LEE SAI NAM v. LI SHU CHUNG AND ANOTHER

HCA 1711/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1711 OF 2009

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J U D G M E N T
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1.  This is one of the many legal battles in which the members of the Lee family are entangled.  Previous directions have been made so that the determination of the present action shall come first; and the trial of the issues of liability and quantum in the present action shall be split.  This is the trial on liability.

BACKGROUND

2.  Lee Sai Nam (the plaintiff by original action and the 1^st defendant by counterclaim) (“the Father”) and his wife Madam Lee Kui Mui (“the Mother”) gave birth to 4 children, 3 of which were involved in the family business set up by the Father and the present dispute.  Li Shu Chung, also known as Ken Li (the 1^st defendant by original action and the plaintiff by counterclaim) (“Ken”) is the eldest son.  Lee Sin Man Seline (the 3^rd defendant by counterclaim) (“Seline”) is the younger sister of Ken.  Li Shu Hang Richard (“Richard”) is the younger brother of Ken and Seline.  Also named as a party to the present action is Li Joseph See Sun (“Joseph”) (the 2^nd defendant by original action), who is the son of Ken.

The family business

3.  The Father founded the family business of manufacturing watchband products and accessories in mid-1950.  In 1972, the Father incorporated in Hong Kong Luen Tat Watch Band Manufacturer Ltd (“Luen Tat”), which became the marketing arm of the business.  In 1981, the Father set up Pak Tat Trading Company (“PTTC”), which became the manufacturing arm of the business.  The Father and the Mother were then the sole shareholders and directors of Luen Tat, while the Father was the sole proprietor of PTTC.

4.  The Father had received meagre formal education.  He oversaw the operation and management of his business the old fashioned way.  Central to that was his keeping of own informal ledgers on the financial situation of the business without professional accountant’s assistance throughout the years.

5.  Ken was educated and married in England.  In his 20s, Ken returned to Hong Kong in 1985-1986 to work for the Father at Luen Tat.  His position was sales director.  Ken and his wife, who is British, kept their home in England, where all their children studied.

6.  In 1986-1987, the Lee residence was erected in Kowloon Tong (“the Family Residence”).  It was held by Roteland Development Ltd (“Roteland”), of which the Father and Ken (through their corporate nominees) were on record shareholders. Ken moved into the 3/F of the Family Residence.  The Family Residence forms the subject matter of other litigation.

7.  In about April 1986, the Father and the Mother assigned all the shareholdings in Luen Tat to Ken and his wife at no consideration.  The nature of and intention behind the arrangement is a matter of dispute.

8.  In the early 1990s, at the Father’s request, Seline started to work for family business, and had since then handled the financial and accounting affairs of the group.  The Father also obtained from her the business figures for compiling his own ledgers.

9.  Two things happened in about 1992.  First, Richard returned from Canada after his graduation, and started to work for the group.  His position was sales director of Luen Tat.  Second, the Mainland manufacturing base, namely, Lianda Metal Watchband (Shenzhen) Co Ltd (“Shenzhen Lianda”), was set up in Shenzhen.

10.  In 1993, Ken and his wife transferred 49% shareholdings in Luen Tat, then in their hands, to Richard.  Ken continued to hold 51% shares in Luen Tat.  The nature of and intention behind the arrangement is also a matter of dispute.

11.  Shenzhen Lianda owned its land and the manufacturing base erected there.  All the shares in Shenzhen Lianda were registered under the name of PTTC, which, as mentioned, was the sole proprietorship of the Father.  Ken now asserts half beneficial ownership of PTTC and Shenzhen Lianda.

12.  In 1995, for tax planning purposes incidental to the emigration plan of the Father and Richard, professional advice was sought.  This led to the restructuring of the shareholdings in Luen Tat to be held by the respective family trusts of Ken and Richard.  The authorised capital of Luen Tat was increased.  The existing 15,000 ordinary shares were converted to become 5% non-voting deferred shares. 100 new shares were created with voting rights (“New Shares”). 51 New Shares were allotted to the corporate vehicle of Ken, namely, Joesh Overseas Ltd (“Joesh”) while 49 New Shares were allotted to Richard’s corporate vehicle, namely, Full Moon Investments Holdings Inc (“Full Moon”).

13.  The understanding of the parties upon the restructuring of shareholdings in Luen Tat, as in the case before that, is in dispute.

14.  For tax saving purpose, Luen Tat put in place a re-invoicing operation.  In 2002, the re-invoicing operation was moved[1] to a new company incorporated in Macao, namely, Yuen Hing.  Seline was put in charge as the administrator of Yuen Hing.  Luen Tat would place orders with Yuen Hing for the goods required in its business, and Yuen Hing would place corresponding orders for the goods with Shenzhen Lianda.  As such, Yuen Hing would invoice and receive payment from Luen Tat for the goods.  Yuen Hing is therefore said to be the keeper of income of the group, and for his counterclaim Ken joined it as a defendant.

15.  Following professional advice, Pak Tat Trading Co (“Pak Tat”), a Mauritius company, was registered in Hong Kong in 2002 as the vehicle to take the palce of PTTC to hold the shares in Shenzhen Lianda.  All the shares in PTTC were transferred to Pak Tat, and the transfer of shareholdings in Shenzhen Lianda from PTTC to Pak Tat eventually also received the approval of the Mainland authority.  The consideration on record was HK$53 million.  No actual payment was made by Pak Tat to the Father for the transfer, and the sum was entered as the Father’s shareholder’s loan to Pak Tat.  The Father was the authorised representative of Pak Tat, while he, Ken and Richard were its directors.  Following his assertion of beneficial interest in PTTC and Shenzhen Lianda, Ken also asserts half beneficial ownership of Pak Tat.

16.  Since the establishment of Shenzhen Lianda, the Father had stationed there for 1 to 2 days every week.  In about 2005, the Father, who was in his mid-70s, had an accident when he slipped and fell in the dormitory of Shenzhen Lianda.  The injury caused the Father to decide to visit the manufacturing site less.  Yet even after that, the Father would still go to the office of Luen Tat in Hong Kong, and continue to sign cheques as the sole authorised bank signatory of Luen Tat.  The Father also continued to keep his ledgers on the financial situation of the group with the assistance of Seline.  The parties are in dispute as to the circumstances in which the Father had been doing so and what that manifested.

17.  In about mid-2006, Richard resigned and ceased to be involved in the business of the group.  The circumstances in which Richard did so are matters of dispute. In any event, he formally resigned as a director of Luen Tat in December 2007, and caused the transfer of the 49 New Shares in Luen Tat to the Father’s nominee in April 2009.

18.  Back to September 2006.  Then the Father caused shares in Pak Tat to be allotted to Ken, and thus making him on record 50% shareholder of the company.  Why the Father did so is a matter of dispute.  The Father holds the other 50% shares in Pak Tat.

19.  On 31 October 2008, a meeting was held.  It was attended by the Father, Ken, Seline and Richard.  Lai Yuk Wah (“Lai”) was present at the invitation of Ken.  Certain draft minutes of that meeting had been prepared but was never signed by the Father, Seline or Richard.  The nature of and discussion in the meeting are matters in dispute.  So is the conclusion.

20.  In any event, it was decided that Seline would leave the group.  However, she was re-engaged shortly afterwards as a consultant to handle the accounting matters of the group.  The circumstances surrounding her departure and re-engagement are matters of dispute.

21.  In December 2008, Ken, in his capacity as the sole director of Luen Tat, cancelled the authorisation to the Father, and made himself the sole authorised bank signatory of Luen Tat.

22.  In the same month, Ken spoke to the Father in private, during which Ken raised with the Father the issues of sharing and distribution of profits as well as Ken’s alleged entitlement to all the money in the group.  Unbeknownst to the Father, Ken tape-recorded their conversation during the meeting.  The content (somehow) and reliability of the recording as evidence of alleged admissions made by the Father is in dispute.

23.  By early 2009, at the instruction of Ken, Mazars CPA Limited (“Mazars”)[2] had also met with the Father more than once to verify his calculations in the Father’s ledgers.

24.  During the few months by May 2009, Ken caused a total sum of HK$28 million to be paid by Yuen Hing in settlement of Luen Tat’s invoices (upon the re-invoicing) into his personal account.

25.  Meanwhile, in late March to early April 2009, there was negotiation between the Father and Ken through the Mother, the details of which are in dispute.

26.  In April 2009, as mentioned, Richard caused Full Moon to transfer the 49 New Shares in Luen Tat to the Father through his wholly owned BVI corporate nominee, Allied Ever Holdings Limited (“Allied Ever”).  The claim in the present action against Ever Allied had been withdrawn.

27.  In May 2009, Ken caused Joesh to transfer the 51 new shares in Luen Tat to his son, Joseph.  Hence the naming of Joseph as a defendant in the claim.  There is no suggestion that Joseph was otherwise involved in the family business and dispute.

28.  By then, the ownership of the group, on record, was that 51% of Luen Tat was held by Ken and Joseph, while 49% was held by the Father through Allied Ever.  The Father and Ken held 50% each of Pak Tat, which in turn wholly owned Shenzhen Lianda. Yuen Hing was wholly owned by a BVI corporate vehicle, and Seline remained its registered administrator.

29.  In May 2009, Ken repeated his attempt, through a family friend, Ms Kitty So (“Kitty So”), to secure the Father’s signature on a draft resolution, which was said to reflect what was agreed during the meeting of the family members on 31 October 2008.  The Father again refused to accept and made his counter-proposal.

30.  In June 2009, Seline again left the group.

31.  On 11 June 2009, the Father, accompanied by Seline, attended the office of Luen Tat, seeking to inspect and to copy accounting documents.  This eventually met with the resistance of Ken and his associates.  On the occasion, Seline was allegedly assaulted by Ken, and was hospitalised.  The Father had had no access to the company documents since then.  What exactly happened is a matter in dispute.

32.  In July 2009, Ken and his family moved out of the 3/F of the Family Residence.

Profits from the business

33.  When Ken started to work for the Father, he received 10% of the business profits distributed.  This remained the case, notwithstanding the assignment of all the shareholdings in Luen Tat to Ken and his wife in 1986.  This lasted until 1988.

34.  For the period between 1988 and 1992, the Father and Ken received 50% each of the profits distributed.

35.  Richard joined and worked for the family business in 1992.  Of the profits distributed, Richard was given 25% while the Father and Ken received 37.5% each.  This was the ratio, notwithstanding the fact that all the shares in Luen Tat were held by Ken and Richard in the 51:49 ratio.

36.  The distribution of profits changed in 1994, when Seline started to receive 10% of profits distributed before the Father, Ken and Richard shared the remaining 90% in their respective percentage ratios mentioned above.  In other words, the Father and Ken received 33.75% each while Richard received 22.5%.

37.  In 2002, the Father decided not to take his percentage share of the profits.

38.  Profits were last distributed in 2006.

39.  The dispute essentially is whether the distribution of the profits was a matter of the Father’s sole discretion or a matter of legal entitlement pursuant to specific agreements.  The answer to the question determines the counterclaim of Ken and is relevant to the consideration of Father’s claim.

The litigations

40.  In the dispute giving rise to the present action, Ken is on one side whereas the other members of the family stood by the Father on the other side.

41.  In August 2009, the Father commenced the present action.  In the same month, the Father caused Ever Allied to commence proceedings to wind up Luen Tat on just and equitable ground (“HCCW 497/2009”).  In July 2009, Luen Tat was wound up[3] with costs of the proceedings ordered against Ken.

42.  In 2010, action was commenced in respect of alleged nuisance caused to the family members by the occupier of the 3/F of the Family Residence allegedly arranged or permitted by Ken (“HCA 853/2010”).  The family members also commenced action for intimidation and harassment by rascals or debt collectors allegedly instigated by Ken since late November 2010 (“HCA 1831/2010”). Interlocutory injunction has been granted and continued (with variations) until the trial of the action or further order of the court[4].

43.  In July 2011, the Father commenced proceedings to wind up Pak Tat (“HCCW 236/2011”) on the ground that the company failed to pay him the sum of HK$53 million in connection with his transfer of shares in PTTC as mentioned above.

44.  In September 2011, Ken commenced proceedings to wind up Roteland, which, as mentioned, holds the Family Residence that still houses the other members of the family (“HCCW 302/2011”).

45.  On 1 December 2011, judgment in HCCW 236/2011 was handed down.  Harris J rejected Ken’s dispute of the debt owed by the company to the Father, and ordered the winding up of Pak Tat (“the HCCW 236/2011 Judgment”).  Ken filed his appeal (CACV 284/2011), which he eventually did not proceed with.  Instead, in October 2012, Ken commenced a fresh action against the Father, Seline and Richard for alleged conspiracy with their lawyers to deceive Harris J into granting the order winding up Pak Tat (“HCA 1890/2012”).  That action has since December 2013 been stayed pending the outcome of the present action.

46.  During the global case management conference on 25 July 2012, Harris J directed for the split trial of the issues of liability and quantum in the present action. The determination of quantum and issues relating to it should take place after the trial on liability of Ken’s counterclaim.  His Lordship also directed that HCA 853/2010 and HCA 1831/2010 should be tried together; and the trial of HCCW 302/2011 shall take place after the judgment in the present action and HCA 853/2010 and HCA 1831/2010.

