CHINA GOLD FINANCE LTD v. CIL HOLDINGS LTD AND OTHERS

HCA 2900/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2900 OF 2001

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J U D G M E N T

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Introduction

1. This action was commenced by the plaintiff China Gold Finance Limited (“P”) about 13 years ago to claim repayment of a loan advanced to the 1^st defendant CIL Holdings Limited 華建控股有限公司 (“D1”).

2. The 3^rd defendant (“D3”) and the 2^nd defendant (“D2”) were guarantors of the loan.  D2 had passed away on 30 September 2010, and leave was granted to P to discontinue its present action against D2 and / or his estate.  This left D1 and D3 being the only defendants against which P was claiming (collectively “Ds”) in the present action.

Background

3. P is a company incorporated in the British Virgin Islands and was at the material times investing in various projects in Hong Kong and Mainland China.  According to Ms Kwok Wai Ling (“Ms Kwok”), P was incorporated in 1998 and that at the time of incorporation, Ms Kwok was the only director and registered shareholder.  Further, according to Ms Kwok, her mother Madam Chan Sam Miu and her younger brother Kwok Wai Kong were added as shareholders in 2003 / 2004, and possibly they were also added as directors at around that time and that it was only recently about 2 years ago that all shares were transferred to her husband Mr Tang Lap Chin who is now P’s sole shareholder.  There are at present 4 directors, namely Ms Kwok, her husband, her younger brother Kwok Wai Kong and her mother Madam Chan Sam Mui.

4. D1 was incorporated in Bermuda as an exempted company limited by shares.  Its principal place of business is Hong Kong, and its shares have since 21 July 1993 been listed on the Hong Kong Stock Exchange, although there had been suspensions of trading during certain periods of time.  D2 was the chairman of the board until about April 2002 when he was replaced by one Ke Jun Xiang (“Ke”).  D3 was a director and later vice-chairman of the board in 1996 until October 2010 when he left the company and thereafter had no connection with D1.  

5. Ms Kwok has another younger brother Kwok Han Qiao formerly known as Kwok Wai Tak, Edward (“Edward”).  At the material times, Edward operated a business consultancy company called Asia Glory Holdings Limited (“Asia Glory”).  It was Ds’ case that Edward was at one time a major shareholder of D1, and that Edward also controlled P which was his alter ego or nominee.  All this was denied by P.

6. Ms Kwok said she was introduced by Edward to D2 in mid 1990s.  P and D1 entered into a loan agreement dated 30 April 1999, under which P agreed to lend to D1 a sum of HK$40m (“Loan”), repayable 3 months after drawdown with interest at prime rate plus 3% per year payable on the arrears on the loan (“Loan Agreement”). The Loan Agreement was signed by Ms Kwok on behalf of P, and by D2 on behalf of D1.  The purpose of D1 obtaining the Loan from P was said to refinance an earlier loan under an agreement dated 30 November 1998 from ICEA Capital Limited or its affiliated company.

7. The Loan Agreement was supported by two guarantees both of the same date as the Loan Agreement, 30 April 1999, respectively by D2 and D3 (“2 Guarantees”).

8. Pursuant to the Loan Agreement, D1 issued a drawdown notice to P to draw down the entire amount of the Loan, of HK$40m on 3 May 1999.

9. D1’s loan from ICEA Capital Limited was duly paid off by the Loan on 3 May 1999, and as the drawdown date was 3 May 1999, the repayment date fell on 2 August 1999.  D1 failed to repay the Loan on the repayment date. 

10. It was also in August 1999 that Ke joined D1 as a director.

11. It was Ds’ pleaded case that there had been two partial repayments towards the Loan, by D1 through its then subsidiary Lucky Choice Assets Ltd (“Lucky Choice”).  The partial repayments were by way of two sums, respectively a sum of HK$30,956,774.94 on 29 February 2000 (“1^st Sum”) and a sum of HK$ 3,386,808 on 5 April 2000 (“2^nd Sum”)[1].  Ds had produced a debit note allegedly issued by P to D1 dated 12 June 2001 reflecting the two partial repayments by D1 (“1^st Debit Note”)[2].

12. P, however, denied that there had been any partial repayments, and the authenticity of the 1^st Debit Note was challenged by P.

13. It was not disputed that by about 2001, D1 had fallen into financial difficulties.  On 11 May 2001, one of its creditors presented a petition to wind up D1 under HCCW 432/2001 (“Winding Up Petition”)[3]. Its shares were then suspended from trading.

14. About a month after the Winding Up Petition, on 21 June 2001, D1 issued a writ against Edward under HCA 2725 of 2001 (“HCA 2725/2001”), claiming payment of a liquidated sum of HK$98m from Edward.

15. On the same day, 21 June 2001, P’s solicitors sent a letter before action to D1 demanding repayment of the principal of the Loan of HK$40m plus accrued interest and default interest, totalling at that time slightly over HK$69m[4] (“Letter Before Action”).  Similar Letters Before Action were sent to D2 and D3 on the same day[5].

16. The Letters Before Action were followed by P’s issue of the writ in the present action on 27 June 2001. P’s claim was a straightforward one based on the terms of the Loan Agreement and the 2 Guarantees.  It claimed repayment of the principal of HK$40m and accrued interest at prime rate+3%, plus default interest, and the total amount claimed at that time was just over HK$69m.

17. One day after the issue of the writ, on 28 June 2001, P’s solicitors served a statutory demand on D1 under section 327 (4) (a) of the then Companies Ordinance, claiming a sum of about HK$69.355m (“Statutory Demand”)[6].

18. Ds filed the 1^st version of their respective defences on 9 August 2001 (“Defence”). There were 3 defences in D1’s Defence, which was also relied on by D3,  as follows:

(1)   D1 alleged that no directors’ meeting was convened in relation to the entering of the Loan Agreement, or to borrow the Loan, and thus the Loan Agreement was entered into without authority of  the board of D1 and was not binding on D1 (“Lack of Authority Defence”);

(2)   Further or in the alternative, D1 had through Lucky Choice, made partial repayments in the 1^st Sum and the 2^nd Sum (“Partial Repayment Defence”);

(3)   Further or in the alternative, any amount found due by D1 to P in the present action should be set off against the amount of HK$98m in HCA 2725/2001 due by Edward to D1, in view of an agreement entered into between Edward on behalf of P and D2 on behalf of D1 in about April 1999 (“Set-Off Defence”).

19. After Ds filed their respective Defences, P served on D1 a request for further and better particulars on 28 September 2001, but thereafter, the present action then went to sleep for several years.

20. Meanwhile, to save the company, on 30 January 2002, D1 entered into a subscription agreement with a corporate subscriber and also Ke, and that the corporate subscriber had agreed to subscribe for new shares in D1 for a consideration of HK$35m conditional upon, inter alia, D1 entering into a scheme of arrangement with its creditors and the scheme was to be sanctioned by the court[7]. Thereafter, D1 issued proceedings pursuant to section 166 of the then Companies Ordinance to seek sanction of the scheme under HCMP 2799 of 2002 (“HCMP 2799/2002”).

21. The Winding Up Petition had in the meantime been adjourned several times since 29 April 2002 to allow D1 to propose to its shareholders and some of its creditors the scheme of arrangement[8].

22. It was in April 2002 that D2 resigned as chairman of the board of D1, and Ke stepped in as the new chairman.

23. After the alleged 1^st Debit Note, there were two further debit notes said to have been issued by P to D1, one dated 16 August 2002  (“2^nd Debit Note”)[9] and one dated 28 August 2002 (“3^rd Debit Note”)[10].  There were, however, no partial repayments recorded in the 2^nd Debit Note, nor the 3^rd debit note.  I will consider all 3 debit notes later in this judgment.

24. Eventually, on 2 April 2003, Kwan J, as she then was,  sanctioned the scheme of arrangement D1 had with the scheme creditors in HCMP 2799/2002[11].  There were, however, 17 claimants which were not included in the scheme (“Excluded Claimants”)[12].  P was one of the Excluded Claimants.

25. After the sanction, the suspension of the trading of D1’s shares was uplifted on 19 May 2003, although a year later, the trading was again suspended on 1 April 2004.  According to Ke, this was due to reasons other than financial problems, namely some management and / or audit problems.  Anyway, it would appear that the 2^nd suspension was not uplifted until sometime in 2011.

26. Although after September 2001, there were no further steps taken in the present action for several years, there were various events taking place in Mainland China (“PRC”) and I will set these out separately.  Suffice to say at this stage, Ds’ case was that in 2005, P had assigned / transferred away all its rights under the Loan Agreement, as follows:

(i)   On about 15 September 2005 P had assigned / transferred all its interest in the Loan to a PRC company Hainan Guotai Real Estate Development Company Limited 海南國泰房地產開發有限公司 (“HGRED”) for RMB 1 under an agreement between P and HGRED (“1^st Transfer Agreement”); the beneficial owner of HGRED was a Duan Xinzhong (“Duan”), and the legal representative of HGRED since 2001 had been Duan’s cousin He Ziping.  Its managing director since 2003 had been Li Jie (“Li Jie”);

(ii)   Subsequently, on 8 December 2005, HGRED further transferred / assigned the Loan to one Guangdong Zhong Ling Technologies Company Limited廣東中凌科技有限公司(“Guangdong Zhongling”) for RMB 2 under an agreement between HGRED and Guangdong Zhongling (“2^nd Transfer Agreement”).

