JOE ZHIXIONG ZHOU v. SAIF PARTNERS II L.P.AND ANOTHER

HCCL 16/2016

[2022] HKCFI 3626

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 16 OF 2016

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BETWEEN

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D E C I S I O N

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1.  This is the appeal by Joe Zhixiong Zhou (“the Plaintiff”) from the Decision dated 4 May 2022 (“the May Decision”) of Master J Wong upon conducting an account taking exercise. At the conclusion of the appeal hearing, this Decision was reserved which I now give.

I. BACKGROUND FACTS

2.  The parties are all engaged in the venture capital business, commonly known as “VC”.

3.  In December 2004, the Plaintiff worked as a limited partner for the 1^st defendant, SAIF Partners II LP (“D1”) in which the 2^nd defendant, SAIF II GP Capital Limited (“D2”), was a general partner (collectively “the Defendants”).

4.  The Plaintiff left D1 at the end of February 2007. He sued the Defendants for over $22 million[1] while the Defendants made a number of counterclaims against the Plaintiff.

5.  After a trial lasting 11 days, on 21 March 2018, DHCJ Field (“the Trial Judge”) found for the Plaintiff on his claim (which the Defendants promptly paid) and found for the Defendants on their counterclaim against Plaintiff.

6.  On the counterclaim, the Trial Judge found that:

(a) while still a partner of D1, the Plaintiff identified a PRC technology company, Show World Information Technology Co Ltd (“Show World”), as a target for investment by SAIF’s Fund II;

(b) SAIF’s Fund II invested $8 million into Show World in February 2006;

(c) the Plaintiff left the Defendants in April 2007 and joined another private equity fund, Kleiner Perkins Caulfield & Byers (“KPCB”), causing it to invest $8 million into Xinrui (Beijing) Technology Company Co Ltd (“Xinrui”) which misappropriated the technologies which were supposed to be developed by Show World; and

(d) according to the Plaintiff, when he left KPCB to set up his own fund Keytone Ventures LP (“KV”) in April 2008, he caused KV to purchase the Xinrui Investment from KPCB, again at $8 million.

(A) The Orders made by the Trial Judge

(a) The Account Order

7.  Following those findings, the Trial Judge ordered that the Plaintiff, as a partner of D1, must account for and disgorge profits resulting from his breach of fiduciary duties in these terms:

“3. the Plaintiff shall account to [D1] for any profit that the Plaintiff made as a result of the investment made by KPCB China Fund LP under the Xinrui (Beijing) Technology Company investment agreement dated 24 August 2007;

4. all necessary enquiries and accounts to be taken to identify and establish such profits made by the Plaintiff. For that purpose, [D1] shall have liberty to seek directions for taking of such accounts;

5. the Plaintiff shall pay to [D1] any such identified and established profit and [D1] shall hold any such profit on trust for Fund II”.

8.  As the nomenclature used in subsequent Judgments and Decisions and submissions of the parties in referring to §§3-5 of the order the Trial Judge made on 14 February 2018 has not been consistent, to avoid confusion, in this Decision it will be referred to as “the Account Order”.

9.  In the Plaintiff’s affirmation dated 18 September 2018 (“Plaintiff 1”), filed to comply with his duty to account pursuant to the Account Order, he deposed that the sum invested in Xinrui by KPCB was $8 million on which no profit was made since it sold this investment to KV for $8 million in July 2008, the investment not having gone well. The Plaintiff went on to depose that in December 2009 Xinrui’s (KV’s) business failed and its registration was cancelled. Thereafter, the remaining assets of Xinrui were sold pursuant to an Asset Purchase Agreement between KV and MicroMedia Ltd for $3.5 million, producing a loss on the original investment of over $4.5 million.