47.  Upon the winding up of Luen Tat and Pak Tat, the liquidators of the companies have since the end of 2012 commenced actions against the Father, Ken, Seline, Richard and Yuen Hing for account of money allegedly paid by Luen Tat under their control to Yuen Hing through the re-invoicing operation as well as tax penalty paid by Luen Tat arising out of that (HCA 1482/2012 and HCA 2137/2012).  These actions have been also stayed pending the determination of the present action[5].  Action was also commenced against the members of Lee family and Richard’s own company (Radar International (HK) Limited) for misappropriation of the assets of Luen Tat (HCA 1952/2012)[6].

48.  In the present trial, Mr Wong Yan Lung SC, together with Mr William Wong SC and Mr Kwong, appeared for the Father and Seline.  Yuen Hing was separately represented by Miss Lok.  Mr Joffe and Mr Wu appeared for Ken and Joseph.

THE FATHER’S CASE

49.  Against the above background, the case and evidence on the Father’s side is this:

(1) The Father had provided the fund in the sum of HK$500,000 for Ken’s own decoration business venture in England in the 1980s.  Upon the failure of such business, Ken returned to work for the Father in 1985/1986.

(2) In 1986, the manufacturer of ‘Charles Jourdan’ threatened with legal proceedings against Luen Tat for alleged copyright infringement.  The dispute was eventually settled on terms including the undertakings by the Father and the Mother, as the shareholders and directors of Luen Tat.  Concerned about the personal undertakings, the Father decided to remove themselves from the record of shareholders and directors of Luen Tat.  Hence the assignment of the shares of the company to Ken and his wife.  It was made clear that the shares were so held by them for the Father, and that they agreed.  The Father remained in control of the business.

(3) It was the Father who decided to establish and invested into the manufacturing base in the Mainland in 1992.  He handled all the matters relating to the acquisition of land in Shenzhen and the dealings with the Mainland authorities.  The entire shareholding of Shenzhen Lianda was registered under PTTC, which was the Father’s sole proprietorship.

(4) The Father was in control of the management and operation of Shenzhen Lianda.  Until his injury at the Shenzhen manufacturing site in about 2005, the Father had spent 1 to 2 days per week there.  Unlike Seline and Richard, Ken was never stationed there, as he was mainly involved in sales and marketing of the group through Luen Tat.  Ken spent less than half of his time in Hong Kong, having to travel between here and England for his family visits.

(5) Upon Richard’s graduation and return to work for the Father in 1992, it was at the Father’s instruction that Ken and his wife transferred 49% of the shareholdings in Luen Tat to Richard.  The understanding remained that the shares in Luen Tat were held by Ken and Richard for the Father.

(6) The restructuring of the shareholdings of Luen Tat in 1995 served tax planning purposes, and proceeded with the approval of the Father.  The understanding remained unchanged that the shares in Luen Tat were held by the sons, through their trust vehicles, for the Father instead of themselves beneficially.

(7) The formation of Yuen Hing for the re-invoicing operation proceeded with the approval of the Father, who was the de facto owner of this addition to the group in 2002.

(8) In 2002, the Father decided to incorporate Pak Tat, after considering the advice of accountant[7] to vest the interest in Shenzhen Lianda in a corporate vehicle so that it would be easier to pass the interest to his children upon his death.  At the time, the Father was 72 years old.

(9) After the injury from the fall at the manufacturing site in about 2005, the Father wished no more regular travel to the manufacturing site.  Requesting Ken to take up more actual responsibilities there, the Father also made the transfer of shares, for no consideration, with a view to clothing Ken with more apparent authority as the one in charge of the manufacturing site.  Nevertheless the Father made clear to Ken that Ken held the shares as his nominee.

(10) Since 2006, Ken had gradually ousted his siblings from the business and usurped the Father’s control of the group.

(11) Regarding Richard, Ken, siding with the Shenzhen factory manager, Tang Chan Man (“Tang”), proposed through Tang that Richard’s department in Shenzhen Lianda should be made independent and removed from the manufacturing site.  Richard’s department was marginalised and its operation paralysed.  It was under those circumstances that Richard decided to leave the group altogether.

(12) Regarding Seline, in October 2008, Ken and she were in dispute, again concerning Tang arising out of their dispute at the Shenzhen dormitory during the national holiday.  Whilst the incident should be trivial, Ken was adamant that Seline had to leave.

(13) The meeting of the family members on 31 October 2008 was held.  Lai Yuk Wah (“Lai”) was arranged to attend the meeting and to prepare the minutes.  Following the departure of Richard, Seline also made clear during the meeting that she would leave the group.

(14) Ken also cancelled the Father’s authorisation as the bank signatory of Luen Tat.  Ken and Lai became the authorised signatories.

(15) Seline was re-engaged as consultant shortly afterwards, mainly because Ken had no way of understanding and mastering the internal accounting system and practice of the group, of which the Father’s ledgers were the key.  Nor could he secure an immediate replacement[8].

(16) Since the end of October 2008, Ken had made repeated attempts to get the family members attending the meeting on 31 October 2008 to sign a draft of what was said to be the resolution of that meeting, namely Ken became entitled to all the income of Luen Tat and Pak Tat.  The Father, Seline and Richard refused to sign and had never signed it.

(17) Ken further attempted to obtain the Father’s admission to his assertion of control of and entitlement to all of the group by speaking to the Father in private on those matters while secretly tape-recording the conversation.  That was taking advantage of the Father’s known bilateral hearing problems and advanced age.

(18) The Father was still minded to resolve the situation by negotiation with Ken.  He therefore engaged the Mother to talk to Ken.  Hence his proposal to let Ken manage the group on condition that Ken had to distribute 30% profits to him. Ken disagreed.  Instead Ken repeated his request, through Kitty So, to the Father to sign a draft resolution confirming his entitlement to all of the group.  In refusing to do so, the Father adjusted his earlier proposal for distribution of profits to 10%, which he was minded to give to Seline.

(19) In April 2009, Richard returned the 49 New Shares in Luen Tat to the corporate nominee of the Father, Allied Ever, as they had all along been held for the Father.

(20) Then there was the incident at the office of Luen Tat on 11 June 2009, when Seline was assaulted by Ken.  In the heat of the moment, Ken also said to the Father that he would dissipate all the assets of Luen Tat.

(21) The Father had since no longer had access to the company documents.  Nor had he had the means since the end of 2008 to keep track of the financial affairs of the group and to prepare his ledgers.

50.  In the above circumstances so developed, the Father had no alternative but to resort to litigation.

51.  Following the commencement of the present action and the winding-up proceedings, Ken had allegedly deployed all sorts of tactics to harass and to pressurise the other family members, which formed the various complaints and causes of action in the other actions as mentioned above.

52.  As to the profits of the group, the Father’s case is that he was the one who decided in his discretion whether and, if yes, when and how the group’s profits were to be distributed.  The profits distributed to the children were gratuitous performance bonus, and there is no question of enforceable right or entitlement to the sharing of the profits of the group by any of the children.  The alleged agreements whereby the profits had been distributed were specifically denied.

THE CLAIM

53.  The Father claims against Ken and Joseph for declaration that the 5% non-voting deferred shares and the New Shares in Luen Tat in their hands or their nominees were held on trust for him, and for an order that such shares are to be reverted to him or his nominee pursuant to his directions.  The Father puts forward a similar claim against Ken in respect of the 50 shares in Pak Tat.

KEN’S CASE

54.  The present case of Ken is this:

(1) It was at the request of his parents that he returned to work for the Father in 1985. He had since been entitled to 10% share of the annual business profits.

(2) The shares in Luen Tat were transferred to Ken and his wife in 1986 without intention or valid establishment of trust.

(3) The establishment of Shenzhen Lianda in 1992 was a joint decision of the Father and Ken.  It was a co-investment of their respective shares in Luen Tat’s retained earnings, and each of them owned 50% interest in the project.  The Father held 50% interest in PTTC, and subsequently Pak Tat, on trust for Ken.

(4) In 1992/1993, the Father had health problems and intended to retire, and decided to distribute the family assets to his children.  Hence the gift of 51% and 49% of the shares in Luen Tat to Ken and Richard respectively, and the incidental transfer of the shares to Richard.

(5) Since then, Ken became the majority shareholder and person in control of Luen Tat whereas the Father became a mere figure head of the group.  Out of respect, Ken allowed the Father to use the office and to help determining the group’s profits sharing.

(6) The restructure of the shareholdings in Luen Tat in 1995 was carried out without consultation or approval of the Father.  Ken obtained the 51 New Shares in Luen Tat for consideration.

(7) It was the joint decision of Ken and the Father to hold their interest in Shenzhen Lianda through a company other than PTTC.  Hence the setting up of Pak Tat and transfer of shares in PTTC to Pak Tak in 2002.

(8) In 2002, the re-invoicing operation was moved to Macau and conducted through Yuen Hing.

(9) Since 2004, the relationship between Ken and the Father turned sour.

(10) It was upon Ken’s request that the Father, as his trustee of 50% interest in Pak Tat, caused Pak Tat to issue 50 shares to Ken in 2006 to reflect their 50/50 interest.

(11) In 2006, Richard decided to leave the group to pursue his own business interest. Richard (or his wife) was also concerned about potential personal liability for severance payment for the workers in case of closure of the Shenzhen manufacturing.

(12) Richard formally resigned from the board of Luen Tat in December 2007, when a resolution was also passed to alter the articles of association so as to allow Ken to be the sole director.

(13) In June 2008, Ken decided to dismiss Seline to maintain staff morale, after she had interfered with management and sought to undermine Ken’s leadership.

(14) During the meeting on 31 October 2008 convened by Ken, it was resolved that (i) Ken was the beneficial owner of 51% in Luen Tat and 50% in Pak Tat; (ii) Ken would be solely responsible for running Luen Tat and Shenzhen Lianda; (iii) all the income from the group belonged to Ken; (iv) Seline would leave the group in January 2009; and (v) the Father would enjoy the existing privileges.

(15) In response to the draft minutes of the meeting on 31 October 2008 sent by Lai, the Father sent his proposal to Lai regarding Seline’s profits share.  Upon Lai relaying to Ken what he learned from Richard about the Father’s concern about Seline being a divorcee, Ken agreed to retain Seline as a contractor.

(16) In December 2008, Ken cancelled the Father’s status as authorised bank signatory of Luen Tat.

(17) During their conversation in the same month, the Father admitted that he and Richard had received their final profits sharing, and that Ken would since be entitled to all the money of the group.  The conversation was tape-recorded by Ken.  During the subsequent meetings between Mazars and the Father, the Father again confirmed Ken’s entitlement.

(18) The total sum of HK$28 million paid by Luen Tat in settlement of Yuen Hing’s invoices, pursuant to the re-invoicing, that was transferred into Ken’s personal account from Luen Tat in 2009 represented partial distribution of his profits share entitlement.

(19) The Father had been requesting for profits share, and this was repeated in early 2009 through the Mother to Ken.  The Father requested 30% whereas Ken counter-proposed 10% plus pocket money of HK$100,000 per month and living expenses.

(20) When Ken, through Kitty So, sought the Father to sign a draft resolution in line with what was agreed during the meeting on 31 October 2008, the Father indeed left a note requesting Ken to maintain the status quo and to give the Father 10% profits share.

(21) In June 2009, Ken dismissed Seline.

(22) In the same month, the confrontation at the office of Luen Tat took place.  The Father and Seline were stopped from sending by fax the company’s records to an unknown destination.  In the heat of the moment, Ken as a reflex pushed Seline aside. The Father slapped Ken and threatened to stab him to death.

(23) After the confrontation, Ken moved out of the Family Residence.

55.  As to the profits of the group, Ken’s present case is this:

(1) The Father decided that the profits sharing between himself and Ken in a 50:50 ratio for the period from 1988 to 1992.

(2) In 1992, it was agreed that the group’s profits were to be shared among the Father (37.5%), Ken (37.5%) and Richard (25%).

(3) In 1994, it was agreed that the profits would be shared among the Father (33.75%), Ken (33.75%), Richard (22.5%) and Seline (10%).

(4) In 2002, the Father decided to forego his profits share with effect from 1 March 2002.  The profits would be shared among Ken (50.4%), Richard (33.6%) and Seline (16%).

(5) Following the departure of Richard from the group in June 2006, the profits would be shared by Ken (90%) and Seline (10%).

(6) In the meeting on 31 October 2008, it was agreed that Ken should be entitled to 100% of the profits.

(7) Giving credit to a total sum of HK$28 million received through Yuen Hing by mid-2009 in partial settlement of Ken’s entitlement to the group’s profits, as mentioned, there is still a balance in the sum of HK$25,602,977.76 due and owing to Ken, which the Father, Seline and Yuen Hing have failed, neglected or refused to account to him.

THE COUNTERCLAIM

56.  By way of counterclaim, Ken claims against the Father for declaration that the shares in Luen Tat are wholly and beneficially owned by Ken, and that the Father held half of the shares in Pak Tat on trust for Ken until September 2006, and that each of the 50 shares in Pak Tat currently held by Ken are wholly and beneficially owned by Ken.