27. The present action was revived towards end of January 2007 when Ds took out a summons to strike out P’s claim (“Striking Out Summons”), based on the 1^st Transfer Agreement and alleging that P was no longer its creditor.  This was opposed by P, who then filed a Notice of Intention to Proceed on 5 February 2007.  The Striking Out Application was later withdrawn by consent on 5 January 2007, after Ms Kwok filed an affirmation alleging that the 1^st Transfer Agreement had been cancelled by agreement.

28. Thereafter, on 25 September 2007, P then took out a summons for summary judgment (“O14 Summons”).  This was opposed by Ds.

29. In February 2008, Ds were granted leave to amend their respective Defences.  In D1’s Amended Defence filed on 18 February 2008, it pleaded that further or in any event and without prejudice to the Lack of Authority Defence and the Partial Repayment Defence, if D1 was indebted to P under the Loan Agreement, P had ceased to be its creditor by reason of P having transferred and assigned its rights under the Loan Agreement under the 1^st Transfer Agreement and the 2^nd Transfer Agreement (“Assignment Defence”).

30. Thus, in Ds’ respective Amended Defences, they were relying on:

(i)   Lack of Authority Defence

(ii)   Partial Repayment Defence

(iii)   Set Off Defence

(iv)   Assignment Defence

31. After Ds were granted leave to file their Amended Defences, P’s O14 Summons was dismissed by the Master on 22 February 2008.

32. On 14 July 2008 P took out a summons for directions including an application for leave to set the matter down for trial.  An order was duly made by Master de Souza on 30 July 2008[13], setting out various directions and the application for leave to set down was adjourned to 8 December 2008 for fixing an appointment before the Listing Master. 

33. Notwithstanding Master de Souza’s order that the parties’ respective list of documents was to be filed within 28 days, the action seemed to go to sleep again for another year or so.

34. P eventually filed another Notice of Intention to Proceed on 28 December 2009.  However, it seemed that it was not until early 2011 that the action seemed to gather pace again.

35. On 30 April 2011, D1 obtained leave to re-amend its Amended Defence, and the Re-amended Defence was later filed on 25 May 2011, and in that D1 deleted the Set Off Defence, leaving the other 3 defences. 

36. P’s statement of claim was also amended on 11 May 2011 to bring up to then the total amount of interests and default interest, and the total amount claimed by then had accumulated to almost HK$ 214m.

37. Thereafter there followed further applications by Ds to amend their respective Defences, and the present versions were dated on 30 May 2013.  By the time of the trial, Ds were still relying on the following:

(i)   Lack of Authority Defence

(ii)   Partial Prepayment Defence

(iii)   Assignment Defence

38. It was only at the commencement of the trial that the Lack of Authority Defence was finally dropped by Ds, leaving only (ii) and (iii) above.

Events in PRC

39. I will now turn to those events in PRC, which are rather complex and convoluted.

40. From what I could gather, D1 had agreed in about late 1990s to invest in a PRC property development company called China Real Estate Group Huadong Limited 中房集團華東置業股份有限公司(“CRED Huadong”) and its two property development projects.  The two development projects were at Charity Plaza at No 120 Puxi Road Xuhui District徐匯區浦西路120号聖愛廣場 (“Charity Plaza”), and at 太子公寓 (“Prince Apartments”). 

41. It was not denied by P that there were then the following 3 companies incorporated in Hong Kong:

(i)   Huadong Share Investments Company Limited (“HK Huadong”), said to be for the purpose of purchasing  20.28%  shareholding in CRED Huadong;

(ii)   華緻有限公司, said to be for the purpose of purchasing 20 units in Prince Apartments;

(iii)   華綽發展有限公司/ Welchem Development Limited (“Welchem”), which signed an agreement on 10 December 1997 with CRED Huadong to purchase 3 floors, namely the entire 4^th, 9^th and 20^th floors in Charity Plaza[14].

(the above 3 companies collectively referred to as “3 HK Companies”)

42. It would appear that subsequently, the 3 HK companies were “transferred” from D1 to光訊控股集團有限公司 / eCyber China Holdings Limited (then a publicly listed company in Hong Kong) (“eCyber”).  The transfer was said to have taken place in about 1999, and Edward was said to hold controlling interest in eCyber.

43. Then some time in about 2001, Welchem entered into a sub sale agreement with a company called Shangahi Mingyuan Real Estate Development and Management Ltd 上海銘源房地產開發經營有限公司 (“Shanghai Mingyuan”) for the sub-sale of Welchem’s interest in the 3 floors in Charity Plaza.

44. Further, it would appear that in about July 2000, a PRC company Beijing Zhonghaixin Real Estate Development Limited 北京 中海信房地產開發有限公司 (“Beijing Zhonghaixin”) had apparently helped Edward to repay his personal loan of HK$20m plus interest of HK$3m.  It was then said that in consideration / repayment thereof, and under the arrangement of Edward, Welchem had entered into an agreement with Beijing Zhonghaixin on 30 September 2001, under which Welchem agreed to pay Beijing Zhonghaixin commission for sale of Welchem’s interest in Charity Plaza.

45. Thereafter, due to certain dispute between Edward / Welchem with CRED Huadong, CRED Huadong had withheld the transfers of the 3 floors in Charity Plaza to Welchem, and as a result, Welchem was not able to complete the sub-sale to Shanghai Mingyuan[15], nor was Welchem able to pay Beijing Zhonghaixin[16] (“Charity Plaza Dispute”).

46. The Charity Plaza Dispute dragged on and by early 2005, it had not yet been resolved.

47. According to Li Jie, the Kwok Siblings approached Duan and Li in April 2005 through a friend 陳三林 / Chen Sanlin (“Chen Sanlin”) to seek their assistance to resolve the Charity Plaza Dispute, and that it was through their assistance that the Charity Plaza Dispute was eventually settled, and further later that the assignment / transfer of the Loan from P to HGRED under the 1^st Transfer Agreement was the agreed payment of part of the reward for the assistance provided by Duan and Li Jie.

48. It was not disputed by Ms Kwok that she met Duan and Li Jie through the introduction of Chen Sanlin for the first time in 2005, but according to her this was in about mid 2005, and not in April. 

49. Ms Kwok said she only became a director of Welchem and HK Huadong in late May 2005, and that her understanding of the Charity Plaza Dispute was as  follows[17]:

(i)   In October 2004, Welchem  had sought assistance from a Li Zheng Li (“Li Zhengli ”), then a director and vice president of Shanghai Mingyuan, to resolve the Charity Plaza Dispute;

(ii)   It was with the assistance of Li Zhengli that on about 23 May 2005, Welchem and CRED Huadong started coming to a consensus in resolving the Charity Plaza Dispute ;

(iii)   However, after the Charity Plaza Dispute had been resolved in principle, there was a hiccup which then led to the engagement of Duan and Li Jie (“Hiccup”).

50. The Hiccup, according to Ms Kwok, was that Li Zhengli had caused a board meeting of Welchem to be held on 31 May 2005 (“31.05.05 Welchem Resolution”), wherein it was resolved that an irrevocable power of attorney (“1^st Welchem P/A”) was to be executed in favour of Li Zhengli.  It appeared that the terms of the 1^st Welchem P/A were wide and this would give power to Li Zhengli to, inter alia, transfer Welchem’s interest in the 3 floors in Charity Plaza to any third party of his choice.

51. This, according to Ms Kwok, caused grave concern to the other directors of Welchem.  Various urgent steps were taken, and Ms Kwok said she then enlisted assistance from her connections to try and intercept Li Zhengli, and this led to her being introduced to Chen Sanlin, Duan and Li Jie.  Further, according to Ms Kwok, shortly after her first meeting with Duan and Li Jie in June 2005, she on behalf of Welchem had verbally agreed to pay them HK$2m for provision of their assistance.

52. Ms Kwok then said as a result of the intervention of Duan and Li Jie, Li Zhengli was intercepted to ensure that he would not make use of the 1^st Welchem P/A, and eventually, after a reconciliation, an agreement was reached whereby Li Zhengli continued to represent the Kwok Siblings to assist in expediting the transfer of the 3 floors in Charity Plaza. 

53. Ms Kwok had produced an agreement dated 8 October 2005 to support P’s case of the reward of HK$2m (“Consultancy Agreement”)[18].  The parties to the Consultancy Agreement were, however, on one part a company said to be a subsidiary company of eCyber and also an associated company of Welchem, namely 港滙亞洲有限公司 / Noble City (Asia) Limited (“Noble City”), and on the other part a company of which Chen Sanlin was the president, namely中國集團企業有限公司 China Holdings Enterprises Limited (“China Holdings”) .