(b) The Account and Disclosure Order

10.  Not surprisingly, the Defendants were not satisfied with the account rendered in Plaintiff 1. Upon their application for a more comprehensive account, after considering the parties’ respective written submissions, in his RULING[2] dated 26 June 2018, the Trial Judge held as follows:

“9. In my judgment, given [the Plaintiff]’s untruthful account … and the relative scarcity of the discovery he provided for the trial, D1 is entitled to an order that goes wider than might have been conventionally appropriate in setting the modalities for an account … the absence of any profit for [KPCB] … does not necessarily mean that [the Plaintiff] personally did not benefit financially in one way or another from the investment.” (Emphasis added)

11.  Accordingly, for the reasons stated in §10 above, he made a further account order with a much wider scope coupled with corresponding disclosures (“the Account and Disclosure Order[3]”), §1 of which provides (in pertinent part) as follows:

“[The Plaintiff] must, within 36 days of the date hereof, provide an account duly verified by affidavit identifying and attaching all vouchers and documents that are relied upon of all income, including salary, fees, dividends and other remuneration … received by [the Plaintiff] and/or entities owned and/or controlled by [the Plaintiff] down to 31 December 2012 (“the end date”) from (i) KPCB-CF and its subsidiaries, affiliates and related entities (KPCB); and (2) Keytone Ventures LP and its subsidiaries, affiliates and related entities (“KV”), identifying the entitlement under which the said income or other remuneration was received …”

12.  For convenience, the Account Order and the Account and Disclosure Order are hereinafter collectively referred to as “the Trial Judge’s Orders”.

(B) Subsequent proceedings

(a) CACV 62/2018 (“the CA Judgment”)

13.  The Plaintiff appealed the Account and Disclosure Order and challenged it as being made without jurisdiction and exceeding the permissible bounds for an order to account.

14.  Pending the hearing of the appeal, on 13 July 2018 the Plaintiff applied to stay the account-taking procedure directed under the Ruling until the final determination of the CA Judgment which application the Trial Judge dismissed on 11 January 2019.

15.  The Plaintiff alleged[4] that at the hearing on 11 January 2019, the Trial Judge confirmed that his Ruling is “limited to an account of the profits and income that I personally received from KPCB’s Keygate/Xinrui Investment and/or from Keytone’s Keygate/ Xinrui Investment and not to any other profits or income received by me.” Although the transcript formed part of the hearing bundles[5], inexplicably, the relevant passage has not been identified. In those circumstances, I do not consider that allegations borne out.

16.  The Plaintiff’s 4^th affirmation dated 21 March 2019 (“Plaintiff 4”) was filed in respect of the Account and Disclosure Order but which the Defendants found wanting. While stating that he was entitled to the ‘carried interest’ which is about 3% of profit distributions paid to KPCB’s General Partner of which the Plaintiff was one[6], and that he was entitled to salaries of around $1.2 to $1.5 million per year[7], the Plaintiff provided no further information in relation to those payments contrary to what he was required to do by the express provisions of the Account and Disclosure Order, namely, to provide an account of all income and to make disclosure of specific documents[8].

17.  Basically the Plaintiff claimed he had nothing to account and unilaterally qualified his disclosure obligation by adding a qualification which did not exist, that it was limited to income from KPCB and/or KV’s investment into Keygate/Xinrui.

18.  In dismissing the Plaintiff’s appeal on 12 July 2019[9], Kwan VP (at §§129-130) rejected the Plaintiff’s submission that the Trial Judge had no jurisdiction to vary or enlarge the Account Order as he had reserved the issue of detailed directions for the taking of such accounts[10].

19.  Kwan VP further held (at §135) that the Plaintiff was not asked to account for profits in the abstract. He was ordered to account for any profit he made as a result of the investment made by KPCB under the Xinrui Investment Agreement. The Court of Appeal endorsed the reasons the Trial Judge expressed when making the Account and Disclosure Order, observing that it was with those considerations in mind that that Order was made

“so that the court can properly ascertain whether and to what extent those monies could be regarded as falling within the scope of his duty to account and disgorge …”

20.  The Plaintiff had contended that because his salary was agreed with KPCB before they made the Xinrui investment[11], it could not be within the scope of the Account and Disclosure Order. But Kwan VP observed that

“if his salary was enhanced as a result of the profits he brought in by such investment, this may well be profit attributable to his breach of fiduciary duty for which he would come under a duty to account.”

