YUEN KIN TONG v. LAM CHI SHING

HCA 430/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 430 OF 2012

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J U D G M E N T
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Background

1. The plaintiff and the defendant in this matter (“Mr Yuen” and “Mr Lam” respectively) were long time acquaintances and former school friends who decided in 2004 to go into business together. The nature of the business on which they embarked was the provision of electronic manufacturing services based in China and they hit upon the name “GTC Group” based upon the premise that the customers would be “going to China” for their manufacturing.  The issue between the parties centres upon the beneficial ownership of that GTC Group. 

2. The GTC group comprises a BVI company known as GTC Industries Ltd (“GTC”); a Hong Kong company, Pimatronics (“Pima HK”), and a company incorporated in the PRC, Shenzhen Pimatronics (“Pima Shenzhen”). Pima HK is wholly owned by GTC and, in turn, wholly owns Pima Shenzhen.

3. There is no dispute between the parties regarding the source of funding for the new business.  Mr Yuen accepts that it was Mr Lam who provided the initial operating capital, by way of a shareholder’s loan.  There is also no dispute that Mr Lam was to be (as he still is) the sole registered shareholder in GTC.

4. Nevertheless, Mr Yuen asserts an entitlement to a half share in the business.  Mr Yuen’s case appears at paragraph 8 of the Statement of Claim and in particular lies in the averment that notwithstanding the fact that Mr Lam was to be the sole registered shareholder of GTC:

“… Mr Yuen and Mr Lam would each have 50% shareholding, interest and/or ownership In the GTC Group (comprising GTC, Pimatronics, and Shenzhen Pimatronics).”

5. Prior to the commencement of the GTC business (and for some time afterwards) Mr Yuen was an employee of one Computime, where he was employed as the vice president of the Strategic Business Unit.  It is common ground that the intention was for Mr Yuen to contribute his knowledge and experience to the business and would recruit two of his assistants from Computime, Ocean Lee and Jones Chui.  GTC commenced business in 2004 and Mr Yuen contends that he became involved on a full‑time basis with the operation of the company and the group in November 2005. 

6. Initially Mr Yuen took no salary or payment for his work for GTC, and it is part of Mr Yuen’s case that, through forgoing any salary for a period, he has made contributions the equivalent of HK$4,120,000 toward the operating capital of the GTC group.

7. The GTC business was continued over a period of time, but appears not to have been as profitable as originally hoped.  It is part of Mr Lam’s case that Mr Yuen’s entitlement to a share in the business was dependant on a certain level of profitability being achieved.  As matters transpired the returns which had been hoped for were not achieved and further investments of capital were required from Mr Lam.  These investments were partly for materials and equipment but, in October 2006, Mr Yuen requested (and received) payment of a salary of HK$60,000 per month.  Salary increases were also agreed for Ocean Lee and Jones Chui.

8. Differences began to emerge between Mr Yuen and Mr Lam in 2008, and their relationship deteriorated relatively seriously in 2010.  The parties met in 2010 and Mr Yuen says Mr Lam offered to sell him his (Mr Lam’s) 50% share for HK$25 million.  The offer was not accepted but, according to Mr Yuen, evidences the respective shareholdings of the parties. 

9. There was a further meeting in February 2011 at which there were further arguments and in consequence of which Mr Lam told Mr Yuen that he would not be able to receive 50% of the shares in GTC.  Thereafter GTC terminated Mr Yuen’s employment and commenced proceedings (referred to below) in the District Court against Mr Yuen and Ocean Lee.

10. So far as the High Court proceedings are concerned these began in March 2012, but a letter before action was sent on behalf of Mr Yuen on 25 November 2011.  That set out Mr Yuen’s claim to a 50% shareholding.  In the prayer for relief in his Statement of Claim Mr Yuen seeks a declaration as to his shareholding and interest in GTC or the GTC group, and orders for share transfers and the provision of accounts and records.

