TAM YING MAN v. LEUNG KA CHUN AND OTHERS

HCA 2166/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2166 OF 2011

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J U D G M E N T

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I.  INTRODUCTION

1. The plaintiff (“P”), 1^st defendant (“D1”) and 3^rd defendant (“D3”) were engaged in cross-boundary businesses.[1]  The 2^nd defendant (“D2”) was D1’s paternal cousin. D1, D2 and D3 (collectively, “Ds”) were brought together by a cross-boundary vehicle licence (“Licence”) and a Hong Kong unincorporated company (“HKCo”) called Sun Hing Company (新興公司, “Sun Hing”). 2 other key players were Wan Moon Yau (溫滿有, “Wan”) who was a fugitive wanted by the police, and 陳瑞綢 (“Chan”) who (a) brokered deals for selling/purchasing (“S/P”) and leasing/renting (“L/R”) the right to use the Licences, and (b) handled procedures for licence renewal (續牌手續) and change of particulars (變更手續) (“Agent”).

2. On 23 October 1991, P established Sun Hing as his sole proprietorship and registered such business with the Business Registration Office (“BRO”). On 22 July 1994, P through Sun Hing as the Hong Kong joint venture party (“HK Party”) and 廣東省新豐江水產開發公司 (“Sun Fung Kong”) as the Mainland Chinese joint venture party (“Sino Party”) formed a fish-farming “有限責任公司(台港澳與境內合作)” (“Sino-HK JV Company”) called 河源新發水產有限公司 in He Yuan (河源), Guangdong (“JV Company”).

3. If a HK Party made investments and paid taxes in Mainland China up to specified thresholds, it could apply to Guangdong Provincial Public Security Bureau (廣東省公安廳, “PS Bureau”) for a Licence. The licence-holder must be a HKCo (“HK Holder”), and the owner of the

relevant cross-boundary vehicle that displayed metal licence plates of such licence (“PRC Plates”) must be the HK Holder’s proprietor/partner. In 1996 Sun Hing as the JV Company’s HK Party successfully applied for (a) a private vehicle Licence (“PV Licence”) with registration no 粵Z4156港 (“SHPV Licence”), and (b) a goods vehicle Licence with registration no 粵ZOU91港 (“SHGV Licence”) (collectively, “SH Licences”).  For the SHPV Licence, P’s statement to the police dated 15 December 2009 (“P’s Police Stmt”) stated P personally applied to the PS Bureau for such licence and to Hong Kong’s Transport Department (“TransDept”) for a closed road permit (封閉道路通行許可證 or 禁區紙, “Closed Road Permit”), and he then affixed the PRC Plates for 粵Z4156港 (“SHPV Plates”) on his vehicle for cross-boundary travel via Lok Ma Chau Control Point (落馬州管制站) and Huanggang Port of Entry (皇崗口岸).

4. Certified extracts of information of Sun Hing in the BRO’s business register (“BR Records”) pursuant to search (“BR Search”) made on 2 June 2011 revealed:

Party	Description	Date of updating BRO Records
P	P as sole proprietor commenced business on 23 October 1991 and applied for business registration on 30 October 1991
Liang Jian Guo	Liang Jian Guo was admitted as partner on 1 July 1993 and retired on 31 October 2001 whereupon Sun Hing reverted to being P’s sole proprietorship
D1	P retired as partner on 10 March 2009 whereupon Sun Hing became D1’s sole proprietorship	25 March 2009
D2	D2 was admitted as partner on 26 August 2009 whereupon Sun Hing became a partnership of D1/D2	27 August 2009
D3	D3 was admitted as partner on 10 May 2010	10 May 2010
D1/D2	D1/D2 retired as partners on 14 May 2010 whereupon Sun Hing became D3’s sole proprietorship	14 May 2010

(a)  P’s case

5. P claimed that in January 2009 he rented out the right to use the SHPV Licence (“Right”) to Wan, but in February 2009 Wan sold/transferred Sun Hing together with the Right (collectively, “SH/Right”) to D1 who paid the price to Wan, then in August 2009 D1 admitted D2 as a partner of Sun Hing, and in May 2010 D1/D2 sold/transferred SH/Right to D3. P claimed he never (a) authorised Wan to sell/transfer SH/ Right, (b) ceased to be Sun Hing’s proprietor, (c) admitted any of Ds as Sun Hing’s partner(s) and/or (d) sold/transferred SH/Right to Wan/Ds, and alleged Ds “for their conduct with [Wan]” knowingly, wrongfully and/or fraudulently misappropriated “[P’s] ownership of [Sun Hing]” resulting in loss of his right to use the SH Licences. P gave the following particulars:

Against Ds  “[P] avers that [P] has never met [D1 and D2]. [P] has never signed any documents to effect his cessation as proprietor of [Sun Hing] and/or the admission of [D1 and/or D2] as the proprietors of the same company in the said business registration. [P] avers that [Wan] and/or [D1 and/or D2] may have used false documents to mislead the [BRO] to effect the transfer of [Sun Hing] and to further mislead the Mainland Relevant Authority to change the user of the [SHPV Licence].” (my emphasis)[2]

Against D1/D2 “[P] stressed that [D1 and D2] had or might have fraudulently or wrongly executed false instrument to effect that transfer of [Sun Hing].” (my emphasis)[3]

P claimed Sun Hing, which held the right to use the SH Licences, “is in fact a stolen property”, so he had “proprietary right” to recover “the loss of [his] property” by “tracing” into Ds’ hands.

6. By the end of trial, Mr Sher, counsel for P, conceded there was insufficient evidence of fraud against any/all of Ds. P suggested it was Wan who committed knowing, deliberate and/or fraudulent wrongdoing (eg using falsified documents with forged signatures), but claimed D1 was not a bona fide purchaser in good faith for value without notice when he acquired SH/ Right because D1 (a) knew or ought to have known he could not have acquired SH/Right without P’s knowledge, authorisation, consent and/or approval, (b) failed to take reasonable steps to ascertain whether Wan had such right/title/authority, (c) had imputed knowledge Wan never had right/ title/ownership of SH/Right and was never authorised to sell/transfer SH/ Right, (d) had constructive notice of Wan’s lack of such authority, (e) turned a wilful blind eye to Wan’s lack of right/title/authority and did not act in good faith, and (f) had no legal right to admit D2 as Sun Hing’s partner. From P’s solicitors’ demand letters dated 6 and 25 January 2010 (“6/1/10 and 25/1/10 Letters”), D1/D2 knew about (i) P’s complaints as to Wan’s lack of authority and unauthorised alteration of the BR Records that removed P as Sun Hing’s proprietor, and (ii) P’s intention to commence legal action against them, so D1/D2 intentionally or deliberately sold/transferred SH/ Right to D3 in May 2010 to evade liability and/or “intentionally defeat the interest of [P]”.

7. P’s case against D3 was more nebulous given (a) there was insufficient evidence of fraud against D3, (b) the particulars in paragraph 5 above were against D1/D2, (c) Mr Sher conceded D3 had no actual knowledge of any defect in title and/or lack of authority in the sale/transfer of SH/Right to him, and (d) there was no plea of imputed knowledge or constructive notice against D3. Hence, there was scant pleaded foundation for Mr Sher’s submissions that D3 “turns a blind eye to such mistake by wilfully and recklessly failing to make such enquiries as a honest and reasonable person would make to acquire [Sun Hing] from [D1/D2]”. P’s “proprietary claim” via “tracing” against D3 was in danger of failing in limine.

8. Further, P abandoned his cause of action on conversion to seek an order for Ds’ surrender/return of Sun Hing, SH Licences and “第1聯” of 粵港澳機動車輛往來及駕駛人駕車批准通知書 (“Approval Notice”) for the SHPV Licence Wan originally gave P, and no longer relied on the Sale of Goods Ordinance Cap 26, Factors Ordinance Cap 48, and Transfer of Businesses (Protection of Creditors) Ordinance Cap 49. But P challenged the sale/ transfer of SH/Right to D1/D2 and to D3 as contrary to PRC law/ policy:

(a)  there was no change to P’s registration as the JV Company’s deputy managing director (副董事長) as approved by He Yuan City Bureau of Administration of Industry and Commerce (河源市工商行政管理局) on 22 July 1994, and no record any of Ds applied or was approved to replace P as such;

(b)   there was no change to the HK and Sino Parties as the JV Company never agreed/approved any 轉換股東同意書 for any/all of Ds, and He Yuan City Bureau of Administration of Industry and Commerce never issued any 轉換股東批覆;

(c)  the SHPV Licence was granted to Sun Hing as true or genuine (真實或真誠) joint venture party in the JV Company for use in the JV Company’s business;

(d)   only genuine/honest transferee or partner (善意受讓人或善意合夥人) being true owner of Sun Hing’s real business (真業務) and true/genuine (真實或真誠) joint venture party in the JV Company was entitled to use the SHPV Licence;

(e)  “[the] Mainland Official” would not recognise change of owner of Sun Hing (HK Holder of the SHPV Licence) without true/ genuine change of owner (轉換股東) of Sun Hing as HK Party of the JV Company;

(f)  the PS Bureau’s Traffic Management Bureau (交通管理局) would only accept true/genuine change of owner of Sun Hing before it would issue any fresh Approval Notice;

(g)  Ds knew and/or ought to have known they were nottrue/ genuine partners (真實或真誠合作夥伴) of Sun Fung Kong in the JV Company, so there was no true/genuine change of owner of Sun Hing as HK Party of the JV Company.

P therefore suggested Ds’ acquisition of SH/Right was “in breach of Mainland Official’s underlying policy”, and hence their use of the SHPV Licence was invalid.

9. P claimed for the following reliefs:

(a)   a declaration that the BR Records of Sun Hing indicating (i) P ceased to be a proprietor on 25 March 2009, (ii) D1 was made partner/proprietor on 25 February 2009 and ceased to be such on 14 May 2009, (iii) D2 was made partner on 27 August 2009 and ceased to be such on 14 May 2009, and (iv) D3 was made a proprietor on 10 May 2010 were ineffective, null and void ab initio;

(b)   a declaration that P be restored as proprietor of Sun Hing in the BR Records;

(c)  an order that D3 do take all necessary steps to transfer the Right to P, including (i) to execute and give to P a “Notification of Change in Partner(s)” form (“BR Change Form”) [4] to admit P as a partner of Sun Hing, (ii) to execute and give to P a BR Change Form for D3 to retire as a partner of Sun Hing, (iii) to return to P Sun Hing’s company chop (“SH Chop”), (iv) to give to P the current Approval Notice for the SHPV Licence in D3’s name, and (v) to return to P the SHPV Plates.[5]

P also abandoned all claims for damages (1) for loss of use of the SHGV Licence and (2) as alternative to the relief in (c) above being the value of Sun Hing and SH Licences.

(b)  Ds’ case

10. D1/D2 claimed that in February 2009 D1 bought SH/Right from Wan (who had authority to so sell/transfer) in bona fide good faith without express/constructive notice of any defect in title/authority, and even if the transaction was tainted by Wan’s fraud, it had been finalised/completed before P purported to avoid it. D1/D2 further claimed P clothed Wan with indicia of title to SH/Right and with the requisite signed BR Change Forms, so D1 had no reason to suspect P was ignorant of the sale/transfer of SH/ Right. Instead D1 was led to believe P knew or ought to have known about such transaction and also agreed, approved and authorised it, so P was estopped from denying Wan’s authority to effect such sale/transfer to D1. In August 2009 D1 was about to emigrate to Australia, so he admitted D2 as a partner of Sun Hing “for sheer convenience of management”. D1/D2 then sold SH/Right to D3 in May 2010 due to D1’s emigration and not because of any evasion of liability following the 6/1/10 and 25/1/10 Letters and/or P’s report to the police. D3 also claimed he (a) acquired SH/Right in bona fide good faith without actual/constructive notice of any wrongful/fraudulent misappropriation and/or any defect in title, and (b) was unaware of P’s complaints/demands. Further, upon sale/transfer of SH/Right to D1 and later to D3, P was no longer entitled to use/renew the SHPV Licence.  Ds denied P’s alleged loss of use of the SH Licences.

11. D1/D2 claimed (a) Sun Hing being HK Holder of the SHPV Licence could unilaterally apply to the PS Bureau for extension (延期), licence renewal (續牌) and/or change of particulars (變更) of, say, driver/ vehicle without consent/approval by Sun Fung Kong, JV Company or He Yuan City Bureau of Administration of Industry and Commerce, (b) the current owner(s) of Sun Hing was/were entitled to use the SHPV Licence despite previous changes of proprietor/partners, and (c) Sun Hing was not required to report to, file with and/or seek approval from PRC authorities upon change of proprietor/partners.

12. D3 claimed that as Sun Hing’s proprietor he was entitled to use the SHPV Licence even though he was not a director of the JV Company  because (a) there was no restriction on the use of such licence, (b) no notification to and/or approval by PRC authorities were required upon change of Sun Hing’s proprietor/partners, and (c) the PS Bureau’s 粵港澳機動車往來及駕駛人駕車申請書 (“Application Form”) and procedures for licence renewal and change of particulars only required the SH Chop and Sun Hing’s information/documents.

(c) Contribution proceedings

13. If Ds were found liable to P, D3 would claim against D1/D2for (a) all losses he might suffer from the revocation of SH/Right, and (b) contribution for damages he might be found liable to P. Mr Cheung, counsel for D1/ D2, confirmed that if all Ds were found liable to P in the main action, D1/D2 would admit liability in the contribution proceedings and leave the issue of quantum to be decided by the court.

II.  WITNESSES AND EXPERTS

(a)  General matters

14. P and Ds gave evidence, and D3 called his younger brother Kwan Wai Kwong (關偉光, “Kwan”) and Chan as his witnesses.[6] Leave was granted for the parties to adduce expert evidence “relating to the rights to transfer and use of [the Licences] in question in the present action”. P’s PRC legal expert was Xie Juan (謝娟, “Xie”)[7] and Ds’ PRC legal expert was Chor Ping Ping (左萍萍, “Chor”).[8] Xie produced her report dated 18 March 2013 (“Xie Report”) except the 1^st sentence in paragraph 五(五) therein, and Chor produced her expert report dated 30 May 2014. Xie and Chor (collectively, “Experts”) gave oral evidence at trial. In the contribution proceedings only, D3 adduced the valuation expert report dated 4 December 2013 by Calvin K C Chan[9] on the valuation of Sun Hing holding the SHPV Licence as its only asset as of (a) April to May 2010 and (b) 10 September 2014. D1/D2 did not adduce any valuation expert evidence.