21.  The Court of Final Appeal[12] dismissed the Plaintiff’s appeal.

(b) Contempt proceedings

22.  Notwithstanding his repeated unsuccessful challenges to the scope of his obligation under the Account and Disclosure Order, the Plaintiff persisted in his refusal to disclose all his income during the relevant period (i.e. down to 31 December 2012) received from KPCB and KV, disclosing selectively (through his affirmations[13]) some of his income. That led to contempt proceedings, the Defendants having obtained leave from the Trial Judge on 8 October 2019 to issue such proceedings against the Plaintiff.

23.  On 29 March 2021, Anthony Chan J (who heard the contempt proceedings) found the Plaintiff guilty of contempt of court for his breach of the Account and Disclosure Order by unilaterally reading down its scope, and limiting his obligation to income from the investment of KPCB and/or KV into Xinrui with the purpose of evading his obligations[14].

24.  On 21 October 2021, the Plaintiff was sentenced to prison for 2 months for his “contumacious and cynical” breach[15].

25.  Anthony Chan J’s finding was upheld by the Court of Appeal[16] when it dismissed the Plaintiff’s appeal on 20 January 2022.

II. THE ACCOUNT-TAKING EXERCISE

26.  Meanwhile, pending the account-taking hearing, in July 2020, the Plaintiff made 3 interlocutory applications: (a) to strike out large parts of Mr Lin’s 5^th affirmation (“Lin 5”) which set out D1’s Notice of Objection; (b) to require Mr Lin to attend for cross examination; and (c) to permit the Plaintiff to give evidence by way of video-link.

27.  The Plaintiff was unsuccessful in all his applications but did not appeal.

28.  The income that the Plaintiff chose to disclose in Plaintiff 4 to 7 falls into 4 categories, namely: (a) “distributions of capital gains or profits” from KPCB (category A); (b) “Other income” from KPCB (category B); (c) “distributions of capital gains or profits” from KV (category C) and (d) “Other income” from KV (category D).

29.  The Defendants challenge the Plaintiff’s contention that he had not received any income in categories B, C and D which falls within the Trial Judge’s Orders. They divided categories B and D into 3 subcategories, namely salaries, management fees and share options. In all, there are 7 separate items of income which the Defendants claim had been received by the Plaintiff.

30.  For the purpose of the trial for the Taking of Accounts, the Defendants prepared their Scott schedule identifying each of the 7 categories or heads of claim for determination at trial with reference to affirmations and documents filed by the parties with a brief summary of the Defendants’ contentions in relation to each claim.

31.  Section V of the Defendants’ Opening Submissions for the Account Taking adopted the format and approach of the Defendants’ Scott schedule but with detailed submissions and their underlying rationale in respect of each of the 7 claims.

32.  The Plaintiff’s expert, Barnaby Bruce Landen Terry (“Mr Terry”) and the Defendants’ expert Paul John Walters (“Mr Walters”) gave evidence at the account-taking hearing. There is also a Joint Expert Report identifying those parts of the evidence on which they agree and those on which they are not, in agreement, with reasons in support of their respective opinion and supplemental to their respective expert report.

33.  The Master rejected 2 of the 7 heads of claim and accepted the remaining 5 as appears from the summary set out in §83 of the May Decision (replicated below), awarding the Defendants the total sum of $5,933,253.31 with interest[17]:

III. LEGAL PRINCIPLES

34.  Generally speaking, an appeal from a Master is dealt with by way of rehearing de novo: Hong Kong Civil Procedure 2022 (“HKCP”), §58/1/2. But there are exceptions.

35.  Mr Pow SC, leading counsel for the Defendants, submitted that the taking of accounts is one of them. RHC O. 44 r. 11 provides that:

“Subject to … the result of proceedings before a master under a judgment shall be stated in the form of an order.”

36.  The taking of an account is a proceeding that resulted from the order of a judge in chambers and is not a decision made by the Master in his original jurisdiction (for example in an O.14 application). Where, as here, O.44, r.11 applies, O. 44, r. 12 applies, importing all the features of an appeal before the Court of Appeal. Thus, (i) a Notice of Appeal is required; (ii) Ladd v Marshall applies; and (iii) the judge hearing the appeal shall have the same power to draw inferences of fact as has the Court of Appeal under Order 59, rule 10 (3).