57.  Ken also claims against the Father, Seline and/or Yuen Hing for an account of the profits and money of the group said to belong to him, including the payment of the abovementioned sum of HK$25,602,977.76.  Ken also claims for an account for all money so belonging to Ken that were said to be wrongfully retained or converted by Seline or Yuen Hing or the Father to their own use.

THE MAIN ISSUES

58.  As far as liabilities under the claim and the counterclaim are concerned, the following main questions call for determination:

(1) Whether Ken (or his nominee) holds the 51% shareholdings in Luen Tat on trust for the Father, as the Father contends, or whether the Father had transferred the same to Ken as gift back in 1993, as Ken contends;

(2) Whether Ken holds the 50% shareholdings in Pak Tat on trust for the Father, as the Father contends, or whether he became the beneficial owner of the same pursuant to oral agreement back in 1992, as Ken contends;

(3) Whether it was at all material times the Father who decided in his sole discretion on whether and, if yes, when and how the profits from the group would be distributed as gratuitous performance bonus to his children, as the Father contends, or whether it was a matter of legal entitlements to the profits of the group at specific sharing ratios pursuant to the series of oral agreements reached over the years, as Ken contends; and

(4) If the court finds in favour of Ken on (3) above, whether the Father, Seline or Yuen Hing is liable to Ken’s claim for the alleged unpaid accumulated profits in the sum of HK$25,602,977.

WITNESSES

59.  On the side of the Father (Seline and Yuen Hing), the following witnesses[9] testified:

(1) Richard;

(2) Seline;

(3) the Father;

(4) Chan Kwok Choy Gary, manager of a customer of Luen Tat;

(5) Liang Guo Xin, plant supervisor and manager of Shenzhen Lianda from February 1990 to June 2012;

(6) Li Sai Kit, cousin of the Father who worked as a support staff in the group from 1979 to 1982 and as the Father’s driver from 2002 to July 2006); and

(7) the Mother.

60.  On the side of Ken and Joseph, the following witnesses testified:

(1) Ken;

(2) Joseph;

(3) Chan Tsz Lok, former employee of Luen Tat;

(4) Giovanni Sordi, former managing director and shareholder of a customer of Ken and Luen Tat;

(5) Akio Sakuma, general manager of a customer of Ken and Luen Tat;

(6) Lee Kui, the Father’s elder brother who worked as a salesperson in the group from 1974 to 2010;

(7) Cho Yee Chun David, manager of Moores Rowland, which is now Mazars;

(8) Tsang Kam Ping, former employee of Luen Tat;

(9) Chan Ming Wai, accountant in Meder Services Limited, associate of Mazars; and

(10) Lai Yuk Wah, friend of the Lee family, who attended the parties’ meeting on 31 October 2008.

PRELIMINARY POINTS

61.  A couple of preliminary points.

Presumptions

62.  Much was said about the operation of the presumption of advancement/gift between the Father and his sons in respect of the shares of Luen Tat[10].  Reference was also made to the countervailing presumption of resulting trust.

63.  In a case where both sides of the dispute have put forward and adduced evidence in support of their respective positive case, the Court would be expected to find what in fact happened and the real intention of the parties on the basis of the evidence.  It is only where evidence is absent or insufficient to lead the court to a conclusion that the presumption, and thus the burden of proof, would be resorted to: see Snell on Equity (32^nd Ed) at §25-007; Au Yuk Yin v Wong Wang Hin Eddy [2013] 4 HKLRD 373 at §§18-19, per Lam VP (citing Lavell v Lavell [2004] 2 FCR 418).

64.  In the present case, the Father was adamant that throughout the years, the shareholdings in Luen Tat and Pak Tat (formerly PTTC) had been restructured for various reasons but always upon the understanding that he remained the ultimate beneficial owner and person heading the group.  On the contrary, Ken’s case was that the Father decided to retire because of his deteriorating health and to distribute his assets to his children by 1992/1993.  The Father allegedly did so, and had since become mere figure head, whereas Ken had become the person in control of the group.  As to the distribution of profits, the Father said it was entirely his decision and discretion whereas Ken asserted profits sharing agreements and admission by the Father.

65.  The court is expected to determine which of their respective version was true on the evidence, and what the legal effect of them was.  Practically there is no place for the presumption in the determination, save as the last resort.

66.  Sorting out this preliminary point also helps dealing with the next one.

The witness statements

67.  Ken sought that parts of the witness statements on the Father’s side should be expunged.

68.  First, he argued that the evidence should be inadmissible as they infringe the principle in Shepherd v Cartwright [1955] AC 431 at 445, per Viscount Simonds.  It was submitted that in rebutting the presumption of advancement, any acts or declarations by the parties subsequent to the transfer of shares in the present case are only admissible in evidence against the Father, not in his favour.

69.  The following parts of the statements are said to be contravening this principle:

(1) the Father’s amended statement, §§22-28;

(2) Richard’s supplemental statement, §§8, 18-26; and

(3) Seline’s supplemental statement, §§5-7.

70.  Mr Wong argued that the argument is wholly misconceived, as the purpose of the subject evidence goes to the issue on whether the oral agreements existed and whether the trust arrangement continued.  It is not primarily for the purpose of rebutting the presumption of advancement.  In line with the discussion in respect of the applicability of presumptions, I agree with him.

71.  As Ken asserted and adduced evidence of alleged oral agreement with the Father in 1992 whereby Father allegedly promised to give him the shares in Luen Tat as gift, the Father must be allowed to adduce evidence, including his conversation with Ken and Richard at the time of Ken’s transfer of shares to Richard.  In support his case that the trust arrangement over the shares in Luen Tat continued after 1993, the Father must likewise be allowed to adduce evidence in respect of the understanding at the time of the restructuring of shares in 1995 and at the time of Richard’s return of the shares.  All those would be to rebut the positive case of alleged oral agreement, not presumption of advancement: see Ip Man Shan Henry v Ching Hing Construction Co Ltd & Ors [2003] 1 HKC 256, §§179, 187-188;Nanyang Commercial Bank Ltd v. The Personal Representative of Vannee Nativivat & Anor [2013] 3 HKLRD 749 §§49-51 (following Ip Man Shan Henry).

72.  Arguably, even assuming the presumption of advancement arises, the evidence under challenge should still be admissible.  What the rule says is that the acts and declarations of the parties before or at the time of the purchase, or so immediately after it as to constitute a part of the transaction, are admissible in evidence either for or against the party who did the act or made the declaration.  It was only subsequent declarations that are admissible as evidence only against the party who made them, and not in his favour: see Ip Man Shan Henry v Ching Hing Construction Co Ltd & Ors [2003] 1 HKC 256 at §178.

73.  Second, it was argued that parts of the statements on the Father’s side are irrelevant, prejudicial and abusive.  They included the following:

(1) The Father’s amended statement, §§134-145; and

(2) Richard’s supplemental statement, §§52, 94 (1^st sentence).

74.  Essentially those paragraphs of the statements touched upon the makers’ respective accounts of the alleged misconduct of Ken, which constituted the complaint and founded the causes of action in the other actions between the 2 camps of the present litigation.  To the extent that the witnesses would have to refer to those alleged episodes so as to complete the flow of their respective account, the evidence is arguably not irrelevant.  Reference to those alleged episodes, which in fact led to the other actions, is unimpeachable as far as all formed part of the background of the present case (as also set out above).  The complaint about prejudicial effect, in my view, is overstated in the case of trial by professional judge.

75.  Last, there is also complaint about other parts of the Father’s amended statement for being speculation, comment or matters of legal advice.  I do not agree.  The Father should be in a position to express his belief and views, if they formed an integral part of his explanation of his conduct.  Value and weight of that is a matter for submission.

Discovery

76.  Ken criticised the Father’s side for alleged failure to make discovery of, among other things, accounting documents. As to that, Ken’s repeated discovery applications for Yuen Hing’s accounting documents had been considered and ruled against Ken with costs by DHCJ Ng.  As far as the present trial on liability is concerned, the documents sought were not considered as relevant or necessary for the fair disposal of the trial.  Further, Ken could have sought some of the documents from Luen Tat’s liquidators.  I have no intention of repeating the comprehensive discussion in the learned Deputy Judge’s decisions[11].

77.  Indeed Ken apparently went ahead to obtain from Luen Tat’s liquidators what were said to be summary of invoices, and sought to adduce and rely on them at the trial. However, what Ken could have sought to do in all these years did not happen until the 11^th day of the trial, and just before Ken took the witness stand.  They were said to be necessary and relevant, in view of Seline’s evidence in court.  They were voluminous.  They were not primary documents.  The Father’s side would have been entitled to verify their contents.  Allowing such documents would trigger a whole series of consequences that would impact on the proper proceeding of the trial.  That the trial by then would not be finished in any event and would have had to be adjourned part-heard could not capitalized in justification of such manner of introduction of new documentary evidence at such stage of the trial.  Discretion had to be exercised in refusal of such attempt.  So I did with costs reserved.

LUEN TAT

78.  By 1986, the shares in Luen Tat had been held by the Father and the Mother.  The latter never asserted beneficial interest or control over the share in her hands.  She held it for the Father, and she confirmed that in her evidence.

79.  There was not much argument about the ‘Charles Jourdan’ episode before the transfer of shares in Luen Tat in 1986 from the Father and the Mother to Ken and his wife.  By his witness statements and in Court, the Father gave an account of the background and the conversation back in 1986 preceding the transfer. His account was also largely corroborated by the evidence of Richard and the Mother.

80.  Ken used to admit by pleading that the shares of Luen Tat transferred to him and his wife in 1986 were held on behalf of the Father (until 1992/1993).  The admission was however removed by subsequent amendment to his pleading.  Ken attributed that as a mistake on the part of his former legal representatives.  His current pleaded case is that first, there was no properly created trust of the shares as alleged by the Father, and second, the purpose of the trust alleged by the Father was illegitimate[12].

81.  In the submissions on his behalf, Ken also sought to discredit the Father’s evidence in respect of what were said in respect of the transfer of the shares in Luen Tat to Ken and his wife.  It was also pointed that even according to the Father, he only told Ken but not Karen to hold the shares in Luen Tat for him, and only Ken but not Karen agreed to do so.  He also questioned the Mother’s evidence as to the alleged agreement on his part to hold the shares for the Father.

82.  The evidence of each witness in this respect, I think, should be considered as whole.  Whilst the Father might not have engaged in direct conversation with Ken’s wife, when there was no suggestion that they would have understood each other’s language, it was never suggested that Ken’s wife was intended to personally benefit from the transfer.  Nor was it suggested that she declined to hold such share for the Father.

83.  Irrespective of the precise wordings used by the Father when initiating the transfer of the shares in Luen Tat, he was adamant that he made clear that Ken and his wife would hold the shares for him.  Likewise, whilst the Mother could not recall herself being a party to an agreement with the Father or the sons in this respect, she was adamant that Ken agreed to hold the shares in Luen Tat for the Father.

84.  Whilst his admission by pleading was removed by subsequent amendment, that Ken and his wife held the shares in Luen Tat in 1986 for the Father remained his evidence as per his statement[13].

85.  Mr Wong submitted that technical or formal words are not required for the creation of an express private trust.  What was required was a sufficiently clear manifestation of an intention to create such a trust, whilst words such as “trust” or “confidence” or the like are not a must: see Hudson, The Law of Trusts (2^nd Ed) at §2.03; and at§2.04:

“Thus, in appropriate circumstances, an express trust may be created by means of an informal declaration, or may be inferred from the acts of the settlor or the circumstances of the case. So, in Paul v. Constance, the words ‘the money is as much yours as mine’, referring to moneys in a bank account, were held, in the circumstances of the case, to have created a trust. A similar result was reached in Rowe v Prance, where the legal owner of a yacht referred to it, in many conversations with his mistress, as ‘ours’ or as ‘our boat’.”

86.  Mr Wong also highlighted the domestic context, as opposed to commercial dealings between contracting parties, in which the understanding and intention of the parties involved should be ascertained.  I agree.

87.  On behalf of Ken, it was argued that the Father did not appreciate the concept of trust or the duties of a trustee, and therefore could not have had the requisite intention to create a trust.  However, as to this, Hudson (above) has this to say (at §2.05):

“It is not even necessary that the creator of the trust should be aware that it is a trust that he was creating: all that is required is that he has a sufficiently clear intention to create a state of affairs (such as the creation of successive equitable interests in property) which requires a trust for its implementation or to impose an obligation of the kind which in law is regarded as a trust obligation. He is presumed to intend the legal consequences of his acts.”

See also In re Kayford Ltd [1975] 1 WLR 279 at 282A.

88.  Reference was also made to the Father’s evidence in respect of his lack of understanding of the mechanism of trusts. That was however about the new trusts subsequently established by the professional advisors of Ken and Richard in 1995. It was in such context when the Father admitted in his evidence that he knew some, but did not know well how the intended tax avoidance came to be achieved practically by way of the restructuring by way of the trusts.  More importantly, the Father remained adamant in his evidence that irrespective of how the shareholdings were restructured in 1995 by way of the sons’ trusts, the shares remained his[14].