(b)  Factual witnesses

15. In assessing witnesses’ credibility, I bear in mind not only their demeanour in court but also the intrinsic value of their evidence upon considering the totality of their evidence against the chronology of events, the available documentary evidence and the inferences based on inherent probabilities and/or undisputed facts.[10]

16. I am unimpressed by P as witness. He presented himself as an experienced businessman conversant with doing business in Mainland China and astute/careful in his dealings with others. P’s claim of having imprudently trusted his new acquaintance Wan (who, according to P, merely rented SH/Right) to the extent of giving him full set of original documents/ items for the SHPV Licence that he knew should not have been so given defied belief, and P’s failure to re-call them when Wan defaulted in payment of advance rent and rental deposit made his case even more improbable. I find P’s assertion of mere gross carelessness on his part was nothing more than a belated but poor attempt to explain away acts consistent with eventual sale/transfer of SH/Right to Wan, but inconsistent with mere L/R of SH/ Right. I find P had not been honest and forthright with the court, and was not above embellishing his evidence.

17. Further, although P said it was Wan who misappropriated and disposed of SH/Right, he directed his sense of grievance against Ds. I find P convinced himself he was morally in the right and resented his beliefs/ opinions being questioned, so he gave evidence in a closed/unhelpful manner, and refused to obtain pertinent documents from the BRO even when it was within his power to do so. In my judgment, P fell into the category of witnesses who were not reliable.

18. I find Ds and Kwan honest and reliable. They gave evidence in an open, straightforward and helpful manner, and their answers under cross-examination were direct/consistent and borne out, insofar as it was possible, by contemporaneous evidence. There were no lapses in their evidence that gave rise to concern over their overall credibility. As for Chan, she was an Agent experienced in handling procedures for licence renewal (since 1999) as well as in brokering S/P and L/R of Licences and handling procedures for change of particulars (since 2007). Chan gave calm, dispassionate and accurate evidence of the relevant procedures, and did her best to help the court understand the transaction between D1/D2 and D3, and I find her testimony generally reliable.

(c)  Allegations of fraud and forgery

19. P’s case rested on allegations that Wan knowingly/deliberately/ fraudulently misappropriated SH/Right, and he even hinted at use of falsified document(s) and/or forged signature(s), which were serious allegations. On pleadings, Hong Kong Civil Procedure 2016 states that “[fraud] may only be pleaded when there is sufficient evidence …… It must then be specifically pleaded and the party making the allegations must give full particulars of them ……”[11] On evidence, an allegation of fraud must be plainly established and the cogency of the basis relied upon must be assessed by examining the particular factual matrix and by applying the standard of balance of probabilities taking into account that the more serious the allegation the less likely it is that the event occurred and hence the stronger should be the evidence before the court would conclude that the allegation is established.[12] Further, a party alleging forgery of his signature bears the burden of proof which is not discharged “simply because his opponent (who does not bear any burden of proof) fails to prove positively that the signatures were genuine”.[13] Hong Kong Civil Procedure 2016 further states:[14]

“…… if the facts pleaded are consistent with innocence, then it is not open to the court to make a finding of fraud. An allegation that the defendant ‘knew or ought to have known’ is not a clear and unequivocal allegation of actual knowledge and will not support a finding of fraud. In order to allege fraud, it is not sufficient to sprinkle a pleading with words like ‘wilfully and recklessly’, but not ‘fraudulently’ or ‘dishonestly’.”

(d)  Experts

20. Neither Xie nor Chor had ever handled applications/procedures for licence renewal and/or change of particulars upon S/P, L/R and/or renewal of the Licences at the PS Bureau, PRC Frontier Inspection (中國邊防) and/or PRC National Inspection and Quarantine Bureau (中國國家檢查檢疫局). Xie said such applications/procedures were not handled by PRC lawyers and not governed by PRC law/statute/regulations, but they were “只係政府部門的政策”. Further, both Experts agreed (i) the PS Bureau “管車牌同交通有關事情” and “企業經營” was outside its jurisdiction, and (ii) the Bureau of Administration of Industry and Commerce (工商行政管理局) handled “企業設立、登記、變更及撤銷”. Indeed, Xie accepted:

(a)   the PS Bureau in processing applications for licence renewal and/or change of particulars “只要資料符合要求都會作出批准” and would not check whether the applicant was “善意受讓人或善意合夥人” who acquired use of the Licence by lawful means as “這個不屬於[PS Bureau’s]的審查範圍”;

(b)   there was no “具體法文” to support her opinion that “重大變更要主動申報[PS Bureau]因為會影響車牌使用”, and it was up to the PS Bureau to inform the applicant at the time of making the application for licence renewal or change of particulars what information/materials should be submitted.

21. This raised doubt as to whether the Experts’ opinion came within the scope of their expertise on PRC law. Mr Cheung suggested it did not and hence their opinion was inadmissible and/or carried no weight. Mr Sher recognised the difficulty in relying on Xie’s opinion on departmental or administrative policy/practice when she had never handled any Licence-related application to the PS Bureau, but he argued this would not affect the court’s adjudication of P’s “proprietary claim” via “tracing” premised on Hong Kong law, and the Experts’ opinion would assist in understanding “how and why and under what circumstance and conditions a [Licence] could be obtained”. Ms Ho, counsel for D3, agreed the Experts’ opinion on PRC departmental or administrative policy/practice was outside their remit, but suggested their opinion as to PRC law on corporate requirements for Sino-HK JV Companies remained pertinent.

22. Apart from matters of PRC law that was within the Experts’ area of expertise, I find their opinion on departmental or administrative policy/practice which they had no expert knowledge or practical experience inadmissible or of no weight. I prefer Chan’s factual evidence as corroborated by D1, D3 and Kwan and also by P. On matters of PRC law, I prefer Chor’s opinion and my reasons appear in the analysis in Part XVI below.

III.  MARKET

23. On balance, I find there was an active open market for S/P and L/R of the right to use the Licences with deals effected by private treaty between willing parties or brokered by Agents like Chan (“Market”):

(a)   in the mid-2000s D1 bought the right to use a Licence from Wan whom he knew to be a “賣牌佬” engaged in “全職買賣車牌”;

(b)   since 2007 Chan as Agent was engaged in brokering deals for S/P and L/R of the right to use the Licences, and she earned commission from handling the relevant procedures;[15]

(c)  there were about 10 odd to 20 other Agents engaged in similar work, and Chan would deal with such Agents or with owners of the HK Holders;

(d)   P agreed (i) in 2009 until trial it was common practice for the HK Holders to engage Agents to deal with the PS Bureau on applications for licence renewal or change of particulars, and (ii) 90% of such applications were handled by the Agents so their modus operendi (explained in Parts IV, V and VI below) had become accepted “潛規則” (unspoken rules);

(e)  P noted there were newspaper advertisements for S/P of the right to use the Licences with asking prices.

In my view, D1’s and D3’s purchases of SH/Right were arms-length transactions in the Market. I now turn to the practice in the Market for S/P, L/R or renewal of the right to use a Licence.

IV.  S/P OF RIGHT TO USE LICENCE

24. The HK Holder of a Licence must be a HKCo, and a sale of the right to use a Licence was usually effected by S/P of the HK Co / HK Holder via admitting the buyer as new partner and retiring previous proprietor/ partners so the HKCo would remain as HK Holder of the Licence but the buyer as new owner of the HKCo in place of the seller would be able to use the Right. Such S/P transaction was carried out in 3 stages.

25. For the 1^st stage, the Agent would ask the seller for copies of the HK Holder’s business registration certificate (“BR Cert”) and Approval Notice for the relevant Licence, and then carry out a BR Search to confirm the seller was a proprietor/partner of the HK Holder and also check with PRC customs in Shenzhen (中國深圳海關) to confirm the Licence had not been cancelled due to unlawful activities. Then the Agent would (a) proceed to look for a buyer and collect a deposit of HK$50,000 to HK$100,000, (b) arrange for the buyer and seller to sign a S/P agreement and pay the deposit over to the seller, and (c) arrange for the buyer to complete/sign Part I of a BR Change Form and request the seller and all other existing proprietor/ partners of the HK Holder to complete/sign Part III of such form to admit the buyer as a new partner. Either the Agent or seller would bring the completed/ signed BR Change Form to the BRO to update the BR Records. The BRO would verify the particulars/signature(s) of the existing proprietor/partners and then process the application. Then the Agent would carry out a fresh BR Search to confirm the BR Records had been updated to record the buyer as a new partner of the HK Holder, and would show such updated BR Records to the buyer as proof of completion of the 1^st stage.

26. For the 2^nd stage, the Agent would (a) collect from the buyer to pay over to the seller about 70%-80% of the price (inclusive of the deposit), (b) ask the buyer for the home return permit(s) (回鄉証) of the buyer and other nominated drivers (if any) and the vehicle registration document of the vehicle that would display the PRC Plates (“VR Document”), and (c) ask the seller for the original PRC Plates and following documents: (i) BR Change Form (with Part II of such form completed and signed by existing proprietor/ partners to retire from the HK Holder), (ii) original BR Cert of the HK Holder, (iii) original Approval Notice and 國內行駛証 for the Licence, (iv) the HK Holder’s company chop (“HKCo Chop”), (v) 過關簿, (vi) 國內行車証, and (vii) Closed Road Permit. The Agent would arrange for the buyer to complete/sign Part III of the BR Change Form for submission to the BRO. The BRO would verify the particulars/signatures of the existing proprietor/partners of the HK Holder and then process the application. The Agent would carry out fresh BR Search to confirm the BR Records had been updated to record the existing proprietor/partners had retired from the HK Holder, and would show such updated BR Records to the buyer as proof of completion of the 2^nd stage.

27. For the 3^rd stage concerning procedures in Mainland China for change of particulars as to driver(s)/vehicle to enable the buyer to use the Licence, the HK Holder (with the buyer as its proprietor) had to complete/ sign and affix its HKCo Chop to the Application Form for the Agent to submit to the PS Bureau together with the following for issuance of new Approval Notice and 國內行駛証: (a) BR Records from updated BR Search, (b) existing Approval Notice and 國內行駛証, (c) VR Document, (d) home return permit(s) of the buyer and other nominated driver(s) (if any), and (e) HKCo Chop. Depending on whether the buyer himself or the Agent would handle the application for change of particulars, the buyer would either tick the box for “由牌証所有人申請” or the one for “牌証所有人委托_______代理申請” in “申請方式” section of the Application Form, and in the latter case the Agent would also complete “代理人” section of such form. The PS Bureau would process the application and issue a fresh Approval Notice setting out particulars of the buyer’s main driver (主司機) of which there could only be one for each Licence, and the buyer’s vehicle with Hong Kong and PRC vehicle registration numbers, but the identity of “內地承辦單位” (eg the JV Company for the SH Licences) would not change. The Approval Notice would have to “抄送:皇崗(海關 、邊檢站、檢驗檢疫)”.

28. In 2009, the Approval Notice was issued in quadruplicate (四聯): (a) “第1聯” was kept by the HK Holder,[16] (b) “第2聯” was for PRC customs, (c) “第3聯” was for PRC Frontier Inspection or PRC Public Security Ministry’s Department of Entry Administration (中國公安入境處), and (d) “第4聯” was for “送港(澳)政府部門”[17] or for PRC National Inspection and Quarantine Bureau with photocopy for the TransDept for renewal of the Closed Road Permit.[18] The Agent would submit “第2聯” to PRC customs in Shenzhen to put on record (備案), and “第4聯” together with the following to the TransDept to apply for a fresh Closed Road Permit: (i) original BR Cert of the HK Holder, (ii) BR Records from updated BR Search, (iii) VR Document, (iv) HKCo Chop, and (v) existing Closed Road Permit. When a fresh Closed Road Permit was issued, the Agent would hand over the following to the buyer: (1) original BR Cert of the HK Holder, (2) fresh Approval Notice and 國內行駛証, (3) 過關簿, (4) fresh Closed Road Permit, (5) HKCo Chop and (6) PRC Plates, and would collect the balance of the price from the buyer to pay over to the seller (after deduction of the Agent’s commission as appropriate). Thereafter, the buyer would renew the Approval Notice, 國內行駛証 and Closed Road Permit annually.

29. The above was broadly borne out by actual sales/transfers of SH/Right to D1 in February 2009 (handled by D1 personally) and to D3 in May 2010 (handled by Chan on D3’s behalf). It was also D3’s prior experience when he bought the right to use a Licence via an Agent in 1999 by acquiring its HK Holder (similar to how he acquired SH/Right), and he later sold/transferred the HK Holder together with such right to his younger brother Kwan Wai Ming who had no problem in dealing with the procedures for change of particulars at the PS Bureau and in obtaining a fresh Approval Notice. In all these transactions, only information/documents of the HK Holder were required to be submitted and/or were actually submitted to PS Bureau.

V.  L/R OF RIGHT TO USE LICENCE

30. The procedures for L/R of the right to use a Licence were the same as above except:

(a)   the party renting out the right to use a Licence (“Lessor”) would admit the party renting such right (“Lessee”) as a new partner of the HK Holder but the existing proprietor/partners would not retire therefrom;

(b)   the Lessor (but not the Lessee) would go to the BRO to update the BR Records by adding the Lessee as a new partner of the HK Holder, but the Lessor would not complete/sign Part II (details of outgoing partner(s)) of the BR Change Form;

(c)  after completing the procedures at the BRO, the Lessor would give the Lessee the following: (i) 通關簿, (ii) 國內行駛証, (iii) Closed Road Permit, and (iv) PRC Plates, but not the original Approval Notice, original BR Cert of the HK Holder and/or HKCo Chop;

(d)   the above measures were designed to ensure the Lessee would not be able to sell/transfer the HK Holder and/or the right to use the Licence.

