bell account.  This being the case Silverlink was not prepared to proceed.

187. Later in the evening, while Mr Li, Madam Wang and Mr Peng were having dinner, Mr X.D. Tan telephoned and said that he thought Madam Zhang might change her mind.

188. A meeting was arranged for the morning of 9 October at the Bank’s offices which was attended by Madam Zhang.  They learned that Mr X.D. Tan would no longer be proceeding with the matter and that Madam Zhang would be doing so alone.  

189. She would agree to the control of Fortune Bell’s account being given to Silverlink and for her to provide a personal Guarantee.  A debenture would also be executed by one of Madam Zhang’a companies.  The commercial terms of the loan were agreed and that profits would be divided equally.  Mr Li was not sure whether Ocean Capital’s involvement was discussed.  Madam Zhang would be permitted to leave existing assets in Fortune Bell and if she wanted to sell any shares Madam Wang would agree so long as the proceeds of sale remained in the account.  Madam Wang also agreed not to insist on the injection of $40 million as security in case the share price went down as the existing assets in Fortune Bell would provide a sufficient buffer against this contingency. 

190. Mr Li then tried to contact Mr Gregory Tan but was told that he was out attending to another client.

191. He attempted to himself amend the drafts which had been prepared by Gregory Tan and fax them to Goldman Sachs.  Madam Zhang received a telephone call from Goldman Sachs informing her that they were not prepared to accept the proposed amendments.  A decision was then made to instruct Gregory Tan’s colleague Harvey Lau to assist them. 

192. Mr Harvey Lau effected some modifications to the draft and it was faxed to Goldman Sachs.  Mr Li understood that Goldman Sachs would only agree to documents being amended if their Legal Department sanctioned the amendments.  This would take some days.  It was then decided that they should proceed to Goldman Sachs in an endeavour to resolve the position. 

193. They proceeded to Goldman Sachs offices where they were introduced to Mr Edward Tam and Ms Theresa Chow.

194. Madam Wang briefed Mr Edward Tam on the position and emphasized the importance of Silverlink being able to exercise control over Fortune Bell’s account with Goldman Sachs.

195. It appeared that Mr Edward Tam was already familiar with the situation.  He said that any modifications of the Goldman Sachs standard form of mandate would have to be reviewed by their Legal Department.

196. He suggested however, on the basis that Madam Zhang would be prepared to give up control over the Fortune Bell account, it would be possible for Madam Zhang to sign a fresh form of mandate authorizing Madam Wang to operate the account and that by this means, the objectives of the parties could be realized. 

197. While this was going on, Madam Zhang had insisted upon her solicitor, Mr Kwan coming to the meeting so that he could advise her on any document before she signed.  After some delay, Mr Kwan and his female assistant did attend the meeting and Mr Kwan did peruse the relevant documents and advised Madam Zhang thereon.

198. There was also discussion with Mr Kwan on whether Madam Zhang could subsequently issue a further mandate which would override the one in favour of Madam Wang.  Madam Zhang had assured her that she would not do this.

199. Mr Edward Tam was drawn into this discussion and Mr Li had asked him to advise Silverlink if any attempt was made to change the mandate.

200. There was also discussion relating to the securities already in the Fortune Bell account and that if Madam Zhang wished to sell any of these, Madam Wang would agree to this on condition that the proceeds of any such sale were to remain in the Fortune Bell account.

201. In addition to this, an employee of Goldman Sachs who Mr Li subsequently came to know was Mr Zhou on successive occasions came into the room and inquired whether the moneys had yet been paid.  He appeared to be quite anxious that the moneys should be paid.

202. Following this, all the documents which were to be signed were signed subject to amendments being made to reflect the agreement which had been reached for the drawdown to be in two tranches of $130 million and $70 million on the following Monday.

203. It was agreed that a debenture would be executed in the near future by Sabine as further security for the advances.

204. Madam Wang then requested Mr Peng to attend at J&A Securities to arrange for the transfer of the $130 million.  

205. Madam Wang was also introduced to Mr Zhou who said that he was in charge of the Fortune Bell account and that he accepted that in future instructions relating to the operation of the account would emanate from Madam Wang.  He said that he would then be able to recognize Madam Wang’s voice.  

206. Towards the conclusion of the meeting, Mr Li requested Madam Zhang for an up-to-date printout of the Fortune Bell account.  Madam Zhang took Mr Li to Ms Theresa Chow’s desk and she obtained a printout which she gave to Mr Li.  She declined, however, to certify that it was correct and Mr Li then got Madam Zhang to certify it after Mr Gregory Tan had inserted in his handwriting an appropriate form of wording.

207. Mr Li gave similar evidence to Madam Wang and Mr Peng concerning events following the granting of the loan to Fortune Bell.  In particular, he gave evidence regarding the second tranche of $70 million paid on the following Monday.  He said that the moneys were obtained from the Bank of America pursuant to a facility the Bank had with them.  He accepted however that the credit was in the name of the Bank.

208. The loan was not repaid on the due date of 9 November and Madam Zhang made various proposals in an attempt to reassure Madam Wang.

209. It was on 14 November that they learnt that there were no China Telecom shares in the Fortune Bell account.

210. He had been directed by Madam Wang to go to Goldman Sachs office to find out what it was all about.  He had attended upon Mr Edward Tam who said that the statements which had been received from Madam Zhang purporting to be Goldman Sachs statements were forgeries.

211. He had demanded an explanation why various entries had been made without the knowledge or authority of Madam Wang, but no explanation was forthcoming.  Madam Zhang had called him on his cell phone telling him falsely that Madam Wang had ordered him to return to his office.

212. Mr Li finally made reference to the two meetings with Goldman Sachs, the second of which was also attended by Madam Zhang.

213. The constant theme was for each party to blame the other.  However, it was suggested that as Madam Zhang was a wealthy person, she could make good the losses which had been sustained.

214. I found Mr Li to be a good witness.  His evidence was in conformity with the evidence of Madam Wang and Mr Peng.

215. I accept his evidence that so far as relevant events are concerned, he was not acting as an agent for the Bank and was representing the interests of Silverlink and Ocean Capital.