11. Mr Lam’s case, in essence, is that the agreement was that Mr Yuen would have an entitlement only if the business achieved a certain level of success.  Moreover, his shareholding would be only 40%, with shares also to be allotted to Ocean Lee and Jones Chui in the relevant circumstances.

12. Mr Lam says that he was a venture capitalist who was approached by Mr Yuen to provide the capital to commence the business in what was to become the GTC group.  The agreement between Mr Yuen and Mr Lam was therefore that Mr Lam would supply the funding while Mr Yuen was to use his experience and expertise to run the business.  The return for Mr Lam was of course the anticipated profit, and Mr Lam says that Mr Yuen painted a very rosy picture of what could be expected over a period of years.  Mr Lam says that a requisite level of return was agreed as being an annual sales turnover of US$10 million by 2007 or 2008 with profit margin at around 30%; and that the business would subsequently reach an annual sales turnover of US$30 million in the long run with profit margin at around 25%.  These two criteria were collectively defined in the litigation as being “the Projected Return”.

13. In the light of that forecast it was agreed, it is said, that Mr Yuen’s return on his investment of time would be an allotment of 40% of the shares once the Projected Return was achieved.

14. Mr Lam contends that the 50% shareholding proposal was made by Mr Yuen only in the latter half of 2007 when it was proposed that he should become such a shareholder, with his contribution being satisfied by the value of the work he had done on behalf of the business to that point.  For that purpose, it is said, it was proposed and reluctantly agreed to, that Mr Yuen’s “nominal salary” was to be treated as being HK$120,000 per month from 2006.  This agreement remained subject to the understanding that no shares would be transferred until the Projected Return was achieved.

15. A further agreement is referred to by Mr Lam, this is said to have come about in January 2008 when the parties agreed that they would each contribute HK$5.3 million as capital so as to put the parties on an equal footing.  This entitled Mr Lam to withdraw further sums from the business, in stages.  Nevertheless Mr Yuen was entitled to have shares transferred to him only when the Projected Return had been achieved.  Although the projected return was never achieved Mr Yuen requested increases in his own salary and those of Ocean Lee and Jones Chui. This wasagreed to in 2009 by Mr Lam who also agreed to provide further investment to support an increase in the size of the factory in Shenzhen.

The issues

16. At the trial the parties were represented by counsel, Mr Eugene Yim for the plaintiff, and Mr Bernard Man for the defendant.  I am indebted to both for their clear submissions.  Counsel were agreed that the central issue is whether Mr Yuen’s case that there was a trust created in his favour in 2004 is established.  Mr Man contends that three sub‑issues arise; what precisely was agreed between the parties in 2004; whether Mr Lam is estopped (as Mr Yuen alleges) from denying the existence of such a trust; and, in any event, whether the trust contended for is of sufficient certainty.  The point taken by Mr Lam here is that it is not apparent exactly what trust property is said to be the subject matter of the express trust.  The pleaded case refers to an entitlement to “a 50% beneficial shareholding, interest and/or ownership in GTC … or the GTC group”.  It is said therefore to be unclear whether the subject matter of the trust is only the shares in GTC or anything else which might be said to comprise the “interest and/or ownership”.  Nor is it clear, it is said, as to what precisely constitutes “the beneficial shareholding, interest and/or ownership in… the GTC Group”.

17. Mr Yuen’s case is simply that there was an agreement between the parties in 2004 that he should provide time and effort to set up the business of GTC in return for which he would be beneficially entitled to an immediate 50% share in the business.  His employment status in a company engaged in a similar field to GTC is said to be the reason why Mr Yuen was not allotted any shareholding in GTC at the outset.

18. Mr Yuen has also pleaded a proprietary estoppel claim, asserting that he relied on various “representations” between 2007 to 2010 to his detriment such that the defendant is estopped from denying his 50% shareholding.