31. P recognised L/R of the right to use a Licence was akin to L/R of the HK Holder itself because the Lessee would be admitted as a new partner of the HK Holder, and the existing proprietor/partners of the HK Holder would have to sign a BR Change Form for such purpose and to apply to the PS Bureau for a fresh Approval Notice with change of particulars of driver/ vehicle for the Lessee’s driver to drive the Lessee’s vehicle pursuant to the Licence. But the Lessee would have to retire from the HK Holder upon expiry of the rental period with application made to the PS Bureau for a fresh Approval Notice to cancel the particulars of the Lessee’s driver/vehicle. Thus, as a protective measure, the Lessor would personally deal with the procedures for change of particulars at the BRO and TransDept in Hong Kong and at the PS Bureau in Mainland China.

32. D1, D3/Kwan and Chan confirmed the PS Bureau did not require and they did not submit information/documents and company chop of the JV Company for application for change of particulars following L/R of the right to use a Licence. P confirmed that in renting out SH/Right to Wan under the P/Wan Agreement referred to in paragraph 45 below, he expected Wan to be admitted as a partner of Sun Hing during the rental period for the sole purpose of enabling Wan to use the SHPV Licence on his own vehicle for his own purpose (not that of P / JV Company), and Wan would not have any relationship with the JV Company and/or its business.

VI.  RENEWAL OF RIGHT TO USE LICENCE

33. Chan explained that annual renewal of the Approval Notice required the HK Holder as applicant to submit to the PS Bureau the existing Approval Notice, updated BR Records of the HK Holder by fresh BR Search and HKCo Chop together with a completed/signed Application Form (with the HKCo Chop affixed thereto), but not any information/documents from the Sino-HK JV Company (內地承辦單位 or 內企). After all, the relevant HKCo would remain unchanged as the HK Holder. This was also the experience of D1 and D3:

(a)   About 4 years before D1 bought SH/Right in February 2009, he acquired the right to use a PV Licence through Wan without signing any S/P agreement, but had no problem with either the S/P transaction or subsequent procedures for licence renewal.

(b)   In 2009 D3 bought the right to use a Licence with registration number “粵Z499港; NT4111” for HK$500,000. In May/June 2009 Kwan Wai Ming came to know Chan, and Kwan asked Chan to handle renewal of such licence (including renewal of the Approval Notice and 國內行駛証). Chan did so by following the above procedures without any difficulty.

34. P’s Police Stmt alleged that since 1996 P personally handled licence renewal for the SHPV Licence by submitting completed Application Form, Sun Hing’s BR Cert and JV Company’s “有效文件” to the PS Bureau.  But I find on balance the PS Bureau did not require and P did not submit the JV Company’s “有效文件” for renewal of the SHPV Licence in view of Chan’s explanation of the relevant procedures and D1’s/D3’s personal experience discussed above. I also bear in mind that even though D3 was not involved in the JV Company and had no access to its information/documents, he successfully renewed the SHPV Licence since its acquisition in 2010.

VII.  EXPERTS’ VIEWS ON HANDLING PROCEDURES

35. The Experts disagreed as to whether the company chop of the Sino-HK JV Company and/or whether information/documents of such company had to be submitted to the PS Bureau for licence renewal or change of particulars. Xie opined they were required, but Chor disagreed.

36. In Part II(d) above, I have explained why the Experts’ opinion on departmental or administrative policy/practice was outside their remit and hence inadmissible or at least of no weight. But even if I am wrong, I prefer Chor’s opinion which sat well with the actual experience of D1, Kwan and Chan that it was unnecessary to submit documents/chop of the Sino-HK JV Company to the PS Bureau for licence renewal or change of particulars.

37. Xie suggested “按規定需要提交的文件” to the PS Bureau for licence renewal or change of particulars had to be affixed with the company chops of the Sino-HK JV Company and HK Party / HK Holder, and such documents must be true/genuine documents of both companies. Xie initially said both the Application Form and Approval Notice had to be affixed with such company chops, but D1 and D3 successfully applied for change of particulars and licence renewal and the PS Bureau issued fresh Approval Notices without any document/chop of the JV Company (so Xie suggested the relevant applicants falsely misled the handling officers at the PS Bureau). On balance I reject Xie’s opinion (even if it were admissible):

(a)   It was hard to believe that different officers of the PS Bureau in processing applications for licence renewal or change of particulars for Chan, D1 and D3/Kwan over the years had erroneously omitted to require documents and company chops of various Sino-HK JV Companies.

(b)   Xie did not say what precisely PS Bureau’s “規定同辦事要求” were that allegedly required documents/chops of the Sino-HK JV Companies for applications for licence renewal or change of particulars,[19] and she conceded in reality the PS Bureau would process the HK Holders’ unilateral applications despite “文件缺失或瑕疵”.

(c)  Xie agreed there was no PRC statute/regulation that required submission of documents/chops of the Sino-HK JV Companies to the PS Bureau to process applications for licence renewal or change of particulars. The Xie Report did not state any basis for such alleged requirement, so Xie was constrained to say “只係政府部門的政策”. But Xie could not point to any publication of such policy, and was again constrained to say the PS Bureau “無具體法文” and its handling officers would tell applicants when they made their applications to the PS Bureau. On balance, I reject such contentions. If it were a consistent requirement to provide documents/chops of the Sino-HK JV Companies for licence renewal or change of particulars, there was no reason for the PS Bureau not to publish such guidance on its website[20] or include such guidance in “須知事項” at the bottom of the Application Form.[21]

(d)   Xie eventually conceded “四聯” of the Approval Notice would only bear the stamp of the PS Bureau (and not the company chop of the Sino-HK JV Company).

(e)  Although “牌証持有人” (licence-holder or HK Holder) as applicant for licence renewal or change of particulars had to fill in particulars of “內承單位” in “申請人” section of the Application Form, Xie conceded it was the licence-holder (eg Sun Hing for the SHPV Licence) as applicant who would sign and affix its company chop in “申請方式” and “聲明” sections in the Application Form, and the JV Company was not required to sign and affix its company chop at all.

38. So even if the Experts’ opinion in this respect was admissible and relevant (which I disagree), I prefer Chor’s evidence that (a) the PS Bureau did not require documents/information and company chop of the Sino-HK JV Company, (b) there was no such requirement in the Application Form and Approval Notice, and (c) the HK Holder as licence-holder of the Licence could unilaterally apply for licence renewal or change of particulars.

VIII.  OTHER RELATED DOCUMENTS

39. I refer to 2 further documents. The 1^st was 駕車入出境簽注 issued by PRC Frontier Inspection that permitted the specified driver to drive the specified vehicle to enter/exit Mainland China via Huanggang Port of Entry along routes designated in the Approval Notice. Kwan explained that every Approval Notice had to be submitted to PRC Frontier Inspection to put on record (備案), and 駕車入出境簽注 had to be renewed annually upon renewal of the Approval Notice.

40. The 2^nd document was 出入境車輛檔案冊 issued by China Shenzhen Exit and Entry Inspection and Quarantine Bureau (中國深圳出入境檢驗檢疫局) that contained 出入境車輛備案年審記錄表 and record of changes of main driver (主司機) and vehicle for the relevant Licence. Chan/Kwan confirmed the HK Holder would have to submit this document together with the Approval Notice to the PS Bureau and Inspection and Quarantine Bureau (檢驗檢疫局) for annual inspection (年審) and renewal of the Approval Notice. D3 produced 出入境車輛檔案冊 for the SHPV Licence that recorded annual inspections (年審) from 2010 to 2013, and gave particulars of the main driver of as follows:

"	檢驗檢疫編號		511474		行駛口岸		皇岡
	日期	國內車牌	香港車牌	車種	吨位/座	司機 姓名	身份証 號碼	海關編號
	2006-3-22	粵Z4156港	LD8999	S	5	吳錫有	Hxxxxxx	xxxxxxxxxx
	2006-8-31	粵Z4156港	KB7578	S	5	呂偉倫	Gxxxxxx	xxxxxxxxxx
	2008-4-22	粵Z4156港	KB7578	S	5	楊少萍	Kxxxxxxx	xxxxxxxxxx
	2009-3-25	粵Z4156港	MX2822	S	7	王偉良[22]	Pxxxxxxx	xxxxxxxxxx
	2009-9-16	粵Z4156港	MX2822	S	7	梁綺薇	Kxxxxxxx	xxxxxxxxxx
	2010-06-02	粵Z4156港	NU887	S	7	關偉光	CxxxxxxA	xxxxxxxxxx	"

together with particulars of “後備司機” as follows:

“	序號	日期	司機姓名	身份証號碼	健康証有效期	備注
	1	2010-06-02	關偉明	Cxxxxxxx	2010-06-09		”

P’s Police Stmt alleged P was the main driver for the SHPV Licence, which did not accord with the above record that showed 3 different main drivers with 3 different vehicles from 2006 to 24 March 2009,[23] and P’s name nowhere to be found. P did not offer any explanation for such discrepancy which cast doubt upon whether he had been entirely forthcoming with the court in saying he personally used such Licence. I now turn to the facts of the present action.

IX.  DEALINGS AMONGST P, WAN AND D1/D2

41. P alleged Wan (a) knowingly, wrongfully and fraudulently misappropriated SH/Right, (b) forged P’s signatures on the BR Change Forms to admit D1 as incoming partner of Sun Hing on 25 February 2009 (“D1 Partner Form”) and to retire P as outgoing partner on 25 March 2009 (“Retirement Form”),[24] and (c) used such documents to effect the purported sale/transfer of SH/Right to D1. The burden fell on P to establish such alleged fraud/forgery, but on available evidence and adverse inference against P as discussed below, I find on balance P (i) agreed to sell SH/Right to Wan after an interim L/R for a year, (ii) signed the D1 Partner Form (which he thought was for admitting Wan as a partner of Sun Hing, “Wan Partner Form”[25]) and the Retirement Form, and (iii) entrusted such signed BR Change Forms and other original documents of the SHPV Licence, copy of P’s identity card, SH Chop and SHPV Plates (collectively, “Handover Items”) to Wan for him to deal with procedures for change of particulars in Mainland China and Hong Kong, but Wan exceeded his express authority and misappropriated SH/Right by selling/transferring SH/Right to D1 in February 2009. In my view, such misappropriation was made possible by P’s failure to handle procedures for change of particulars himself, his willingness to part company with the D1 Partner / Retirement Forms and Handover Items, and deferral of the sale/transfer of SH/Right to Wan until after an interim rental period.

42. P’s evidence oscillated between suggesting (a) he was an experienced businessman who through Sun Hing had participated in the business of the JV Company since 1994, was familiar with the PRC business environment and was careful/astute in dealing with third parties, and (b) he was careless in dealing with Wan despite awareness of the pitfalls in entrusting Wan to deal with the relevant procedures. I reject P’s allegations of mere carelessness, which were no more than poor explanations for behavior consistent with having an eye to the eventual sale/transfer of SH/Right to Wan and having been cajoled by a smooth-talking Wan into signing the D1 Partner / Retirement Forms and parting with the Handover Items.

43. D1 looking for Licence  About 4 years before 2009, D1 with the help of Wan (known to D1 as “賣牌佬” in the Market) made a problem-free purchase of a right to use a Licence. In/about mid-2008, D1 asked Wan to look for another Licence, and was told the purchase price would be about HK$500,000. Wan asked D1 for an advance of HK$100,000, so D1 gave him such sum in cash (without receipt) when they met at a tea café in Huanggang (皇崗), Shenzhen. Wan eventually found the SHPV Licence.

44. P getting to know Wan  P’s Police Stmt stated that in mid-2007 P decided to rent out the Right because his wife had a PV Licence “粵ZA641港; GX7336”.[26] P’s wife introduced 黎玉珍 (“Lai”) to P, and Lai introduced Wan to P in/about December 2008. P had known Wan for about 5 weeks or so, and they had met Wan 2-3 times before they signed the P/Wan Agreement referred to in the paragraph below.

45. P/Wan Agreement  Wan agreed to rent the Right by paying a rental deposit of HK$50,000 and half-year’s rent at HK$5,000/month (ie HK$30,000) in advance. Wan asked P whether he could buy such Right upon expiry of the rental period, and P acceded to such request by 7 January 2009 when they signed 租用中港車牌照協議書 (prepared by P and witnessed by Lai, “P/Wan Agreement”):

“[Wan]租用[P][SHPV Licence]各項條款如下:

1. [Wan]汽車不能作旅客營運用途。

2. 租借期限由2009年1月1日至2009年12月31月止,每月租金港幣5,000 元,上期繳交,……由[Wan]:

[Wan]自行購買香港車牌號: ______________[27]

3. [Wan]支付[P]每月租金港幣5,000元,租金必須上期繳交,半年交一次合共陸萬元正。

4. 為安全起見,[P]收取[Wan]按金港幣伍元萬整,租用期滿後退回給[Wan], 但如在租用期內有任何非法行為,或未到租約期滿要求退租, [P]不須退回按金(港幣伍萬元整)給[Wan],並可即時取回[Wan]中港牌照租用權。

5. ……

6. 協議期內[Wan]利用中港牌汽車作任何違法行為,以致[P]涉及任何法律責任而引致[P]的所有損失,[Wan]必須負責賠償港幣叁拾萬元,本協議書即時作廢。

7. ……

8. [P]同意在租約期滿後,以港幣叁拾萬元正將[Sun Hing]和大陸合同同時轉讓給[Wan],按金伍元萬可以在叁拾萬元內扣除。如[Wan]在半年後不成交,[P]有權取消協議。

[P] : [signed]	[Wan]: [signed]		見証人: [signed]
		日期: 7-1-09” (my emphasis)

46. I disagree P merely rented out the Right to Wan. By clause 8 of the P/Wan Agreement, P agreed upon “租約期滿後” “以港幣叁拾萬元正將[Sun Hing]和大陸合同同時轉讓給[Wan]” upon the condition subsequent that “如[Wan]在半年後不成交,[P]有權取消協議”. This meant “租約期滿後” P was bound to sell at the agreed price unless Wan elected to “不成交”. So there must have been discussion between P and Wan about the terms of S/P of SH/Right as they actually agreed on the purchase price of HK$300,000. In fact, P admitted Wan was keen to buy SH/Right. With deferred completion, Wan did not have to forthwith pay the full purchase price which would have exposed the scam. I find Wan cajoled P into selling/transferring SH/Right to him with an interim L/R of the Right. On such basis, the terms of the P/Wan Agreement were better understood:

(a)   Under clause 3 Wan was required to pay a rental deposit of HK$50,000 (“Rental Deposit”) being 83% of the total rent for the entire rental period. P did not explain the disproportionately substantial sum as rental deposit, but illumination was found in clause 8 which treated the Rental Deposit as part payment of the S/P price, and HK$50,000 was within the usual range for an initial deposit for S/P of the right to use a Licence (see paragraph 25 above).