54. P’s case was that the payment for assistance / service that Duan and Li Jie provided was only limited to HK$2m, which had already been paid to them through China Holdings under the Consultancy Agreement.

55. As for the signing of the 1^st Transfer Agreement, Ms Kwok’s explanation was that when she met Duan, she had understood that Duan  was an ex PRC government official with good connections in PRC, and that Duan claimed to be a close friend of Ke.  When she mentioned to Duan in about June 2005 that there was the Loan which was then outstanding from D1, she was told by Duan that D1 had just received a substantial amount of money from a Hainan entity as payment for a judgment debt (“Hainan Judgment Debt”), and that he could assist P in recovering the said Loan from D1.  Ms Kwok, however, said she did not take up his offer at that time.

56. Then, on 15 September 2005, when Ms Kwok went to Duan’s office in Shanghai to discuss with him about other matters, and during that meeting Duan brought up the topic of the Loan again, and confirmed that D1 had succeeded in recovering the Hainan Judgment Debt of approximately RMB 40m odd, and volunteered to assist P in recovering the said RMB 40m odd from D1 in order to settle part of the Loan.  It was Ms Kwok’s case that the documentation was then prepared quickly by Duan and Lie Jie and placed before her for signing.

57. According to Ms Kwok, she expressly told Duan she agreed to sign the 1^st Transfer Agreement but that would be subject to the board’s ratification and that Duan expressly told her he understood.

58. Ms Kwok then said when she returned to Hong Kong and reported the 1^st Transfer Agreement to P’s board of directors on about 17 September 2005, the board decided that the agreement would be contrary to the interest of P.  It was Ms Kwok’s case that she then contacted Duan on the same day and that there was an agreement to the cancellation of  the 1^st Transfer Agreement and that Duan had agreed to return all the originals of the signed agreement but failed to do at that time.

59. Later, during a business trip to Shanghai on 9 December 2005, Ms Kwok met with Duan, Li Jie, and another of Duan’s assistant, Shan Hong Dong (“Shan”).  Although at the meeting, Ms Kwok received what purported to be signed originals of the 1^st Transfer Agreement, she discovered afterwards what were given to her were only coloured photocopies, and not the original signed copies of the 1^st Transfer Agreement.  It was eventually at a subsequent meeting on 14 December 2005 that Li Jie and Shan finally returned two original signed copies of the 1^st Transfer Agreement to her.  Ms Kwok then said she thought that was the end of the matter.

60. Li Jie denied there was any agreed cancellation of the 1^st Transfer Agreement on the part of HGRED.  According to him, after the signing of the 1^st Transfer Agreement, he and Duan went to Guangzhou on 19 September 2005 to meet with Ke through arrangement of a friend, and showed Ke an original of the 1^st Transfer Agreement, plus handing to Ke a notice of assignment (“1^st Notice”).  Li Jie said this was the first time they met Ke.  As D1’s shares were being suspended at that time, rather than repayment of the Loan, Ke told Li Jie that HGRED could participate in two of D1’s projects in PRC, one in Hainan, and the other one in Wuhan.  Later, according to Li Jie, HGRED decided not to take part in D1’s projects.

61. Subsequently, on 8 December 2005, HGRED decided to further assign the Loan to Guangdong Zhongling, by the 2^nd Transfer Agreement.  Guangdong Zhongling was at that time involved in a landed project in Zhongshan City Sanxiang Town (“Sanxiang Property”) with HGRED.  Li Jie said that on 10 December 2005, he had sent a notice to Ke of D1 in relation to the 2^nd Transfer Agreement (“2^nd Notice”).

62. It was Ds’ case that thereafter, on 15 May 2006, D1 and Guangdong Zhongling signed a settlement agreement.  However, according to Li Jie, D1 never complied with the terms of the settlement agreement it had with Guangdong Zhongling, and the Loan had remained unpaid.

63. Anyway, during the trial, and after Li Jie had given evidence, P’s Senior Counsel, Mr Wong SC suddenly produced a judgment dated 19 March 2014 from the Guangdong Province Higher People’s Court (“PRC Judgment”) and it would appear therefrom that on 9 December 2005, the day after the 2^nd Transfer Agreement, a supplemental agreement was signed between HGRED as transferor, Guangdong Zhongling as transferee, in respect of the payment of a consideration of RMB 20m under the 2^nd Transfer Agreement (“Supplemental Agreement”) and that on the same day, Ke had also signed a guarantee, to secure the performance of Guangdong Zhongling under the Supplemental Agreement[19]. 

64. I will go further into the PRC events later.

The factual witnesses and their demeanour

65. Ms Kwok was the only factual witness for P.  She had made two witness statements, the 1^st one dated 2 March 2012[20] and a 2^nd one dated 3 January 2013[21] and attended the trial to be cross examined.

66. Ke gave a witness statement on behalf of D1 and D3 also made a witness statement.  They both attended trial to be cross examined.  Li Jie was also called to give evidence on behalf of D1, and he had made two witness statements, one dated 29 February 2012 and the 2^nd one on 25 March 2013.

67. I have to say at the outset that I do not find any of the witnesses entirely reliable and they all had their own interests to guard.  The court had not really told of the full picture, in particular to those events in PRC or the business relationships between the Kwok Siblings and those various entities and persons in PRC.  Having said this, the main witnesses in relation to the Assignment Defence were Ms Kwok and Li Jie. Having observed their demeanour in court, I have preferred Li Jie’s evidence in many areas to that of Ms Kwok’s, as I have found him more spontaneous and firm when giving evidence, whereas I have found Ms Kwok to be guarded, evasive and vague and she often said she had no knowledge when asked about some of the events in PRC.  I will consider their respective evidence in detail later when dealing with the factual issues.

68. I also find that Edward was clearly very much involved in relation to events in Hong Kong and in PRC and was in my view a key player.  Edward was the sole defendant in HCA 2725/2001.  His application to strike out D1’s claim against him was dismissed at first instance by Chung J, but he won the appeal and this was about 3 months before the commencement of the trial of the present action.  As a result, D1’s claims against him in HCA 2725/2001 had been struck off[22].  Having said this, in my view, Edward would have been able to shed light on some of the disputed facts in PRC, particularly when Ms Kwok had claimed that she had no knowledge, but P had, however, not called Edward as its witness in the present action.

69. P had also not called Ms Kwok’s other brother and her mother, directors of P, and said by Ms Kwok to have declined to authorize the signing of the 1^st Transfer Agreement in a “board meeting” leading to the alleged cancellation of the 1^st Transfer Agreement.  Nor did P’s sole shareholder, namely Ms Kwok’s husband, being the one who should be most concerned over the repayment of the Loan and/or interest, give evidence.

70. Ds’ Senior Counsel, Mr Paul Lam had invited the court to draw an adverse inference against P for failing to call Edward and the other board members of P and I will consider this later.

71. By the time of the trial, and due to P’s long delay in proceeding with its claim, D2 and Duan had both passed away, which was unfortunate, as they were again key players in the disputes between the parties.

72. P’s Senior Counsel, Mr William Wong, had criticized Ds in maintaining the Lack of Authority Defence throughout and only decided to drop it at last minute.  Both Ke and D3 said they did not remember why they signed the statement of truth in their defence stating that there was a lack of authority on the part of D1 for the Loan and / or the signing of the Loan Agreement.  The reasons given by Ke and D3 in relation to why their initial pleaded case included the Lack of Authority Defence were not convincing, and this had affected their credibility. 

73. Further Ke had also been caught not telling the court the entire truth when he failed to disclose the Supplemental Agreement and also the guarantee he had signed to secure the performance of Guangdong Zhongling under the Supplemental Agreement, although he did subsequently apologize to this court and said he did not think those documents were relevant.

74. Mr Wong SC had also invited this court to draw an adverse inference against D1 for not calling their financial controller a Anthony Chiu (“Chiu”) in relation to the Partial Repayment Defence, and I will consider this when dealing with the factual issues.

The Experts

75. On 25 September 2012, leave was granted by Registrar Lung[23] for the parties to adduce expert’s evidence on the PRC law on the following issues:

“Under the PRC Law, whether the transfer of the subject matter and hence the right to sue for the debt under the first transfer agreement took place:-

a) At the time of the first transfer agreement was executed; or

b) After all contractual obligations were performed by the relevant parties and, if there had been non-performance by either party of any obligation, under the PRC Law whether the other party has the right to:-

(a) Sue either for (i) performance of the consideration; or (ii) damages for non-performance; or

(b) Rescind the agreement or otherwise reverse the transfer and thus have the right to sue for the debt again;

And in either event, what is the suing party required to do or not to do under the PRC law.”

76. P instructed a lawyer in Beijing 王征 (“Madam Wang”) and Ds instructed a lawyer in Guangdong 陳英金 (“Mr Chen”).  A joint expert report dated 29^th May 2014 was later prepared stating the areas of agreement / disagreement (“Joint Report”). 