216. I am satisfied that what was agreed with Madam Zhang accorded with the documentation which was prepared and that a loan of $200 million was granted by Silverlink to Fortune Bell.

217. I accept his version of what transpired leading up to the 9 October meeting and also what took place at the meeting.

218. Also, I accept that following the meeting, he made arrangements for the second tranche of $70 million to be paid to Goldman Sachs and that these moneys were advanced by the Bank of America pursuant to a facility which had been arranged by the Bank.

219. I also accept his evidence concerning the attempts made by Madam Zhang to settle the matter and find that this evidence was entirely consistent with Madam Zhang accepting and acknowledging her indebtness to Silverlink for the moneys being claimed in this litigation.

220. In 1997, the solicitors firm of Baker & McKenzie represented Silverlink.

221. The first solicitor to give evidence for Silverlink was Mr Gregory Tan, who was one of the solicitors who represented Silverlink at the relevant time of the matters pleaded.

222. He is presently working in New York and he gave his evidence by way of a live video link up.

223. He said that he was first instructed in this case in early October 1997.

224. Instructions were given to him by Mr Li who informed him that Silverlink were contemplating advancing $200 million to a Mr X.D. Tan of United Securities Corporation and Madam Zhang for the purpose of subscribing for shares on the initial public offering of China Telecom.

225. He subsequently learnt that the matter would proceed without the participation of Mr X.D. Tan.  

226. He was instructed that Silverlink would be the company which would lend the money and that Fortune Bell which was controlled by Madam Zhang would be the borrower.

227. Fortune Bell had an account with Goldman Sachs and the shares would be subscribed for through Goldman Sachs.

228. It was contemplated the loan documentation would consist of a Facility Letter, a share mortgage and a debenture, a guarantee from Madam Zhang and a ‘Broker Letter’ from Fortune Bell to Goldman Sachs which would give control to Silverlink over Fortune Bell’s accounts with Goldman Sachs.  There would also be what was described as a “fee letter” signed by Fortune Bell in favour of Ocean Capital another subsidiary company of the Bank.  This letter would lay down the terms under which any profit from the acquisition of the shares would be divided between the parties.

229. Mr Gregory Tan was instructed to draft the requisite documentation and he proceeded to do so.  There was some variation in the instructions as negotiations between the parties were ongoing.

230. On the morning of 9 October, he was out of his office attending to another client.  On his return to his office, he had a message from his colleague Harvey Lau that in his absence he had been standing in for him on Silverlink’s affairs.  There had been a problem in that Goldman Sachs were insisting that there could be no departure from their standard form of documents.  He had been attempting to draft documents in such a way as to accommodate this.

231. Mr Harvey Lau requested Mr Gregory Tan to prepare execution documents and get to Goldman Sachs offices as soon as possible.

232. Mr Gregory Tan complied with these requests and arrived at Goldman Sachs offices at about 2:30 p.m.

233. On arrival, he saw a number of people were in the large conference room.  They were Harvey Lau, Mr Li, Madam Wang, Mr Peng, Madam Zhang and a Goldman Sachs employee, Mr Edward Tam.

234. The format of the meeting was very informal.  People would come and go and consult among themselves.  However he, Harvey Lau and Mr Edward Tam remained in the room throughout the afternoon.

235. At one stage, when Madam Zhang was asked to sign a document, she refused to do so unless her solicitor had first vetted it.  This necessitated Mr Kwan being asked to come to the meeting which he subsequently did when he was accompanied by a female colleague.

236. There were, however, a number of matters which, according to Mr Gregory Tan, were apparent at the meeting.

237. The first was that Madam Zhang was most anxious that the transaction should be completed that afternoon and that funds should be made available for the acquisition of the China Telecom shares.

238. This posed something of a problem as Mr Edward Tam insisted that if there was any modification of any of the Goldman Sachs standard documentation, the papers would have to be passed to their internal legal department for approval and that it would take several days for such approval to be forthcoming.

239. There was also something akin to a tug of war between the parties as to whether Silverlink was to be given exclusive control to operate Fortune Bell’s account with Goldman Sachs.

240. Madam Zhang was most reluctant to cede this power to Silverlink while Madam Wang was insistent that it was essential that Silverlink should have this power.  Indeed, Mr Gregory Tan described this requirement as being critical for the implementation of the proposed agreement.

241. Eventually, Madam Zhang agreed that this exclusive control should be given to Silverlink.

242. It was not however without some complications.  There were according to Madam Zhang already assets in the said account and arrangements would have to be made which would enable her to deal in these assets as she wished.  Madam Wang had agreed that she would respond to an oral request from Madam Zhang and comply with any instructions she received in relation to these other assets.  

243. However, if any shares were sold, Madam Wang would require that the proceeds of sale would remain in the account until the repayment of the loan which was being made by Silverlink.  This was agreed between the parties.

244. It was Mr Gregory Tan’s evidence that it was Mr Edward Tam who proposed a solution to the impasse between the parties.  According to Mr Gregory Tan, Mr Edward Tam was performing a function akin to that of a facilitator.

245. What he proposed was that Madam Zhang should sign Goldman Sachs standard form of mandate which would authorize Madam Wang to operate the Fortune Bell account on her signature.

246. It is one of the main bones of contention in this litigation exactly what Mr Edward Tam said in this connection.

247. It was Mr Gregory Tan’s evidence that Mr Edward Tam said that if the proposal he was making was adhered to and Madam Wang was to be the sole signatory under the mandate to operate the account, this would confer upon Silverlink exclusive control over the operation of the account.

248. Mr Gregory Tan was not able to be of much assistance in this connection, as he claimed that there had been an informal division of duties between himself and his colleague, Harvey Lau, when it had been agreed that he would be responsible for the commercial documents and their due execution and Harvey Lau would be responsible for the mandate and ensuring that Silverlink did indeed exercise exclusive control over the Fortune Bell account.

249. Mr Gregory Tan did emphasise that this matter was of critical importance as Silverlink insisted on being able to control this account.

250. In cross-examination, Mr Gregory Tan accepted that no record or minute had been kept of the meeting and that in the circumstances of this case, this was most unfortunate.