(b)   P did not explain why the rent was payable half-yearly in advance, but it tied in with the condition subsequent of Wan “半年後不成交” under clause 8, which meant P would receive some upfront payment whilst waiting to see if Wan would opt out of S/P of SH/Right.

(c)  Although Wan (not P) could opt out of S/P of SH/Right, I find Wan smooth-talked P into believing he was keen to buy SH/ Right but just needed some time, so P cast his eye more on the eventual S/P rather than on the interim L/R of the Right such that the clerical error in clause 3 as to half-year’s rent in advance (HK$30,000 rather than HK$60,000) went unnoticed.

(d)   Although clause 8 provided the agreed price of HK$300,000 was for “[Sun Hing]和大陸合同同時轉讓給[Wan]”, I do not believe Wan/P actually intended “大陸合同” (which I assume to be the joint venture contract that evidenced Sun Hing’s role as HK Party in the JV Company) to be transferred: (i) Wan was a fraudster who quickly disposed of SH/Right so he would not have intended to take over Sun Hing’s business, (ii) P insisted he would not have retired from Sun Hing given his long-term involvement in the JV Company’s fish-farming business, (iii) P was at pains to emphasise Wan had no relationship with Sun Hing and/or its business, and the plan was to have Wan join as a partner of Sun Hing only to let him use the SHPV Licence on his own vehicle, and (iv) there was no evidence P and Wan discussed the JV Company business and/or any valuation of Sun Hing’s business in reaching the agreed price of HK$300,000. In my view, notwithstanding the express terms of clause 8, P and Wan only contemplated S/P of the Right (facilitated by a change of ownership of Sun Hing) rather than sale of any business interests in the JV Company.

47. Clause 6  P knew he had to admit Wan as a partner of Sun Hing to facilitate change of particulars even for the interim L/R of the Right, but he also knew there were inherent risks in doing so,[28] so he insisted on clause 6 of the P/Wan Agreement to distance himself from Wan’s affairs from the beginning. In my view, this showed P’s understanding of the procedures for change of particulars of driver/vehicle for L/R of the Right was consistent with the usual practice described in paragraph 30(a)-(b) above.

48. Rental Deposit  The Rental Deposit was payable upon signing the P/Wan Agreement. P checked the amount of Wan’s cash cheque (“Deposit Cheque”), but claimed he did not notice the date was written as 28 January 2008. But he failed to explain why he would accept a 21-days’ post-dated cheque (thought to be dated 28 January 2009) when the Rental Deposit was to protect his interest in case of, say, non-payment of rent. I find P was unconcerned because he had his eye more on the eventual S/P of SH/Right rather than on the interim L/R, and he knew the Rental Deposit would be treated as part of the price payable on completion of such S/P.

49. Advance rent  Wan only paid about 2 months’ rather than 6 months’ rent in advance (ie about HK$10,000 in cash). P could not explain why as an experienced businessman who was careful/astute in dealing with near-strangers he tolerated such under-payment, especially when Wan only gave him what he then thought was a post-dated cheque for the Rental Deposit. I find P was content with receipt of 2 months’ advance rent because he had more of an eye on the future S/P of SH/Right for the agreed price, and expected to know Wan’s firm stance in a few months.

50. Handover Items  About 2-3 days after he signed the P/Wan Agreement, P gave Wan the Handover Items[29] for Wan to deal with relevant procedures (入牌手續) in Hong Kong and Mainland China. P admitted that apart from copy of his identity card the Handover Items were originals. P could not satisfactorily explain why he gave the Handover Items to Wan when he had not even presented the Deposit Cheque for payment and had not received full payment of half-year’s rent in advance. I am unconvinced P was merely careless when he (a) knew he (instead of Wan) should attend to the relevant procedures given the inherent dangers of parting company with the Handover Items, (b) took the precaution of including clause 6 in the P/Wan Agreement to protect his interests, and (c) claimed to be careful in dealing with third parties and near-strangers. In my view, P was lulled by Wan’s enthusiasm for the eventual S/P of SH/Right and was cajoled into giving Wan (as eventual buyer of SH/Right) the Handover Items.

51. BR Change Forms  Wan asked P to sign the Wan Partner Form, but P was unsure he did so when he signed the P/Wan Agreement or a few days later when he gave the Handover Items to Wan. P agreed that for Wan to use the SHPV Licence, a completed/signed BR Change Form had to be submitted to the BRO to admit Wan as a partner of Sun Hing, and a completed/signed Application Form had to be submitted to the PS Bureau for a fresh Approval Notice with changed particulars to Wan’s driver/vehicle for Wan’s own use (and not for the JV Company’s business). P also agreed Wan had no relationship with the JV Company and/or its business.

52. P initially claimed he signed twice at Parts I and III of the Wan Partner Form, but when pressed P said he only signed Part III (to be signed by all other remaining partners) and Wan signed Part I (details of incoming partner(s)). Although P initially asserted the Wan Partner Form “already contained the name of [Wan] therein to [P] for signature”, when pressed P was unsure whether Part I had been completed/signed when he signed in Part III (but he said he seemed to have seen the characters “溫滿有” on the form). Wan took away the Wan Partner Form without leaving a copy.

53. I find P’s allegations unreliable as his evidence wavered uncertainly as to (a) whether he signed both Parts I and III or just Part I of the Wan Partner Form, and (b) whether or not Wan’s particulars/address and signature were already in Part I when he signed in Part III. On balance I find Part I was blank when P signed in Part III. If, as P claimed, Wan was a fraudster who smooth-talked P into giving him the Handover Items and signing the Wan Partner Form with a view to misappropriate and dispose of SH/Right, it would have been far more convenient for Wan[30] to leave Part I blank and let the eventual buyer to whom Wan would sell SH/Right to insert his own particulars/address on the Wan Partner Form with P’s genuine signature. In my view, the Wan Partner Form that P signed was in fact the D1 Partner Form that Wan gave to D1 for submission to the BRO as explained in paragraph 67 below. This was consistent with the fact that the BR Records for Sun Hing did not have any record of Wan at all.

54. Procedures for change of particulars  P agreed the HK Holder should personally handle procedures for change of particulars in Hong Kong (eg at BRO and TransDept) and Mainland China (eg at PS Bureau), but P’s Police Stmt stated “…… [P]出租車牌畀[Wan]後, 由[P]喺文件簽署,交畀[Wan]去代辦”. P said he was a trusting person who in a moment of weakness, carelessness and laziness allowed Wan to deal with such procedures and was therefore cheated by Wan. I am not persuaded by such explanation. I bear in mind P was not unused to dealing with the BRO, TransDept and PS Bureau for he claimed to personally handle annual licence renewal for the SH Licences, and he could not satisfactorily explain the perplexing dichotomy between portraying himself as an experienced businessman careful in protecting his own interests and asserting he was grossly careless in handling L/R of SH/Right when he knew the pitfalls in admitting Wan as a partner of Sun Hing, passing the Handover Items to Wan, and letting Wan deal with procedures for change of particulars. Mere carelessness could not explain why P threw all caution to the winds when he dealt with Wan who was a near-stranger, and I find on balance P took risks because Wan’s reassuring smooth-talk gave him a false sense of security that Wan would eventually purchase SH/Right.

55. Deposit Cheque  P claimed he presented the Deposit Cheque for payment about a week after he signed the P/Wan Agreement, which was when P found out the date thereon was 28 January 2008. I find such evidence doubtful: if P thought such cheque was dated 28 January 2009, he would not have presented it for payment 2 weeks before the due date. Anyway, the wrong date was immaterial as there were no funds in Wan’s account. P claimed this caused him to doubt Wan’s trustworthiness, and he chased Wan who only made irregular partial payments and at times did not even take P’s calls. After much effort P recouped the Rental Deposit (HK$50,000) and balance of half-year’s rent in advance (about HK$20,000).

56. But P could not satisfactorily explain why, even though his suspicions were roused, he never asked Wan to return the Handover Items and/or ask Wan to desist from proceeding with application for change of particulars pending full payment of the payable sums so as to forestall any unauthorised “入牌” or “過戶” procedures, especially when P knew (a) the risks of placing the Handover Items and signed D1 Partner Form and Retirement Form (see paragraph 59 below) in Wan’s hands, and (b) the transferable nature of “第1聯” of the Approval Notice by change of particulars of driver/vehicle upon change of owner(s) of Sun Hing. At first P tried to say he did not think Wan would misuse the Handover Items and the outstanding sum was not large, but when pressed P claimed to have been very careless. But in my view P’s assertion of mere carelessness belied belief, especially when he knew the dangers of renting out the Right was akin those of renting out Sun Hing, and when he spent much effort in chasing Wan. Rather, I find on balance P did not do anything because he was placated by Wan’s smooth-talk and partial payments and urged to focus on the eventual S/P of SH/Right in clause 8 of the P/Wan Agreement into believing that Wan as eventual buyer would not misuse the Handover Items.

57. BR Search  The last time P saw Wan was in August 2009. There was no evidence Wan ever told P he would “不成交” the S/P in clause 8 of the P/Wan Agreement. P initially claimed his sixth sense (心血來潮) urged him to conduct a BR Search in August 2009, but he later said he spent a few months looking for Wan before conducting a BR Search in October 2009. But P did not explain how he looked for Wan when Wan was nowhere to be found and he did not even approach Lai at all. P tried to brush this away by saying he would not have contacted Lai as she was a married woman and had no obligation to help him. I do not believe P’s explanations, and find he had not been forthcoming on the entirety of his dealings with Wan and Lai.

58. The BR Search revealed P ceased to be the proprietor of Sun Hing on 25 March 2009, and D1 (whom P did not know) was registered as the proprietor as from 25 February 2009 with D2 admitted as partner on 26 August 2009. Wan’s name was not found in the BR Records. As I have found, P signed the Wan Partner Form which was the D1 Partner Form that Wan gave D1 for admitting D1 as a partner of Sun Hing.

59. P insisted he never signed Part II of any BR Change Form (which suggested his “signature” in Part II of the Retirement Form was forged),[31] and alleged Wan “fraudulently used false instrument to mislead the [BRO] and/or Mainland Relevant Authority to effect the transfer of [Sun Hing] and the change of user of the [SHPV Licence] respectively”. Of course, it would be far more convenient for a fraudster to have the proprietor of the HK Holder sign a BR Change Form to retire from the HK Holder to facilitate eventual misappropriation and disposal of the HK Holder together with the right to use a Licence. In my view, this was what Wan did, and I find on balance P also signed Part II (details of outgoing partner(s)) of the Retirement Form at the same time as he signed the Wan Partner Form (ie the eventual D1 Partner Form) 2-3 days after the P/Wan Agreement when he gave the Handover Items to Wan. I find P had his eye more on the eventual S/P envisaged in clause 8 of the P/Wan Agreement, and Wan cajoled him

into the convenience of signing the BR Change Forms in one go (which was consistent with P’s unconcern over leasing-related matters[32] and his conduct that facilitated eventual S/P of SH/Right[33]). Such conclusion was bolstered by the adverse inference against P discussed in paragraphs 60-64 below.

60. Inspection  P claimed he personally attended the BRO many times to request inspection of (a) the Retirement Form and (b) the Wan Partner Form (ie the eventual D1 Partner Form), but was told he could not inspect them due to privacy legislation. Later he did not ask his solicitors to obtain copies of such forms because by then he thought there was no need to sight the Retirement Form as (a) he never signed it so his signature was necessarily forged, (b) it was easy to forge a signature so nothing could be gathered from such document, and (c) he did not want to delay the trial when his solicitors raised it with him late in the day. But in fact such request raised with him via his solicitors was made in 2013 more than 1½ years before trial.

61. On 29 August 2013, D1’s/D2’s former solicitors asked the BRO for copies of the Retirement / D1 Partner Forms. On 6 September 2013, the BRO replied that section 4 of the Business Registration Ordinance Cap 310 required obliteration of information on such forms not related to D1/D2. On 12 September 2013, D1’s/D2’s former solicitors informed P’s and D3’s solicitors that the BRO was willing to provide the requested documents upon production of relevant authorisations, but privacy provisions required parts thereof to be obliterated (especially P’s “signature(s)”) unless P authorised such disclosure. P’s solicitors told P about this, but P declined to give his authorisation because he did not wish to help Ds’ defence case against him.

62. The BRO’s letter dated 13 January 2014 confirmed Sun Hing’s BR Records vis-à-vis D1/D2 had 3 BR Change Forms[34] (which copies D1/ D2 and D3 could not obtain), and vis-à-vis D3 had 2 BR Change Forms[35] (which copies D1/D2 and D3 eventually obtained with certain parts obliterated). In my view, the D1 Partner and Retirement Forms were plainly relevant (as P alleged he did not sign the latter and he was uncertain whether Wan’s particulars/signature were already in Part I of the former (ie Wan Partner Form) when he signed in Part III) and within P’s power to bespeak, which meant he failed to adduce critical evidence to prove his “signatures” on such BR Change Forms were forgeries.

63. P had no valid reason for withholding his authorisation to obtain copies of the D1 Partner and Retirement Forms from the BRO. He was in breach of his discovery obligations in the Peruvian Guano sense in refusing to make discovery of relevant documents that were within his power because he did not want to help the defence case. This was a classic situation to apply the maxim omnia praesummuntur contra spoliatorem for drawing adverse inference against P for failing to produce relevant documents which should reasonably have been produced and there was no adequate explanation for their non-production.[36] Such maxim applied to raise an inference on the available evidence that served to weaken P’s assertions that (a) he signed the Wan Partner Form with Wan’s particulars/address in Part I to admit Wan as a partner of Sun Hing and (b) he did not sign any BR Change Form to retire from Sun Hing.

64. Ds did not carry any burden to prove P’s signatures on the D1 Partner / Retirement Forms were genuine. Rather, it was for P who rested his case on knowing, wrongful and fraudulent misappropriation of SH/Right by Wan with allusion to false documents and forged signatures to prove such serious allegations. I find the aforesaid adverse inference together with other evidence that discredited P’s veracity led to the conclusion that P authored his own retirement from Sun Hing by signing Part II of the Retirement Form eventually submitted to the BRO, and Part I of the Wan Partner Form (which was the eventual D1 Partner Form) was blank when P signed in Part III.