77. Notwithstanding the order of Mr Registrar Lung, eventually, the scope of expert evidence focused mainly on the following issues:

(i)   What constituted “債權憑證” (“Proof of Loan”) for the purpose of the 1^st Transfer Agreement;

(ii)   Whether the Proof of Loan documentation had to be original or either original or copies for the purpose of the 1^st Transfer Agreement;

(iii)   What would be the legal consequences if HGRED had failed to pay RMB 1 pursuant to the 1^st Transfer Agreement.

The Partial Repayment Defence

78. As a preliminary point, Mr Wong SC submitted that because Lucky Choice was a separate legal entity from D1, the Partial Repayment Defence was a non-starter.

79. It was D3’s evidence that D1 had procured its subsidiary Lucky Choice to direct a securities broker KGI Asia Limited (“KGI”) to pay part of the sale proceeds of the shares in a listed company Noble Link Holdings Limited to P (“Noble Link”), as partial repayments of the Loan. D3 had further explained that it was D1 which had put Lucky Choice in funds in the first place to buy those shares in Noble Link and that D1 had procured the shares to be put under the name of Lucky Choice, and upon sale, had directed the sale proceeds be paid to P.  

80. I accept the submission of D’s Senior Counsel Mr Lam that such a transaction between a parent company, albeit a listing company, and its wholly owned subsidiary was not inherently improbable.

81. The main question was whether the 1^st Sum and the 2^nd Sum paid by Lucky Choice respectively on 29 February 2000 and 5 April 2000 to P were partial repayments of the Loan on behalf of D1, and I will deal with those sub-issues under the Partial Repayment Defence in the order as they appeared on the agreed list of issues.

(a)   Whether the “4 sheets of paper” prove the purpose of the 2 payments

82. Ds had produced 4 documents in support of its case that the two Sums were partial repayments of the Loan, which Mr Wong SC had described as “4 sheets of paper”:

(i)   A letter from Lucky Choice to KGI dated 18 February 2000, instructing them to remit the balance of the sale proceeds of 17.4m shares in a listed company Noble Link to P’s bank account at HSBC[24] (“1^st Lucky Choice Letter”);

(ii)   An Outward Local Payment Customer Advice dated 28 February 2000 issued by Standard Chartered Bank to KGI that according to instructions from KGI, the bank had effected payment to P’s bank account at HSBC of an amount of HK$30,956,774.94, namely the 1^st Sum[25] (“Customer Advice”);

(iii)   A letter from Lucky Choice to KGI dated 13 March 2000, instructing them to remit the balance of the sale proceeds of 2m shares in Noble Link to P’s bank account at HSBC[26] (“2^nd Lucky Choice Letter”);

(iv)   Pay–in Slip dated 5 April 2000 of a cheque of one Zhang Li Run Qiang into P’s account at HSBC of HK$3,386,808, namely 2^nd Sum[27] (“Pay In Slip”)

(collectively “4 Payment Documents”)

83. P initially gave notice on 7 November 2011, disputing the authenticity of the 4 Payment Documents together with the 1^st Debit Note[28]. However, P in the end did not pursue its challenge to the authenticity of the 4 Payment Documents at the trial.

84. I note that all 4 Payment Documents seemed to have been received by Ds through fax on 1 August 2000 from KGI, and showed that the amounts stated therein were credited into P’s account, although no one seemed to now know or recall who Zhang Li Run Qiang on the Pay In Slip was.

85. On the evidence before this court, I see no reason to doubt the authenticity of the 4 Payment Documents, and accept that they were genuine.  P did not dispute that the two Sums were credited into P’s bank account at HSBC.  The question was whether the two Sums were for the purpose of partial repayments of the Loan. 

86. The “Details of Payment” on the Customer Advice in relation to the 1^st Sum was stated to be “For Further Credit to Lucky Choice Assets Ltd ”.  Mr Wong SC submitted that as the Customer Advice was issued by the bank to KGI pursuant to remittance instructions from KGI, the information stated therein must have formed part of the instructions from KGI to the bank, and that KGI’s instructions to the bank must have come from Lucky Choice, and thus those words on the Customer Advice would show that the purpose for the payment of the 1^st Sum was not for partial repayment of the Loan.

87. D3 disagreed that the instructions for the “Details of Payment” had come from Lucky Choice.  The instructions to KGI to remit the sale proceeds to P were contained in the two letters with the letter head of Lucky Choice.  Apart from the details of the bank accounts of P, there were no other instructions / details given to KGI in those two letters. 

88. Although there was no challenge that the sums were sale proceeds of shares in Noble Link held by Lucky Choice, the remitter of the 2^nd Sum was not in fact KGI.

89. Anyway, I accept the information for “Details of Payment” on the Customer Advice must have been part of KGI’s instructions to the bank for the remittance of at least the 1^st Sum.  I do not, however, think that it would necessarily follow that these instructions must have originated from Lucky Choice to KGI, nor would it necessarily follow that both Sums were “for the purpose of securing further credit by P to Lucky Choice”,as submitted by Mr Wong SC.  

90. There was no sufficient evidence as to what those words meant, and in any event, I do not find that there was sufficient evidence that the instructions for “Details of Payment” had in fact originated from Lucky Choice.

91. Mr Lam SC had posed the question that if the two Sums were not partial repayments, then what were they?

92. There were, however, no other documents or records produced by Ds, such as board minutes or internal accounts of either D1 or Lucky Choice, correspondence or other communications etc to show that the two Sums were partial repayments of the Loan.  There were no documents produced by P either.

93. Ds had raised this defence as early as 9 August 2001 in their respective Defences filed on that date.  That of course should be the time for both parties to check their records and / or to search for documents and evidence to support their respective case. 

94. In her 1^st witness statement, Ms Kwok had referred to her 3^rd affirmation filed in September 2007 stating that P’s records indicated that Lucky Choice had never made the alleged payments to P in settlement of the Loan[29].  Ms Kwok then went on to say in her 1^st witness statement she could only begin to make enquiries about the two Sums in 2011 after D1 had disclosed the 4 Payment Documents in its List of Documents filed on 10 June 2011.  She said she was not able to find any due to the long lapse of time, since this was over 10 years after the alleged payments, and that P’s staff in charge, Ms Hazel Tsang, had left P in about 2003 and had since lost contact.

95. However, as Mr Lam SC had pointed out, Ms Kwok was the sole director and shareholder of P in 2001, and there should have been records of P at that time.  Hazel Tsang was still there.  There was no reason as to why Ms Kwok would fail to check her records at that time since P was the plaintiff.  When Ms Kwok was cross examined on this, she then admitted that she did make enquiries at that time from Hazel Tsang, but was told by Hazel that Lucky Choice did not pay P any money.

96. Ms Kwok, under cross-examination, seemed to suggest that it was possible that the two Sums were paid by Lucky Choice to settle amounts owed by Lucky Choice to P pursuant to some joint ventures relating to trading in shares.  I accept that in this respect, as pointed out by Mr Lam SC, there was no evidence to support what Ms Kwok had said. 

97. Even though I find Madam Kwok’s evidence to be vague and inconsistent as to what she had done to enquire about the two Sums or why she had not been able to find or had not retained any records in respect of the payments at around the time the two Sums were admittedly received, Ds did not, however, in their Defence plead or otherwise make it clear that the 1^st Sum was remitted into P’s account by KGI, and that the 2^nd Sum was credited into P’s account by a cheque from one Zhang Li Run Qiang.  Also, the amount of the 2^nd payment pleaded was not the same amount as the 2^nd Sum.

98. The burden was on Ds to prove that the 1^st Sum and the 2^nd Sum were partial repayments, and not on P to explain what the 1^st Sum and the 2^nd Sum were for.

99. Merely by looking at the 4 Payment Documents, and on the face of those 4 Payment Documents, they only indicated payments of the two Sums to P and the receipts thereof by P.  There was nothing in those 4 Payment Documents to show that the two Sums were for the purpose of any partial repayments.

100. Ds, however, also relied on the 1^st Debit Note. P had challenged the authenticity of the 1^st Debit Note, and this led to the next sub-issue under the Partial Repayment Defence.

(b)   Whether Ds had discharged their burden of proof to show that the 1^st Debit Note was authentic

101. The 1^st Debit Note was dated 12 June 2001.  From the 1^st Debit Note it could be seen that there was a row  against the date 1 March 2000, after the dates 1-Feb-00 to 29-Feb-00, with words “Partial payment, thank you” and the amount of the 1^st Sum was stated.  Then, against the date 5 April 2000, after 1-Apr-00 to 4-Apr-00, again there was a row with the words “Partial payment, thank you”, but the amount stated was HK$3,048,137.20.  This amount was not the same amount as the amount of the 2^nd Sum.

102. The original of the 1^st Debit Note had not been produced.  D3 confirmed in his evidence that he had seen the original of the 1^st Debit Note.  D3 said he had tried to find the original of the 1^st Debit Note before he left D1, but he was unable to locate it.

103. Ds had, however, produced a letter dated 28 June 2001 from D1 to its then solicitors William WL Fan & Co enclosing a copy of the 1^st Debit Note, and there was a receipt chop by the said solicitors (“28.06.01 Letter”)[30].  There were 3 enclosures in this letter, namely (i) a copy of the 1^st Debit Note (ii) copies of drawn down instructions of the Loan, and (iii) the Statutory Demand with accrued interest at Interest Rate and default interest calculated up to the date of the Statutory Demand, plus further default interest at rate of 3% per month on the sum of HK$41,134,246.57 from date of the Statutory Demand until payment[31].