89.  Mr Wong submitted that the Father, at the very least, understood that it was possible for him to entrust other to hold assets on his behalf under their name, and the people whom he was entrusted would have to listen to him in dealing with the assets. This is more than sufficient to create a trust.  In line with the legal principles, I agree.

90.  One should also not lose sight of Ken’s own case that the Father decided to make the gift of the shares in Luen Tat to him and Richard only in 1992/1993.  The Father would no longer have been in a position to do so, had Ken already become entitled to the shares beneficially by the actual gift of shares in 1986 or the operation of the presumption of advancement in respect of the transfer of the shares.

91.  Once it is established that the Father had the intention and expressed that the shares in Luen Tat were to be held for him, the contention that a trust of the shares was not properly created or constituted would not advance the case of Ken in any realistic way.  If the presumption applies, then once the evidence of the Father is preferred, the countervailing presumption of resulting trust operated in favour of the Father in respect of the shares in Luen Tat: See Lewin on Trust(18^th Ed) at §9-08:

“What is presumed where the presumption of resulting trust applies is, it is thought, that the transferor did not intend a gift, and, where a resulting trust is sought to be established by reference to the transferor’s intention, the relevant intention is that he did not intend to make a gift.”

92.  On the evidence, I have no doubt that Ken and his wife held the shares in Luen Tat in 1986 for the Father instead of any of them beneficially.

93.  As to the contention that any trust so created was tainted by its illegitimate purpose, it cannot be properly understood unless Ken is alleging illegality. Yet illegality was not, as it should have been, properly pleaded: see Hong Kong Civil Procedure 2014 at §18/8/14 (as cited[15] ).

94.  It was, as I find, the ‘Charles Jourdan’ episode that brought about the idea of removing the Father and Mother from the record of shareholders and directors of Luen Tat in 1986.  What the Father attempted was to avoid the attraction of potential personal liability in the event of possible intellectual property infringement by the products manufactured by Luen Tat.  It did not follow that it was a scheme to facilitate infringement whilst evading personal liability.  There is no evidence to suggest such a scheme.  The alleged illegitimate purpose is not apparent[16].

95.  Generally, even assuming a transfer was for an illegal purpose, the transferor may in principle recover the property transferred if he had repented before the illegal purpose was carried through: see Tinsley v Milligan [1994] 1 AC 340 at 374B, per Lord Browne-Wilkinson.  In that event, even assuming that the presumption of advancement applies, evidence may still be led to rebut it for the purpose of recovery: see Tribe v. Tribe [1996] Ch 107 at headnote; 116F-H, per Nourse LJ; 132H-133B, per Millet LJ.

96.  In the present case, the Father gave evidence that the company had already taken steps to prevent infringement against ‘Charles Jourdan’.  There was no suggestion or evidence that there had been infringement ever since.  No illegality had been carried into effect that would have prevented the Father from recovering the shares.

97.  On the evidence, I have no doubt that the shares in Luen Tat were transferred to Ken and his wife in 1986 to effectively hold on trust for the Father instead of themselves beneficially.  There is no factual basis for estopping the Father from recovering the shares transferred in 1986.

98.  Ken’s assertion is that by 1992/1993, the Father had decided to retire due to deteriorating health and to distribute his assets to his children.  On this basis, the shares in Luen Tat, then in the hands of Ken and his wife, were subsequently divided between him and Richard in a 51:49 ratio.  Since then, the Father had become mere figure-head of Luen Tat whereas Ken was the one in control of the company.

99.  The above assertion is central to Ken’s entire case.  However it should be noted that his pleaded case in this respect used to be different.  Originally Ken asserted that he obtained complete control of Luen Tat in about 2006 to 2008[17].  His present case of assumption of control over Luen Tat in 1993 came about only by way of amendment[18].

100.  As to the evidence, the Father was about 60 years old in 1992.  Whilst the Father admitted that he had been to the hospital, he and the other family members denied such deterioration of his health as that alleged by Ken.  According to the Father, he was still running Marathon regularly.  In support, there was produced the photograph depicting the Father’s participation in one of those marathons then, wherein the Father as depicted, in my view, would probably impresses no one that he was or would be experiencing deterioration in health that would prevent him from gainfully involved in the family business.

101.  What the Father did with the business speak even more loudly.  Timing-wise, that was when the plan to set up the Shenzhen manufacturing base came about.  According to the Father, he set the plan going upon ascertaining that Richard would return to join the family business after graduation from overseas in about the same year.

102.  In court, Ken denied that the setting up of the Shenzhen manufacturing base was the Father’s plan.  He testified to the effect that it was his initiative, though he had discussed that with the Father.  It is also his case that this was a co-investment of their respective shares of the retained earnings of Luen Tat, and that they would each own 50% interests in the project and the Shenzhen manufacturing site.

103.  As discussed above, the shares in Luen Tat had since 1986 been held by Ken and his wife on trust for the Father.  The basis for Ken’s assertion of pre-existing beneficial interest in the company, and thus share of retained earnings as a matter of entitlement, did not exist by then as a matter of fact.  The undisputed fact was that when he joined the family business in mid-1980, the Father distributed to him 10% profits of Luen Tat.  The factual basis for asserting pre-existing half interest in Luen Tat and its retained earnings, and thus the same in the Shenzhen project, by Ken is lacking.

104.  As far as the shareholdings were concerned, the situation did not change upon the setting up of Shenzhen manufacturing site.  The Father became and had remained the sole shareholder of Shenzhen Lianda, originally through PTTC as his sole proprietorship and subsequently Pak Tat under his sole ownership, for the following 14 years.  Ken was specifically cross examined about that in connection with his assertion that the Father had already decided to retire and to relinquish his assets.  His evidence, I say, was not impressive.

105.  The evidence shows that the Father very much had his hands on the overseeing of the operation of Shenzhen Lianda.  He kept his room at the dormitory of Shenzhen Lianda, and travelled there 1 to 2 times a week.  This pattern lasted until his fall and injury in 2005.  On the contrary, Ken was seldom there and did not keep a room at the dormitory there.  Ken was mainly responsible for sales and marketing through Luen Tat, but actually did not spend much time in Hong Kong either.  The Father, Richard and Lee Sai Kit testified to that.  So did David Cho, who was called to testify for Ken.  According to Liang Guoxin, the Father had control even over matters such as the disposal of manufacturing debris in the Shenzhen factory.  Li Kui, the Father’s brother who was called to testify on behalf of Ken, acknowledged in court that he had worked for the Father as the owner of the group until his retirement.

106.  Then there was the fact that the Father continued to sign most of the cheques for Luen Tat and to keep his own monthly ledgers on the financial situation of the group with the assistance of Seline.  This practice did not stop until after Ken cancelled the authorization of the Father as the bank signatory of Luen Tat in late 2008 and seized de facto control.

107.  Throughout the years, and Ken did not argue otherwise, the Father and Seline were responsible for the financial affairs.  The undeniable fact was that the Father kept track of the financial situation of the business by keeping his ledgers. The ledgers contained detailed entries of the group’s acquisition of land, machinery and raw materials for the Shenzhen manufactory in its operation.  The details, recorded in the Father’s own way, are impressive.  According to Seline, the Father always had an eye on the cash flow of the group.  According to Richard, that Ken might have signed the official financial report and tax return of Luen Tat did not mean that he actually realized the actual financial position of the group.  He added that it was always the Father’s ledgers that told the actual position.  Hence the same had also formed the basis for the Father’s distribution of profits of the group, and even Ken has to rely on it for the purpose of his counterclaim.

108.  Ken had little knowledge about the accounting and tax matters of the group[19].  Soon after it was decided that Seline would leave the group towards the end of October 2008, she was soon afterwards re-engaged as a contractor by Ken to handle the financial affairs of the group.  According to the Father’s side, it was because of Ken’s failure to secure a replacement of Seline, who would be prepared and able to do the job.  Ken dismissed the suggestion, and suggested that he did so after Richard relayed to him the Father’s concern about the livelihood of Seline being a divorcee.  Out of brotherly love, Ken decided to re-engage her.  There is no evidence that the then situation of Seline was unknown to Ken, when it was decided that she should leave the group.  The explanation of Ken for his alleged change of mind sounds artificial.

109.  Before Yuen Hing was incorporated in 2002, the Father also kept most of the business profits in his own personal bank account.  Chan Ming Wai of Mazars, who had held discussion with the Father about his ledgers, observed that the Father indeed did not draw a clear line between his personal and company matters.  This helps reflect the maintenance of the Father’s old-fashioned way of managing business.  Even after Yuen Hing was incorporated, the Father, together with Seline, still controlled the so-called ‘safe of the group’, which became Yuen Hing.

110.  Then, there was the Father’s role in the profits distributions.  This will be discussed in detail in its own section below.

111.  Ms Lok for Yuen Hing submitted that he who had control of the money matters had to be one exerting ultimate control.  Considering the circumstances discussed above, I can understand why.

112.  In his evidence, Ken categorized the Father’s various involvements in the business since 1992/1993 as nothing but symbolic of the role of figure head and a matter of convenience as well as the Father’s own indulgence in looking at the money, which Ken said he could not stop.

113.  Ken called witnesses to testify in respect of their observation, understanding or belief that Ken was in control, or the boss, of the group (since 1992/1993). Li Kui, Tsang Kam Ping and Chan Tsz Lok were former employees of the group. Sakuma and Sordi were former customers of Luen Tat.

114.  Tsang Kam Ping gave rather one-sided evidence in respect of the significance of the role of Lee Kui in charge of the management, whom Ken allegedly took over after his joining the family business.  Tsang in her evidence seemed to suggest that she had even better idea about the role of Lee Kui than he himself.  Yet Lee Kui, as mentioned, accepted that he worked for the Father as the boss.  The disturbing feature, which was never revealed until transpired during cross examination, was that Tsang and Chan Tze Lok were two of those whom Ken had solicited to join his new company, Henfung Precision Technologies Limited (“Heng Fung”).

115.  The documentary evidence shows that in June 2009, Ken issued notices on behalf Shenzhen Lianda to its suppliers, representing that the business of Luen Tat had been “renamed” to Kenta Precision Ltd, which was his company.  It was further renamed to Heng Fung in 2010, while Heng Fung issued corresponding notices to the customers and suppliers of Luen Tat’s group.  Sakuma confirmed that after the liquidation of Luen Tat, Ken told him that Luen Tat had changed its name, and invited him to place order with Heng Fung.  These former employees now worked for Ken, and their independence was thus questioned.  All considered, I find the evidence of Tsang to be particularly unreliable.

116.  Sordi was fair enough to accept that it was not accurate to describe Ken as the boss, as he had no evidence to say so, and would not know if Ken was in fact authorized by someone else to deal with him.  What he and Ken talked about were confined to orders, price and terms of contract. That was indeed marketing, which, according to the evidence adduced on behalf of the Father, Ken specialized in at all times.  Sordi accepted that it was not fair to say that the Father did not do any real work.  Nor did he know Richard Lee’s role, and therefore it was also not fair to describe Richard as a spoiled child in his statement.

117.  In any event, these witnesses in common gave evidence of their perception, and none of them possessed personal knowledge of the actual arrangement between the members of the Lee family regarding control of the group.  Considered as a whole, the evidence from these witnesses does not serve to effectively contradict the other evidence as discussed above.

118.  Judging from the background and the evidence of the Father, I am impressed that the Father was indeed the kind of old-fashioned businessman who commanded.  The Father did not hide that.  In denying the alleged 50/50 share of Luen Tat’s profits and thus the alleged 50/50 share of investment in the Shenzhen project between him and Ken, the Father literally said that he was both the boss and the father; and as the head of the family, he had the right to do things and nobody ever went against his decision.  I am therefore not surprised that the Father took issue as to Ken’s present attempt to understate his actual role in the group since 1992/1993.  What the evidence objectively demonstrates was that contrary to what Ken suggested, the Father had not stopped his involvement in the business in and since 1992, and such involvement in his same old way had been more significant than mere pastime of a retiree.

119.  The factual basis for the alleged giving away of assets or interest in Luen Tat incidental to the Father’s decision to retire then did not exist.  This finding of fact in respect of the central assertion of Ken also set the background against which the parties’ respective cases since 1992/1993 would be assessed.

120.  The shareholdings in Luen Tat were restructured in 1995, whereby the shares held by Ken and Richard were put into their respective new trusts, Joesh and Full Moon, and held by the professional trustees.  It was pointed out on behalf of Ken that the shares in question were no longer the original shares but the New Shares in Luen Tat created upon the restructuring.  As a matter of fact, this is immaterial.

121.  First, Ken’s case is never that he became the beneficial owner of 51% of Luen Tat as a result of the creation and subscription of the New Shares in the 1995 restructuring.  His case is that the Father agreed that the shares in Luen Tat were transferred to and vested in him and Richard as gift back in 1993.  As such, what happened in 1995 could only be restructuring of what he and Richard already owned beneficially.

122.  Second, the evidence shows that the shareholdings in Luen Tat were restructured and the trusts were set up to facilitate tax planning incidental to emigration plan.  The New Shares were taken up upon the giving up of the interest in the old ones. No real consideration was paid for the allotment of the New Shares except for the nominal sum of $100, while the deferred non-voting shares in the context became valueless.