65. Summary on P’s case  In my view, P was beguiled by the attraction of the eventual S/P of SH/Right so he was not overly concerned about immediate full payment of the Rental Deposit (part of the agreed price to be paid on eventual S/P) and half-year’s rent in advance (as he had 2 months’ advance rent as he waited for Wan’s further payment and confirmation of his purchase of SH/Right). Despite P’s otherwise careful nature, he was lured by Wan’s enthusiasm as eventual purchaser of the S/P in clause 8 of the P/Wan Agreement into parting company with the Handover Items and to sign the Wan Partner (or eventual D1 Partner) Form and Retirement Form in one go, which explained why P never asked for their return even up until Wan’s disappearance in August 2009. P’s act of giving Wan the Handover Items (especially the original BR Cert of Sun Hing, SH Chop and “第1聯” of the Approval Notice) and his bare assertion of faith in Wan were inconsistent with P’s allegations that he only had thought for L/R of SH/Right to Wan.

66. Misappropriation of SH/Right  That said, I find on balance Wan failed to pay the price of HK$300,000 (save for the Rental Deposit of HK$50,000) under clause 8 of the P/Wan Agreement, and had no actual authority from P to sell/transfer SH/Right to D1. I accept Wan made use of the Handover Items and the D1 Partner / Retirement Forms P signed to admit D1 as a new partner of Sun Hing and then to retire P as partner of Sun Hing to misappropriate and sell SH/Right without P’s actual authority.

67. D1  I accept that on 24 February 2009 Wan telephoned to inform D1 he found an available Licence on sale. When they met up in the afternoon in Sheung Shui, Wan gave D1 the SHPV Plates and the following: (a) original Approval Notice (粵公車(2009)第052069號原批文(2009)第024449號) and 出入境車輛備案年審記錄表,[37] (b) original BR Cert of Sun Hing, (c) SH Chop, (d) 2 completed BR Change Forms signed by P (ie the D1 Partner and Retirement Forms) to admit D1 as partner of Sun Hing and to retire P from Sun Hing, and (e) copy of P’s identity card. D1 paid the balance price of HK$400,000 in cash. I find on balance when Wan gave the D1 Partner Form to D1, it already had P’s particulars/signature in Part III.

68. I further accept D1’s purchase of SH/Right was similar to how he bought the right to use another Licence about 4 years ago, and he knew he had to become the proprietor of Sun Hing for such purpose. D1 did not meet P, sign any S/P agreement with Wan/P, conduct any BR Search on Sun Hing, sight any authorisation letter given by P and/or obtain any receipt from P, but I find it was no different from the manner of his earlier purchase of the right to use a Licence. D1 asked Wan whether Sun Hing had any outstanding debts, taxes and/or liabilities or actual/potential litigation, and was told Sun

Hing was clean with no problem. I also accept D1 believed Wan had authority to sell SH/Right because (a) Wan was known to him as a “賣牌佬” in the business of brokering S/P of the right to use Licences, (b) D1 had bought such right from Wan about 4 years ago in similar fashion with no problem, and (c) Wan had with him all indicia of title for the Right (ie complete set of original Handover Items except for copy of P’s identity card).

69. On the following day, D1 filled in Part I of the D1 Partner Form as a new incoming partner, submitted it together with other papers Wan gave him (excluding PRC-related documents) to the BRO, and obtained a new BR Cert of Sun Hing. On 25 March 2009, D1 signed Part III of the Retirement Form, and submitted it together with copy of P’s identity card and original Sun Hing’s BR Cert to the BRO. D1 was then recorded in the BR Records as sole proprietor of Sun Hing. D1 then brought the documents Wan gave him (including “第1聯” of the Approval Notice) to the PS Bureau and submitted  completed Application Form for change of particulars of driver/vehicle. D1 met no difficulty in such procedures, and the PS Bureau did not query his purpose/use of the SHPV Licence or ask for documents from JV Company. 4 days later, the PS Bureau issued a fresh Approval Notice, and D1 took it to PRC customs to put on record. D1 affixed the SHPV Plates to his vehicle with Hong Kong registration no MX2822 driven by his employed driver 黃偉良 (main driver), and later D2 and 陳瑞娟 became authorised drivers. D1/D2 agreed Sun Hing did not have any office or engage in any business/trading, and did not participate in the business of the JV Company and/or attend to any “股東變更手續” in Mainland China.

70. D2  In mid-2009 D1 was about to emigrate to Australia, and for convenience D2 agreed to become a partner of Sun Hing to help manage the SHPV Licence and relevant paperwork. D2 did not pay any consideration. On 26 August 2009, D1 submitted completed/signed BR Change Form to the BRO to process D2’s admission as a partner of Sun Hing.

X.  DEALINGS AMONGST P, D1/D2 AND D3

71. Report to the police  I accept P made a report to the police on 13 November 2009,[38] and investigation was passed to Ma On Shan Police Station. P occasionally asked about progress, and was verbally told Wan used similar deception technique to trick 5-6 victims of their Licences. P began to be concerned that the altered BR Records might adversely affect his use/renewal of the SH Licences, and he feared 莫潤財 (who subcontracted the right to use the SHGV Licence) might claim for damages if the SHGV Licence could not be renewed. Still P did not approach Lai to trace Wan, and even tried to brush aside his inaction by saying there was no need to do so as she merely introduced Wan with no obligation to follow up for him. I find such reticence strange when, according to P, he found out a stranger had taken over his company and Wan was nowhere to be found. P said at some stage he contacted Lai who told him Wan was wanted by the police for cheating various victims by similar modus operendi. I find P’s wavering evidence unreliable and doubt whether he had been telling the entire truth.

72. P’s demands  On 6 January 2010, P’s solicitors  sent the 6/1/10 Letter to D1/D2 alleging P never retired from or sold Sun Hing to D1, explaining P had made report to the police for suspected deception or falsification of documents, and warning that P would (a) notify the PS Bureau’s Traffic Management Bureau to freeze illegal use of the SHPV Licence, (b) request the BRO to rectify entries for Sun Hing’s proprietor in the BR Records, (c) apply to the TransDept to stop the relevant Closed Road Permit, and (d) report to the PS Bureau’s Traffic Management Bureau to cancel the SHPV Licence’s “出入境批註”. P’s solicitors urged D1 to surrender ownership of Sun Hing to P, and to process “退牌手續” at the PS Bureau’s Traffic Management Bureau, PRC customs and PRC Frontier Inspection and return “退牌批文、車牌牌簿及相關文件” to P. D1 did not receive such letter as he was in Australia, but he knew about it.

73. On 20 January 2010, D1’s/D2’s former solicitors replied that D1 acquired the Right from Wan who handled S/P of Licences in Mainland China, and it was over physical meetings that D1 asked Wan to look for a PV Licence and D1 eventually bought the Right. On 25 January 2010, P’s solicitors replied by the 25/1/10 Letter to assert D1/D2 were not true/genuine partners of the JV Company so S/P of SH/Right between Wan and D1/D2 was not binding on P, and they urged D1/D2 to answer several questions.[39] There was no reply to such letter. P admitted that even up to the time of trial he had not taken the steps in paragraph 72(a) and (d) above (but he did not satisfactorily explain why he did not do so), and he was told by the BRO and TransDept they would not rectify their records upon his mere request.

74. D3  I accept D1 wanted to sell some assets for his emigration to Australia, so in April/May 2010 he sold SH/Right to D3 via D3’s Agent Chan for RMB540,000 (RMB500,000 as price and RMB40,000 as Agent’s commission).[40] D3 became aware in/about April 2010 that no further Licences would be issued, and Kwan suggested to D3 that he should buy another Licence for use on D3’s vehicle with registration no NU887 to be driven by Kwan. D3 knew such purchase required acquisition of a HK Holder, and he told Kwan to handle the purchase on his behalf. So Kwan asked Chan to look for a Licence and handle the relevant procedures. Chan’s friend 練偉秋 (“Lin”) learnt D1 wanted to sell/transfer SH/Right for RMB500,000, so Chan/Lin put together the deal between D1 and D3.

75. D1/D3 Agreement  I accept Chan obtained copies of the BR Cert of Sun Hing and Approval Notice of the SHPV Licence, and carried out BR Search to confirm D1 was a partner of Sun Hing. Chan also at “國內有關部門查詢[SHPV Licence]在國內有沒有涉及違法事宜，並得知[SHPV Licence]在國內沒有涉及任何違法事宜”. Chan then told Kwan she found a Licence on sale for RMB540,000. Kwan believed the then market value of a Licence was about HK$500,000-HK$550,000, and when he reported to D3, D3 considered the asking price reasonable and told Kwan to purchase the Licence on his behalf. D3 paid RMB540,000 to Kwan, ie RMB100,000 and RMB300,000 were paid in May 2010 and RMB140,000 was paid in mid-June 2010. On 4 May 2010, Kwan met Chan at a roadside café in Futian District, Huanggang (皇崗福田區), and agreed to buy SH/Right for RMB540,000. Chan gave Kwan copies of the BR Cert of Sun Hing and Approval Notice of the SHPV Licence, and Kwan paid RMB100,000 to Chan by bank transfer.

76. I find that in early May 2010 pursuant to Lin’s arrangements Chan met D1 (which was the only occasion they met). Chan confirmed with D1 he would sell/transfer SH/Right, and asked him whether Sun Hing owed any debts/taxes or had any potential litigation to which D1 replied there was none. D1 did not tell Chan/D3 he had received the 6/1/10 and 25/1/10 Letters and/or had given a statement to the police on 1 December 2009. I find D1 thought it was unnecessary as (a) in early January 2010 the police told him they were satisfied after investigation he was not involved in any scam and he did not have to report to the police any more, and (ii) he paid valuable consideration for SH/Right. At such meeting, D1 signed the following agreement which D3 asked Chan to prepare (“D1/D3 Agreement”):

“有關購買來往中港兩地車輛指標移交協議

協議事由:關於[Sun Hing]國內車牌:粵Z4156港直通車牌的移交手續費用合計人民幣:伍拾肆萬元正,在移交文件後甲、乙雙方須遵守以下協議。

1、 指標手續移交完成後甲方保証可以正常行駛,如政策不變甲方同時保証該車牌在移交之後是因之前有走私或達法行為的其他原因造成直接給予某部門注銷該車牌的一切責任均由甲方負責;扣除有關費用之後全數還乙方。

2、 甲方於2010-5-10之前獨立擁有該車牌的使用取權,根據乙方要求及雙方協定,甲方必需承擔在過戶之前的所有債權債務,一切與乙方無關;之後所有費用均由乙方自行負責。

3、 在簽署有關協議後,乙方需即時支付人民幣:拾萬元給甲方作為訂金。

4、 在移交同時甲、乙雙方必須在三十天內完成所有有關手續,乙方亦在辦理完所有手續時期支付餘下的尾數。

5、 根據甲方辦理車牌的審批程式,該車牌已於2010-5-20日正式移交給乙方名下使用,公司車牌指標使用權亦正式歸乙方獨立擁有。

6、 如甲方中途變卦或期他原因不能如期移交有關手續,甲方必須雙倍退回訂金給乙方。同樣道理,如問題發生在乙方,乙方亦需雙倍賠償給甲方。

7、 此協議甲、乙雙方各執一份,有同等法律效用。

甲方簽署: [signed by D1] 乙方簽署: [signed by D3]”

Chan then paid RMB100,000 to D1 by 2 instalments (RMB55,000 on 4 May 2010 and RMB45,000 on 13 May 2010), and D1 signed receipt for the same.

77. 1^st stage  In May 2010, Kwan met Chan again in Mainland China. Chan gave Kwan a BR Change Form and asked him to fill in Part I to admit D3 as a new partner of Sun Hing, arrange for D3 to sign Part I, and return it her for handling. Chan also asked Kwan to arrange for D3 to sign the D1/D3 Agreement. Kwan brought such documents to Hong Kong for D3 to sign, and afterwards returned them to Chan. Since D1 wished to personally handle procedures at the BRO, Chan gave him the BR Change Form dated 10 May 2010 completed/signed by D3.[41] I accept D2 (who did not know and had not met D3/Chan) did not know D1 had sold SH/Right until he asked her to sign such BR Change Form, but she did not think there was any problem.

78. 2^nd stage  In mid-May 2010, Chan did BR Search to confirm D3 had been admitted as a partner of Sun Hing. To proceed with transfer of SH/ Right, D3 had to apply for a new Approval Notice with change of particulars to his own driver/vehicle, and D1 had to handle “退牌手續” to retire his own driver/vehicle from the SHPV Licence. Chan asked Kwan to pay RMB300,000 and to give her the home return permits of D3/Kwan and VR Document of the vehicle that would display the SHPV Plates. Pursuant to

such request, Kwan transferred RMB300,000 to Chan in Mainland China. D1 gave the following to Chan: (a) a BR Change Form signed by D1/D2 for their retirement from Sun Hing, (b) original BR Cert of Sun Hing, (c) original Approval Notice of the SHPV Licence, (d) SH Chop, (e) 過關簿, (f) 國內行車証, (g) corresponding Closed Road Permit, and (h) SHPV Plates.  Chan submitted the BR Change Form dated 14 May 2010[42] to the BRO. Chan did a fresh BR Search, and the updated BR Records as shown to Kwan revealed D1/D2 had retired from Sun Hing. On 14 and 17 May 2010, Chan transferred RMB100,000 and RMB200,000 respectively to D1 who signed receipt for the same.

79. 3^rd stage  Chan also dealt with procedures for change of particulars in Mainland China by submitting a completed/signed/stamped Application Form together with the BR Cert and updated BR Records of Sun Hing, home return permits of D3’s driver(s) and their “司機牌簿”, and VR Document of D3’s vehicle that would display the SHPV Plates. I accept there was no need to submit and Chan did not submit/use any documents or company chop of the JV Company for such application. After Chan obtained a fresh Approval Notice, she proceeded to obtain new 國內行車証 and new Closed Road Permit.Chan then told Kwan the procedures for change of particulars were done and gave him the following: (a) new original BR Cert of Sun Hing, (b) updated BR Records from BR Search of Sun Hing, (c) new Approval Notice and 國內行駛証, (d) 過關簿, (e) new Closed Road Permit, (f) SH Chop and (g) SHPV Plates. D3 displayed the SHPV Plates on his vehicle with Hong Kong registration no NU887 to be driven by Kwan. On 23 May 2010 Chan paid D1 a sum of RMB50,000, and later she paid D1 a further sum of RMB50,000. On 2 June 2010 D3’s vehicle entered/exited Huanggang Port of Entry, so in mid-June 2010 Kwan gave the balance of RMB140,000 to Chan by bank transfer to complete the transaction. D1 confirmed he received the price of RMB500,000, and Chan and Lin shared the balance of RMB40,000 as their profits. I accept Kwan/D3 never met D1/D2, P or Wan, and no one (including D1 and Lin) mentioned to them about any problem with SH/Right or P’s demands thereto.