104. On the copy of the 1^st Debit Note produced by Ds, one could also see the time and date of fax, being “12 June 2001 14:32 FROM CIL HOLDINGS LTD +852 2827 8778”, and also the recipient number of “28898929”.  The sender’s number was that of D1’s Wanchai office and the recipient number was that of D1’s Chaiwan office. Thus, this indicated that on the date stated on the 1^st Debit Note, namely 12 June 2001, a copy thereof was faxed internally from D1’s Wanchai office to Chaiwan office.

105. The letter from D1 to its then solicitors and the internal fax record were in my view contemporaneous evidence that the 1^st Debit Note existed in June 2001, and was not a document created in 2011 when Ds had to file their Lists of Documents and when the 1^st Debit Note was disclosed.

106. There was no challenge on the authenticity of the 2^nd Debit Note and the 3^rd Debit Note by either side. On the 2^nd Debit Note, the two rows of words “Partial payment, thank you” did not appear, but where those two rows had appeared on the 1^st Debit Note, there were simply blank gaps.  The interest on all 3 Debit Notes were calculated on a monthly basis, except the month of April 2000, and as pointed out by Mr Lam, if there had not been the repayment on 5 April 2000, there would not have been any need to divide the calculation of interest for the month of April 2000 into two periods, one from 1 to 4 April, and the other from 6 to 30 April.

107. Also the Interest Rate in the 3^rd vertical column in the table in the 1^st Debit Note was stated to be “Prime+1%”.  It would then appear on the 2^nd Debit Note, that although the Interest Rate in the 3^rd vertical column in the table seemed originally typed to be “Prime+1%”, but someone had amended the “1%” by writing the number “3” over the “1”, thus making the Interest Rate to be “Prime+3%” in the 2^nd Debit Note. 

108. Mr Wong SC had pointed out that there were a number of discrepancies in the 1^st Debit Note:

(i)   On the 1^st Debit Note, the amount of the repayment on 5 April 2000 was stated to be HK$3,048,127.20, and this amount did not correspond to the amount of the 2^nd Sum pleaded, namely HK$3,386,808;

(ii)   The “Interest Rate” stated in the summary above the table of the 1^st Debit Note was stated to be “P+3%”, whereas in the 3^rd vertical column of the table, the Interest Rate was then stated to be “Prime+1%”.  According to the Loan Agreement, the Interest Rate should in fact be “Prime Rate plus 3% per year”;

(iii)   Further, in the 1^st Debit Note, the interest was calculated on compound interest basis, which was not so provided in the Loan Agreement.

109. The date stated on the 1^st Debit Note was 12 June 2001, and 9 days later, ie on 21 June 2001, the Letters Before Action were issued by P’s then solicitors to D1, D2 and also D3 demanding repayment of some HK$69m[32]. The details of the calculations of the principal HK$40m and interest accrued at the Interest Rate totaling HK$41,134,246.57, plus default interest were clearly set out in the letters to D2 and D3[33]. The calculations of the principal accrued interest and the default interest corresponded with the amounts in the Statutory Demand filed another week later on 28 June 2001.

110. There was no partial repayments of the 1^st Sum or the 2^nd Sum, or any other sums deducted from the calculations set out in the 3 Letters Before Action, nor in the Statutory Demand.

111. There was no reply from Ds to the Letters Before Action, nor did they, nor their solicitors, produce the 1^st Debit Note to P at that time to show any partial repayments.  They did not mention the 1^st Debit Note or any partial repayments in response to the Statutory Demand either. 

112. D3 explained that he had spoken to D2 after receipt of the Letters Before Action and had told D2 to follow up on why P was demanding some HK$69m. D3 said that D2 and Edward were like brothers at that time, and D3 had thus left it to them to settle the matter.

113. Although Ke joined D1 in 1999, at that time D2 was the chairman of the board, and D3 was the vice chairman.  By all accounts, D2 was the person who was in charge, and unfortunately, this matter had not proceeded during his lifetime.  Ke’s evidence was that he was told by D2 that D1 had made two repayments to P, totalling HK$34,343,582.94, and that D2 had provided the 4 Payment Documents and the 1^st Debit Note to Ke, and that such repayments was confirmed by D3.

114. As mentioned earlier, the authenticity of the 2^nd and the 3^rd Debit Notes was not challenged.  The interest rate for the Loan during the period 3 May 1999 to 2 August 1999 was stated to be “Prime+3% pa”, and the actual amount was stated to be “11.25%”.  This would mean that the prime interest rate for that period was 8.25% pa.

115. The interest rate stated for the Loan during the same period 3 May 1999 to 2 August 1999 on the 1^st Debit Note, although stated to be “Prime+1% pa”, the actual amount thereof was stated thereon to be “11.50%”, which was in fact only a 0.25% variance from the agreed Prime+3%, which seemed to indicate that the “1%” in “Prime+1%” could have been merely a typing mistake, since at 1%, the then total should be only 9.5%.

116. In any event, if the 1^st Debit Note was indeed falsified by Ds, there was no reason for them to adopt a rate which was even 0.25% higher than Prime+3%.  

117. Also, as mentioned earlier, there was a handwritten correction in the 3^rd column on the 2^nd Debit Note from what appeared to be “1” to “3”.  All this led me to come to the view that more probable than not, the 1% was simply a typing error, which was spotted and corrected to 3% on the 2^nd Debit Note. 

118. Even though the partial payment on 5 April 2000 on the 1^st Debit Note was of a different amount to the 2^nd Sum, as pointed out by Mr Lam SC, the amount of the payment on 5 April 2000 as shown on the 1^st Debit Note was exactly 90% of the 2^nd Sum.  In my view, this could not have been a mere coincidence.

119. I also find the blank gaps on the 2^nd and the 3^rd Debit Notes, particularly the one between 4 April 2000 and 5 April 2000 to be out of place compared with the rest of the monthly calculations.  Other than the 2 blank gaps, no other blank gaps had appeared on the 2^nd or the 3^rd Debit Notes from 5 April 2000 to 27 October 2002.

120. As for the compound interest calculations on the 1^st Debit Note, had there not been the 2 partial repayments, then such method of calculations would substantially increase the outstanding amount, as one can see, by 29 February 2000, the total principal and interest on the 1^st Debit Note was stated to be HK$50,525,812.06, whereas on the other 2 Debit Notes, the total outstanding amount was only HK$42,368,273.98.  Again, I would have thought it would be extremely unlikely that if Ds were to have falsified the 1^st Debit Note, they would adopt a calculation which would increase the total outstanding amount substantially.  In fact, had Ds wanted to falsify the 1^st Debit Note, it would have been unlikely that they would falsify one with so many mistakes.

121. I also find Madam Kwok’s evidence about the 1^st Debit Note vague and not satisfactory.  She was not able to explain the blank gaps on the 2^nd and the 3^rd Debit Notes, nor the division into two periods for the month of April 2000 for the calculation of interest.  There was also no satisfactory explanation by her as to who or why the number “3” was hand written in the Interest Rate on the 2^nd Debit Note, amending the numeral which appeared to be “1”.

122. I accept Mr Lam’s submissions and I am satisfied that all in all, on a balance of probabilities, the copy of the 1^st Debit Note was a copy of the original and was a genuine and authentic document.   

(c)   If the 1^st Debit Note was authentic, what was its probative value?

123. D3 had attempted to explain Ds’ failure to mention the alleged partial repayments or to produce the 1^st Debit Note when the Letters Before Action and the Statutory Demand were received.  He had said there were several reasons including that D1 was suspended from trading, and that there was a debt restructuring for D1, and that D2 was very close to the lender, whom he said was Edward.

124. However, even though D1 was in financial difficulties and was close to being wound up, I find it odd that Ds had not referred to the 1^st Debit Note earlier.  I do not find those reasons given by D3 were good or sufficient enough to justify why no one saw the need to produce or mention the 1^st Debit Note earlier.

125. The 2^nd Debit Note was produced by Li Jie as part of the documents in attachment 25 of his 1^st his witness statement, which according to Li Jie was given to him by Ms Kwok.  Li Jie’s evidence was that he was subsequently informed by Ke that D1 had already repaid HK$30m odd to D1, but as several years had elapsed, the details would need to be further checked by Ke.  There was no mention of the 1^st Debit Note in Li Jie’s witness statement, and Li Jie also confirmed during the trial that he did not ask for any documentary evidence in support of the partial repayments at that time, nor had he been given any by Ke or D1.

126. In fact, the 3^rd Debit Note was submitted by P during the course of D1’s debt restructuring, and again, Ds did not produce the 1^st Debit Note at that time or raise and partial repayments to refute what was produced by P.

127. Ds also admitted that at the time of their Striking Out Summons, they also did not produce the 1^st Debit Note to refute P’s claim for the Loan, nor did Ds produce the 1^st Debit Note when P issued the O14 Summons.