123.  However, since I reject Ken’s assertion about the Father’s gift of the original shares in Luen Tat to him and Richard in 1993, both Ken and Richard could only be holding the original shares in Luen Tat for the Father.  The restructuring of such shareholdings in 1995 per se would not change that.  As mentioned, there is no assertion that Ken and Richard became beneficial owners of Luen Tat by virtue of this restructuring as opposed to the restructuring in 1993.

124.  The Father in his evidence demonstrated that he might not understand the complex mechanism of the trusts so set up by the sons for tax planning.  But it should be borne in mind that the Father had only the explanation by the sons.  It was in this context that, according to the Father, he categorically told his sons that no matter how the shareholdings were restructured, they remained his (or “唔理你點重組法都好,啲股權都係我嘅” ).  According to the Father, it was upon such basis and understanding that the transfer proceeded with his approval.  Richard stated in corroboration of that.  Such was evidence of the Father’s express intention at the material time sufficient to reinforce the pre-existing trust, or at least to negative any intention of gift, be it in 1993 or 1995, in respect of the beneficial interest in Luen Tat.

125.  It followed that the actual allotment of the New Shares to the nominee companies was mere logistics.  None of the nominees or professional trustees acquired any beneficial interest in Luen Tat.  The evidence indeed shows that they acted according to the instructions of Ken and Richard as the apparent beneficial owners of the shares.  For instance, when Richard left the family business, he was in a position to cause the return of the 49 New Shares to the Father’s nominee, Allied Ever, in 2009.  Subsequently, Ken was also in a position to cause the 51 New Shares to be transferred to Joseph but not beneficially either[20].  All these tend to show that the involvement of professional trustees and nominees per se did not alter the control of the apparent beneficial owners, Ken and Richard, who in turn held the shares subject to the fiduciary relationship with the Father as the ultimate beneficial owner of Luen Tat.

126.  Ken put forward various explanations for the transfer of the 49 New Shares in Luen Tat by Richard to Allied Ever.  At one point, Ken suggested that Richard did so upon his buy-out.  At another point, it was suggested that Richard did so to avoid personal liability arising out of the employment claims and the financial difficulty of the group.  Eventually it was suggested (but still neither pleaded nor stated) that Richard did so, as he had already taken his fair share of entitlements under those shares in kind, including part of the family residence.  Then Ken also suggested that Richard transferred the 49 New Shares to Allied Ever in 2009, when it was after the dispute had surfaced, in order to clothe the Father with standing of a minority shareholder to commence winding up of Luen Tat.  It is difficult for all the suggestions in this respect to sit side by side at the same time.

127.  Ken suggested that the Father should be aware of his taking absolute control over Luen Tat because Richard would sign the resolutions altering the company’s constitution and enabling Ken to become the sole director only with the Father’s instruction or blessing.  As Mr Wong pointed out, no such case was actually put to the Father or Richard.  Further, whilst not denying having signed those documents, Richard, he said, did so without particularly appreciating their significance.  It should also be borne in mind that by then, which was December 2007, Richard had already relinquished his duties at Luen Tat for over a year.  The contemporaneous correspondence evidences the liaison between the staff member of Luen Tat and the professional trustee in relation to the preparation of the documents.  Seline was not involved.  The documents were apparently bundled together to be signed at the same time.

128.  At the time, the Father also set up his own Trust[21]. It was suggested that the Father could have required Ken and Richard to transfer the shares of Luen Tat directly into his new trust.  However, in my view, that the Father allowed the sons to proceed with their trust proposal per se did not negative the trust in respect of the shares during the lifetime of the Father.  It should be borne in mind that the Father trusted his sons in 1995.  In his evidence, the Father also never hid his then intention that the sons should inherit him upon his passing in the normal course of events.  The suggestion that the Father could have required the New Shares to be transferred to his own new trust was apparently premised on the benefit of hindsight that dispute would arise between the Father and Ken, which the Father obviously did not foresee at the material time.

129.  Ken questioned that if the Father had been in control, he would have demanded for the return of the shares earlier.  However, the situation had been a developing one.  Richard chose to leave the family business.  Ken removed the Father’s involvement in the business, including the cancellation of his authority to sign cheques of Luen Tat without his prior knowledge.  Seline had to leave the group, albeit re-engaged subsequently.  Those brought us to the end of 2008.  The Father tried to negotiate a way out in early 2009.  According to Seline, she saw the Father in tears as a result of the development by early 2009.  Seline eventually still left the group.  Then there was the episode when the Father and Seline attempted to inspect the books of the company at its office in June 2009.  In court, the Father described that asking for the shares back from Ken then would have been like “going into a tiger’s cave to ask for the tiger’s skin back”.  Litigation was the last resort of the Father.

PAK TAT

130.  Ken’s case is that he had agreed with the Father to utilize their respective shares of the retained earnings of Luen Tat to co-invest in the setting up of Shenzhen Lianda in 1992.  At all times, he held half of the beneficial interest in Shenzhen Lianda through PTTC, and subsequently Pak Tat.  The objective fact was that Ken was made 50% shareholder of Pak Tat in 2006.

131.  Further Ken criticized the Father and Richard for conspiracy to concoct the cause for recovery of the sum of HK$53 million for the proceedings to wind up Pak Tat, and hence the judgment there by fraud.  Harris J in his judgment in HCCW 236/2011 (1 December 2011) had, among other things, the following to say as to whether Ken managed to raise a bona fide defence on the basis of his alleged beneficial interest in Pak Tat:

“7. The documents that have been produced in evidence are consistent with the Father’s case. They show Pak Tat was owned by him as was Shenzhen Lianda. They show the sale of the shares in Shenzhen Lianda to the Company [Pak Tat] in whose books he was, until September 2006, shown as the only shareholder. There is nothing to suggest that anybody else financed Pak Tat and Shenzhen Lianda’s business and the acquisition of land. Shenzhen Lianda’s corporate documents, signed by Ken Li, record a registered capital of HK$53,000,000 and, as I understand the position, in the Mainland the authorities require to be satisfied that a company does have the capital recorded in its corporate documents. It may be that the Father’s claim has not been properly formulated, but on the face of the evidence to which I have referred it would appear that he is owed HK$53,000,000 and there is no dispute that the Company does not have the money to repay him. Prima facie he is entitled to a winding-up order.

……

10. Ken Li argues that his Father’s version of events is wrong. He says that he owned half of Pak Tat and half of the Company from the outset. I note in passing that he originally argued his Father held the whole of the Company’s shares on trust for him when they were acquired. He says that he also contributed to investment in Pak Tat and Shenzhen Lianda. He claims that HK$53,000,000 was never invested in Shenzhen Lianda, which never had any external funding. He also points out that his Father has not produced any documents evidencing payments to Pak Tat, Shenzhen Lianda or the Company.

11. Ken Li has provided no evidence at all explaining why prior to 2006 he did not insist in having his interest in the Company recognised by allotment to him of shares or why Pak Tat was on the face of its business registration certificate operated as a sole proprietorship. He has produced no evidence that he provided any finance to Pak Tat, Shenzhen Lianda or the Company. He has provided no explanation of how Shenzhen Lianda was able to finance the purchase of land. The substance of the defence he advances on behalf of the Company is that Shenzhen Lianda never needed the money Father seeks to recover and Father has failed to demonstrate that he made a loan to the Company. The latter point is correct. However, I am not satisfied that Ken Li has demonstrated that the underlying basis for the claim, namely, that Father did not own Pak Tat, did not finance Shenzhen Lianda’s acquisition of land and, therefore, did not sell Shenzhen Lianda to the Company for HK$5,300,000, is doubtful. It seems on the basis of the evidence before me coherent and credible.

12. So far as the lack of documents are concerned, as I have already noted the likely explanation is that Father’s claim is for non-payment by the Company of the purchase price for Pak Tat’s interest in Shenzhen Lianda.  It is not a claim for repayment of a loan to the Company.  Is this a reason to treat Father’s claim that he is owed HK$53,000,000 by the Company as open to substantial and bona fide dispute?  I think not.  Ken Li argues that the whole basis of his Father’s claim is fallacious and fabricated.  It does not seem that he has adduced evidence that suggests that this argument has substance or is bona fide.  If Father’s description of the financing of Pak Tat and Shenzhen Lianda and the Company’s acquisition of Shenzhen Lianda is correct it follows that Father would probably be owed a considerable amount by the Company by way of the purchase price for Shenzhen Lianda’s shares.  As Father owned both Pak Tat and the Company it is unsurprising that he did not cause the Company to pay for the shares it acquired, because he was the owner of both companies and he would simply have been moving money from one pocket to the other.  The result is that he is still owed money by the Company whether as the outstanding price of Shenzhen Lianda’s shares or as a loan to the Company to pay that price: as I have already indicated it seems likely that the former reflects the true position.  The absence of documents showing that he paid money to the Company is, viewed practically, nothing to the point.”

132.  It was argued on behalf of the Father that in respect of the factual disputes about which Harris J had said in his judgment above, they constituted res judicata binding on the parties, and Ken is estopped from seeking to re-open those disputes in the present action.  The Father referred to the test set out in Kan Wai Chung & Ors v Hau Wun Fai, CACV 43/2012 (7 February 2013) at §11.  Ken relied on the Privy Council decision in the Cambridge Gas case [2007] 1 AC 508, and argued that a judgment arising out of bankruptcy or insolvency proceedings was unique.  The argument was considered by DHCJ Ng in her decision[22] who took the view that what Harris J said above were not definitive and determinative of the rights between the parties.  The Father argued that reliance on the Cambridge Gas case was misplaced, and the same had been disapproved of by the UK Supreme Court in Rubin v Eurfinance SA [2012] 3 WLR 1019.

133.  As discussed below, I say that even putting aside the res judicata argument and considering the contentions and evidence as now made, all one has about Ken’s case in respect of his alleged beneficial interest in Pak Tat is skepticism.

134.  Like that in respect of Luen Tat, Ken’s case in respect of Pak Tat had also undergone substantial changes.  Back in 2009, Ken’s then pleaded case was that the Father gave him as gift 100% of Pak Tat and 50% of which had since 2006 been held by the Father on trust for him.  Had that been true, Ken would have effectively acknowledged the Father’s 100% ownership of Pak Tat until 2006, or else the Father would not have been in a position to make the alleged gift then. It was only after amendment of his pleading did Ken changed to assert that he and the Father co-invested in and at all times owned Shenzhen Lianda in a 50:50 ratio since its establishment.

135.  Ken referred to the capital verification reports and the Father’s ledgers said to be in support of their co-investment through Luen Tat the total sums of RMB 4,800,668 and HK$62,998,913 respectively in Shenzhen Lianda.  Yet neither document actually mentioned anything in that regard with reference to Ken’s involvement.The ledgers did not really tell how the money was injected from Luen Tat to the Mainland.

136.  In any event, it does not assist Ken by asserting that the investment was made by Luen Tat.  As discussed, the shares in Luen Tat had been held by Ken and his wife until 1992, and by Ken and Richard since 1992.  At no time was Ken the beneficial owner of the shares in Luen Tat, and there was no factual basis for Ken to assert any entitlement to share the profits of Luen Tat by reference to beneficial ownership of the company.  Unless Ken was somehow otherwise entitled to share the profits of Luen Tat, that Luen Tat made the investment into establishing the Shenzhen base did not in real sense differ from the Father’s investment, albeit sourced from Luen Tat.  It should be noted that, and it was un-contradicted evidence of the Father, that in 1990s and before any re-invoicing operation was put in place, all the moneys of Luen Tat were kept in the personal account of the Father, and he would take the money to the Mainland for the Shenzhen project.  This also aligns with the observation of Harris J in his judgment cited above.

137.  That Ken was allegedly the beneficial owner of 50% of PTTC since 1992 as a result of his alleged co-investment was in fact not manifested.  That was so, even when opportunity to manifest that arose when Pak Tat was incorporated to take over the sole proprietorship of PTTC in 2002.  The Father had remained the sole shareholder of Pak Tat until 2006.  Even after 2006, the Father remained on record 50% shareholder of Pak Tat.  As mentioned, all those also added to the implausibility of Ken’s central assertion that the Father had decided to retire and to relinquish his assets to his children because of his deteriorating health in 1992.

138.  In the course of his explanation, Ken referred to his relationship with his wife in 1993 and the alleged advice of the professional trustee of his family trust.  As noted by Mr Wong, none of those was ever mentioned in his affirmations filed to oppose the winding up of Pak Tat, notwithstanding that his alleged half interest in Pak Tat was undoubtedly a crucial issue in the winding up proceedings (HCCW 236/2011).

139.  As mentioned, Ken commenced HCA 1890/2012 seeking to overturn Harris J’s judgment in HCCW 236/2011.  According to the statement of claim filed in that action in October 2012[23], Ken contended that when the Father caused the interest in Shenzhen Lianda under PTTC to be transferred to Pak Tat in September 2002, the Father remained the sole shareholder but allegedly continued to hold half of the shareholding in Pak Tat on trust for him.  Such contention was dropped and replaced by amendment a year later.  It became that it was Ken who orally requested the Father to transfer the shareholding in Shenzhen Lianda from PTTC to a holding company so that their respective stakes in Shenzhen Lianda could be reflected if required. Only that unbeknownst to him, the Father caused PTTC and Pak Tat to enter into a share transfer agreement whereby PTTC sold and Pak Tat purchased 100% shareholding in Shenzhen Lianda for HK$53,000,000.  Ken did not admit the share transfer agreement or the sale, and averred that between 2002 and 2006, his 50% stake in Shenzhen Lianda remained held on trust for him.