251. He did, however, maintain that from the context of the way discussions developed, he was satisfied that Mr Edward Tam had said that if Madam Wang was the only authorised signatory of the account this would give her control over it.

252. This was notwithstanding the fact that it was apparent from the wording of the standard mandate that the authority provided under the instrument could only be revoked if Goldman Sachs received written instructions to that effect.

253. It can reasonably be assumed that any existing mandate in favour of any authorised signatory of Fortune Bell would contain a like provision and this being the case it would be necessary for there to be separate revocation of the existing authority, as there was also no provision contained in the new mandate which provided for it automatically superseding previous authorities.

254. Mr Gregory Tan appeared to accept under cross-examination that he and his colleague should have done much more than simply accepting what it was alleged was the assurance given by Mr Edward Tam that the new mandate would have the effect he claimed.

255. The other matter of importance relating to Mr Gregory Tan’s evidence was the question of the computer printout which was obtained at the conclusion of the meeting.

256. He remembered that a printout had been obtained from Goldman Sachs at the conclusion of the meeting, and that the purpose of this had been an attempt to identify other assets belonging to Fortune Bell at the time when it was thought that Madam Wang would be exercising exclusive control over the Fortune Bell account.

257. Mr Gregory Tan however, could not remember who had obtained this printout or who it had been given to.  He was however able to assist in identifying the handwriting on the printout being his writing and that Madam Zhang’s signature on the document was an endorsement or certification that the particulars given were an accurate up-to-date record of Fortune Bell’s assets in the account.

258. What was of particular importance in the cross-examination of this witness was that Mr Gregory Tan had only focused his mind in detail of the events in question very shortly before he prepared his witness statement in the year 2000 which was somewhere in the region of three years after the events.

259. The task of remembering all of the details of what had transpired had been made much more difficult by the absence of a written note recording events or agreements contemporaneously.

260. However, notwithstanding these difficulties, I was satisfied that Mr Gregory Tan was essentially an honest witness and that his evidence supported Silverlink’s case.

261. I believe that the instructions he received were in accordance with the documentation which was prepared and that so far as Mr Gregory Tan could discern the position accurately reflected the transaction which had been agreed between the parties.

262. Mr Harvey Lau, the other solicitor from Baker & McKenzie then gave evidence.  He is still with the firm as an Associate.

263. His first involvement in the subject matter of this litigation was on the morning of 9 October.

264. He received a telephone call from Mr Li of Silverlink advising him that they had been attempting to contact Mr Gregory Tan who had been giving them advice in connection with a proposed loan of $200 million.

265. It was contemplated that this loan to Fortune Bell would be utilised by it to acquire shares in the IPO which was soon to take place in shares in China Telecom and that the placement was to be effected by Goldman Sachs.

266. Mr Li said that Goldman Sachs were declining to agree the form of the broker letter which had been drafted by Mr Gregory Tan.

267. As Mr Gregory Tan was engaged with another client, he had gone to Silverlink’s office where he met Madam Wang, Mr Li and Mr Peng of that company and Madam Zhang of Fortune Bell.

268. It was explained to Mr Harvey Lau that the objection which had been raised by Goldman Sachs was that the Broker Letter which had been drafted by Mr Gregory Tan did not comply with their standard form of documentation.

269. The original instructions had been to the effect that three people should be made authorised signatories and that instructions must be signed by two of the three signatories.  It had been proposed that Madam Zhang, Madam Wang and Mr Li should be the signatories.

270. A standard form of company resolution and trading authorisation had been faxed to Madam Zhang at Silverlink’s office and he was asked to incorporate the necessary amendments to the documents to achieve the objective he had been given. 

271. He set about drafting the necessary amendments during the lunch break so as to enable him to make the documents available.  In particular, he included a provision whereby the former mandates were revoked.

272. He had also by now been able to contact Gregory Tan and request him to also attend with the necessary documentation to enable the agreement to be completed.

273. The amended drafts were faxed to Ms Theresa Chow at Goldman Sachs.

274. Shortly after this, Mr Harvey Lau learnt that Madam Zhang had received a telephone call from someone at Goldman Sachs informing her that the amended drafts would need to be approved by Goldman Sachs internal Legal Department and that this would take three or four days.  This created a problem as the Silverlink people and Madam Zhang were adamant that the moneys had to be available that afternoon.

275. It was then decided that everyone should attend at Goldman Sachs office, so that the matter could be discussed and an appointment was made to this end.

276. Everyone then proceeded to Goldman Sachs offices where Madam Zhang took the party to a conference room and an employee of the Company who identified himself as Mr Edward Tam shortly thereafter joined the meeting.  Mr Edward Tam was holding in his hands the documents which had been faxed to Goldman Sachs earlier on.  Shortly after this, Mr Gregory Tan entered the conference room.

277. After some discussion, Mr Edward Tam proposed as a solution to the outstanding problem that Madam Wang should be appointed as the authorised signatory of the mandate and that a fresh mandate should be prepared to reflect this.

278. A number of questions were directed to Mr Lau in cross-examination.  He was asked whether Mr Edward Tam had also referred to the necessity for the previous mandate to be revoked.

279. Mr Harvey Lau said that he had made it clear on a number of occasions that he was not satisfied with the solution which had been proposed by Mr Edward Tam as this failed to meet the question of revocation.

280. It has to be said that this evidence of Mr Harvey Lau could not be reconciled with his evidence in his witness statement which was adopted as his evidence or the evidence by the other witnesses.

281. On balance, I am of the view that Mr Harvey Lau did express his reservations concerning the mandate and that in her desire to complete the transaction that afternoon Madam Wang was prepared to proceed notwithstanding that the situation relating to the mandate was not fully protected.

282. This view of the matter is also supported by Mr Li’s evidence of the conversation he had with Mr Kwan, Madam Zhang’s solicitor when Mr Li queried whether Madam Zhang as a director of Fortune Bell could give further instructions concerning the authority to control Fortune Bell’s account with Goldman Sachs.