128. As I have stated earlier, although I accept that more probably than not, the 1^st Debit Note was authentic, it did consist of manifest errors, and more importantly, it pre-dated 2^nd and 3^rd Debit Notes.

129. Ds’ failure to produce or to mention the 1^st Debit Note until 2011, and their failure to refute P’s claims by producing the 1^st Debit Note led me to come to the view that more probably than not, that the 1^st Debit Note had been superseded by the 2^nd and the 3^rd Debit Notes.

130. Apart from the 4 Payment Documents and the 1^st Debit Note, there was also the evidence of D3 and Ke.  Although Ke joined D1 as a director in August 1999, he was not really in control of D1 until he became chairman of the board in April 2002.  He had also said in 2001 he was a “white knight” trying to save D1 through restructuring, and that he had no knowledge of the details of the Loan, and the persons who were in charge were D2 and D3, and that he did not know what kind of  understanding D2 had with P.

131. Thus whatever information Ke had in relation to any partial repayments would be mainly from the D2, D3, the 4 Payment Documents and the 1^st Debit Note and that he did not have any first hand information about any partial repayments.

132. As for D3, he had said that it was D2 who had told him about the partial repayments.  He admitted noticing that there were some inconsistencies of the 2 Sums with the amounts D2 had told him, he then asked Chiu to follow up with D2 to clarify the matter, as Chiu was in charge of the details.  D3 admitted that he did not follow up on the matter of partial repayments with Chiu but said according to his recollection, D2 did follow up with lawyers, and that Chiu was to follow up on the figures.  D3 confirmed that D2 had faxed the 1^st Debit Note to D1’s solicitors, and that he had seen the original of the 1^st Debit Note.  D3’s evidence did not really help Ds in establishing that there were indeed partial repayments towards the Loan as again what he knew seemed based on what D2 had told him, and the 4 Payment Documents and the 1^st Debit Note.

133. Although I accept the 1^st Debit Note was on a balance of probabilities an authentic copy of the original, on the face of it I find more probable than not that it had been superseded by the 2^nd Debit Note and 3^rd Debit.

(d)   Whether an adverse inference should be drawn against Ds by reason of their failure to call Chiu to testify at the trial

134. During the course of the trial, D3 revealed that the financial controller at D1 in 2000 Chiu was still working for D1 at the time of the trial.  According to D3, it was Chiu who had confirmed to him that there had been repayments and that the 1^st Debit Note was issued by P to D1.  Although Ke had said there was frequent change of financial personnel, as Chiu was still working there at the time of the trial, there was no reason as to why Ds failed to call him.  Mr Wong SC had thus invited this court to draw an adverse inference against Ds for not calling Chiu.

135. As I am of the view that prima facie the 1^st Debit Note had been superseded by the 2^nd and 3^rd Debit Note, Chiu would seem to be a witness, who could shed light on whether the 1^st Debit Note had been superseded or whether there had been partial repayments.  Having considered D3’s evidence, Ds should have called Chiu to testify.  I draw adverse inference against Ds for not calling Chiu, in that the 1^st Debit Note had been superseded and the payments of the 1^st Sum and the 2^nd Sum were not connected with the Loan.

(e)   Whether Ds had discharged the burden of proof and established the 1^st Sum and the 2^nd Sum were paid by Lucky Choice for the purpose of partial repayment of the Loan

136. The burden was on Ds to prove on a balance of probabilities that there had been partial repayments by the two Sums.  Having considered all the above, I have come to the conclusion that Ds had not been able to discharge their burden and I am not satisfied that there had indeed been partial repayments towards the Loan as alleged by them.

(f)   What was the relevance of Clause 8.4 and Clause 8.5 of the Loan Agreement to the issue of partial repayment

137. Mr Wong SC had also drawn this court’s attention to Clauses 8.4 and 8.5 of the Loan Agreement. Clause 8.4 stated, inter alia, that the all sums payable by “Borrower” under the Loan Agreement to be free and clear of any deductions.  As Ds no longer relied on the Set Off Defence, Clause 8.4 would no longer be relevant.

138. Clause 8.5 stated that the Lender’s certificate setting out the amount of any sum or interest due under the Loan Agreement would be conclusive and binding on the Borrower except in the case of manifest error[34]. In view of my earlier conclusions, I do not need to consider the effect of Clause 8.5 either.

The Assignment Defence

139. For this defence, as the facts are somewhat convoluted, I propose to follow Mr Lam’s suggestion and deal with the factual issues in chronological order first before dealing with any legal / construction issues.

When was the First Meeting - April or June 2005?

140. As I have mentioned earlier, Li Jie had said the first meeting he and Duan had with the Kwok Siblings was in April 2005, but according to Ms Kwok, this was not possible as she did not go to Shanghai in April 2005.

141. Anyway, Li Jie had also said that at their first meeting, the Kwok Siblings had provided to him and Duan 5 documents (collectively “5 Initial Documents”)[35].  Ms Kwok had challenged the authenticity of these 5 Initial Documents.  The 5 Initial Documents were:

(i)   Attachment 1 – “History of investments in Charity Plaza and Prince Apartments[36]”

(ii)   Attachment 2 – “Certain  problems discovered in relation to CRED Huadong during preliminary audit and Suggested Solutions” purportedly  issued by the “CRED Huadong Audit Committee of Investment Projects” dated 11 November 2004[37];

(iii)   Attachment 3 – “Proposed Resolution for full audit” purportedly issued by HK Huadong to CRED Haudong dated 13 December 2004[38] ;

(iv)   Attachment 4 – Letter dated 8 April 2005 purportedly issued by Beijing Zhonghaixin to Welchem[39];

(v)   Attachment 5 – Letter dated 12 April 2005 purportedly issued by Shanghai Minyuan to Welchem in relation to the transfer of title in Charity Plaza and Prince Apartments[40].

142. Ms Kwok’s grounds for challenging the 5 Initial Documents included that they were false documents, that they not been signed nor stamped, nor certified, and that they contained various mistakes or problems.

143. It was obvious and accepted by Li Jie that the 5 Initial Documents had not been signed nor certified, and appeared to be computer printouts.  The problems, or rather inaccuracies, were also obvious. 

144. Mr Lam, however, pointed out that the 5 Initial Documents contained many details, and that it was “illogical and unthinkable” that Li Jie would choose to falsify such documents in such a convoluted manner or containing a lot of unnecessary details and obvious problems. 

145. Ms Kwok was cross examined in detail about the contents of Attachment 1.  When asked whether she had seen Attachment 1, she had said words to the effect of “not really”. 

146. The 2^nd paragraph in Attachment 1 was a brief description of how CRED Huadong was introduced to Edward who was at that time a major shareholder of D1, and that Edward had agreed to invest in the Charity Plaza and the Prince Apartment projects.  When asked whether what was stated in the 2^nd paragraph was true or false, Ms Kwok’s answer was she did not know as it was a long time ago.  The 2^nd paragraph then led to what was stated in the 3^rd paragraph, namely that Edward “instructed ” D1 to form the 3 HK Companies.  When Ms Kwok was asked about what was stated in the 3^rd paragraph, again her answer was she really had no knowledge.

147. Ms Kwok, however, agreed what was stated in the 4^th paragraph, namely the purpose of the incorporation of the 3 HK Companies, but added according to her knowledge Welchem was at that time under eCyber and not D1.

148. That Welchem was at the date of Attachment 1, namely 7 July 2004, under eCyber and not D1 was not disputed by Ds, since it was stated in Attachment 1 that in March 1999, Welchem had been transferred to eCyber.

149. Then, for the last paragraph in Attachment 1, Ms Kwok was asked whether up to 7 July 2004, as stated therein, CRED Huadong still had not handed over the 3 floors in Charity Plaza to Welchem.  She did not really answer the question, and her response was that she knew when she started working for Welchem that Welchem was claiming the 3 floors in Charity Plaza.

150. When asked whether Edward had owed Shanghi Mingyuan any monies, she again said she was not sure, but understood that upon the 3 floors being handed over to Welchem, part of those floors had to be transferred to Shanghai Mingyuan.

151. Although there was no sufficient evidence that Ms Kwok was personally involved in all those transactions, she clearly knew that the 3 HK Companies were under eCyber of which Edward was said to her interest.  She could have made enquiries with Edward, or at least check Welchem’s and HK Huadong’s accounts and records, to which she should be entitled when she became a director of those companies.  Yet, most of Ms Kwok’s answers were that she did not know.  I have to say I find her answers evasive and unhelpful.

152. In relation to Attachment 1, Li Jie had been put the following matters during cross examination by Mr Wong SC:

(i)   Attachment 1 was only a computer printout with no signature;

(ii)   Notwithstanding what was stated therein, Edward was never a major shareholder of D1;

(iii)   The Kwok Siblings would not have included words as    “郭先生本着愛國的高尚情懷和支持祖國發展的熱誠……” in the 2^nd paragraph in Attachment 1;

(iv)   Edward could not have instructed D1, which was a publicly listed company to establish 3 HK Companies in Hong Kong.