XI.  AFTERMATH

80. On 25 May 2011, P’s solicitors wrote (“25/5/11 Letter”) to demand D1/D2 to reply to the 25/1/10 Letter, but there was no reply. Upon enquiries made on 25 May 2011, Ma On Shan Police Station replied to P’s solicitors on 1 June 2011 that police investigation was still continuing but no arrest had been made to date. A similar reply was given to P on 3 June 2011.

81. P’s discovery of D3  P’s solicitors conducted an updated BR Search. The BR Records dated 2 June 2011 showed D1/D2 retired from Sun Hing on 14 May 2010, but D3 was admitted as partner on 10 May 2010. P did not know D3. So on 3 June 2011 P’s solicitors wrote to D3 (“3/6/11 Letter”) alluding to the background matters in the 6/1/10 Letter and P’s report to the police for suspected deception or falsification, and enclosing copies of the 6/1/10, 25/1/10 and 25/5/11 Letters. P’s solicitors claimed D3 had no right to use the SHPV Licence, and warned P would take the steps in paragraph 72(a) and (d) above and would complain to the police and PS Bureau’s Traffic Management Bureau to investigate D3. They also asked D3 to answer questions similar to those raised in the 25/1/10 Letter mutatis mutandis, including whether D1/D2 disclosed to D3 they received the 6/1/10 and 25/1/10 Letters.

82. D3 received the 3/6/11 Letter (but was unsure about the annexures). I accept this was the first time D3 knew of any issue over SH/ Right. D3 asked Kwan to follow up, so Kwan asked Chan who made enquiries with D1, but D1 just proposed to re-purchase SH/Right for RMB600,000 without compensation. Kwan declined such proposal because:

(a)   D3 believed he lawfully purchased SH/Right because (i) Chan (as D3’s Agent) told Kwan she had done BR Search which did not reveal any problem with Sun Hing, (ii) Chan would have told Kwan/D3 if she found any problem, (iii) Chan said all procedures went smoothly, (iv) the transaction was similar to how D3 previously acquired other Licences, (v) D1 had the Handover Items and gave the requisite BR Change Forms, (vi) D3’s vehicle that displayed the SHPV Licence could travel between Hong Kong and Mainland China without problem, and (vii) D3 through Chan successfully applied for a fresh Approval Notice and placed it on record at PRC customs;

(b)   it did not appear Sun Hing had any outstanding debts/liabilities as none surfaced in the years after D3 acquired SH/Right;

(c)  D3 asked Chan to prepare the D1/D3 Agreement and to require D1 to give the warranties under clauses 1-2;

(d)   D3 had no problem in annual renewal of the Approval Notice (handled by Chan) ever since he acquired SH/Right;

(e)  D3 understood the value of a Huanggang Port of Entry Licence (皇崗的中港車牌) had increased to RMB800,000 by then.

83. On 7 July 2011, D3’s former solicitors replied to deny P’s allegations, and explained “……因為現在案件已由警方處理中,[D3]不會對[P]的任何的題作出回應 ……” On 8 July 2011 P’s solicitors pressed D3 to answer the questions raised, but D3 was unaware of such letter.

84. I accept that had Chan been aware of P’s claims over SH/Right, she would have told Kwan/D3 who would not have bought SH/Right. As D3 explained, he was prepared to pay valuable consideration to acquire the right to use a Licence, so he had no reason to buy one with potential problem (irrespective whether such problem was real or otherwise) and to expend time, effort and costs to deal with it.

XII.  PROPRIETARY CLAIM VIA TRACING

85. Mr Sher submitted (a) P was the original owner of Sun Hing and the Right, (b) Wan having no legal right/authority to sell SH/Right misappropriated and unlawfully sold them to D1 without P’s authority/ consent, (c) D1 admitted D2 as a partner of Sun Hing without consideration, and (d) D1/D2 sold SH/Right to D3 and received the price of RMB500,000, so P had an “equitable proprietary remedy” over the stolen SH/Right by following/tracing them into the hands of D1/D2 and D3.

86. The starting point was to identify the “proprietary base” of P’s claim, ie whether P had a legal/equitable interest in an asset that was the subject matter of his claim. I agree there could not be a “proprietary claim” in respect of Sun Hing as an unincorporated HKCo in the form of sole proprietorship or partnership (according to the BR Records). Since Sun Hing did not possess any separate legal personality distinct from its proprietor or partners, P could not assert any “proprietary claim” over Sun Hing as an entity.[43] In the end, Mr Sher accepted Sun Hing was a trade name, and P no longer sought any restitutionary reconveyance of Sun Hing and instead sought the declarations in paragraph 9(a)-(b) above.

87. I agree with Ms Ho that P’s “proprietary claim” over Sun Hing could only be a claim over Sun Hing’s assets, and the only asset of Sun Hing P wished to recover from Ds was the Right which was a chose in action. DHCJ Morris QC in Armstrong DLW GmbH v Winnington Networks Ltd said “[a] chose in action is capable of being the subject matter of theft, but not …… of conversion”.[44] Was the Right a proper “proprietary base”? Mr Sher did not address this legal point. Mr Cheung submitted a “proprietary base” amenable to following/tracing must be a physical asset/property, but he did not cite any authority in support. Ms Ho accepted a chose in action misappropriated by fraud was traceable in equity.[45]

88. Lord Browne-Wilkinson observed in Westdeutsche Landesbank Girozentrale v Islington London Borough Council that:[46]

“I agree that stolen moneys are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises under a constructive or resulting trust. Although it is difficult to find clear authority for the proposition, when property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity ……”

But Rimer J in Shalson & ors v Russo & ors took a narrower approach:[47]

“111. As to Lord Browne-Wilkinson’s more general proposition in the second paragraph that property obtained by fraud is automatically held by the recipient on a constructive trust for the person defrauded, I respectfully regard the authorities he cites as providing less than full support for it. At any rate, they do not in my view support the proposition that property transferred under a voidable contract induced by fraud will immediately (and prior to any rescission) be held on trust for the transferor.”

Rimer J confined the principle to cases where recission of a contract for fraudulent misrepresentation had been effected on the basis that the beneficial title which passed to the representator under the contract revested in the representee who would then have sufficient proprietary title to enable him to trace.[48] Shalson & ors was not cited in Armstrong and DHCJ Morris QC did not have the benefit of detailed submissions, but the learned judge accepted Lord Browne-Wilkinson’s proposition as good law:[49]

“94. In my judgment, as a matter of authority and principle, if and where legal title remains with the claimant, a proprietary restitutionary claim at common law is available in respect of receipt by the defendant of a chose in action or other intangible property.

……

129. Lord Browne-Wilkinson’s observation has subsequently been the subject of substantial judicial and academic analysis and comment (upon which I did not receive any detailed submission from the parties). Nevertheless, in my judgment, in so far as it relates specifically to the case of theft or a bare transfer (and perhaps also where there is a contract between A and B which is void), it is accepted as representing the law ……”

DHCJ Kent Yee in Zimmer Sweden AB v KPN Hong Kong Limited & anor referred to such authorities, but did not express any firm view in the context of a ruling on interlocutory injunctive reliefs. He merely held it was arguable that Lord Browne-Wilkinson’s opinion remained good law.[50]

89. Despite Rimer J’s observations, Ms Ho was prepared to accept the Right was a chose in action traceable in equity if misappropriated by fraud, which I assume was also P’s stance even though Mr Sher did not address on the above authorities. In the absence of full argument, I am content to proceed on the basis (but without deciding) that the Right (a chose in action), which was misappropriated as a result of Wan’s fraud and disposed of without P’s actual authority/consent, was traceable in equity.

90. The second question was: whether P could follow/trace the Right from his hands into Ds’. Here, there was no dispute the Right passed from P to D1/D2 and then to D3.

91. The third question was this: what was the nature of P’s claim to the Right, and what was the appropriate remedy to vindicate P’s proprietary right. On Lord Browne-Wilkinson’s proposition, “equity imposes a constructive trust on the fraudulent recipient” of stolen property,[51] and when such trust arises “the beneficiary immediately acquires an equitable proprietary interest in the trust assets”[52] that:

“…… generally binds all subsequent transferees of the property other than bona fide purchasers for value without notice. The property is “recoverable and traceable in equity”, …… and unless the recipient is a bona fide purchaser the beneficiary can then obtain an order for conveyance of the legal title which obliges the holder “to surrender the property in question, thereby bringing about a determination of the rights and titles of the parties”.”[53]

Counsel for all parties agreed to the form of relief for reconveyance of the Right in paragraph 9(c) above in case liability was established. P also sought declaratory orders in paragraph 9(a)-(b) above. If P were able to establish his case on liability, it was arguable the proposed declaratory order in paragraph 9(a) above might be a possible remedy to vindicate P’s right. But the proposed relief in paragraph 9(b) above for a declaration that P be restored as proprietor of Sun Hing in the BR Records appeared to be a perplexing hybrid between a declaration and a mandatory order. P did not join the BRO as a party or adduce evidence on whether the BR Records could be altered to “restore” P as proprietor of Sun Hing, so it was doubtful whether such relief could be granted. But practically such relief might have been overtaken by the proposed relief in paragraph 9(c)(i)-(ii) above.

92. The final question is whether Ds had a defence to defeat/restrict P’s claim. P’s right to trace will be defeated by the defence of bona fide purchaser for value without notice. Ds claimed such defence was augmented by Wan’s apparent authority to sell SH/Right so P was bound by the sale/transfer to D1. It is perhaps more logical to start with such contention.

XIII.  APPARENT AUTHORITY

93. Mr Cheung submitted P held out Wan as having apparent authority to sell SH/Right and to collect price payment so P was estopped from denying such fact, and D1 did not have any actual/constructive knowledge of Wan’s lack of authority. Mr Sher helpfully confirmed it was not P’s case that any of Ds had actual knowledge of Wan’s lack of authority.

94. As a matter of general principle, when a person by words or conduct represents or permits to be represented that another has authority to act on his behalf, he may be bound by the acts (which he has not authorised and has even forbidden) of that other person with respect to anyone dealing with him as agent on the faith of such representation, to the same extent as if such other person has the authority that he is represented to have, even though he has no such actual authority.[54] Such representation must be made to third party(ies) who must have reasonably relied on it.[55] An act of an agent within the scope of his apparent authority does not cease to bind his principal merely because the agent was acting fraudulently and in furtherance of his own interests.[56] Such doctrine applies to transfers of property.[57] The burden of proof is on the person alleging apparent authority.

95. A representation by the agent himself that he has authority cannot create apparent authority in him unless the principal can be regarded as having in some way instigated or permitted it, or put the agent in a position where he appears to be authorised to make it.[58] One way in which courts have sought to validate unauthorised dispositions by agents in possession of goods or documents of title is to recognise apparent authority where the principal has entrusted the agent with indicia of title to property with some representation beyond mere parting with possession.[59]

96. Here, (a) Wan was P’s agent authorised to deal with procedures for change of particulars to facilitate Wan’s use of the Licence during the interim rental period, (b) P gave the Handover Items to Wan for such purpose, and (c) Wan exceeded such authority and misappropriated/sold SH/Right. In my view, it was equally clear that in giving Wan the Handover Items (a complete set of original documents/items for SH/Right, copy of P’s identity card and SHPV Plates) as well as the signed D1 Partner / Retirement Forms, P also clothed Wan with documents of title as to the Right and made representation to third party(ies) that Wan had authority to sell/transfer SH/Right and to handle the entire transaction on P’s behalf:

(a)   “第1聯” of the Approval Notice evidenced approval by the PS Bureau for the HK Holder’s specified driver/vehicle to enter/ exit Mainland China via a specified port of entry, and other copies thereof had to be presented to PRC customs and PRC Frontier Inspection for record. So “第1聯” of the Approval Notice for the SHPV licence was essentially a document of title of the Right transferable upon change of particulars of vehicle/driver such that P admitted it should be kept in safe custody and not given to, say, a Lessee of the Right.

(b)   I have found it was the usual practice in the Market that a HK Holder would not part company with “第1聯” of the Approval Notice to anyone (including a Lessee) except a buyer, and would personally handle procedures for change of particulars on L/R of such right. P knew of this, and further knew he himself should attend to procedures for change of particulars in Hong Kong and Mainland China for L/R of SH/Right to Wan.

(c)  I have also found it was the usual practice in the Market that a HK Holder would only give “第1聯” of the Approval Notice and other Handover Items to an Agent to market/sell the right to use a Licence or directly to a buyer of such right.

(d)   So by prematurely (ie before S/P of SH/Right under clause 8 of the P/Wan Agreement) arming Wan with “第1聯” of the Approval Notice together with other Handover Items (most of which were originals) for the SHPV Licence, P acted unreasonably in creating a substantial risk that other persons (eg a reasonable buyer of the right to use a Licence in the Market) might be misled if Wan did something unauthorised with them.[60] Such buyer might regard Wan’s possession of the Handover Items (including “第1聯” of the Approval Notice, SH Chop and BR Cert) as clear indicia that Wan was the HK Holder’s Agent authorised to sell/transfer SH/Right rather than (i) a Lessee of the Right or (ii) an Agent authorised to L/R such Right (since an HK Holder would not have given the Handover Items to a Lessee) or to renew the Licence (in which case Wan would not have the SHPV Plates). Further, P allowed such risk to continue even though Wan was not living up to his promises to pay the Rental Deposit and half-year’s rent in advance. So P “permitted” a representation to be made on the basis of “第1聯” of the Approval Notice, SH Chop and BR Cert augmented by other Handover Items given to D1 that constituted the full set of materials for sale/transfer of SH/Right.