283. The reply which Mr Kwan is said to have made was that Madam Zhang would not do something like that.

284. I have come to the conclusion that Madam Wang was prepared to complete the transaction on the basis of trust and that she also placed reliance upon the fact that Mr Edward Tam was fully acquainted of the position and had at least by implication indicated that if any contrary instructions were received in relation to the mandate, she would be apprised by the position.

285. I found Mr Harvey Lau generally to be a truthful and satisfactory witness.  For the most part his evidence supports the testimony of the other witnesses.

286. My overall impression of the evidence of Silverlink’s witnesses is that, with a few minor exceptions, the evidence of all the witness hung together in a coherent and convincing manner.

287. Each of the different witnesses had a different role to perform and the evidence all came together in a logical way. 

288. Madam Zhang seems to have contrived an approach through Mr X.D. Tan to the Bank and to have presented what on the face of it was an attractive proposition to Madam Wang.

289. I am satisfied that when the idea of a very substantial short term loan was proposed for the acquisition of shares in China Telecom’s IPO everyone concerned thought that considerable profits could be made very quickly.

290. It has to be borne in mind that at the time when negotiations were proceeding, the Hong Kong Stock Market was still in the ascendant and the Asian financial crisis had not yet struck.

291. A deal along the lines indicated by the Silverlink witnesses made obvious sense.

292. Silverlink had the necessary wherewithal to lend a very large amount of money to a subscriber for shares in the IPO.

293. It did not, however, have the necessary connections to have any likelihood of being allocated a large number of shares in the almost certain event of the subscription being heavily oversubscribed.

294. Madam Zhang claimed to have the necessary contacts with Goldman Sachs who were organizing the subscription and in addition to this claimed to have other connections in China which would make her claims to preferential treatment plausible.

295. This being the case, it would make good sense for an agreement along the lines indicated by Silverlink in the Re-amended Statement of Claim to be concluded between the parties.

296. What all of this has to be balanced against are the averments made by Madam Zhang in her Defence.  It will, of course, be borne in mind that she did not give evidence at the trial and did not call any witnesses and the only way in which the evidence of Silverlink’s witnesses could be challenged was for Mr Jason Pow SC to put the witnesses to what was being averred in Madam Zhang’s Defence and Counterclaim.

297. At this juncture, I consider it to be helpful to summarise Madam Zhang’s Defence in this judgment.

298. She averred that it was the Bank which was desirous of subscribing for 20 million shares in the China Telecom IPO.

299. This claim was made on the basis of Madam Wang being an agent for the Bank for the purpose of the subject matter of this litigation.

300. Mr Pow largely based his argument on the close proximity of the operations of the Bank, Silverlink and Ocean Capital.

301. He picked out various passages from the evidence of the Silverlink witnesses where they used the words “we” or “us” in such a way as to indicate that what they really had in mind was the interests of the Bank rather than the interests of Silverlink or Ocean Capital as the case may be.

302. An example of this apparent mixing of interests could, according to Mr Pow, be seen when Madam Wang in her evidence said at para. 16 of her witness statement :

“We also considered this as a profitable venture.  Not only could we earn the loan interest, we could also take a share in the profits arising from the proposed subscription.”

303. A further example of this “mixing” of interests could be seen according to Mr Pow, in para. 9 of the Re-amended Reply.  This reads :

“	9.	As to the Ocean Capital Letter, it is averred that it was agreed between Madam Wang on behalf of the Plaintiff and Madam Zhang on behalf of Fortune Bell that there would be a profit sharing arrangement whereby the Plaintiff and Fortune Bell would share equally the profits on the sale of the China Telecom shares.  It was agreed that this arrangement would be effected by a fee letter issued by ocean Capital, embodied a fee arrangement agreement for the aforesaid loan.  It never formed, in part or at all, a Subscription Agreement as alleged in Paragraphs 7, 8 and 9 or at all.  The said fee arrangement agreement arose in the following way :
		(a)	It was accepted by the Defendant that a fee would have to be paid for arranging the said loan entered into by Silverlink (as lender) and Fortune Bell (as borrower);
		(b)	It was agreed by the parties that Ocean Capital would be the arranger;
		(c)	The said fee arrangement agreement was separate and distinct from the said loan agreement.”

304. At a late stage in the hearing, Mr Huggins applied to amend this paragraph to aver that Madam Wang was making the agreement on behalf of Ocean Capital as well as Silverlink.

305. I declined to grant the indulgence sought by Mr Huggins and at the time gave short reasons for my decision.  The main factor in making this determination was the very late stage in the litigation when it was made and the consequent prejudice which might arise if the pleading was to be amended as requested by Mr Huggins.

306. I accept that there was some equivocation on the part of the Silverlink witnesses.  However, I am satisfied that what I am required to do is to have regard to the evidence as a whole and then determine on the balance of probabilities what the true situation was.

307. I have already commented in some detail on the evidence of Madam Wang and I accept her evidence that she was not acting as an agent for the Bank and I have no doubt that this would have been manifest to Madam Zhang.

308. There is further evidence in support of this analysis.  This was the evidence of Mr Peng that it was the proceeds of the sale of the shares belonging to Silverlink that made up the $130 million first tranche which was paid to Goldman Sachs on 9 October. 

309. There was also the evidence of Mr Li that the moneys used for the second tranche of $70 million derived from a loan facility granted by the Bank of America which had been arranged for by the Bank.  Even though the facilities were arranged for by the Bank this does not mean that it was not Silverlink which was lending the moneys.  There is every reason to believe that Silverlink would have to repay the Bank.

310. The conclusion I have reached on this important question is that none of the Silverlink’s witnesses were acting as agents of the Bank in relation to the subject matter of this litigation and the Bank was not the Principal lending the moneys.  All of the documentation also supported this conclusion.

311. In the Defence Madam Zhang went on to refer to a “Subscription Agreement” made on or about the 6 October 1997, partly orally with Madam Wang and also placing reliance upon the Ocean Capital fee letter earlier cited in this judgment.