153. (i) above was not disputed. So far as (iii), there seemed to be no reason if Li Jie were falsifying the document, why he would want to include such unnecessary words.  As for the contents of Attachment 1, Li Jie had said he never tried to verify or check the contents thereof.  When asked how the assets of a subsidiary of a publicly listed company could be used to repay Edward’s personal debts, Li Jie said he did not pay attention to this.  He had said that “他們之間的法律關係我攪不清”.  He had further said that he only knew that Welchem was a company but did not know whether it was a subsidiary of a listed company or which listed company.

154. In fact, even if Duan and Li Jie had tried to check independently, I do not think that it would have been easy to find out the relationship between Edward and the 3 HK Companies or eCyber or D1.  There was no full company search record of the 3 HK Companies before this court, but from the available company record of HK Huadong, one can see that HK Huadong’s shareholders were two BVI companies one of which was Asia Glory as at 20 February 2005 and prior to that date, it was held by Noble City and another company Konwide Development Limited (“Konwide”). 

155. Li Jie graduated from the Chinese Faculty of the Liaoning University through a correspondence course, and had undergone a government one month training course to become an economist.  Although Li Jie was not uneducated, he was not trained as a lawyer nor was there any sufficient evidence that he had any knowledge of Hong Kong company law, Hong Kong listed companies or any off shore companies.  I thus find his evidence that he really did not know the relationship between Edward and the companies credible.

156. It was stated in Attachment 1 that in about 1997 that Edward was a major shareholder in D1.  D1’s case in both the present action and HCA 2725/2001 was that Edward was a major shareholder of D1. I understand that this was denied by P.  It is interesting, however, to note that whereas Ms Kwok stated in her 1^st witness statement clearly that Edward had never been a shareholder, director, officer or employee of P, all she said in her 1^st witness statement about Edward and D1 was only that he had never been a director of D1[41].

157. During cross examination, Li Jie was asked when he got to know Edward was a major shareholder of D1.  He replied he did not know when.  Anyway, Mr Wong SC had put to Li Jie that Edward had never been a major shareholder of D1. 

158. Even if Edward was never personally a major shareholder of D1, this would not necessarily mean that Edward could not have held major interest in D1 in about 1997 indirectly through his companies / nominees. However, having said this, I accept that there was no sufficient evidence that Edward held a major interest in D1 in about 1997.

159. Whether he actually held any interest or not or whether he personally instructed D1 or not, from the evidence, it would seem that Edward had a close relationship with D2, and D1, in mid 1990s.  According to Ms Kwok’s 1^st witness statement, it was Edward who introduced Ms Kwok to D2 in mid 1990s.  Ms Kwok had also said that Asia Glory, the company operated by Edward, had arranged for a number of syndicated loans provided by various banks and financial institutions to D1. 

160. That it was through Asia Glory’s introduction that D1 agreed to invest in CRED Huadong, Charity Plaza, and Prince Apartments also seemed to be Edward’s own case in HCA 2725/2001[42].

161. Anyway, the history and background of the investments in CRED Huadong, Charity Plaza and Prince Apartments and the Charity Plaza Dispute was complex.  It appeared to this court that whoever had prepared Attachment 1 had tried to set out the history out in a simplified and brief manner, and as such, it would contain inaccuracies.  This, in my view, would not necessarily detract from the accuracy of the overall picture portrayed in that document.

162. As I have pointed out earlier, Edward was not called in the present trial.  The only witness who gave evidence on behalf of P was Ms Kwok, whose answers were mainly she had no knowledge as it was a long time ago.  She did not really deny the overall picture painted in Attachment 1.

163. As for Attachment 2, Mr Wong SC had pointed out a discrepancy in that the document was dated 11 November 2004 but in the contents, there was a reference that the amount of injection of capital by a third party into CRED Huadong calculated up to “end of November”. This in my view was only a minor discrepancy, and there could be many reasons for such discrepancy, and having considered the details of the contents in Attachment 2, I do not think it was probable that Li Jie could have falsified this document.

164. Attachment 5 was a letter purported to be dated 12 April 2005 sent by Shanghai Mingyuan to Welchem setting out their purchase of the 3 floors in Charity Plaza from Welchem, by their transfer of about HK$70m at the direction of Edward to a designated bank account and complaining that Welchem was using excuse and delaying the transfer of the 3 floors to them.

165. Mr Wong SC had pointed out various problems with Attachment 5, including it did not seem right that Shanghai Mingyuan would issue such a letter to Welchem in April 2005 when Li Zhengli had been appointed a director of Welchem since 8 October 2004.

166. The evidence, however, indicated that since Li Zhengli’s appointment 6 months ago, there had still been no settlement by early April 2005.

167. When Ms Kwok was cross examined over Attachment 5, she had at first said she had no idea about Attachment 5 as she joined Welchem as a director only in May 2005 and then she said according to her knowledge, the contents of Attachment 5 were not true.  She then added that she had never seen Attachment 5, and that all she knew was in the end, only one floor, namely only one floor, namely 20^th floor of Charity Plaza, and not 3 floors, was transferred to Shanghai Mingyuan by Welchem. 

168. Even though Ms Kwok only became a director in May 2005, she could have checked within Welchem as to whether Attachment 5 was received, or whether the contents thereof were true.  Ms Kwok’s evidence was again rather vague and instead she was referring to the eventual settlement between Shanghai Minyuan and Welchem.  Anyway, what Ms Kwok said about Shanghai Mingyuan receiving only 20^th floor of Charity Plaza was not quite correct, as can be seen from the copy of the final settlement agreement between Shanghai Mingyuan and Welchem reached on 16 August 2005 produced by Li Jie, and not challenged by P, Shanghai Mingyuan was to receive not only the entirety of 20^th floor but also 20% of ¼ of the 4^th floor (“SM Settlement Agreement”)[43].  This was, however, only a minor variance. 

169. More importantly, it was not quite clear from what Ms Kwok said which part of Attachment 5 was not true, since the part about the public announcement would unlikely to be false. 

170. Li Jie had said there was no need or purpose for him to falsify the 5 Initial Documents as he and Duan did not know Ms Kwok prior to their first meeting.  It seemed to be suggested by Mr Wong SC  that there was a need for Li Jie to falsify the 5 Initial Documents in order to convince the court that the first meeting between him and Ms Kwok  took place in April 2005, since by around 23 May 2005[44], there was already a consensus reached between Welchem and CRED Huadong in respect of the Charity Plaza Dispute, and thus the assistance the Kwok Siblings were seeking from Duan and Li Jie could not have been in relation to the settlement of the Charity Plaza Dispute.

171. There also seemed to be a suggestion that Li Jie and Ke were concerting and that Li Jie could have got all the information from Ke.  It was not quite clear how Ke could have obtained the information contained in the 5 Initial Documents, since the Charity Plaza Dispute arose after the transfer of the 3 HK Companies to eCyber, and there had been a breakdown of relationship between the Kwok Siblings and D1 since the commencement of HCA 2725/2001 and the present action in 2001.  I do not find that there was sufficient evidence that Li Jie had obtained the 5 Initial Documents from Ke.

172. As to the possibility that Li Jie could have obtained the information in the 5 Initial Documents, or any of those documents direct from CRED Huadong / Beijing Zhonghaixin / Shanghai Mingyuan, again, I do not find that there was sufficient evidence that those information in the 5 Initial Documents came from CRED Huadong / Beijing Zhonghaixin / Shanghai Mingyuan.

173. I accept what was submitted by Mr Lam, that it was unlikely that had Li Jie wanted to falsify any of those documents, he would have gone to such unnecessary details as contained in those 5 Initial Documents.  After weighing up the evidence, on a balance of probability, I prefer Li Jie’s version to Ms Kwok’s version, namely that it was the Kwok Siblings who had prepared, or caused to be prepared the 5 Initial Documents to show to Duan and Li Jie at their first meeting in order to seek assistance from them.  I find there was no sufficient evidence that the 5 Initial Documents were falsified by Li Jie. 

174. Since Attachment 5 was dated 12 April 2005, the first meeting between the Kwok Siblings and Duan and Li Jie would have to be after that date.  Although Ms Kwok had said she was not in Shanghai in April 2005, she did not provide any supporting evidence.  There was also no evidence as to whether she was there in May 2005 or prior to 23 May 2005.  I accept, however, that as the meeting took place some years back, the actual date of that meeting could not now be ascertained.

175. As pointed out by Mr Lam SC, when exactly was their first meeting was not the crucial issue, the more important issue was what assistance had been provided by Duan and Li Jie to the Kwok Siblings in relation to their disputes with the CRED Huadong, Shanghai Mingyuan and / or Beijing Zhonghaixin (“Assistance”).

What was the Assistance rendered by Duan and his associates?

176. I now turn to what was discussed during the first meeting and the Assistance sought by the Kwok Siblings and later provided by Duan and Li Jie.