Documentary evidence

19. The agreement that was made in 2004 between Mr Yuen and Mr Lam was unwritten, and primarily therefore the recollection of the parties themselves is the main available source as to what was agreed.  However both parties, Mr Yuen, in particular, submit that the documents subsequently exchanged by the parties’ evidence the agreement that was reached, and each submits that these documents are frequently consistent with their contentions as to what was agreed in 2004.  To some extent these exchanges have to be viewed somewhat cautiously however since they are, for the most part, exchanges that came about as the relationship between the parties deteriorated.  In addition, as counsel for the defendant observed, these email exchanges were generally not expressed in “legal” terms, nor always, in the best of English.  There is generally little doubt as to what was being said however.

20. Several of the relevant documents were referred to by counsel for the plaintiff in opening, and were taken up with the parties in their oral evidence.  For present purposes I refer to the following in particular.

21. On 29 October 2007 Mr Lam sent an email to Mr Yuen touching upon the cash flow position of Pima HK in which he said, “As a 50% shareholder, why do you think it’s only me who is obliged to inject money…”

22. On 2 June 2009 Mr Lam wrote (again by email) confirming that he had increased the salary of Ocean Lee and Jones Chui and was going to “... take HK$1.5 million from [Pima HK] to balance our shareholdings”.

23. On 21 July 2009 Mr Lam wrote:

“Before we meet, I want to make my stance clear to speed up the discussion. I want to maintain 50% shareholdings in GTC, and don’t agree to admit any new shareholder. Whatever package you want to have, I’ll take half of that amount. …”

24. On 27 July 2009 Mr Lam said in another email that he had made various monetary contributions to the business and that “Shareholdings in GTC [were] 50% by you and 50% by me”. 

25. Mr Yuen submits that these emails strongly support an agreement that he was to have an equal share in the business.  On the other hand, in the course of litigation instigated in 2007 by Computime against Mr Yuen, alleging breaches of non-competition and confidentiality undertakings given by Mr Yuen when he was an employee of Computime, Mr Yuen provided a note to his lawyers which stated that although he “did help in the set up of Pimatronics with his know‑how and experience earned in the electronic field for around 20 years but he has no share or interest in Pimatronics. Now [Mr Yuen] has only employment contract with Pimatronic’s holding company, being a BVI company”.

26. It is Mr Yuen’s case that this was a fabrication, made up at the instigation of Mr Lam.  Mr Lam denies this and submits that the suggestion is “bizarre” given that Mr Lam was not a party to the relevant litigation.  I refer to this document again below.

Witness evidence

27. Both Mr Yuen and Mr Lam gave evidence and were cross‑examined.  Neither purported to remember verbatim what had been said in the course of their agreement in 2004, not unsurprisingly, but both were asked to explain their subsequent correspondence and conduct in some detail.  Overall I found Mr Yuen’s oral evidence more reliable.  Much of Mr Lam’s evidence involved him ‘downgrading’ Mr Yuen’s involvement to that of a management level employee, which plainly was not the basis on which GTC was set up, or in explaining away the email exchanges such as those quoted above. However, at the end of the day I believe relatively little weight can or should be placed on the oral evidence.  The documents exchanged between the parties establish, in my mind, the true nature of their agreement quite clearly, and are a preferable basis on which to place primary reliance.

Other matters

28. There are two matters that are raised which are of some relevance to the matter in issue.  The first relates to other proceedings between the same parties relating to GTC, and the second to an open offer made by Mr Lam to resolve these proceedings.

29. As to the first, Mr Lam says that it was discovered, in about May 2010, that Ocean Lee and Mr Yuen had been diverting business away from Pima HK to a Chinese business, MW China Resources Solutions Ltd, a company owned by Mr Yuen.  This was done without the knowledge or consent of Mr Lam.  Moreover, in 2009, Ocean Lee diverted a payment of commission.  Both of these matters became the subject of separate litigation and, in each case, it is said, Pima HK was successful.

30. So far as the claim against Mr Yuen by Pima HK was concerned, this did not proceed to trial.  Although many of the same issues arose in that action as in the present, it is submitted, Mr Yuen compromised that action by agreeing, on a without admission of liability basis, to pay HK$300,000 plus costs to Pima HK.