(e)  Here, the Handover Items (except for copy of P’s identity card) were originals which posed a much higher risk than provision of copies,[61] especially when a HK Holder was not expected to part company with “第1聯” of the Approval Notice, SH Chop and original BR Cert of the HK Holder unless it was for sale/transfer of the right to use a Licence. I find P’s provision of the original Handover Items to Wan amounted to clear representation that Wan was P’s authorised Agent for handling all aspects of sale/transfer of SH/Right, including collecting the price against handing over the Handover Items (which should happen hand in hand).

(f)  P’s aforesaid “representation” was made obvious by (as I have found) his signing and arming Wan with the Wan (or D1) Partner and Retirement Forms. In clothing Wan with such signed forms (for admission of new partner to Sun Hing and his retirement therefrom), P clearly held out to third parties that he authorised Wan to sell/transfer SH/Right on his behalf.

(g)   I find on balance that P placed Wan in a position, objectively viewed, carried apparent authority to sell/transfer SH/Right and to collect payment of price. Subject to the issue of notice discussed below, this operated as an estoppel to prevent P from asserting he was not bound by S/P of SH/Right between Wan and D1.[62] Vaughan Williams LJ in Fry & anor v Smellie explained this was an application of the rule that “when one of two innocent persons must suffer, the person who rendered it possible for the wrong-doer to do the wrong, by reason of the trust he reposed in the wrong-doer, should suffer rather than the person who suffers from the agent having that opportunity”.[63]

97. But Mr Sher submitted Wan having apparent authority was an insufficient answer since no act done by an agent in excess of his actual authority is binding on the principal with respect to persons having notice that in doing such act the agent exceeded his authority.[64] Mr Sher submitted D1 was a mature businessman who ignored P’s interest as owner of SH/ Right, and he turned a wilful blind eye by failing to confirm Wan’s authority to sell/transfer SH/Right and to collect the price on behalf of P. Mr Sher argued D could not simply rely on his previous similar and problem-free purchase of a right to use another Licence through Wan, and questioned why (a) D1 paid HK$100,000 in advance to Wan to look for a Licence, (b) D1 did not carry out BR Search to ascertain who was the then owner, (c) there was no letter of authorisation by P to Wan, (d) there was no written S/P contract between Wan/P and D1, and (e) D1 did not obtain receipts for payments made to Wan. Mr Sher submitted Wan’s possession of the Handover Items was insufficient to bind P when a reasonably prudent purchaser would have performed due diligence and made enquiries to see if Wan had authority from P to sell/transfer SH/Right and to receive the price on P’s behalf.

98. In Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 2), Lord Neuberger NPJ held that once apparent authority is established, the ability to rely on the representation so made out will be lost only if the third party has actual knowledge of the lack of actual authority or if that party’s belief in the agent’s authority was dishonest or irrational. The test of “irrationality” sets a higher hurdle than “unreasonableness” in that, in a commercial context, absent dishonesty or irrationality (which included turning a blind eye and being reckless) a person should be entitled to rely on what was told. This might occasionally produce harsh results, but it enabled people engaged in business to know where they stood.[65]

99. Although Mr Sher suggested D1 turned a blind eye to Wan’s lack of authority, careful scrutiny of the reasons put forward in paragraph 97 above moved away from good faith towards mere constructive notice or matters which might have caused a reasonable man to ask some questions.[66] Instead, the focal issue should be whether the circumstances were such that any belief by D1 that Wan had actual authority was dishonest or irrational. Mr Sher accepted D1 was not dishonest in the sense of being party to any fraud/forgery. In my view, there was nothing irrational or lacking in good faith in D1’s belief that Wan had authority to sell/transfer SH/Right and to collect the price payment, nor could it be said D1 turned a wilful blind eye to Wan’s lack of authority. I would even say there was nothing “obvious” in the circumstances that would lead D1 as a reasonable buyer in the Market to assume Wan was not empowered to sell/transfer SH/Right.

100. Bearing in mind (a) the transaction between P/Wan and D1 in February 2009 was done in similar manner as D1’s acquisition of the right to use a Licence in the mid-2000s through Wan that was problem-free, (b) Wan was known to D1 as an Agent trading in Licences in the Market, and (c) P clothed Wan with all indicia of title to the SHPV Licence that could only have been consistent with P having authorised Wan to market/sell SH/Right and to collect payment of the price (which went hand in hand) on his behalf, there was no reason for D1 to doubt any lack of authority on Wan’s part merely due to, say, absence of S/P contract, receipt for payment or letter of authorisation. After all, these matters did not cause any trouble in the earlier transaction made through Wan.

101. I fail to see why a downpayment of HK$100,000 for Wan to search for a Licence should be cast in a sinister light. This only demonstrated D1’s commitment to the proposed purchase that presumably gave Wan some incentive to proactively look for a Licence and put together a deal. The amount paid was not out of line of the usual range of initial deposit for S/P of the right to use a Licence (see paragraph 25 above), and Wan gave proper account of such deposit when he worked out the balance of price for the Right, so there was nothing to alert D1 there was anything untoward.

102. Mr Sher next doubted why D1 did not carry out BR Search to ascertain the identity of the then owner. Chan carried out BR Search for D3 because she was not shown any original BR Cert or original Approval Notice at that stage (since the seller feared putting original documents in the buyer’s hands without his firm commitment to buy as yet). But here D1 made firm downpayment of HK$100,000, so Wan was forthcoming with the Handover Items. D1 clearly knew the identity of the owner from copy of P’s identity card, the completed/signed D1 Partner and Retirement Forms that clearly identified P as proprietor of Sun Hing, and the original BR Cert of Sun Hing. A BR Search would not have made any difference as Wan’s name was not on the BR Records, and the search results would only reveal P as Sun Hing’s proprietor consistent with the above documents.

103. Mr Sher questioned why there was no letter of authorisation. But even D3 did not give Chan any letter of authorisation when she acted as his Agent in acquiring SH/Right, and there was no suggestion Wan had such when D1 bought the right to use a Licence in the mid-2000s through him. It appeared the Market operated on the basis that the sellers would place the Handover Items and signed BR Change Forms with the Agents as indicia of authority since the sellers would not part company with such indicia unless they wished to sell the right to use their Licences. I accept this was how D1 reasonably understood trading was done in the Market.

104. Mr Sher next queried why D1 did not perform any due diligence, eg checking whether Sun Hing had any outstanding debts, taxes, unpaid wages or other actual/potential litigation. I cannot see how this would help. First, this concerned commercial/business risks for the buyer unrelated to Wan’s authority to sell/transfer SH/Right. Secondly, it would not have assisted because there were in fact no outstanding debts, taxes and liabilities. Thirdly, D1 did ask Wan and was told Sun Hing was problem-free, and there was nothing in D1’s past dealings with Wan to cause D1 to mistrust him.

105. Mr Sher queried why there were no S/P contract and receipt for payments made. From past experience, D1 were not alerted to anything untoward over absence of written contract/receipt. He paid an initial deposit of HK$100,000 in 2008, and Wan gave proper credit/account of such sum in February 2009 despite lack of paperwork. Mr Sher suggested the D1/D3 Agreement and D1’s receipts for D3’s payments demonstrated D1 well knew that normally S/P of a company must be reduced in writing. But D1’s relevant knowledge/understanding should be that in February 2009 and not in May 2010, and the fact D3 (or indeed other buyers) required his (their) Agent(s) to adopt a documented approach did not necessarily demonstrate it was irrational not to have written documentation in this particular context.

106. I find on balance (as known to P and D1) the Market operated on the golden rule that the owner of a HK Holder would only arm his Agent with indicia of title (eg the Handover Items and signed BR Change Forms) if such Agent was entrusted to sell/transfer the right to use a Licence, and this was how D1 reasonably understood the situation. Looking at all the circumstances, P’s placement of the Handover Items and the D1 Partner / Retirement Forms in Wan’s hands overshadowed the entire dealings between Wan and D1, and I am not persuaded D1 failed to make reasonable enquiries let alone his belief that Wan had authority was irrational. I am satisfied Wan had apparent authority on P’s behalf to sell/transfer SH/Right, so P was bound by the P/Wan Agreement.

XIV.  BONA FIDE PURCAHSER FOR VALUE WITHOUT NOTICE

107. The defence of bona fide purchaser for value without notice, which constitutes an exception to the nemo dat potest dare quod non habet principle, is available to defeat proprietary restitionary claims.[67] Where the defence applies, the defendant is considered to have obtained good title to the property so the plaintiff’s property rights are extinguished and the proprietary claim is defeated absolutely. The burden of establishing such defence was on Ds. Here, I have no doubt D1 purchased the legal estate of the Right for value. The only question is whether he acted in good faith in receiving SH/Right from Wan without notice of P’s equitable proprietary right so that such right would become extinguished.[68]

108. The starting point was P’s concession of insufficient evidence to demonstrate D1 was party to any fraud/forgery, and confirmation that P would not suggest Ds had actual notice of Wan’s fraud (although P maintained D1 wilfully shut his eyes to the obvious). Mr Sher submitted D1 had constructive and/or imputed notice. Imputed notice can be dealt with shortly: since D1 did not engage any Agent and personally dealt with Wan, imputed notice was irrelevant.

109. On constructive notice, Mr Sher submitted a purchaser had constructive notice of all that a reasonably prudent purchaser, acting on skilled advice, would have discovered,[69] and a defendant’s lack of knowledge of certain matters was by no means equated with his good faith.[70] In my view, this did not give a complete picture of the requisite knowledge for constructive notice in a commercial context. In fact, there are 5 types of knowledge as identified by Gibson J in Baden v Société Générale pour Faouriser le Développement du Commerce et de l’Industrie en France SA (Note).[71] The defendant will be considered as having notice if he (1) has actual notice,  (2) wilfully shuts his eyes to the obvious, (3) wilfully and recklessly fails to make such inquiries as would be made by an honest and reasonable man,  (4) has knowledge of facts which would cause a reasonable person to appreciate that the transaction is improper, or (5) has knowledge of facts which would cause a reasonable person to make inquires or seek advice which would reveal the probability of impropriety. Commonly, types (1)-(3) are regarded as forms of “actual knowledge” or notice, and types (4)-(5) are regarded as forms of “constructive knowledge” or notice.[72]

110. Whilst Baden types (1)-(3) knowledge would constitute notice so as to defeat the bona fide purchaser defence, Mr Cheung submitted the lesser degrees of notice only have a limited role in commercial dealings.[73] DHCJ Morris QC in Armstrong said as follows:[74]

“123. In my judgment, the position, in a commercial context, can be summarised as follows: (1) Baden types (1) to (3) knowledge constitute “notice” so as to defeat the defence. In order to defeat the defence on this basis, it is not necessary to show that the defendant realised that the transaction was “obviously” or “probably” improper or fraudulent; the possibility of impropriety or the claimant’s interest is sufficient. (2) In other circumstances, mere negligence is not sufficient. Baden types (4) and (5) knowledge constitute “notice” such as to defeat this defence only if, on the facts actually known to this defendant, a reasonable person would either have appreciated that the transaction was probably fraudulent or improper, or would have made inquiries or sought advice which would have revealed the probability of impropriety.”

111. More recently in Credit Agricole Corporation and Investment Bank v Papadimitriou,[75] the Privy Council on appeal from the Court of Appeal of Gilbraltar held it was important to distinguish between 3 different circumstances: (a) where the defendant in fact appreciated that a proprietary right in the property probably existed so that he had actual notice of the right, (b) where a reasonable person with the attributes of the defendant should have appreciated, based on facts already available to him, that the right probably existed in which case he had constructive notice of the existence of the right, and (c) where the defendant should have made inquiries or sought advice which would have revealed the probable existence of such a right in which case he also would have constructive notice of the right.

112. As to what circumstances and to what extent it could properly be said the defendant should have made inquiries or sought advice, the Board took the view that the defendant’s knowledge of facts indicating mere possibility of a third party having a proprietary right would not be enough to put the defendant on inquiry, but it was not necessary for the defendant to conclude the third party probably had such a right. The test, which was somewhere in between, could be formulated thus: the defendant had to make inquiries if there were a serious possibility of a third party having such a right or, put in another way, if the facts known to the defendant would give a reasonable person in his position with his attributes serious cause to question the propriety of the transaction.

113. Mr Sher submitted D1 did not act in good faith in acquiring SH/Right from Wan as he failed to make reasonable enquiries as a reasonable/prudent purchaser should as regards Wan’s authority to sell, and by not making such enquiries and turning a blind eye as to whether P truly consented to such sale D1 was not a bona fide purchaser in good faith without notice, so D1 could not get good title over SH/Right. But on the analysis discussed in paragraphs 99-106 above, I am not persuaded a case of notice on the part of D1 was made out, and I further hold D1 to be a bona fide purchaser for value without notice.

114. D1 paid value to acquire SH/Right and took delivery of the Handover Items in February 2009, and there was nothing “phony” about D1’s acquisition of SH/Right. I could not see the circumstances took the transaction out of the ordinary course both in the Market and/or in D1’s own experience, or indicated lack of good faith or wilful shutting of eyes to the obvious on the part of D1. As to constructive notice, on the facts known to D1 with his past experience and understanding as to how a sale/transfer of the right to use a Licence, it could not said such facts would give a reasonable person in his position and with his attributes “serious cause” to question the propriety of the transaction or cause him to think there was “serious possibility” of a proprietary claim as to cause him to make enquiries. I am not persuaded constructive notice could be inferred. In the circumstances, P was bound by the sale/transfer of SH/Right to D1, and P’s proprietary claim was thereby extinguished.

XV.  SUCCESSORS

115. Mr Sher suggested D2 was not a bona fide purchaser for value as she did not pay any consideration for her admission as partner of Sun Hing.[76] But the doctrine of bona fide purchaser for value without notice extends to any person who claims from such purchaser even if such person has not given value unless that person was himself previously bound by the equity.[77] D2 did not come into the picture until after D1’s acquisition of SH/Right was completed, so she was not previously bound by P’s equity and the bona fide purchaser defence availed her. The same applied to D3 who as successor to D1 took free from P’s equity, which would be sufficient to dispose of P’s claim against D3.