140.  None of the above contentions appeared in Ken’s affirmation in opposition in the winding up proceedings.  Even when made in HCA 1890/2012, they were not made until by way of amendment one year after the original pleading was filed upon commencement of HCA 1890/2012.  They were also at variance with what Ken now explained in court in the present action mentioned above.

141.  Ken apparently had paid for the shares in Pak Tat in 2006, but it was a nominal sum US$50 (equivalent to US$1 per share) was paid.  Mr Wong submitted that practically it could not be said that real valuable consideration had been given for half of the ownership of the Shenzhen manufacturing basis comprising the land, factory, machinery and operation.  I tend to agree.  In any event, the primary case of Ken is based on his beneficial entitlement arising out of investment since 1992, not purchase in 2006.

142.  The Father explained the circumstances in which he decided to transfer 50% shareholdings in Pak Tat to Ken after his fall and injury[24].  It was pointed out on behalf of Ken that the Father had made a contrary admission in court that Ken owned 50% of Pak Tat, a “Freudian slip” as it was suggested.  Then the Father was cross examined with reference to what the documents said.  I agree with Mr Wong that the Father’s answer should be assessed in that light as well as against the totality of his evidence.  The Father remained adamant throughout the trial that he was the sole beneficial owner of Pak Tat.

DISTRIBUTION OF PROFITS

143.  Central to Ken’s counterclaim is the dispute as to whether the distribution out of the group’s profits was a matter of entitlement arising out of legally binding agreements, as Ken contends, or a matter of discretion of the Father, as the Father (and the other family members) says.

144.  To recapitulate, there is no dispute that there had been distribution of the group’s profits for the following periods in the following ratios:

(1) Between 1986 and 1998: Father (90%), Ken (10%);

(2) Between 1988 and 1992: Father (50%), Ken (50%);

(3) Between 1992 and 1994: Father (37.5%), Ken (37.5%), Richard (25%);

(4) Between 1994 and 2002: Seline (10%), and the remaining 90% were shared amongst the Father (37.5%), Ken (37.5%) and Richard (25%).  The resulting ratio was: Father (33.75%), Ken (33.75%), Richard (22.5%) and Seline (10%).  This was what the Father described as the “Original Formula”.

145.  Since 2002, the Father had not taken any share of the profits.

146.  According to the Father, there had been no distribution of profits in and after 2002.  In mid-2006, occasioned by Richard’s departure from the group, the Father calculated the distribution of profits, this time for the period between 2002 and 2006.  The Father arbitrarily divided the accumulated profits of HK$50,841,827 (as recorded in his ledgers) into 2 parts.  A sum of HK$28,000,000 was deemed to be the profits up to 2002, which would be distributed according to the Original Formula.  The balance of HK$22,841,827 was treated as the profits earned between 2002 and 2006, which would be distributed according to a new formula.  This was what the Father described as “the Supplemental Formula”.

147.  Ken asserted 6 methods of distribution:

(1) Paragraph 144 (2), (3) and (4) above were respectively defined by Ken as Methods 1, 2 and 3.

(2) According to him, for 2002 to 2006, the profits were shared in this ratio: Father (nil), Ken (50.4%), Richard (33.6%) and Seline (16%).  Ken defined this as Method 4. Much was said about this alleged method as opposed to the Supplemental Formula alleged by the Father.

(3) Between 2006 and 2008, the profits sharing ratio became: Ken (90%) and Seline (10%).  Ken defined this as Method 5.

(4) Since 2009, Ken claims to be entitled to 100% of the profits.  Ken called this Method 6.

148.  Methods 2, 3, 4 and 6, according to Ken, were the result of specific oral agreements.  As far as the pleadings are concerned, no agreement was asserted in respect of his Methods 1 and 5.

Preliminary observations

149.  The alleged specific agreements on profits sharing, which formed the factual backbone of Ken’s present case in this respect and his counterclaim had not been pleaded from the outset[25]. What Ken originally pleaded was that the Father simply ceased declaring or distributing dividends out of the group since about July 2006.  It was only in 2006 (or early 2007) that the Father gave all the moneys of Luen Tat, Yuen Hing and Shenzhen Lianda to him.  The account was retracted in the first amendment exercise some 9 months later, with the emergence of the new case based on the alleged profits agreements.

150.  In 1986, the Father (and the Mother) transferred the shares in Luen Tat to Ken and his wife to hold for them.  Since 1992, when Richard joined the family business, the shares in Luen Tat became held by Ken and Richard.  The Father had since 1992 been the sole shareholder of PTTC, and subsequently Pak Tat.  All of them never received share of the group’s profits in percentages corresponding to their shareholdings in the group on record.  Seline received distribution whilst she was never a shareholder in Luen Tat or Shenzhen Lianda.  Until 2002, the Father still received substantial share of the profits.

151.  It should be obvious that the distribution of the group’s profits had no correlation with the shareholdings on record as one may expect in the normal corporate practice of declaration and payment of dividends. The evidence from the Father’s side was that the nature of the payments was bonuses to the family members who served in the family business.  I find that to be the fact.  This is crucial.

152.  Since Ken joined the family business upon his return from England in 1986, the Father had given him 10% of the profits.  That lasted until 1988, notwithstanding the transfer of the shares in Luen Tat to Ken and his wife.  It was also the Father who decided to distribute the profits in the ratio and amounts between himself and Ken during this period.  No contrary case has been pleaded by Ken.  It was the Father’s decision even on Ken’s pleaded case[26].  Further, the Father’s continuous receipt of substantial portion of the profits since then until 2002, as mentioned, contradicted Ken’s case that the Father decided in 1992 to relinquish his assets to his children.  That the Father stopped taking share of the profits in 2002 was also undisputedly his own decision.

153.  No doubt the Father’s ledgers formed the centre of study in this respect, even for the purpose of Ken’s counterclaim.  The ledgers contained detailed record of the “ins” and “outs” of the business, condescending on the smallest items such as purchase of raw materials and machinery, the very precise calculations, the balancing and comparison between his own notions of current assets and liabilities “比”, the distribution of monies and the tracking of the drawings and completion of the distributions “分齊”, all the way to the end of 2008.  As mentioned, this was hardly the result of mere pastime of the Father after retirement or of rendering symbolic assistance out of respect.  These were real and intensive labour over the details of business.

Method 1

154.  The pleaded case of Ken was that it was the Father who decided to share future profits with him on 50:50 basis.  No profit sharing agreement was pleaded.  In court, Ken seemed to suggest (for the first time) that the Father was bound by a promise to let him have 50% of the profits and thus Method 1.  The Father denied that.  As discussed, the Father was still in control of the group at least during this period.  Even on Ken’s own case, the Father decided to retire only in 1992.  I find it hard to believe that just when the Father decided to give Ken 10% profit as bonus in 1986, he would change his mind to commit to give Ken half of the profits after Ken had served the family business for just 2 years.

Method 2

155.  This, according to Ken, was when the Father decided to retire and to relinquish his assets, including his interest in Luen Tat, to his children.  That was, according to Ken, how he and Richard became 51% and 49% owner of Luen Tat respectively.

156.  Notwithstanding the above contention, Ken’s share of profits during this period was 37.5%. Even on the basis of Ken’s own case, that there was room for the profits sharing to be determined by way of agreement, and whereby the Father was in a position to command equal share of the profits as his, contradicts the assertion of full control over the family business by Ken.  As discussed, all the circumstances since 1992 (until 2008) tend to show that the Father was far from retiring from the business of the group.

157.  Further, the Mother, the Father and Ken were said to be the parties to this alleged agreement[27].  The Father and the Mother denied that.  Whilst she could not be specific, she was adamant in court, which was in line with her statement, that how to distribute the profits had always been the sole decision of the Father[28].  In evidence was also her letter dated 29July 2013 to Ken, albeit not contemporaneous, whereby she reiterated such understanding.

158.  It should also be noted that Richard started working for the group in 1992 and, according to Ken, was the beneficial owner of 49% of the shares in Luen Tat.  Had the matter proceeded by way of agreement, one would have expected the agreement to be one between the beneficial shareholders, not the Father who, according to Ken, had relinquished control and interest.  If Richard shared the same understanding as alleged by Ken, one would have expected Richard to ensure that he was the contracting party.  Yet it was not even formally asserted that Richard was a party to the alleged agreement.  Ken tried to suggest so in court.  At one point, Ken suggested that Richard too agreed to the profit distribution pursuant to the alleged agreement.  At another point, Ken suggested that either he or the Father had informed Richard of the sharing ratio to which Richard did not object.  Still nowhere in his pleading or witness statements was either of those accounts found.

159.  According to the Father, he first decided to share the profits among himself and his two sons equally.  After hearing complaint by Ken to the Mother about that, the Father changed his mind and distributed only 25% to Richard.  Hence the final distribution ratio in 1992.  Between his account and the evidence of Ken, the former, I find, is more reliable.  I say this also after taking into account the evidence discussed above and below as a whole.

Method 3

160.  This was said to be the result of an oral agreement between Ken and the Father in 1994.  Again, it was not the pleaded case of Ken that Richard and Seline were parties to this alleged oral agreement.  I repeat the observation made above in this regard.

161.  According to the Father, it was due to Seline’s hard work in the group that he decided to give her a preferential share of the first 10% of the profits.  The rest of the 90% would be distributed among the male members of the family in accordance with the Original Formula (37.5 each for Father and Ken, 25% for Richard)[29].  The Father expressed in court that had it been up to Ken, Ken probably would not have given Seline and Richard anything.  Be that mere sentiment developed as a result of the present dispute, the important point was that bonus, according to the Father, was still a matter for him.  Not that the Father had no say since 1992 as Ken alleged.

Method 4

162.  There is no dispute that the Father took no further share of the profits from 2002.  According to Ken, this was agreed to by the Father, whereas according to the Father, it was his own decision, not a matter of agreement.  The two sides of the litigation also differed in two major aspects: first, when the decision or, as alleged by Ken, the agreement was made; and second, the calculation.

163.  According to the Father, he made up his mind about a one-off distribution of the profits accumulated since 2002 only in 2006, and what occasioned that was Richard’s departure from the group.  As far as the evidence tells, such decision could not have been made before June 2006 because the sum of accumulated profits of HK$50,841,827 mentioned above was not, as it could not be, available in 2002.  This was supported by the entry dated 30 June 2006 in the Father’s ledger which recorded this one off distribution.

164.  As mentioned, the Father explained that.  He took the sum of HK$50,841,827 (the net current assess of the group at the time recorded by the “比” figure) as the distributable profits on that occasion.  He applied the Original Formula to calculate the distribution of the first HK$20,000,000 taken to be the profits accumulated up to 2002, namely: Seline (10%), Ken and Father (37.5% each) and Richard (25%).  He then applied the Supplemental Formula to calculate the distribution of the balance of the profits accruing, taken to be HK$22,841,827.  In his pleading and statement, the Father repeated the formulae as stated in his 2nd affirmation filed for the HCCW 497/2009 back in July 2009.

165.  Correction was however made at a late stage, and for that purpose the Father took out an application by summons dated 19 February 2014 to further amend his reply and to adduce his second supplemental statement.  He also sought to explain certain terms and entries recorded in his ledgers, which he said had been incorrectly interpreted by the witnesses from Mazars on Ken’s side.

166.  Application of this sort would be allowed only in exceptional circumstances[30]. The circumstances necessitating that were explained in the new statement.  The lateness of the application was explained by reference to the late discovery of the mistake in the course of preparation of the trial by the Father, who suffered from old age and bilateral hearing difficulties.  Once discovered, which, according to Seline in court, was in about January 2014, the summons was taken out.  It was 3 weeks before the trial.

167.  I allowed the application on the first day of the trial.  I did so, as I accepted the submission on behalf of the Father.  The scope of the proposed amendments was narrow.  The correction and further explanation would not go beyond the existing documentary evidence.  The error and thus correction would have had to come about in the course of the Father’s evidence.  Ken would suffer no material prejudice.  The correction and the new evidence were not such that might have caused him to need to embark on further investigation.  He would still pursue his positive case on the profits sharing agreements as he asserted, and would have the opportunity to cross examine the Father in the same respect.  The exercise of cross examination of the Father to be conducted by Ken was not expected to be substantially prejudiced as a result of the correction and the new evidence. On balance, the need to secure just resolution of the dispute outweighed the countervailing factors in the circumstances of this case.

168.  The mistake that the Father corrected himself was that he did not (as he mistakenly stated in his 2^nd Affirmation in HCCW 497/2009) divide his forgone share (37.5%) further among his children.  Consistent with his informal manner in keeping the Ledgers over the years, the Father simply took out his own 37.5% (undistributed) and use the remaining 62.5 (%) as the base for the calculation of distributions to his children.  Of the balance of the profits in the sum of HK$22,841,827, Seline was to have 10/62.5 (or 16%), and the remaining 52.5/62.5 (or 85%) was to be shared among Ken (37.5/62.5 = 60%) and Richard (25/62.5 = 40%).  The results actually tallied with the figures in the Father’s ledgers.