31. I have taken note of this, but do not attach much weight to the compromise of proceedings on that basis.

32. As to the second, Mr Lam submits that the present proceedings are, in effect, useless.  It is submitted that the shares in GTC are of no value and that, therefore, Mr Lam made an open offer to Mr Yuen to settle these proceedings by delivering one share (representing 50% of the issued shareholding) in GTC to Mr Yuen, but on terms that there should be no order for costs given that the offer was made based upon commercial considerations. The offer was made on 21 October 2014 and the reply was sought by 27 October 2014.  No reply was received and the offer lapsed.

33. I return to this also below.

Submissions of Mr Lam

34. It is convenient to consider the issues by way of the submissions advanced on behalf of the defendant, keeping in mind of course that it is for the plaintiff to prove his case.  Mr Lam reminds me that the issue is whether Mr Yuen is able to establish that a 50% shareholding has been held on trust for him since 2004.  That is the only pleaded case against Mr Lam, and the only case that was put.  This is stressed perhaps because of the various agreements in 2007, and 2008 pleaded by Mr Lam, who confirmed in cross examination that he had made a promise to give Mr Yuen a 50% share on or about 23 July 2009, but on condition that the Projected Return was achieved.  This was consistent with paragraph 15(11) of the Defence in which Mr Lam alleged that:

“… in a meeting on or about 23 July 2009 the parties orally agreed that, inter alia, Mr Yuen would be able to draw his full salary from July 2009 onward, while Mr Lam would be entitled to draw half of the full salary of Mr Yuen. The parties also confirmed that they would take the business in equal 50% share, but Mr Yuen would not be entitled to have the share transferred to him until the Business could achieve the Projected Return.”

35. However the Projected Return was not achieved, and the promise therefore does not confer on Mr Yuen a 50% beneficial interest.  There would be no “presently exigible equitable interest”until the conditions had been satisfied.  In any event, it is Mr Yuen who carries the burden of proof.  There is no necessity for Mr Lam to establish the agreements said to have been made in 2007, 2008, and 2009.

Commercial probability

36. According to counsel for Mr Lam, Mr Yuen’s contentions regarding the 2004 agreement make no commercial sense.  The plaintiff’s case is summarised as being that:

(1) Mr Lam was to supply funds, but not Mr Yuen.

(2) Mr Lam signed a guarantee for the loans of Pima HK (it is acknowledged that Mr Yuen does not accept that this was discussed in 2004).

(3) Mr Yuen did not have to work full‑time in Pima at the outset; he remained a full‑time employee of Computime.

(4) Nevertheless Mr Yuen would receive a 50% beneficial interest from the outset.

(5) While Mr Yuen would obtain an immediate 50% beneficial interest, Ocean Lee and Jones Chui had a conditional interest, and would only get shares if the business performance was good.

(6) Mr Yuen ran no commercial risk in 2004 but everybody else involved did run such risks.  In particular, Mr Lam invested HK$11.9 million and guaranteed HK$2 million.

37. Mr Man submits that this is simply too good to be true as far as Mr Yuen is concerned.  There was no commercial reason for Mr Lam to agree to such an arrangement, and it would be a surprising deal to be made by an experienced venture capitalist such as Mr Lam. Indeed Mr Lam’s evidence in cross examination was that it is common practice for venture capitalists to make shareholding conditional upon performance, so as to motivate the management level employees.

38. Rhetorically, Mr Man poses the question: “If performance‑related incentives were provided and agreed for Ocean and Jones, why not for Yuen?”  He points out that it would not be surprising if Mr Yuen agreed to a performance related return; his remuneration with Computime also was partly performance‑based, with a quite substantial bonus element payable depending upon results.

39. That might be said to be a fair point. Clearly Mr Yuen could have agreed to take on the establishment of the new business on the basis that if it did not succeed he would receive nothing.  The gist of the correspondence between the parties is against this being what was actually agreed however.  Moreover, given that no timeframe for the achievement of the alleged Projected Return was ever set, and therefore Mr Yuen might work for years with neither salary nor shareholding, it seems improbable that he would do so.  It is to be remembered that this was not a wholly commercial, arms length deal.  The parties were then friends and did not see the need to record their agreement in writing.