37.  The upshot is that “the judge hearing the appeal will not interfere with the master’s findings of fact, or admit fresh evidence (other than evidence as to matters which have occurred after the date on which the master’s order or decision was given or made), except on special grounds …”: See HKCP at §44/12/2 approved in Willwin Development (Asia) Company Limited & Anor v Wei Xing & Ors [2021] HKCFI 2933 at §10.

38.  In BMC v BGC [2020] HKCA 317, Kwan VP summarised the Court of Appeal’s approach to factual findings (1) of primary fact; (2) based on evaluation of facts; and (3) based on inferences as follows:

“83. For findings of primary fact, the appeal court must be satisfied that the trial judge has gone plainly wrong before it could interfere …

84. Where findings are based on evaluation of facts, they involved an assessment of a number of different factors which have to be weighed against each other … Such cases may be closely analogous to the exercise of the discretion and the appeal court should approach them in a similar way. In short, it would be most slow to disturb the judge’s evaluation of evidence and findings of fact unless the evaluation was tainted by a misapprehension as to the facts, or that he took into account irrelevant matters, or that he failed to take into account relevant matters, or that the conclusion he reached in his evaluation was outside the generous ambit within which a reasonable disagreement is possible …

85. Findings based on inferences can be made from primary facts or after a process of evaluation. If the former, the appeal court approaches an inference in the same way as it approaches an appeal against a finding of primary fact. If the latter, the court adopts the same approach as in relation to findings based on evaluation of facts.”

39.  Mr Barlow SC, leading counsel for the Plaintiff, did not take issue with the principles set out above but he does not consider them to be relevant in the present case. He takes the view that no primary facts were established. Rather, his focus was RHC O 43, r 5 which provides that:

“Notice to be given of alleged omissions, etc. in account

5. Any party who seeks to charge an accounting party with an amount beyond that which he has by his account admitted to have received or who alleges that any item in his account is erroneous in respect of amount or in any other respect must give him notice thereof stating, so far as he is able, the amount sought to be charged with brief particulars thereof or, as the case may be, the grounds for alleging that the item is erroneous.”

40.  The Plaintiff submitted that when an account provided is challenged, the party challenging the account bears the burden of proof, citing Pit v Cholmondeley (1754) 2 Ves Sen 565 (where the Lord Chancellor held that the onus is on the party seeking to challenge a stated account to surcharge and falsify) and Libertarian Investments Limited v Hall (2013) 16 HKCFAR 681 at §168 where Lord Millett NPJ held that “once the plaintiff has been provided with an account he can falsify and surcharge it.”

41.  While that principle is not controversial, its applicability and/or application to the facts of the present case is.

IV. THE PLAINTIFF’S NOTICE OF APPEAL (“NoA”)

42.  At this point, it would be appropriate to refer to the Court of Appeal’s judgment in China Gold v CIL Holdings Limited, CACV 11/2015, 27 November 2015 to which Mr Pow invited attention. Lam VP (as he then was) giving the judgment of the Court set out in clear terms what a properly formulated NoA requires:

“25. A notice of appeal should set out the grounds of appeal by identifying errors are of a nature which truly entitled the court of appeal to intervene with a finding of fact. We regret to say that in many cases we have seen numerous paragraphs which are in substance closing submissions made at the trial and references to evidence. We are firmly of the view that statements of such nature have no place in a proper notice of appeal.

…

27. We implore counsel (or whoever drafts a notice of appeal) to exercise discipline, proper care and professional judgment in the preparation of a notice of appeal. It should be a concise document setting out clearly and succinctly why the Court of Appeal should intervene with the judgment of the judge. In relation to findings of fact, the grounds of appeal must pinpoint the palpable errors of the primary judge. It is an abuse to canvass submissions at length in a notice of appeal. Such a practice proliferates unhelpful arguments and escalates the costs of the process. It also causes wastage in judicial resources which should be more fruitfully utilised for other purposes.