312. Under the Subscription Agreement, she would lend the Fortune Bell account with Goldman Sachs to the Bank.

313. According to paragraph 8 of the Defence, it was agreed.

“	8	(a)	Madam Zhang would lend Fortune Bell’s account with Goldman Sachs to Silverlink for it to subscribe on behalf of the Bank 20,000,000 shares of China Telecom to be sold in one month after the said shares were floated and to authorise and transfer to Madam Wang the sole right and entitlement to operate Fortune Bells’ said account on behalf of the Bank;
		(b)	The Bank would provide $200,000,000 to be deposited into Fortune Bell’s account with Goldman Sachs for the purpose of subscribing for 20,000,000 shares of China Telecom;
		(c)	Goldman Sachs would be responsible in operating the said account in accordance with the instructions from Madam Wang and to execute Madam Wang’s instructions accordingly; and
		(d)	The said sum of $200,000,000 would be interest free to Madam Zhang.”

314. It may be helpful to consider the matters allegedly agreed against the evidence adduced at the trial. 

315. Lending Fortune Bell’s account to Silverlink to subscribe on behalf of the bank for the 20 million shares in China Telecom.

316. There was no evidence at the trial to support this alleged agreement and Mr Pow did not put this alleged agreement to any of the witnesses.

317. The Bank providing $200 million for the subscription for the shares.  Again, there was no evidence of this having regard to my finding of fact that Madam Wang was not acting as Agent for the Bank.

318. Madam Wang would be responsible for the operation of Fortune Bell account.

319. It is difficult to see how this claimed agreement can be reconciled with the overwhelming evidence to the effect that subsequent to the 9 October meeting, Madam Zhang continued to give instructions to Goldman Sachs and to a large extent depleted the account of the assets in the Fortune Bell account.

320. That the $200 million would be interest free to Madam Zhang.  There was no evidence in support of this.

321. It needs to be added that the reliance being placed upon the Ocean Capital Fee Letter is not helpful to Madam Zhang’s case.  It is apparent from the letter that the arrangement relates to the loan being granted by Silverlink to Fortune Bell.

322. It also needs to be said that on the available evidence, the Ocean Capital fee arrangement was never implemented due to the fact that the 20 million shares in China Telecom were never applied for.

323. This letter does not advance Madam Zhang’s defence.

324. In paragraph 9, Madam Zhang avers that at the relevant time the Bank was prohibited from investing or speculating in shares or securities and this being the case, the so-called Subscription Agreement contravened the regulations of the State Council of the Peoples’ Republic of China (“PRC”).

325. There was no evidence at the trial in support of this contention.

326. In any event for the reasons already given, it was not the Bank’s funds which were being used for the purpose of subscribing for the shares.

327. Paragraphs 10, 11 and 12 of the Defence read as follows :

“	THE PURPORTED LOAN DOCUMENTS
	10.	Madam Zhang was asked to sign a number of documents purporting to show that the subscription of the 20,000,000 China Telecom shares were not by the Bank but by Fortune Bell.
	11.	The purported loan documents showed :
		(a)	that Fortune Bell borrowed the sum of $200,000,000 to subscribe for the said shares from Silverlink through the arrangement of Ocean Capital;
		(b)	interest was payable for the purported loan by Fortune Bell, and
		(c)	Madam Zhang as Fortune Bell’s major shareholder gave her personal guarantee, and Sabine Ltd., also one of Madam Zhang’s companies, granted a first floating charge on all its assets and rights to secure repayment of the purported loan and interest.
			Particulars of the sham documents
			(i)	HK$200,000 On Demand Loan Facility letter dated 9th October 1997 (‘Facility Letter’)
				Ocean Capital purported to have arranged for Silverlink to make available to Fortune Bell as Borrower a loan of HK$200,000,000 exclusively for the subscription of 20,000,000 shares of China Telecom, and Fortune Bell amongst other things purported to agree to repay the loan one month after drawdown and to pay interest on the same, and further purported to undertake amongst other things to instruct Goldman Sachs to sell the subscribed shares at prevailing market price one month after drawdown.  This purported facility letter was executed by Madam Zhang on behalf of Fortune Bell, and by Madam Wang on behalf of Silverlink and Ocean Capital.
			(ii)	Personal Guarantee by Madam Zhang in favour of Silverlink dated 9th October 1997 (‘Personal Guarantee’)
				Madam Zhang by signing the Personal Guarantee purported to give her personal guarantee to Silverlink as primary obligor to pay to Silverlink on demand all monies due under the Facility Letter, and to indemnify Silverlink amongst other things, on demand all losses, liabilities, damages, costs and expenses whatsoever arising out of Fortune Bell’s failure to make due and punctual payment under the Facility letter.
			(iii)	Debenture granted by Sabine Ltd. in favour of Silverlink dated 9th October 1997 (‘Debenture’)
				Sabine Ltd. by executing the Debenture purported to grant a first floating charge on all its assets and rights to Silverlink to secure repayment of all monies due by Fortune Bell to Silverlink under the Facility Letter.
	12.	In the premises the purported loan documents were made for appearance only and had no legal or binding effect and are void against Madam Zhang, Fortune Bell, or Sabine Ltd., or all of them.”

328. No evidence was adduced at the trial to support these paragraphs and the allegation that these documents were sham documents was never put directly to any of the Silverlink witnesses.

329. Mr Pow did, however, attempt to show from the documentation and from the cross-examination of witnesses that the agreement provided for in the Facility Letter was not consistent with the case he was attempting to make out that in reality there had been a joint venture agreement between Madam Zhang and the Bank.

330. Mr Pow cannot take this much further in the light of the finding earlier in this judgment that Madam Wang, Mr Peng and Mr Li were not on a correct analysis of the evidence as a whole acting as agents of the Bank.

331. In support of his contention that the Facility Letter was a sham, Mr Pow referred to the fact that when the drawdown was made on 9 October 1997 a number of the conditions laid down in the Facility Letter had not been complied with.

332. He referred to the requirement in paragraph 1(b) that various certified copy documents had to be produced.  Also there was the requirement for Fortune Bell to execute a debenture charging its assets to Silverlink. 

333. I accept the validity of the submission made by Mr Huggins that in considering these omissions, it was necessary to take cognizance of the extreme urgency attaching to the matter and more particularly the fact that Madam Wang was placing reliance upon the assurances she had received to the effect that she would have exclusive control over the Fortune Bell account at Goldman Sachs.