40. Mr Man submits that it does not assist Mr Yuen to suggest that he committed himself full‑time to GTC after he left the employment of Computime because he left Computime only in November 2005. The agreement was reached in 2004 at a time when he remained in full‑time employment with Computime.  It was suggested to Mr Lam in cross-examination that a possible outcome of the agreement as Mr Lam suggested it to be would be for Yuen to work for up to 8 years for no pay and still receive no shareholding either.  Mr Lam says however that this disregards the fact that, when the alleged agreement was made Yuen remained in the employ of Computime, and was confident in 2004 that he would be able to obtain sufficient business for GTC.  I do not think this changes the position however.  Mr Yuen was experienced in the business of electronics manufacture and is to be taken to have understood that, sooner or later, he would have to leave Computime and devote himself to GTC.

“The fundamental change of the deal in 2007”

41. Mr Lam submits that Mr Yuen’s evidence shows a change in the arrangements between the parties in or by 2007.  Since the issue is what the agreement was in 2004, this may be beside the point.  It does however point to the nature of the existing arrangement.  Mr Yuen described how he and Mr Lam discussed that Mr Yuen would have to make some financial contributions to GTC.  The bulk of such contributions came about by his foregoing notional salary, but cash payments were also made; HK$1 million was paid to Mr Lam on 29 March 2008.  This, Mr Lam submits, was a substantial sum of money to be paid by Mr Yuen.  Why would he agree to do so, in circumstances in which he was already entitled unconditionally to 50% shareholding?

42. The question can of course also be put the other way.  Why would Mr Yuen invest cash into GTC as well as his time and energy if his only interest in the business was entirely dependent on its future success?

43. It is fair to say that there was no very clear explanation as to what was going on between the parties at this time.  Mr Yuen’s evidence was that Mr Lam was unhappy at this period with the business, but that he did not really understand what was in Mr Lam’s mind at that time.

44. It is submitted that it is highly unlikely that Mr Yuen would pay HK$1 million in addition to foregoing notional salary without serious discussions taking place with Mr Lam.  It is far more likely it is said, that a new arrangement was agreed in 2007 because it had become apparent to Mr Yuen that his original deal would result in him receiving nothing.  If GTC could not achieve the level of performance that would trigger the transfer of shares to him, then an arrangement in which he provided some funding was his best alternative commercially.

45. This, I accept, is a possible explanation for Mr Yuen’s decision to inject cash as well as time into GTC.  In circumstances in which he had invested not inconsiderable time and effort this was probably an attempt to ensure that the time and effort was not wasted.  But that would be equally valid as a motivation for a shareholder as it would for a potential shareholder, and I do not think any firm conclusions can be drawn from this to support either party’s case.

Why a trust?

46. Mr Lam points out that the arrangement put in place in 2004 could, if Mr Yuen’s version of events is correct, have been far simpler, with an equal shareholding in GTC issued to each of Mr Yuen and Mr Lam.  Mr Yuen’s continued employment in Computime and perhaps implicitly the risk of his competing with Computime in circumstances in which he should not, is given as the rationale.  It is said by the defendant to be common knowledge that shareholding in a BVI company is not searchable, so Computime would be unable to find out about it.  Mr Yuen says he was not sure in 2004 whether or not his shareholding in the BVI company would be able to be kept secret.  Mr Lam invites me to reject this evidence as incredible, submitting that it is “simply business common sense that shareholders in BVI companies are not searchable”.

47. It may be well known amongst lawyers and business people that shareholders in BVI companies cannot readily be identified, but I do not think I can safely assume that Mr Yuen is being untruthful when he says that this was not something he knew about.  The email exchange between the parties on 11 August 2009 (discussed below) corroborates Mr Yuen’s assertions of ignorance in this respect.