28. Lawyers and litigants are required by Order 1A Rule 3 of The Rules of the High Court to assist the court in the furtherance of the underlying objectives in Order 1A Rule 1. A notice of appeal which is prolix and unfocused containing statements in the nature of submissions or evidence goes against each and every objective set out in Rule 1. It is the duty of the court to discourage such practice. And it is the duty of the litigants and the professional duty of their lawyers to refrain from engaging in such practice.” (Emphasis added)

43.  The Plaintiff’s NoA falls foul of those requirements. The Defendants describe it as “a 10-page roving complaint divided into 12 grounds” and that much of what is written is “impenetrable”. It is certainly densely written and not readily comprehensible. Regrettably, the Plaintiff’s written skeleton does little to facilitate one’s understanding of the NoA as it largely replicates the NoA.

44.  In the circumstances, the best I can do is to set out under the headings below what I understand to be the issues that need to be addressed.

(A) The Plaintiff’s duty to render proper account

45.  The Master reviewed the parties’ respective understanding of the Plaintiff’s duty under the Trial Judge’s Orders in §§23-25 of the May Decision and concluded (at §26) that the “narrow” interpretation as proposed by Mr Barlow was incorrect and agreed with the one suggested by Mr Pow.

46.  The Master noted that a similar dispute had arisen before the Trial Judge who disagreed with the interpretation and order suggested by the Plaintiff as appears from §9 of his Ruling (set out in §10 above), resulting in the making of the Account and Disclosure Order.

47.  As earlier mentioned[18], the Plaintiff lost his appeals in the Court of Appeal as well as the Court of Final Appeal.

48.  Notwithstanding the repeated unsuccessful attempts to persuade the Court that his narrow interpretation is the correct interpretation, between 12 July 2019 (the CA judgment) and 28 December 2020 (the CFA judgment), the Plaintiff persisted with advancing his narrow interpretation of the Trial Judge’s Orders in the contempt of court proceedings that were heard between 10 March 2020[19] and 20 January 2022[20].

49.  In considering the ambit of the Account and Disclosure Order[21], Anthony Chan J rejected the Plaintiff’s interpretation, stating (at §64) that

“… the terms of the Order are abundantly clear. They were detailed because of the need to ensure that [the Plaintiff] would not try to wriggle out of it in light of his disinclination to comply with his disclosure obligation.”

50.  Even at this hearing, the Plaintiff focused on §§3-5 of the Account Order as somehow delimiting the ambit of his obligation to account, disregarding the Account and Disclosure Order altogether. He submitted that the sale by KV is not within the terms of the Account Order because once KPCB sold the Xinrui investment to KV, KPCB’s investment was concluded.

51.  The Plaintiff simply ignored the fact that the Account and Disclosure Order was an elaboration of the Account Order and specifically required the Plaintiff to account for

“all income, including salary, fees, dividends and other remuneration … from (i) KPCB[22]; and (2) KV[23], identifying the entitlement under which the said income or other remuneration was received .. to be supported by documents that [the Plaintiff] possesses …”

52.  He treated the Account and Disclosure Order as little more than making extensive interlocutory traceable discovery orders requiring the Plaintiff to disclose specific information and to provide specific classes of documents although the relief sought and granted was not proprietary, but purely personal, in nature. Tracing simply does not arise.

53.  I do not accept the Plaintiff’s interpretation of the Trial Judge’s Orders. It is the same misreading and misinterpretation that has been rejected on multiple occasions since the Ruling of the Trial Judge on 26 June 2018.

(B) The drawing of inferences

54.  Mr Barlow accepts that where (as in the present case) the plaintiff is absent from the Court as a witness, the Court is entitled to draw all reasonable inferences as to what are the facts which he has chosen to withhold and does not take issue with Lord Diplock’s statement in British Railways Board v Herrington [1972] AC 877 at 930G-931B[24].

55.  However, he submitted that before an inference can be drawn, there must be findings of primary fact, a foundation from which to draw the inferences which were missing below.