169.  Method 4 alleged by Ken[31] was effectively a word-for-word copy from the formulae explained in the Father’s 2^nd Affirmation in HCCW 497/2009.  That Ken directly copied from what now transpired to be a mistake on the part of the Father in his previous affirmation revealed that Ken had far from clear idea about the calculation, unless he could explain it.  In any event, he still had his own pleaded method to prove.

170.  Ken argued that by applying the Supplemental Formula, as now corrected, the result of the shares would not be exactly like the figures recorded on the ledgers dated 20^th June 2006.  But that was not put to the Father, notwithstanding the fact that this part of the Father’s clarification came about by way of his further supplemental statement. Further, by applying Method 4 asserted by Ken, the result would be even more at odd with the records in the Ledgers dated 20 June 2006:

(1) Seline: HK$22,841,827 x 10% = 2,284,182.7

(2) The remaining 90% would be HK$20,557,644.3, shared as follows:

(a) Ken: 37.5% = HK$7,709,116.6

(b) Richard: 25% = HK$5,139,411

(c) The Father: 37.5% forgone = HK$7,709,116.6

(3) The Father’s 37.5% (HK$7,709,116.6) further shared by the children as follows :

(a) Seline: (10/62.5) = HK$1,233,458.67

(b) Of the remaining (52.5/62.5) = HK$6,475,657.94,

(i) Ken (37.5/62.5) = 3,885,394.76

(j) Richard (25/62.5) = 2,590,263.18

171.  The end result would be:

(1) Ken: HK$(7,709,116.6 + 3,885,394.76) = HK$ 11,594,511.36

(2) Seline: HK$(2,284,182.7 + 1,233,458.67) = HK3,517,641.37

(3) Richard: HK$(5,139,411.1 + 2,590,263.18) = HK$7,729,674.28

172.  As a result, the distribution ratio became all wrong: Seline (15.4%), Richard (33.8%), Ken (50.8%).  The alleged ratios were but so odd that they could hardly have been specifically chosen for agreement.  Whilst Ken criticized the Father for the last minute change of his formula, his case, on balance, did not sound more truthful.

173.  Again, neither Richard nor Seline were said to be parties to this alleged agreement.  I repeat the observation mentioned above.  At one point, Ken explained that Richard and Seline were parties to this alleged agreement because they took profits.  Yet that they took profits hardly explained.  In any event, the taking of profits did not happen until 2006, which would not sit well with Ken’s case that the alleged agreement was made, now allegedly among all the parties, in 2002.  Ken’s evidence in further explaining that was far from satisfactory.

Method 5

174.  Ken’s case is that since Richard left the group, he became entitled to 90% of the profits with the remaining 10% to Seline[32]. The basis for asserting that was not at all clear.  It was not pleaded to be the result of any specific agreement.  The Father denied the assertion.  His ledgers showed no record of that revised ratio since 2006 either.

175.  What Ken relied on was apparently the calculation by Mazars.  Mazars’ calculation in turn was based on their interpretation of the Father’s ledgers.   They took the figures recorded under the word “比” for the amount of profits to be distributed[33]. By his further statement, as well as in court, the Father was adamant that he never suggested or agreed that “比” in his ledgers represented “to give”.  The character, he explained, meant comparison (or “比較”), which was comparison of what he had taken away and what he owed the others (not “俾出去”).

176.  The contemporaneous notes taken by the colleague of Chan Ming Wai, Jenix, during the meetings[34] with the Father also did not align with Chan’s evidence that Ken was entitled to 90% of the group’s profits after Richard left.  Jenix was not called to testify[35].  I am not impressed that Chan Ming Wai managed to explain the discrepancy pointed out to her.  In court, she accepted that she could not really tell what the Father intended to do with the balance of the profits after the 10% to Seline.

Method 6

177.  This related to what happened since 2009 when Ken had de facto control of the group.  He claimed to be entitled to 100% of its profits.  Ken effectively assumed such entitlement upon Seline’s departure from the group[36]. In court, the Father dismissed that as nothing but Ken’s own words and idea.

178.  Ken relied on what were said to be admissions by the Father on different occasions in support of his alleged entitlement to all the money of the group:

(1) the alleged admission by the Father during the meetings with the representatives of Mazars in 2008;

(2) the alleged resolution made in the meeting of the family members on 31 October 2008; and

(3) the alleged admission made during the conversation with Ken in December 2008 tape recorded by Ken in secret; and

(4) the alleged admission to Kitty So in March or April 2009.

179.  Allegations such as the alleged admission in the October 2008 meeting and the tape-recorded conversation with the Father did not exist in the case of Ken originally pleaded.

The alleged admission to Mazars in 2008

180.  It was said that the Father admitted to Chan Ming Wai and David Cho, in the course of their verifying the Father’s ledgers in 2008, that Ken was entitled to all the profits of the group after Seline's departure[37].  On the contrary, it was argued on the Father’s side that that was not even the purpose of verifying exercise.

181.  The Father explained that the ledgers were made for the purpose of recording the monthly profits of the Group informally.  If the profits accumulated to a certain amount and the cash flow was sufficient to meet the ordinary operation, the Father would consider distributing the profits to his children according to his own calculations[38].  The ledgers therefore told the past profits distribution but not the nature or basis for entitlement as such. Seline, who had handled the financial and accounting affairs of the group, had the same understanding[39].

182.  When the Father made available his ledgers and agreed to meet with Mazars, the purpose was to let Ken verify whether Richard had been overpaid.  According to Ken, he instructed Mazars to verify the ledgers in 2006 and 2009 for the purpose of calculating the shares of Richard and Seline in the group's profits[40].  Apparently the Father was keen to let the verification reveal that he had been fair in treating his children.  All that could be detected from the secret tape recording of the conversation between Ken and the Father.

183.  As such, Chan Ming Wai and David Cho of Mazars were, and could only be, concerned with the quantum of the profits distributed.  Their brief was not to investigate what the nature of the distribution was or whether the distributions were the result of the agreement on entitlement alleged by Ken.  Indeed Ken admitted that he had not even informed David Cho or Chan Ming Wai of the existence of the profits sharing agreements that were alleged.

184.  Further, the accountant's forensic analysis of the ledgers, which was essentially their interpretation, would not reveal the true basis of the distributions.  Chan accepted in court that by entitlement to the profits, she was referring to what the Father described to her as “分紅”.  In the present context, as discussed earlier, this could only be taken to mean distribution of bonus instead of the corporate practice of declaration and distribution of dividends to shareholders.  Further Chan was referring to that as a matter of history discerned from the ledgers.  She was not in a position to tell one way or the other whether it was a matter of legal entitlement as Ken suggested[41].

185.  As to David Cho, whilst he observed some consistent application of the methods of calculating the distribution of profits[42], which the Father did not dispute, from the Father’s ledgers, that per se cast no light on whether those were the results of specific agreements asserted by Ken either.  Importantly, Cho told this court, which Chan Ming Wai accepted that she had no reason to doubt, that (i) when and how much of the profits were to distribute was entirely a matter for the Father; (ii) the so-called entitlement was for the Father to decide, and the Father could change his mind; (iii) after the Father had decided the sharing ratio, the children would not disagree; and (iv) at no time had Ken told Cho that there was any specifically agreed formula for profit sharing.

186.  The Father also clearly remembered that he had never told any of the accountants that he had given up his shareholding, interest or future profits in the group[43].  As to his ledgers, what matters is what he meant (albeit still objectively assessed), not what a third party, who was not involved in their compilation, interpreted the ledgers to mean.

The alleged resolution in the meeting on 31 Oct 2008

187.  This followed the disagreement between Seline and Tang Chan Man at the dormitory facility in Shenzhen during the national holiday in 2008.  As mentioned, Ken considered that Seline had to go.  He convened the meeting to be held on 31 October 2008.  That, according to the Father, Richard and Seline, was what that meeting was supposed to address.  As mentioned, Seline confirmed during the meeting that she would leave the group[44].

188.  According to Ken, the Father agreed during the meeting that all the profits of the group belonged to him.  The agreement was said to be recorded in the minutes of the meeting, which was prepared by Lai Yuk Wa.  It read:

“所有股東確認，現在及日後聯達金屬錶帶有限公司及工廠一切收益（扣除一切支出）均屬於李樹忠先生所有，李樹忠先生有所有權運用及使用”

Essentially, it suggested that all shareholders confirmed all the present and future income (net of expenses) of Luen Tat and the Shenzhen factory belonged to Ken, and Ken had all rights to apply and use them.

189.  The Father, Seline and Richard denied the alleged agreement or resolution, and maintained their stance in court.  The fact was that they never signed the draft resolution, despite repeated requests from Ken.

190.  The above draft resolution was said to have followed from a handwritten draft minutes taken by Lai, which simply read:

“所有股東確認，聯達及工廠一切收益（扣除一切支出）均屬於李樹忠先生”

Essentially, it read that all the shareholders confirmed that all the income (after deducting expenses) of Luen Tat and the factory belong to Ken.

191.  The notes allegedly taken by Lai contemporaneously during the meeting were referred to.  There was in fact no reference to discussion amongst the family members on Ken's entitlement to the group's present or future profits.  The last bullet point of the notes suggested that the Father was still entitled to all the existing benefit and entitlement without any change.

192.  The Father’s side questioned Lai’s independence in the matter.  I can see why.  Lai was present at Ken’s request.  The evidence shows that his company was engaged by Ken on behalf of Luen Tat for the provision of computer repairing services. Just after this family meeting, Lai or his company received almost HK$1 million from Luen Tat between April 2009 and Jan 2010, and according to the Father’s side, for no apparent reason.  Perhaps more intriguing was that Lai became one of the authorized signatories for Luen Tat, after the cancellation of that of the Father.  That fact was never disclosed before.

193.  When presented with the draft resolution, Richard’s first response[45] was that it was Ken and Lai who attempted to turn what was supposed to be a family meeting to deal with Seline’s departure to a shareholders’ meeting of Luen Tat to deal with issues which were not meant to be discussed or actually discussed.  In court, Richard explained that even if he had to attend a properly convened shareholder’s meeting of Luen Tat, he would be doing so on behalf of the Father.

The tape-recorded conversation between Ken and the Father in December 2008

194.  Ken’s case was that ever since 1988, the group’s profits had been distributed and shared amongst the family members mostly, if not all, by way of agreements.  On the basis of Ken’s case, there was apparently no suggestion that controversy had arisen at the times of the distribution.  There was also no suggestion that the Father had reneged on any of the alleged agreements.  Notwithstanding that, Ken considered it necessary to secure some form of record particularly of the Father’s agreement to his entitlement to all the profits of the group since late 2008.  First there was the arrangement of Lai to attend the meeting on 30 October 2008 and the draft resolution.  When the Father and the rest of family refused to sign it, Ken arranged the meeting with the Father in December 2008 to get his confirmation with the tape-recording in secret.  All those premeditated steps tend to cast doubt on whether there in fact existed a common understanding that Ken was entitled to all the profits of the group since the end of 2008 as he alleged.  No doubt he perceived he should be so entitled.

195.  Ken relied on the tape-recorded conversation as evidence of the Father’s alleged admission that the Father and Richard had received their final entitlement to the group's profits, and that Ken would now be entitled to receive or use all the moneys of the group[46].

196.  The Father’s bilateral hearing problems were obvious at the time of the trial, which the Father would not have managed to take part without hearing aid equipment.  The Father’s side took strong exception that Ken carried out the secret tape-recording while realizing that notwithstanding the use of hearing aid at the material time as well, the Father had difficulty in catching up with conversation[47]. It is a matter of judgment by actually listening to the recording instead of merely referring to the transcript, which itself was not entirely agreed between the two sides.

197.  Listening to the recording, it is not difficult to trace the premeditated line of leading questions rather quickly put by Ken to the Father with a view to getting the latter’s confirmation of his entitlement to all the moneys of the group, with which the Father tried hard to catch up.  In the course of that, what the Father said did not impress me as unequivocal, if at all, acceptance of whatever that were put to him.  For instance, he accepted that he had agreed not to distribute profits to himself but was equivocal as to whether all the moneys of the group since 2006 belonged to Ken.  He certainly denied that all the moneys in Yuen Hing belonged to Ken[48].

198.  Much was said about what the Father actually said in reply to what Ken put to him about the meeting on 31 October 2008[49]. In particular, it was sought to resolve the dispute even by putting to the Father in court that he replied “yes, yes, yes” to Ken’s question that all the moneys in the group belonged to no one but him.  Contrary to that, the Father’s side invited the court to listen to the recording to form a view as to whether it was that or simply the Father’s uttering in trying to get to listen to what Ken put to him.  I did that, as there is no better way, and am not impressed that it was such a clear indication of acceptance by the Father of what Ken said at that juncture.  Any doubt, however, could be removed if one considers the entire conversation.  The Father unequivocally denied any discussion in the October 2008 meeting in relation to Shenzhen Lianda, which he had solely invested and owned, contrary to what Ken put to him.  That, I find, was unequivocal.  It follows that the Father could not be taken to accept that all the moneys in the group belonged to Ken as he asserted.  Such stance aligned with that of the Father’s side regarding the accuracy of the draft resolution alleged reached during that meeting and prepared by Lai Yuk Wah.