Why no demand for the shares before August 2009 (or November 2011)?

48. Mr Lam’s shareholding of 100% of GTC is consistent with his version of what was agreed.  Mr Lam says there is no rational explanation as to why Mr Yuen did not demand his shares be put into his name after he left Computime at the end of 2005.  He was asked about this in cross examination and suggested only that he felt that Mr Lam was concerned about the business and did not want to insist on his rights at that time.

49. Mr Yuen did not ask to be given his share in writing until 10 August 2009.  Mr Yuen wrote to Mr Lam (in the context of the mooted dissolution of the business arrangement between them) and said, “… Can I use the BVI company to take back 50% share of the company and we set the company loan to PS and the BVI company correct in this week?”  

50. I remind myself that, so far as the subsequent email documents are concerned, while these formed the basis for much of the cross examination and submissions these do not fully set out what either party was said to have agreed in 2004.  The emails cannot be read as contractual documents drafted with the assistance of lawyers.  Just as some are consistent with the case of Mr Yuen, so too some are consistent with Mr Lam’s position.  The email exchanges have to be looked at broadly therefore. 

51. I agree with that approach, but doing so leads me firmly to the conclusion that Mr Yuen and Mr Lam agreed to share the GTC business from the outset.

52. It is worth noting the response to the 10 August 2009 from Mr Lam, which was: “What you’re talking about is not dissolving the company.  Dissolving a company is to stop operation, collect payment from customers, pay off debts and share what’s left.”  There was no express rebuttal of the suggestion that there was anything incorrect in the suggestion of Mr Yuen was to “take back 50% share”.  Mr Yuen’s further response was consistent with his first email referred to.  He said, “I want to put the ownership and loan correct before dissolving the company.  I think it is the first step.”

53. On the same day (10 August 2009) Mr Lam wrote to Mr Yuen:

“For you to kick me out after utilising me won’t bother me, but I won’t do that to you.  I listened to you to start this just with the intention helping you start your business.  But at least you should pay me “cash” I have put in and let me walk away clean, right?  I don’t care how you present the case as you’re great storyteller.”

54. The parties exchanged further thoughts on the future of the company the next day (11 August 2009).  It is worth setting out some of the detail of that email.  It is an email from Mr Yuen to Mr Lam which was responded to by Mr Lam inserting comments in square brackets.  For clarity the two “strands” have been separated below:

Yuen:  I cannot sleep for quite a while and not sleep well.  I am not great story teller. I am old‑style people.  The current situation is everyone get alerted but you alerted a lot.  I do not request to get to share of the company for years not only because of [Computime], I can use other people name to open a BVI company.

Lam:  If you use other people’s name, who’s providing personal guarantee?  You want me to share the guarantee with someone I don’t know?

...

Yuen:  You are the first one to take real action to protect your interest.  Then, everyone will try to protect themselves.  In this cycle, everyone will take more and more actions to protect themselves and even take steps to protect more than they should be, right?  This is simple logic.  Should we go to this track? I want my share back and put the loan correct is just want to protect my interest.  I don’t want, finally, someone hand me a cheque and tell me that is it.”

Lam:  I put in $12 million and never questioned how you worked.  This is trust.  Look back to what you have done to me and find the trust you have in me.  I can appoint a liquidator for this.”

55. The context for all of these exchanges in 2009 is important according to Mr Lam, it being the potential dissolution of GTC.  Seen in that context it is unsurprising, it is said, that Mr Lam made reference to a potential 50% shareholding for Mr Yuen because it was agreed by that stage that Mr Yuen had a conditional right to such a shareholding.  If the business had been dissolved Mr Yuen would have lost the benefit of that conditional entitlement.

56. I am not persuaded that the email exchanges are a discussion of a conditional entitlement on Mr Yuen’s part.  He referred to taking back his share, and was not met in response with a response to the effect that he had got to earn his share.  Mr Yuen stated that he had not made a request for his share for years and, similarly, was not told he had no share at all.