334. It also needs to be borne in mind that a debenture was later executed by Sabine in favour of Silverlink.

335. There was, however, abundant evidence that the documents did in fact reflect the agreement between Silverlink and Ocean Capital of the one part and Madam Zhang of the other part.

336. I have no doubt that a loan was made to Fortune Bell in the two tranches of $130 million and $70 million respectively and that the moneys being advanced were Silverlink’s money.

337. Clearly this was the case in respect of the first tranche where there was evidence which I accept that the $130 million represented the proceeds of sale of shares belonging to Silverlink.

338. Although Mr Li conceded that the $70 million in the second tranche which was obtained from the Bank of America had been paid consequential upon facility arrangements which had been made by the Bank I am satisfied that the moneys were Silverlink money.

339. There is also the 14 October 1997 letter earlier referred to in this judgment where Madam Zhang clearly states that the subject is in connection with a loan from Silverlink.

340. In addition to this are the payments made shortly after 9 October namely of $250,000 and $800,000.  In the Defence, it is claimed that these were advances made to MadamWang, but we do not have any evidence in support of this.

341. What we do have, is the evidence of Madam Wang, Mr Peng and Mr Li all of which refer to Madam Zhang acknowledging her indebtedness and promising to repay it.

342. Over and above this is the evidence of the two solicitors from Baker & McKenzie.  According to their evidence, the documents were prepared in accordance with the instructions they received which certainly appear to be consistent with the version of events contended for by the Silverlink witnesses.  These solicitors were present at the 9 October meeting as was Mr Kwan, the solicitor representing Madam Zhang.  It would seem to be highly improbable that all of these solicitors would go along with a scheme or arrangements requiring as part of its implementation, the introduction of spurious documents which were known to provide for a scheme at variance with intentions contained in the documents.

343. Perhaps another way of testing whether the documents are sham documents is to question what purpose would be served by resorting to deviousness of this nature.

344. Even assuming that subscribing for shares in the manner contemplated here was contrary to PRC laws and regulations would the parties take the risk of placing reliance on sham documents when their purposes could just as well be achieved by structuring the scheme in the way it was in the present instance?

345. There was no evidence that to proceed in this way would be contrary to PRC law and accordingly there would be no point in resorting to sham documents.

346. In conclusion, I have no doubt whatever that the documents alleged to be sham documents are in fact genuine documents which accurately reflect the agreement concluded between Silverlink and Ocean Capital of the one part and Madam Zhang of the other part.

347. It is next necessary to consider the implications of this.

348. Once it is established that the Facility Letter and the Guarantee are genuine documents, there is no reason why they should not be construed and considered in the normal way.

349. I accept the validity of the submission made by Mr Huggins that the documents must be read together.  

350. In simple terms, the Facility Letter laid down the terms of the loan arrangement.

351. Interest was to be charged on the loan moneys as prescribed in the letter.

352. It matters not that any of the witnesses may have an incorrect or incomplete recollection as to what those terms may have been.  In this connection it needs to be borne in mind that the discussions and negotiations leading up to the final agreement took place approximately eight years ago.

353. So far as the Ocean Capital Agreement is concerned, it is apparent that if a profit or loss was to arise out of the subscription for the shares, this would be offset against the interest charge levied in the Facility Letter.  Obviously, the two documents have to be read together.

354. What also has to be borne in mind is that because moneys were not available to implement the proposed subscription for the shares, the Ocean Capital agreement was rendered otiose.

355. On the face of it, I am satisfied that Silverlink can successfully claim on the Facility Letter and the Guarantee subject only to the final issue as to whether they are unable to do so by virtue of the provisions contained in the Money Lenders Ordinance, Cap. 163.

356. The complaint relating to the alleged non-compliance with this Ordinance is contained in para. 35 of the Defence :

“	35.	Further or in the further alternative, if it is contended by Silverlink that the said sum of $200,000,000 were made to Fortune Bell as a loan in the course of Silverlink’s business, the Facility Letter, the Personal Guarantee and the Debenture are illegal and unenforceable, and the said cheque dated 20th November 1997 which was purported to have been given by Madam Zhang and Madam Wang as security are likewise illegal and unenforceable by reason of the breach of non-compliance of the Money Lenders Ordinance.
		Particulars of breach
		(a)	In breach of Section 18(1)(b) for failing or omitting to attach to the loan agreement, namely the Facility letter a summary as required under Regulation 11 provided under Schedule 3 or otherwise.
		(b)	In breach of Section 18(2)(a), (b) for failing or omitting to set out the addresses of Silverlink as the money lender, and of Fortune Bell as the borrower.
		(c)	In breach of Section 18(2)(c) for failing or omitting to set out the name or address of the surety in the purported loan agreement ie the Facility Letter;
		(d)	In breach of Section 18(2)(e) for failing or omitting to set out the date of the agreement under which the loan was made namely 5th October 1997;
		(e)	In breach of Section 18(2)(j) for failing or omitting to set out a declaration as to the place of negotiation and completion of the agreement for the loan;
		(f)	In breach of Section 22(1)(a) providing that Silverlink may charge monthly compound interest on default of any sum purported to be payable under the Facility Letter (clause 11);
		(g)	In breach of Section 22(1)(b) for providing that repayment of the purported loan should be made in one full payment prohibiting repayment by instalments.
		(h)	Criminal sanctions were imposed for breaches of the provisions in Section 18 and 22 of the Ordinance.”