116. But Mr Sher tried to cast the transaction between D1/D2 and D3 in a sinister light by suggesting D1/D2 knew of P’s potential claim and threat of legal action from the 6/1/10 and 25/1/10 Letters, and in keeping D3/Chan in the dark about this (on the allegation that the police told him there was “no problem”) when they sold SH/Right to D3 they attempted to evade liability and did not act honestly, especially when D3 said he would not have bought SH/Right had he known of such potential claim. I am unable to see how such argument would assist since the time to consider D1’s bona fides was in February 2009 and not May 2010. Further, as I have upheld such defence by D1, there was no need for him to tell D3 about P’s proprietary claim that had been extinguished. Still further, D3’s commercial prudence to avoid trouble irrespective of the merits of P’s claim was neither here nor there. In any event and consistent with the evidence before the court, Mr Sher accepted D3 had no actual knowledge of P’s claim.

117. Mr Sher then argued since “it was common, ordinary and normal business conduct to carry out due diligence at the time of acquiring a company”, D3 could not rely on Chan’s assurance there was no problem and should have made personal enquiries, and in abstaining from making investigation as a reasonably prudent purchaser should have done  D3 turned a wilful blind eye to P’s potential claim in respect of SH/Right[78] and had constructive notice of P’s equity.[79] It was said that since D3 was not “genuine and honest”, “[equity] still retained its interest in and power over the purchaser’s conscience”,[80] so D3 was not a bona fide purchaser in good faith for value without notice.

118. In my view, these arguments had no merits against D3 as successor to D1 being a bona fide purchaser for value without notice. But even if I am wrong, they still had no merits. On pleadings, P did not plead any constructive notice, imputed knowledge or wilful turning of blind eye to the obvious against D3 as such pleas were against D1/D2 (see paragraphs 5-6 and 9 above). On evidence, Mr Sher accepted D3 had no actual knowledge, and I find on balance D3 did not have constructive notice of Wan’s misappropriation of SH/Right until he received the 3/6/11 Letter. D1/D2 did not mention Wan to D3, and Wan’s name did not appear in the Handover Items or BR Records.

119. Bearing in mind (a) D3/Kwan/Chan did not know P or Wan, (b) D1/D2 did not tell D3/Kwan/Chan about the 6/1/10 and 25/1/10 Letters or police investigation into P’s complaints, (c) the S/P transaction between D1/D2 and D3 was consistent with the Market practice, (d) Chan conducted BR Search and clarified with PRC authorities as to the status of D1/D2 and the SHPV Licence, (e) Chan confirmed with D1 he was willing to sell SH/Right, (f) D3 particularly asked Chan to prepare the D1/D3 Agreement that required D1/D2 to give express warranties, (g) D3 gave valuable consideration for acquiring SH/Right, and (h) P did not report the fraud to the PS Bureau to cancel the SHPV Licence (see also paragraph 72(a) and (d) above), I find there was nothing “phony” about the deal between D1/D2 and D3, and Chan’s knowledge/investigations were imputed to D3 as she was his Agent. In my view, there was nothing unusual to suggest to D3 any serious possibility of a third party having a viable proprietary right that would cause him to make enquiries, and a reasonable buyer in D3’s position acting through an Agent on facts known or imputed to him and in the circumstances of the transaction in May 2010 would not have serious cause to question the transaction. I therefore find that even if D1 were not a bona fide purchaser for value without notice (which I disagree), D3 must be such and he took free of P’s equity in SH/Right.

120. Mr Sher suggested D3 was unjustly enriched because the price of RMB540,000 paid by D3 was below market value, but there was simply no evidence in the main action on market value, and P could not pray in aid the expert valuation evidence in the contribution proceedings. In any event, there was no plea of unjust enrichment against D3 in P’s pleadings.

XVI.  PRC CONSIDERATIONS

121. Although D1/D2 and D3 acquired SH/Right, (a) Ds did not inform the JV Company and/or He Yuan City Bureau of Administration of Industry and Commerce about Sun Hing’s change of proprietor/partners, (b) P remained as deputy managing director of the JV Company, and (c) Ds acquired Sun Hing for the Right and did not participate in the business of or held any position in the JV Company.

(a)  “善意合伙人或善意受讓人”

122. Xie accepted the right to use a Licence could be sold/transferred and Ds could acquire the Right by purchasing Sun Hing as a business entity through legal means, which she said depended on whether Ds were “善意受讓人或善意合伙人” who must “善意取得” Sun Hing (including “取得國內公司經營”). Xie opined Ds were not “真實或真誠” (true/genuine) partners in the JV Company, and their “受讓或加入” into Sun Hing had nothing to do with Sun Hing’s business investment in the JV Company, so they were not “善意受讓人或善意合夥人” and not entitled to use the Right. This seemed to suggest only “善意受讓人或善意合夥人” of the real business of the Sun Hing in the JV Company was entitled to use the SHPV Licence, and only then could the PS Bureau process procedures for change of particulars of driver/vehicle.

123. But Xie conceded the legality/validity of any sale/acquisition of Sun Hing should be determined by the lex fori, ie Hong Kong law. If that were so, Xie’s opinion on the need for “善意受讓人或善意合夥人” (being a concept extraneous to Hong Kong law) was not understood. But there were problems even if one considered such concept/requirement in the PRC context. Xie suggested it was derived from 《中華人民共和國公司法》,《中華人民共和國中外合作經營企業法實施細則》and《中華人民共和國企業法人登記管理條例實施細則》,  but she was unable to articulate the relevant provision. Even though Xie opined the JV Company had to comply with the requirements of 《中華人民共和國公司法》, all she was able to say was that such statute had many provisions and “其他解釋”.

124. Since Xie could not cite any specific statutory provision for the concept/requirement of “善意受讓人或善意合夥人”, she was constrained to say “我係根據省公安廳頒受中港車牌使用權的全體條件來判斷 …… 條件係須要內地企業經營的實情才頒授,如果內地企業無經營、無參與管理實際情況,咁我判斷佢唔係有善意的目的 …… 我做中國律師的判斷” (my emphasis), but she did not explain what “省公安廳頒授中港車牌使用權的全體條件” were, and what was the legal basis upon which Xie “做中國律師的判斷” rested.

125. Strangely, Xie at the same time conceded the PS Bureau would not take the initiative to check whether the applicant was “善意受讓人或善意合夥人”, “只要資料符合要求都會作出批准 …… 這個不屬於省公安廳的審查範圍”. Indeed, all relevant witnesses (including P, D1, Chan, D3 and Kwan) said that L/R of the right to use a Licence during the rental period was no different from S/P of a Licence in that (a) the Lessee would have to be admitted as a partner of the HK Holder (ie the HK Party to the Sino-HK JV Company) but would not participate in the business or management of the Sino-HK JV Company, and (b) application would have to be made to the PS Bureau by way of the Application Form for change of particulars of driver/vehicle. This was the very method P intended to adopt vis-à-vis Wan as Lessee of SH/Right. Xie even said the PS Bureau “無法審查香港公司股權,所以佢只可依據例牌資料做審批而無法知道是否係為了車牌來租賃或轉讓”.

126. However, when pressed, Xie was constrained to accept the logical conclusion of her opinion would be that both the buyer and Lessee of the right to use a Licence who were not involved in the business of the Sino-HK JV Company were not “善意受讓人或善意合夥人”. On such basis, even P’s understanding of the practice for L/R of SH/Right would be wrong, and his intention for Wan (as the Lessee of the Right) to be a partner of Sun Hing but divorced from the business of the JV Company would have been impermissible since Wan would not have been “善意受讓人或善意合夥人”. I find Xie’s opinion unreliable as it did not accord with the actual practice in the Market as known to the lay witnesses including P, and Xie was unable to state any satisfactory legal basis or reasoning for the concept/requirement of “善意受讓人或善意合夥人”. I cannot give such opinion any serious weight.[81]

127. More importantly, although P pleaded only “善意受讓人或善意合夥人” of the real business of Sun Hing in the JV Company was entitled to use the SHPV Licence, P did not plead (and Mr Sher’s submissions did not address) how this would affect the validity of the transfer of SH/Right from P to D1 and from D1/D2 to D3. Hence, the issue as to whether Ds were “善意受讓人或善意合夥人” and consequently whether they were entitled to use the SHPV Licence in Mainland China had no bearing on my conclusion on the validity of the transfer of SH/Right to D1/D2 and to D3 based on Hong Kong law.

128. Further, Xie’s opinion was unclear and the Xie Report did not say what would be the legal consequences of Ds not being “善意受讓人或善意合夥人” of Sun Hing or the JV Company, and left open the question of what judicial reliefs would be apt in the event of such finding in the context of PRC law. Indeed, Xie conceded under cross-examination that practically Ds would still be able to use the SHPV Licence even if they were not “善意受讓人或善意合夥人”. Despite usual default application of Hong Kong law where foreign law is not proved, Mr Cheung urged this court not to fill in the void as such concept/requirement was foreign to common law,[82] and it would be too strained/artificial to equate it with a bona fide purchaser. But even if one borrowed the concept of bona fide purchaser, I have found Ds were bona fide purchasers for value without notice.

129. Even if the Experts’ opinion on this topic was admissible and relevant, I prefer Chor’s view that (a) initially Sun Hing as the HK Party of the JV Company satisfied the investment and tax thresholds and was entitled to apply to the PS Bureau for the SH Licences, (b) Sun Hing was granted the SHPV Licence and was the HK Holder of the Right, (c) the recognised HK Holder under the Approval Notice for the SHPV Licence was Sun Hing rather than P personally, (d) there was no restriction on who should be the proprietor/partners of Sun Hing or the use of the SHPV Licence,[83] (e) there was no statutory requirement that after the PS Bureau granted the SHPV Licence Sun Hing or its proprietor/partners must participate in the business of the JV Company before Sun Hing could use the SHPV Licence, (f) in using such licence it did not matter whether Sun Hing had any real business, and (g) when D1/D2 and later D3 became the owners of Sun Hing by lawful means they could use such licence even though they did not participate in the JV Company’s business.

(b)  “重大變更” and “變更登記”

130. Xie said that when the JV Company was first set up, it had to submit its 章程 (signed by Sun Hing and Sun Fung Kong) and 合作協議書 to the Department of Administration of Industry and Commerce (工商行政部門), but Sun Hing and Sun Fung Kong could enter into 補充協議 so long as its contents were not in breach of statutory provisions. Xie said there was “明確規定” that changes to the contents of these documents[84] had to be submitted to the original approving authority for approval.

131. Xie said the HK Holder was the joint venture investor of the Sino-HK JV Company (內企 or 內承單位), “其權屬或內部結構發生重大變更,[85]是需要將公司轉名的新商業登記的記錄文件遞交有關中方公司所屬地的對外經濟貿易委員會[Foreign Economic and Trade Committee]進行備案,並在合作企業注冊地的工商行政管理部門[Department of Administration of Industry and Commerce] 辦理相應的變更登記”. Xie added that for “國內變更事項” or changes to the Sino-HK JV Company, (a) “牌証持有人” (ie the HK Holder) should take the initiative to report to the PS Bureau, and “有重大變更[eg 內地公司股權發生變化] 要主動申報因為會影響車牌使用”, and (b) the Sino-HK JV Company had to “配合” to inform the PS Bureau which act could not be done by the HK Party alone.

132. Xie agreed the JV Company was “中外合資經營企業” in section 2(4) of《中華人民共和國企業法人登記管理條例》, but section 17 of “第六章變更登記” did not specify that changes in “內部股東權屬” of a Sino-HK JV Company “應當申請辦理變更登記”. Regulation 44 of 《中華人民共和國企業法人登記管理條例實施細則》also did not say “內部股東權屬” of a HK Party “應當申請辦理變更登記”. Xie could not say what “明確規定” was, and all she could say was this did not mean there was no need to so apply. I am unable to accept such assertion in the absence of legal/statutory reasoning or basis. On balance I prefer Chor’s opinion that according to sections 17-19 of《中華人民共和國企業法人登記管理條例》and regulation 44 of《中華人民共和國企業法人登記管理條例施行細則》, even when there was change of ownership of Sun Hing as the HK Holder, it was unnecessary for Sun Hing as an offshore company to notify any government department in Mainland China or submit documents to put on record or apply for approval. The new owner who acquired Sun Hing would through Sun Hing continue to have lawful right to use the SHPV Licence according to the guidance published by the PS Bureau on its website.[86]

133. More importantly, Xie agreed “公司變更事項” were not regulated by, come under the jurisdiction of and approved by the PS Bureau, and there was no statutory requirement to notify the PS Bureau of any “股東 / 權屬變更”. Xie was constrained to say it was a matter of the PS Bureau’s administrative policy as to (a) what documents had to be submitted for processing applications for licence renewal or change of particulars, and (b) whether the HK Holder had to report on own initiative on “重大變更”, but she was unaware of any publication of such policy for guidance to applicants and licence-holders. Xie was again constrained to say the PS Bureau “無具體法文” but its officers would tell applicants what materials should be submitted. Xie said “省公安廳唔係將香港公司股權變更作審查,但係如果涉及變更影響到內地投資企業,可能影響到直通車牌使用,佢要提出要求或主動申報”.

134. I have explained why Xie’s opinion on administrative policy or practice was inadmissible or at least carried no weight. But even if I am wrong, I do not accept her views when she was unable to draw on any provision in support of her proposition that Sun Hing should report to the PS Bureau about change of its owners, and I find her vague assertion of voluntary report unreliable when she was not even able to refer to any pronouncement of such requirement. I find on balance that such requirement (if any) was divorced from the PS Bureau’s administrative function in handling licence renewal and change of particulars for the Licences, and I prefer Chor’s view that procedures for licence renewal and change of particulars were administrative requirements of the PS Bureau, and the Department of Administration of Industry and Commerce (which handled corporate-related matters) and the PS Bureau (which dealt with Licence-related matters) had different jurisdictions.

135. P had not been able to demonstrate that PRC law required involvement or endorsement of the JV Company in respect of any application to the PS Bureau for licence renewal or change of particulars for Licence. I am also not convinced there was any sufficient basis to suggest forged documents had been submitted to the PS Bureau.

XVII.  CONCLUSION

136. In the circumstances, P’s claim against D1, D2 and D3 in the main action is dismissed. Consequently, D3’s claim against D1 and D2 in the contribution proceedings is also dismissed. There is no reason why costs should not follow event. I grant a costs order nisi that P do pay D1, D2 and D3 costs of the main action and of the contribution proceedings (including all costs reserved) to be taxed if not agreed. I note the contribution proceedings were brought about as a result of P’s claim against D3, which has now failed.