57. Since the discussions in 2009 were premised on a dissolution of the business they cannot, according to counsel for Mr Lam, be understood as assertions of pre‑existing entitlement.  It follows that the first occasion on which Mr Yuen demanded what he seeks in the present litigation (transfer of shares owned by him since 2004) was November 2011. As appears from the above, I do not agree.

58. Thereafter matters seem to have gone quiet, and counsel for Mr Lam describes this as a significant lapse of time between 2009 and 2011 during which Mr Yuen made no further demand for his shares.  This is indeed somewhat odd, but hardly changes the position.

Notional salary

59. Mr Lam points to some degree of inconsistency in Mr Yuen’s case inasmuch as Mr Yuen says that he made financial contributions which, in part, comprised salary forgone by him.  This has been calculated on the basis that Mr Yuen was entitled to a “notional salary” of HK$120,000 per month but only received HK$60,000 per month once he started receiving any salary at all.  Mr Lam notes that there is no claim made by Mr Yuen for “repayment” of the unpaid sums.

60. Mr Lam contends that Mr Yuen was to have been entitled to a salary of HK$120,000 per month only if the Projected Return was achieved. Since it was not achieved, he did not have any entitlement over and above the salary he actually received, that is, HK$60,000 per month.

61. That is however inconsistent with the email Mr Lam wrote on 23 January 2008 in which he referred to the factory “owing” Mr Yuen HK$2.1 million salary.  That Mr Yuen was only receiving a “partial salary” was set out earlier when, on 20 October 2006, Mr Yuen stated:

“… starting from this month I have been fully engaged in Pimatronics for a year. ... I also would like to start to take partial salary from this month, October. And also give some increment to Ocean and Jones, so that their salaries will not be too far from their original pay…”

The response from Mr Lam was: “In principle, I don’t have a problem with your proposal…”

62. Mr Lam submits that the assertions regarding a salary of HK$120,000 “proves too much” so far as Mr Yuen is concerned.  The pleading calculates a contribution as having been made by Mr Yuen as at June 2009 of HK$4.12 million as compared to a contribution at that time of HK$3.9 million by Mr Lam.  While this appears to suggest that Mr Yuen and Mr Lam made roughly equal contributions, Mr Yuen continued to work for GTC until February 2011 and, therefore, in effect continued to make contributions to the extent of the salary shortfall over that period.  This equates to HK$1.2 million in addition and, therefore, suggests that Mr Yuen would have contributed more than Mr Lam, but nevertheless seeks only a 50% shareholding. This however mis‑reads the basis on which the 50% is sought, namely the 2004 agreement, not the balance of financial contributions.

63. I conclude from the above that Mr Yuen did forego all or part of his salary in 2006, 2007 and subsequently. It is also undisputed that he made a cash contribution to GTC.  All of this, it seems to me, is more consistent with Mr Yuen having an interest in the company and its business rather than the expectation or hope of such an interest.  However it seems to me that the extent of financial contribution is beside the point.

64. What I do find to be rather telling is that while the parties were in disagreement over the business, and Mr Yuen was deciding to inject funds, not once did Mr Lam clearly state that Mr Yuen’s shareholding was dependent on the success of the business.

65. Mr Yuen’s entitlement, as Mr Lam stresses, turns on whether or not there was an agreement in 2004, not on the extent of subsequent financial contributions, if any.  The financial contributions are relevant only as indicia of Mr Yuen’s “status” within GTC.

The instructions to the solicitors in the other proceedings

66. Mr Lam points out that the position described by Mr Yuen in those instructions (a “Statement of Background Information”) is diametrically opposite to the present claim.  It is to be presumed that those instructions, which were intended to be used for the briefing of counsel in that case, and presumably therefore form the basis of the defence, were true.  Mr Yuen stated there that he had no share or interest in Pima.  In the proceedings before me he acknowledged (indeed asserted) that his previous statement was not true.