357. Sections 18 and 22 of the Money Lenders Ordinance, Cap. 163 are as following :

“	18.	Form of agreement
		(1)	No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless—
			(a)	within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and
			(b)	there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,
			and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.
		(2)	The note or memorandum shall contain all the terms of the agreement and in particular shall set out—
			(a)	the name and address of the money lender;
			(b)	the name and address of the borrower;
			(c)	the name and address of the surety, if any;
			(d)	the amount of the principal of the loan in words and figures;
			(e)	the date of the making of the agreement;
			(f)	the date of the making of the loan;
			(g)	the terms of repayment of the loan;
			(h)	the form of security for the loan, if any;
			(i)	the rate of interest charged on the loan expressed as a rate per cent per annum, or the rate per cent per annum represented by the interest charged as calculated in accordance with Schedule 2; and (Amended 69 of 1988 s. 15)
			(j)	a declaration as to the place of negotiation and completion of the agreement for the loan.
		(3)	Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement or security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.  (Amended 69 of 1988 s. 15)
	22.	Illegal agreements
		(1)	Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for—
			(a)	the payment of compound interest;
			(b)	prohibiting the repayment of the loan by instalments; or
			(c)	the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement :
			Provided that provision may be made by any such agreement that if default is made in the payment upon the due date of any sum payable to the money lender under the agreement, whether in respect of principal or interest, the money lender shall be entitled, subject to Part IV, to charge simple interest on that sum frst charged in respect of the loan.
		(2)	Notwithstanding subsection (1), if the court before which the legality of any agreement comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement which does not comply with this section should be held to be unenforceable, the court may order that such agreement is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable. (Added 69 of 1988 s. 18)”

358. I agree with the submission made by Mr Huggins that the consequence of non-compliance with these sections is to render the loan and any security for it unenforceable not void.

359. Where Lord Diplock was considering a similar question under the English Legislation which is cast in the same form, he had this to say at p.105 in Orakpo v. Manson Investments Ltd [1978] A.C.95 :

“So far I have been considering a contract of loan which contains no provision for the grant to the moneylender of a security of higher rank than that to be discharged by the money lent.  In the instant case as in the Congresbury case [1971] Ch. 81 a legal charge on the borrower’s property in favour of the lenders was to be executed as near as may be simultaneously with the discharge of the previous equitable charge in favour of a third party.  The effect of failure to comply with the provision of section 6 is not to make void ab initio the contract of loan and any security given by the borrower in respect of it, but to make them unenforceable, and by section 17 they may even become enforceable in the hands of an assignee for value without notice of any defect due to the operation of the Act. Agreements or securities that are unenforceable are not devoid of all legal effect.  Payments made voluntarily pursuant to their terms are not recoverable and I regard it as open to question whether the unenforceability of a higher ranking security which is not void ab initio excludes the doctrine of the merger in it of a lower ranking security in respect of the same charge, at any rate when the higher ranking security remains potentially enforceable in the hands of an assignee.”

360. There had not been strict compliance with all of the requirements laid down in sections 18 and 22.

361. Examples of this can be seen so far as section 22 is concerned in that compound interest is payable under the Facility Letter.

362. Section 18 is breached in as much as no summary of the provisions contained in the Ordinance was furnished to Madam Zhang.

363. However, Mr Huggins contended that it was not necessary for him to place reliance upon my exercising the discretion reposed in section 22(2) as the loan was an exempted loan under paragraph 2(a) of Part 2 of the 1^st Schedule to the Ordinance.

364. This provides that “ A loan made to a company secured by a mortgage, charge, lien or other encumbrance” is exempted if it is registered under the Companies Ordinance, Cap. 32.

365. “Company” is defined to include a company incorporated in or outside Hong Kong.

366. Mr Pow submitted that Silverlink is not entitled to this exemption as the Debenture was only registered on 10 November 1997 while the tranches payable under the Facility Letter were made on 9 and 13 October respectively.

367. Mr Huggins’ answer to this was that as the issue was the question of the enforceability of the loan rather than whether it was void it did not matter that the registration of the Debenture was effected after the moneys had been advanced.

368. In particular he drew my attention to the case of Liggars Ltd v. DC Finance (Holdings) Ltd & Another [1998] 2 HKLRD 227 and the subsequent appeal being Universe Link Industries Ltd & Another v. Liggars Ltd [1999] 2 HKLRD 383 where the loan in question had been made in November 1996 and was not registered until February 1997.

369. No one had raised any objection to this very obvious fact and it could therefore safely be assumed that there was no merit in Mr Pow’s contention.

370. Mr Pow, on the other hand, referred to the case of Coast Brick & Tile Works Ltd v. Premchand Raichand [1967] 1 AC 192 where a similar situation had arisen.  In that case the advances had been made in successive instalments and the debenture had become operative before the final instalment.

371. In neither Liggars case nor the Coast Brick case had there been an adjudication upon this issue.

372. Having regard to the fact that I accept Mr Huggins’ contention that enforcement of the security is an important ingredient of the sections I have come to the conclusion that the post-registration of the Debenture in the present case does not have the effect of taking this Debenture outside the scope of exemption from the provisions of the Money Lenders Ordinance.  I am reinforced in this view by the fact that in the Liggars case a number of distinguished judges and counsel must have been aware of this obvious situation and no one saw fit to raise the matter as an issue in the litigation.

373. I think, however, that it may be helpful for me to make observations upon how I would have dealt with the exercise of the discretion contained in section 18(3).

374. I say this in case this matter goes elsewhere and a different view is taken as to whether the provisions of the Money Lenders Ordinance take effect.

375. I myself considered the question of the exercise of this discretion in Brother’s Company (a firm) v. Ah Puk Transportation (a firm) [1986] HKLR 821.  I said this at page 824 :