56.  Mr Barlow referred to the following passage in the judgment of Brooke LJ in Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 339 quoting Lord Lowry’s remarks made in R v IRC ex parte TC Coombs & Co [1991] 2 AC 283 (at p. 300):

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

57.  Those remarks arose out of the somewhat unusual facts of that case which concerned a presumption arising under the Taxes Management Act 1970. A 2^nd notice requiring the applicants to disclose documents for inspection had been issued which the applicants sought to set aside. The House of Lords held that the commissioner (in granting consent) must be taken to be satisfied that the inspector was justified in proceeding under section 20 and hence that the inspector held, and reasonably held, the opinion required by section 20(3).

58.  After citing the passage from the Coombs case, Brooke LJ derived, inter alia, the principle that there must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. In Coombs, that evidence was the presumption.

59.  I do not consider that Lord Lowry’s remarks assists the Plaintiff. If, by analogy, a presumption arises that the Plaintiff has complied with his obligation to provide the information required by the Trial Judge’s Orders[25], that presumption can be displaced if it can be shown that the information he has provided is demonstrably inadequate and deficient[26].

60.  Moreover, in Coombs, there was a credible explanation for the sparseness of the evidence adduced by the revenue whereas there is no in the present case.

(C) Reverse onus and evidential vacuum

61.  These twin themes run through all the Plaintiff’s submissions that the Master erred in reaching the conclusion that he did in respect of the various claims made by the Defendants.

62.  As I understand it, the thrust of the Plaintiff’s submissions is that the onus is upon the party challenging the account and onus of proof is not affected by the absence of evidence. It does not provide the Court with the basis for adopting a completely hypothetical construct, requiring the Plaintiff to show otherwise. Accordingly, the Master erred in reversing the onus of proof.

63.  Where a fiduciary ordered to provide an account of all his income received or derived from specific sources during a specified period fails to comply with the court order and renders an account that is demonstrably inadequate and incomplete, it runs contrary to reason and common sense that the party entitled to the account (“the beneficiary”) can nonetheless be expected to surcharge and falsify in the normal way. In my view, absent the rendering of a proper account in the first place, those tasks are impossible to undertake.

64.  It was contended that as an account had been rendered, there is no reason for O 43, r 5 not to apply. But it is not the provision of any account that is required but one that complies with the court order: in other words, a proper account.

65.  In my view, if it can be shown that the account provided is perfunctory and merely pays lip service to the court order which would be the case if its deficiency can be demonstrated, I do not consider that any court could insist upon compliance with O 43, r 5.

66.  In a situation where the fiduciary ordered to account is the only party in possession of or is privy to the requisite information but refuses to disclose the same, thereby deliberately engineering an evidential vacuum, I do not accept that no remedy can be fashioned to address the lacuna thus arising. This consideration is related to the next issue.

(C) The Libertarian principles

67.  Where a situation such as that outlined in §66 above arises, the Defendants submitted, and the Master accepted, that the Court may resort to the equitable principles enunciated by Lord Millett in the Libertarian case at §174:

“Where the absence of evidence is the consequence of the fiduciary’s own breach of duty the court is not without resource, for it can have resort to three principles. First, it may be able to take the fiduciary at his own word and use his falsehoods to establish the facts as if they were true even though they are known to be untrue. Secondly the court is entitled to make every assumption against the party whose conduct has deprived it of necessary evidence. And thirdly the court is entitled to be robust and do rough and ready justice without having to justify the amount of its award with any degree of precision.”

68.  The Plaintiff complained that the Libertarian principles were taken out of context and that they are only applicable in the context of the account that was relevant to that case when the actual remedy was equitable compensation.

69.  I disagree. Those principles are equitable principles and I can discern nothing in Lord Millett’s judgment to confine or restrict their application in the manner suggested by the Plaintiff.

(E) Penalising the fiduciary

70.  It was then stressed that the purpose of an account of profits is not to punish the fiduciary. That principle is not controversial and is well established. In the Libertarian case, Ribeiro PJ (at §83) observed that since the jurisdiction is not punitive, the fiduciary will not be made to account for more than he actually received as a result of his breach.