199.  Ken argued that he had caused a total sum of HK$28 million to be paid out of the group to his personal account as his profits entitlement, which were arranged with Seline’s knowledge subsequent to the October 2008 meeting[50].  The Father said that that was misappropriation of Luen Tat’s money, and the sum of HK$28 million used to form part of his claim against Ken.  The claim was dropped to avoid complication as the same should now be matter for Luen Tat’s liquidators.

200.  According to Seline, she was re-engaged as a contractor and was not involved in the decision making of Luen Tat after the meeting.  Initially she did not realize any problem with Ken’s instruction for the transfer of money from Yuen Hing into his personal account, and assumed that the Father was aware of that[51].  When the instructions to transfer further sums repeated, they started to appear unreasonable to her unless those were loans by the company to Ken. For that matter, Seline therefore made a contemporaneous remark at the back of some of those subsequent cheques for payment to Ken that they were loans.

201.  Due to the above reasons, it could not be reasonably said that by administering Ken Li's withdrawal of the 28 Million, she indirectly acknowledged his entitlement to all the profits of the Group.

202.  Ken referred to the cessation of the Father’s keeping of his ledgers since the meeting[52].  But the reality was that by then, the Father had been stripped of his authority to sign cheques for Luen Tat, and, according to the Father in court, Seline became unable to provide him with the monthly figures of the business so that he simply could not keep his ledgers anymore[53].  As mentioned, and Ken did not dispute that, both the Father and Seline had been prevented from inspecting the books and records of Luen Tat since mid-2009[54].

The alleged admission in March or April 2009

203.  Ken suggested that in around March to April 2009, the Father approached him through the Mother and Kitty So to request a 30% share in the group's profit, which he rejected.  The Father explained that he made the request because of his reluctance to litigate against his own son[55].  By then, Ken had seized de facto control of the group.  The Mother also testified that the Father was frustrated by Ken’s usurpation of control of the group, and in an attempt to settle with his son without litigation, he offered to allow Ken to continue to manage the group and to take 70% of the profits[56].  The Father did so, as he still considered himself the head of the group.

204.  The Father also expressed his helplessness, when it came to his decision to pay bonus to Seline upon her departure from the group.  According to him, he simply had no way to deal with it, as his authority to sign cheques of Luen Tat had been cancelled.  The reality then was that only Ken could carry that into effect, not whether or not it was agreed by the Father.  According to Seline, she decided to take what the Father decided to give her.  As only Ken could carry that into effect, she demanded for payment from Ken and came to a settlement with him.  Once again, Ken secretly tape-recorded the conversation with Seline.  But the same did not serve to evidence the alleged agreement in respect of his entitlement to all the moneys of the group since then. According to Seline, she just let him say what he wanted during the conversation.

205.  According to Ken, Kitty So told him that the Father said he would accept Ken's offer of 10% share and the usual pocket money and living expenses because Ken was in charge of the group[57].  That was double hearsay. In any event, even on Ken’s own case, there was no deal as the Father persisted in refusing to sign the draft resolution prepared by Lai Yuk Wah mentioned above.  Reference was also made to the handwritten note by the Father[58].  According to the Father, and as apparent from that note, he made clear that he would not sign the draft resolution.  2 sums of HK$100,000 were indeed given by Ken and received, but according to the Father, they were meant for the Mother instead of consideration for any alleged agreement on his part.

206.  In my view, one thing remains clear.  The Father's persistent refusal to sign the draft resolution, which was passed on to him again by Ken through Kitty So, reflected his denial of Ken's legitimacy in taking control of the group or his entitlement to the profits, be it a matter of agreement as alleged or not.  The characterization of this episode as evidence of the Father’s admission does not align with the overall view of the evidence.

Alleged agreements binding?

207.  It was questioned, in particular by Ms Lok, whether the alleged oral agreements between Ken and the Father, assuming they existed, would have been legally binding and enforceable.

208.  It is presumed that parties to an agreement of a domestic or social character do not intend their agreement to be attached with legal consequence, unless otherwise specified by the time of the agreement: see Sun Er Jo v Lo Ching [1996] 1 HKC 1, at §§36-39, per Yeung J (as he then was).  Whether or not the parties have given consideration for the agreement is not conclusive in determining the binding effect of the family arrangement.  All the surrounding circumstances are relevant in determining whether it is intended to be legally binding contract: see Jones v Padavatton [1969] 1 WLR 328 at p. 332 and 336 per Danckwerts and Atkinson LJ.

209.  The present context in which any such profit-sharing arrangements were allegedly agreed was a traditional Chinese family and business headed by the Father.  As discussed, the Father ran the business his own old-fashioned way, in particular, in his overseeing of the financial situation of the business.  His children joined the family business one after the other.  It became clear and hardly disputable that the Father to begin with dictated the distribution of the business profits in the form of performance bonus to whichever children who participated in the business.  The Father also undisputedly dictated the timing of the distribution, which, according to the Father, depended on the cash flow situation. No formality was alleged in respect of the formation of the alleged agreement.  Hence the repeated premeditated steps taken by Ken to obtain confirmation from the Father, and thus evidence of his alleged entitlements, only at the later stage.

210.  The real and valuable consideration in support of the alleged agreements in the present case remained unclear, if at all pleaded.  In court, Seline actually confirmed that the Father had been generous to the children over the years, and would not have taken issue, had the Father changed his mind about provision for her. Indeed, even according to the witness for Ken[59], the Father was understood to have been in a position to change his mind about the profits distribution, if he so wished.

211.  In court, Ken suggested, but not without hesitation, that he had the right to bring the Father to the court, if the latter changed his mind about the distribution of profits allegedly agreed upon.  Yet what was it that would have prevented the Father from changing his mind?  Throughout the trial, Ken kept labouring on the significance of his contribution towards the business of the group[60].  Reference was made to specific instance such as the so-called “Apple” business.

212.  The Father did fairly acknowledge his son’s contribution to the family business. So did he with respect to his other 2 children’s contribution.  Ken’s evidence, particularly that in court, was testament to his own perception of what he deserved, which was largely premised on his mentality that he was the major contributor by bringing in business to the group.  But one should not lose sight of the very fact that it was equally Ken’s duty towards the company, for which he received his remuneration and performance bonus.  Business, albeit introduced by Ken, was concluded with Luen Tat’s group, and the goodwill of this manufacturing business had presumably been in the forefront of its business counterpart’s consideration.  In other words, his contribution per se was not of such nature and did not arise in such circumstances that would have created some kind of equity estopping the Father from changing his mind about the profits distribution, even if agreed upon.  There was no clear, if at all, evidence suggesting otherwise.

213.  For the above reasons, even assuming that the Father had somehow agreed with Ken as to the latter’s entitlement to the profits of the group, I doubt they were binding and legally enforceable.  Without the factual backing of beneficial interest in the companies of the group or some form of equity, as discussed above, Ken could not complain if the Father changed his mind.

CHANGES OF CASE

214.  Both Mr Wong and Ms Lok made special emphasis on the instalments of substantial amendments to Ken’s pleading since the commencement of the present action.  The material changes to Ken’s pleaded case in respect of his alleged taking over of Luen Tat, beneficial ownership of Pak Tat and the alleged profits sharing agreements were mentioned above.  They were described as sea changes.  That these assertions, which effectively formed the factual backbone of Ken’s case, did not come about fairly and squarely at the first opportunity but only introduced by way of substantial amendments far from swiftly indeed called for explanation.

215.  Whenever asked to explain, Ken almost invariably blamed it on his former legal representatives.  Caution must be exercised before accepting such excuse as fact, when it came handy for Ken to blame the former legal representatives who could not be heard.  I must say that his evidence as to the manner in which he had instructed his legal representatives, to the extent it could legitimately be revealed and considered by the court, at different stages of his evidence in court was far from impressive.  Nor was his reference to time constraint a full, if any good, answer.  I have no reservation in categorizing his explanation as wholly incredible.

CONCLUSION

216.  It comes to where a view could be formed as to which side’s version was true.  I do so, after considering the extensive analysis of the evidence and submissions by counsel[61], including those specifically discussed above.  All considered, I prefer the evidence adduced on behalf of the Father’s side, and accept his case as fact. I reject Ken’s case that he was at any material time the beneficial owner of Luen Tat or Pak Tat.  I find as a matter of fact that Ken (and Joseph) holds the shares in Luen Tat and in Pak Tat both on trust for the Father.

217.  I find as a matter of fact that the profits distribution had at all material times been a matter of the Father’s discretion.  No realistic view could be taken in favour of any of the alleged profits sharing agreement in isolation.  I reject all of them.  The alleged profits sharing agreement, if at all existed, would not have been binding or enforceable against the Father, who was in position to change his mind.  The claim by Ken on the basis of alleged entitlement to the profits of the group arising out of the alleged profits sharing agreements fails.

THE OTHER ASPECTS OF THE COUNTERCLAIM

218.  In view of the above conclusion, the other aspects of the counterclaim, which essentially form the fourth major issue in this trial, do not really call for determination.  Therefore I would be brief.

219.  An amount of HK$25,602,977.76 being alleged unpaid profits belonged to Ken was said to have been converted by the Father or Seline and retained in Yuen Hing’s bank account.  They were said to be accountable to Ken for such sum as constructive trustees.  There is dispute as to whether there was such an amount in Yuen Hing’s account.

220.  Contrary to Ken’s suggestion, the Father did not admit that in his previous affirmation.  This was the amount Ken claimed, and the Father deposed to nothing more than that[62]. The figure was what Ken calculated on the basis of Mazars’ analysis of the Father’s ledgers, which was discussed above.  According to the Father, cash in Yuen Hing would not have remained idle in the bank account, as the group relied on that as the source for business expenses and distributions to the family members.  That had been the practice known to the family, and there had been no suggestion of any complaint about such practice.  Ken admitted that prior to at least mid-2008, the liquidity of the group was tight so that it took 2 years for Richard to receive his share of distribution.  Ken was able to retrieve the various sums of money from Yuen Hing allegedly in partial settlement of his share of profits also only after ensuring that it was put in funds by Luen Tat.

221.  The counterclaim is essentially based on constructive trust and breach of trust.  The movement of money of the group into Yuen Hing per se could not give rise to any legitimate complaint.  Yuen Hing was supposed to receive such business money pursuant to the re-invoicing operation.  That even included the time when Ken subsequently became the bank signatory of Luen Tat.  All these years, little formality had been observed in the distribution of profits of the group, and none of the family members could deny knowledge or complain.

222.  Ken needs to establish first and foremost his entitlement to the profits of the group.  He fails to do that.  No part of the money going into Yuen Hing could be said to be Ken’s trust property.  Nor did the transfer of any part of such money constitute breach of trust, it follows.  The essential components of the causes of action against the Father’s side did not exist as a matter of fact.

223.  In the submissions on his behalf, Ken somehow claimed that the Father, Richard, Seline and Yuen Hing were liable for the sums of HK$9,094,000, HK$7,376,970, HK$9,966,443.80 respectively.  Reference was also made to the alleged over-distribution of profits by the Father by the end of 2008 and alleged right to claim for regurgitation of the bonuses by the recipients.  These contentions went beyond the pleading.  The cause of action, even if existed, would have belonged to Luen Tat.  As to Richard, he is not even a party to the counterclaim.

DISPOSITION

224.  In line with the above conclusion, I grant the declarations and orders sought by the Father as pleaded.  I see no reason why failing on liability, Ken’s counterclaim should not be dismissed.  I so order.

225.  As to costs, both Mr Wong and Ms Lok indicated that this case warrants an indemnity costs against Ken, if he fails, in order to demonstrate the court’s disapproval of his conduct.  Both sides touched upon the issue in their submissions, and a few authorities were listed out for the argument.  In a case with such litigation history and factual composition, the justification for indemnity costs order requires consideration after full argument.

226.  For the time being, I make a nisi order that the Father shall have his costs of the action, including those of defending the counterclaim; and Seline and Yuen Hing shall have their respective costs of defending the counterclaim.  Costs include those that have been reserved, and shall be taxed, if not agreed.  If either side takes the view that some other costs order should be made, application could be made in the usual way within 14 days to vary the nisi order.  In that event, appropriate directions may be proposed and given for the disposal of the argument on paper.

POSTSCRIPT

227.  The irony is that in normal course of events, and as the Father had apparently contemplated at one point, some of the interests in the group had been arranged to be held by the sons or their corporate vehicles or nominees so as to facilitate the succession by the sons upon the passing of the Father.  Yet until then, the interests, as I find, were held on trust for the Father, who never retired from the ultimate control of the group.  That apparently fell far short of what Ken perceived he deserved, and that brought about his dispute with the other members of the family.  It was that which caused the Father to resort to the present litigation, which I accept was his last resort.  Unfortunately the Father did not live to see the result as he passed away less than a fortnight after the conclusion of the trial[63].

228.  I am grateful for the assistance from counsel on all sides.