“	The main issue which arises in this case is whether the plaintiff’s claim as money lenders is enforceable.  Section 18(3) of the Ordinance reposes in the court a discretion to order that a claim can be enforceable notwithstanding the fact that there has been some non-compliance with the requirements of s.18(1)(a) and s.18(1)(b).  Section 18(3) reads :
	‘	(3)	Notwithstanding sub-section (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does riot comply with this section should be held not to be enforceable, the court may declare that such agreement or security is enforceable to such extent and subject to such modifications or exceptions as the court may order.’
	Mr. Chu Tak for the plaintiff referred me to a line of New Zealand cases where the courts had attempted to formulate principles in exercising a similar discretion which was exercisable under their legislation.  The cases of Ross Cole Investment Corporation Limited v. New Fashions Limited [1958] NZLR 55 and Marac Finance Ltd. v. Virtue [1981] 1 NZLR 586 were authority for the proposition that the most important consideration to be borne in mind by the court was whether the borrower had suffered any prejudice as a result of the non-compliance with the statutory requirements.  Mr. Chu Tak argued that it was manifest from the facts of the present case that the defendant had not suffered any such prejudice.  He had received substantial loans and had clearly fully understood all of the salient features of the transactions.  He had been willing to go along with the arrangements and had repaid the principal on an earlier loan and interest payments on the loans, the subject matter of this action.  It would therefore be an appropriate case to exercise the discretion reposed by s.18(3) in favour of the plaintiff.  He also referred to the New Zealand cases of Adams and another v. Paul’s Properties Ltd. [1965] NZLR 161, Birch v. Shaw and Another [1963] NZLR 927, Combined Taxis Co-operative Society Limited v. Slobbe[1972] NZLR 354 as being cases where the New Zealand Courts had to a greater or lesser extent been prepared to mitigate the rigours of the money lending legislation.  I consider that the case which offers the most assistance in this connection is Adams and another v. Paul’s Properties Ltd.  Woodhouse, J. extended the scope of the matters which should be weighed by the court and had this to say at p.171 :
	‘	I think that in order to estimate ‘the nature, extent and effect’ of the original default the Court would need to take into account the way in which the transaction had developed.  Attempts by a moneylender during the course of the contract to make use of some objectionable feature of it could well have significance, in my opinion, just as the size of the principal sum still outstanding and its proportion to the original loan could influence a decision as to the equities, not only as between the parties but also in relation to the regulatory purposes of the Act as a whole.  I think that the circumstances to be taken into account should include such matters as the relative status of the parties, the nature and extent of the default, the way in which it arose, the implications for the borrower, and the attitude of the lender and the general appearance of the contract throughout.’
	With respect it seems tome that Woodhouse, J. has adopted a very sensible approach and I am satisfied that there is nothing contained in s.18(3) of our Ordinance which would preclude me from canvassing all of the matters he refers to.  There is only one case which Counsel were aware of which deals with the exercise of this discretion in Hong Kong.  It is the unreported case of Lee Wang Investment Co. Ltd v. Leung Boon-sing High Court Action No.4024/83, unreported.  Deputy Judge Nazareth (as he then was) did not have the benefit of having cited to him the New Zealand cases I have referred to.  However, he also adopted a liberal approach to the exercise of the discretion and he considered a wide range of circumstances.  I am satisfied that the correct approach to adopt is to consider all of the matters referred to by Woodhouse, J.”

376. This approach also appears to be consistent with the remarks made by Ribeiro PJ at paragraph 119 of Emperor Finance Ltd v. La Belle Fashions Ltd & Others (2003) HKCFAR 402 :

“In exercising its discretion, the court should examine the breach or breaches in question, their consequences for the parties to the transactions and any other circumstances which may make it inequitable to hold the agreements unenforceable. …”

377. I accept that this is the correct approach to adopt.

378. In my view this is a most obvious case where the discretion should be exercised in favour of Silverlink.

379. Madam Zhang who appears to have been an experienced business woman succeeded through Mr X.D. Tan of insinuating herself into the confidence of Madam Wang.  

380. She represented that through her connections she could obtain an allocation of 20 million shares in the forthcoming China Telecom IPO.  It was well-known at that time that there was an excellent prospect that the shares would trade at a premium when they were traded in the Stock Market.

381. She also indicated that if a loan was to be granted to her controlled company she was prepared to share the profits it was anticipated would arise from the subscription.

382. It was apparent from the evidence of Mr Nicholas Chu that Madam Zhang and Goldman Sachs needed finance urgently on 9 October and Madam Wang and her colleagues were rushed into completing the transaction.

383. I accept all the evidence to the effect that Madam Zhang and Mr Edward Tam assured Madam Wang that she would have exclusive control over the Fortune Bank account when she had no intention whatever of conferring this right on Madam Wang.

384. She or a person or persons with Goldman Sachs went on to apply the moneys advanced for other purposes and as a consequence of this the subscription for the shares was not proceeded with as was contemplated by Madam Wang.

385. Following this Madam Zhang produced forged accounts to Madam Wang to lull her into a sense of false security.

386. She also made repeated promises to repay the loan in question which she largely failed to implement.

387. At the time when the first tranche of $130 million was drawn down Madam Zhang had the benefit of legal representation as Mr Kwan her solicitor was present.

388. It has to be said that the non-compliance with the requirements of the Money Lenders Ordinance is of a technical nature and the interests of Madam Zhang have been in no way compromised.

389. She has had the use and benefit of these moneys for a protracted period of time. 

390. In my view it would be wholly inequitable not to exercise the discretion in favour of Silverlink.

391. There appears to be no serious issue concerning the Guarantee entered into by Madam Zhang.  I hold that it is effectual and Madam Zhang must be bound by its terms.

392. So far as the dishonoured cheque is concerned there can be no doubt that there was indeed consideration for the cheque and that Silverlink is entitled to judgment on it as claimed.

393. The next matter which I must consider is whether it would be helpful or desirable for me to comment upon and adjudicate on what has been described in the trial as the Tripartite Agreement between Silverlink, Madam Zhang and Goldman Sachs.  This is the agreement briefly referred to in the introduction to this judgment.

394. As has been stated earlier Silverlink and Goldman Sachs concluded a compromise of the issues between them.

395. I am of the view that in the light of the determinations which have been made on the issues between Silverlink and Madam Zhang no useful purpose would be served in delivering a judgment in respect of the Tripartite Agreement.

396. Indeed having regard to the compromise which was concluded I am inclined to the view that the interests of justice would not be well served by my delivering a detailed judgment on this.

397. So far as quantum is concerned the parties prepared and agreed a financial statement conditional and contingent upon my determining that Silverlink would obtain judgment on the Facility Letter and the Guarantee.

398. The total amount due under this agreement including all outstanding interest payable in accordance with the contractual terms was agreed at $252,519,096.21.  Judgment is entered in that amount.

399. I make an order nisi that Silverlink are to have their costs and these are to be taxed on an indemnity basis having regard to the observations I have made concerning Madam Zhang.  The costs order will embrace any previous orders where costs were reserved.

400. In conclusion I would like to express my appreciation for the assistance I received from all counsel in this case.