67. However Mr Lam was himself intimately involved in the giving of instructions to the solicitor and had asked the solicitors by email about one month prior to the preparation of the Statement of Background Information whether it was “… better to state clear to the other side that KT [Mr Yuen] has no interest in Pima?  Or we should keep it unclear to confuse them?”  It appears to me, putting it as kindly as I can, that both plaintiff and defendant were engaged in a campaign of disinformation in an attempt to see off the claims by Computime.  Both knew the true position.  The seriousness of the fact that this was done in the context of contested litigation badly impacts on the credibility of the parties, but of Mr Yuen in particular since he was a party to the other litigation whereas Mr Lam was not.  I have approached Mr Yuen’s evidence with considerable caution.

Estoppel

68. The alleged proprietary estoppel rests on assurances by Mr Yuen that the parties each held 50% shares.  The only basis for that understanding is that pleaded at paragraph 8 of the statement of claim; the agreement in 2004.  Moreover the only pleaded detriment is at Statement of Claim paragraph 9(3); the work input of Mr Yuen between September 2004 and February 2011, and the provision of operating capital and/or financial contributions by Mr Yuen to the tune of HK$4.12 million.

69. Given the conclusions I have reached as to the existence of an agreement there is no need for me to express a view on this.

Conclusions

70. As appears from the above, there are aspects of the conduct of the parties, and the nature of their business venture that are equally consistent with the case of the defendant as with the case of the plaintiff.  As former friends they have not recorded the position at the outset, nor has either of them acted wholly consistently with one or other of the alternative positions.  All that being said, I have no difficulty in concluding, based in large measure on their mutual correspondence, that the parties entered into this venture on what was intended to be an equal footing.

71. Each brought different attributes, one funding and one expertise.  It may well be that Mr Yuen painted an unduly rosy picture of the business’ prospects for Mr Lam, but I am satisfied that they went into the venture on what was intended to be an equal basis.

72. Accordingly it seems to me to be appropriate that the declaration that the plaintiff seeks should be made.  Mr Man has submitted that the trust in uncertain, taking issue with the phraseology adopted in the Statement of Claim.  I am not persuaded that there is anything of substance in this, and indeed the defendant’s offer to transfer one share in GTC to the plaintiff as an ‘answer’ to the claim would seem to suggest that the substance of the claim is clearly understood.

73. Turning to the Orders that the plaintiff seeks, it follows from my findings above that the plaintiff is entitled to an equal shareholding in GTC (which I understand to mean one share) and, through that shareholding, an equal share in Pimatronics and Shenzhen Pimatronics.  As a shareholder the plaintiff is entitled to the financial statements of GTC, Pimatronics, and Shenzhen Pimatronics, and there are to be Orders accordingly.

74. I make also the declaration that the plaintiff seeks in regard to the liability of the defendant to account to the plaintiff, and the order consequential upon such a declaration.

75. I made no order as to interest, this, it seems to me, falling within the province of the accounts and enquiries which have been ordered.

Costs

76. The parties were agreed that an order for costs made on an order nisi basis would be appropriate.  The plaintiff has succeeded in his claim and is, prima facie, entitled to his costs.

77. I have given consideration as to whether the costs position is affected by the open letter written by the solicitors for Mr Lam on 21 October 2014.  I have concluded that it does not.  Although the letter offered to transfer one share in GTC Industries to Mr Yuen, contending that this was effectively what was claimed, the offer was made on the basis that Mr Yuen’s costs would not be paid.

78. The offer was made quite close in time to the trial when, no doubt, substantial costs had been incurred.  No time limited for acceptance was stated although a reply was requested by 27 October 2014.  The offer was peremptorily withdrawn on 28 October 2014, and Mr Lam’s solicitors seem not to have responded to an implicit invitation to extend the validity of the offer made on 29 October 2014 by Mr Yuen’s solicitors.

79. In the circumstances I do not see that any departure from the usual ‘costs follow the event’ order is warranted and, so I order, on an order nisi basis, that the costs of this action be paid by the defendant to the plaintiff to be taxed if not agreed.