71.  In Kao Lee & Yip v Koo Hoi Yan & Others [2003] 3 HKLRD 296 at §§142 and 143(3), Ma J (as he then was) explained that where a fiduciary has taken advantage of the business opportunity in breach of his fiduciary duties, care must be taken not to penalise the fiduciary when ordering an account of profits. The overall object of the remedy of an account of profits is to give to the beneficiary the true extent of the profits made by the fiduciary, not to punish him

72.  Pausing there, in the course of his submissions, Mr Barlow appeared to hint that the damages awarded by the Master verged on the ‘punitive’, mentioning a figure of $20 million. The notion that the award was punitive needs to be immediately dispelled.

73.  The damages awarded was the Master’s order of $6 million. In response to the Court’s query over the amount awarded, it transpires that the balance of $14 million is solely attributable to interest ordered to be paid because the breach arose many years ago.

74.  Further, there is no challenge to either the rate of interest or the periods over which each item should attract interest[27]. Accordingly, there is no basis for any suggestion that the award was somehow ‘punitive’.

(F) Quantum - causation and remoteness

75.  In the Kao Lee & Yip case, Ma J considered that it is impossible to adopt an approach that borders on any mathematical exactness and the court must really work on what Slade J described in My Kinda Town Ltd. v Soll [1982] FSR 147, at 159, as “a reasonable approximation”.

76.  The court’s approach must necessarily be flexible in undertaking the critical inquiry which is the gain that the fiduciary has made as a result of his breach of fiduciary duty and there is a need to focus on causation and remoteness when examining the link between the breach of duty and gain: at §§143-144.

77.  Those principles are not controversial. It is their application to the specific claims considered below that is challenged.

(G) Specific claims

78.  Before turning to consider the specific heads of claim that Mr Barlow alluded to at the hearing, it would be helpful to recapitulate some preliminary matters.

79.  The Plaintiff’s criticism of the Defendants’ case is that it was based on Lin 5 which the Plaintiff described as “all conjecture, opinion and argument” rather than fact.

80.  But faced with the Plaintiff’s refusal to provide information in his possession that he was ordered to provide, the Defendants had little choice but to invoke the Libertarian principles and to ask the Court to make assumptions extrapolated from the available facts and documents disclosed.

81.  In respect of each claim, the relevant evidence in relation to that claim is set out. Based on the material before the Court, the Defendants made detailed submissions as to why certain assumptions should be made.

82.  In a nutshell, Mr Barlow’s grounds for overturning the May Decision stem from his submissions on evidential vacuum and reverse onus coupled with the application of the Libertarian principles, matters that have been addressed above.

(i) KPCB salary/ bonus

83.  The Defendants’ case is based on the Plaintiff’s evidence that he had received income of between $1.2 million to $1.5 million per year as salary from KPCB. Under his contract with KPCB, upon his departure, subject to the approval of KPCB, he is entitled to a 3 months’ performance bonus payable at the end of 2008.

84.  The Master took the higher salary figure on the basis that the burden was on the Plaintiff to come forward with an accurate account. As he had failed to do so, he cannot complain if the higher figure was selected to his disadvantage.

85.  The Plaintiff[28] (wrongly) accused the Master of failing to take account of the relevant timing when both experts have agreed that the Plaintiff’s salary would have been agreed and put in place by the time he joined KPCB in April 2007. As the Xinrui investment was not made until 4 months later, the Plaintiff had argued in the CA case that the salary he negotiated had nothing to do with the Xinrui investment, that it rendered the remuneration “incidental to” and not the result of KPCB’s Xinrui investment. Kwan VP did not agree[29].

86.  The Plaintiff’s criticism of the Master is disingenuous. He could not but have been fully aware of the reason why Kwan VP disagreed. It was because the Trial Judge had already ruled that the Plaintiff was discussing the matter a week or so before 6 February 2007[30], i.e. 2 months prior to joining KPCB. In other words, 2 months prior to his agreeing to his salary with KPCB the Plaintiff had already been actively contemplating stealing the Xinrui investment and parking it with his new fund.

87.  There is also the expert evidence of Mr Walters whose evidence the Master preferred given his 20+ years’ experience working in the VC industry in China, that having deals in hand strengthen a party’s negotiating position with the fund. Those matters established to the Master’s satisfaction the causation link between the KPCB salary received by the Plaintiff and the Xinrui investment.

88.  As the Plaintiff was managing 7 investments for KPCB including Xinrui, in the absence of evidence from him identifying the nature of the other 6 investments and his entitlement under each of the 7 investments, the Master apportioned the income between them so that only 1/7^th is attributable to the Xinrui investment. That approach is plainly in line with the reasonable approximation approach stated in the Kao Lee & Yip case[31].

89.  On the question of bonus which, contractually, the Plaintiff would receive subject to KPCB’s approval, his failure to disclose whether or not he did receive the same fully entitled the Master to make every assumption against the Plaintiff.

90.  Given those matters, the Master cannot be faulted in any way for finding that the Plaintiff’s annual salary and bonus was a profit made as a result of the Xinrui investment.

91.  The Plaintiff (a fugitive from justice who did not have the courage to attend the hearing because he had not yet purged his contempt of court) had the temerity to accuse the Master of “blocking cross-examination by video link” when, as he well knew, his interlocutory application to give viva voce evidence by video link had been rejected by the Master on 21 December 2021 and whose ruling he did not appeal.

(ii) KPCB management fees

92.  KPCB was obliged to pay a management fee to KPCB China Management Limited, an entity that the Plaintiff owned. The Plaintiff failed to disclose the amount of management fees to which he was entitled from the management company whether in the form of bonuses or otherwise.

93.  Typically, management fees are charged on the value of the asset under management (“AUM”) at the rate of 2% or 2.5%. Those percentages were agreed by the experts. Because the Plaintiff withheld the value of the AUM of KPCB under management, a straightforward calculation based on KPCB’s AUM could not be done. The only known AUM was the Xinrui investment worth $8 million.

94.  The Master adopted the rate of 2.5% which KV (who took over a significant number of portfolios from KPCB) charged for management. As the Plaintiff chose not to disclose expenses incurred to earn management fees and the total absence of evidence of actual expenses incurred, it is invidious to criticize the Master for making no allowance for the same.

95.  The award of $200,000 represented 2.5% of $8 million. It is not understood how the Plaintiff can complain when the absence of evidence is all of his own making. In any event, he has not pinpointed where the Master had gone palpably wrong.

(iii) Distributions of Capital Gains and Carry from KV

96.  The Xinrui investment was purchased for $8 million in July 2008 by KV, a fund he set up in April 2008. 17 months later, the Keygate/Xinrui investment failed and the remnants of the business was sold to MicroMedia Ltd for $3.5 million giving rise to a loss of over $4.5 million for KV.

97.  Mr Barlow remarked that there was no evidence as to how the Xinrui investment failed except that it was deregistered in December 2009, thus going out of business. The Master accepted 5 reasons[32] given by the Defendants as to why the Plaintiff’s account of the sale to MicroMedia for $3.5 million should be disbelieved. He also noted the absence of any convincing argument from Mr Barlow to the contrary.

98.  Mr Barlow resorting to his favourite themes, described the Master’s finding (that the Xinrui investment failed and was worth $8 million) as one based on “a complete evidentiary vacuum”, “a theoretical construct”, and incapable of discharging the Defendants’ onus of proof[33]. I do not propose to repeat my views on those matters.

(iv) Salaries from KV

99.  After the Plaintiff left KPCB, he joined KV which took at least the 7 investments from KPCB.

100.  The Master’s approach was similar to that adopted in calculating the Plaintiff’s KPCB salary and bonus. In KV’s case, the period of employment concerned was much longer, being 4.75 years.

101.  The Plaintiff made the same objections (of evidential vacuum, reversal of onus of proof and misapplication of the Libertarian principles) as he did with KPCB.

(v) Management fees from KV

102.  The Master adopted the same approach as for KPCB.

103.  The Plaintiff reiterated the same objections as those stated in §101 above.

V. CONCLUSION

104.  I find no merit in the Plaintiff’s appeal. For the reasons set out above, I reject the mainstays of his submissions which are evidential vacuum, reversal of onus, and misapplication of the Libertarian principles.

105.  Accordingly, this appeal is dismissed with a costs order nisi in favour of the Defendants, with certificate for 2 counsel.