177. What Ms Kwok had first said about her first meeting with Duan in her 1^st witness statement was that “In or about mid 2005 I came to know one Mr Duan Xin Zhong (“Mr Duan”).  At the material time, I was given to understand that Mr Duan was an ex-PRC government official with good connections in the Mainland and he had just successfully assisted another company (sic) of which she was a director to resolve a problem in Shanghai”. 

178. Anyway, “Another company” later turned out in Ms Kwok’s 2^nd witness statement to be the two companies Welchem and HK Huadong[45].  What she had said above in her 1^st witness statement thus seemed to indicate that Duan had already been involved in resolving a problem for both Welchem and HK Huadong prior to her coming to know him in mid 2005. 

179. It was not clear what “problem” Ms Kwok was referring to in her 1^st witness statement, but she had said in her 2^nd witness statement that the “problem” was not the Charity Plaza Dispute, or the dispute with Beijing Zhonghaixin, and / or Shanghai Mingyuan, and had nothing to do with  the Loan or the 1^st Transfer Agreement[46].

180. I said what Ms Kwok had said above in her witness statements was rather confusing and vague. 

181. In any event, what Ms Kwok had said in her 2^nd witness statement was that the Assistance she sought from Chen, Duan and Li Jie was to first intercept and monitor Li Zhengli in the PRC to ensure that he would not use the 1^st Welchem P/A, and at the same time provide consultancy and incidental services to ensure a smooth transfer of the properties in Charity Plaza.

182. Ms Kwok had said that the assistance for the resolution of the Charity Plaza Dispute was mainly provided by Li Zhengli, not Duan nor Li Jie, and that Duan and Li only came into the picture in early June 2005 to control or restrain Li Zhengli from potential wrongdoings because of the Hiccup.

183. Li Jie’s evidence was that the Assistance was not merely to that described by Ms Kwok.

184. Li Jie had said in his 1^st witness statement that it was through the negotiations of Duan and Li Jie that the directors of  CRED Huadong had passed a resolution on 23 May 2005 on to approve a settlement with Welchem (“23.05.05 CRED Huadong Resolution”), and he had produced a copy of that resolution.  Further, Li Jie had said it was also through the negotiations of Duan and Li Jie with Beijing Zhonghaixin that in early June, Beijing Zhonghaixin had accepted the settlement proposals from the Kwok Siblings.  Li Jie had said that Welchem’s draft settlement agreements respectively with CRED Huadong and with Beijing Zhonghaixin and various other related documents had been sent to Duan and Li Jie for their consideration, and they also assisted in CRED Huadong holding the shareholders’ meeting on 22 July 2005.

185. Li Jie had also said they took part in the negotiations between Welchem and Shanghai Mingyuan, and had produced a copy of the SM Settlement Agreement.

186. Li Zhengli was appointed as a director of Welchem on 8 October 2004 but he was in fact at that time a director and vice president of Shanghai Mingyuan.  He was apparently appointed as a director of Welchem in order to negotiate with CRED Huadong over the Charity Plaza Dispute on behalf of Welchem.  Ms Kwok had, however, agreed during the trial that Li Zhengli was on the board of Welchem really to look after Shanghai Mingyuan’s interest.

187. The first evidence of a settlement being reached between CRED Huadong and Welchem was the 23.05.05 CRED Huadong Resolution.  This was about 7 months after the appointment of Li Zhengli and would indicate that Li Zhengli was not immediately successful in getting any where with CRED Huadong.

188. However, after the Hiccup, Ms Kwok, Welchem and eCyber had immediately sent letters to various interested parties from 1 June 2005 to 15 June 2005, including CRED Huadong to state that Li Zhengli had no authority to transfer the units in the Charity Plaza to any other third parties without the written consent from Welchem’s board of directors[47].  Ms Kwok had also caused Welchem to pass another resolution on 6 June 2005 (“06.06.05 Welchem Resolution”) to declare that the 31.05.05 Welchem Resolution invalid[48].  Further, Ms Kwok had through Welchem instructed lawyers in Shanghai on 15 June 2005 with a view to take legal action for declarations that the 31.05.05 Welchem Resolution and the 1^st Welchem P/A invalid.

189. It would appear from the 31.05.05 Welchem Resolution that  in order to implement the proposed settlement terms stated in the 23.05.05 CRED Huadong Resolution, Welchem’s board also resolved to cancel all previous agreements with CRED Huadong over Charity Plaza including the original purchase agreement signed on 10 December 1997 in order to approve the new settlement terms.  By passing the 06.06.05 Welchem Resolution, the 31.05.05 Welchem Resolution was invalidated, and further those directors present, including Ms Kwok herself, had objected to the cancellation of all previous purchase agreements, and also objected to the proposed settlement terms in the 23.05.05 CRED Huadong Resolution.

190. Thus, as matters stood, as of 6 June 2005, there had not yet been final acceptance of the proposed settlement terms over the Charity Plaza by the board of directors of Welchem, and in any event no final settlement agreement had yet been signed between Welchem and CRED Huadong, or between Welchem and Shanghai Mingyuan / Beijing Zhonghaixin.  In addition, there was also the Hiccup.

191. It was not disputed that Welchem and Shanghai Mingyuan only signed the SM Settlement Agreement in Hong Kong on 16 August 2005 and subsequently, on 18 August 2005, Welchem executed another power of attorney authorizing Li Zhengli to represent Welchem  pursuant to the terms of the SM Settlement Agreement[49] (“2^nd Welchem P/A”).

192. Eventually, it was only on 28 September 2005 that Welchem received notice from CRED Huadong that the title registration of the 9^th floor Charity Plaza could be carried out [50].

193. According to Ms Kwok, the Assistance provided by Duan was only that he had talked to Li Zhengli on two to three occasions when she was also present and that Duan had told Li Zhengli not to go astray.

194. I do not find Ms Kwok’s evidence convincing.  As submitted by Mr Lam, which I accept, it was difficult to understand how just by Duan talking could have retrained Li Zhengli effectively.  Further, I do not find it credible that P would agree to pay HK$2M as consultancy fee to Duan for doing just that.

195. HK Huadong had given a letter of authorization on 25 June 2005 to Duan, the authenticity of which was challenged by Ds.  What was not challenged was that later Duan was appointed a director of HK Huadong on 15 July 2005[51].  Ms Kwok had admitted that the purpose of appointing Duan as a director of HK Huadong was to confer the requisite capacity and authority on Duan to enable him to represent HK Huadong’s interest in CRED Huadong.   

196. Li Jie had also produced copy of an incomplete one page fax allegedly with Edward’s personal fax header and sent by Edward to Duan on 19 August 2005 (Attachment 24), shortly after the SM Settlement Agreement, thanking Duan coming to Hong Kong for assisting in the settlement of the Shanghai property issue[52].  Li Jie said he was only able to find one page of that fax.  Ms Kwok claimed to be unaware of this fax and that she had never seen it.  She pointed out in her 2^nd witness statement that the fax was not sent by Welchem and that Edward was not a director of Welchem.

197. Whether Edward was a director of Welchem was neither here nor there.  The address of Edward’s office as stated in the fax header was the same address as Welchem’s office, HK Huadong’s office, Noble City’s Office, and eCyber’s office in 2005.  Anyway, in my view Edward was clearly involved in the Charity Plaza Dispute, and that Edward was related to Welchem, as Mr Lam had submitted. 

198. As pointed out by Mr Lam, Ms Kwok could have asked Edward whether he had sent the fax.  Ms Kwok in the end agreed that the first paragraph of the fax reflected the truth: namely, Duan did come to Hong Kong to assist in the resolution of the Charity Plaza Dispute.  The fax was addressed to Duan.  Duan is now dead and the only other person who could give evidence about the fax would be Edward but P chose not to call him.  Again, in my view, Ds had made out a prima facie case that the fax was sent by Edward and as Edward was not called, I draw the adverse inference against P that the fax was so sent.  In any event, I am unable to see any reason why Li Jie would wish to falsify this document or only one page of a two page fax.  I accept that the document (Attachment 24) was a true copy of the first page of a fax dated 19 August 2005 sent by Edward to Duan (“19.08.05 Fax”).

199. Li Jie had produced a number of documents  to support what he said was the Assistance he and Duan had rendered to the Kwok Siblings in connection with the Charity Plaza Dispute.  P had challenged the authenticity of Attachments 7 to 14 produced by Li Jie’s 1^st witness statement.  Among these were a declaration from Welchem to CRED Huadong dated 26 May 2005 (Attachment 7), draft board minutes of Welchem (Attachment 8), draft power of attorney from Welchem to Li Zhengli (Attachment 9), draft settlement agreement between CRED and Welchem (Attachment 10), draft settlement agreement between Welchem and Beijing Zhonghaixin (Attachment 11), copies of two letters from Beijing Zhonghaixin to Welchem one dated 3 June 2005 (Attachment 12), and one dated 6 June 2005 (Attachment 13), and copy of letter from Welchem to Shanghai Mingyuan dated 31 May 2005 (Attachment 14).  They were all unsigned documents.

200. What Ms Kwok said in her 2^nd witness statement about Attachments 7 to 10 was that she had never seen those documents before she read Li Jie’s 1^st witness statement.  As for Attachment 11, she said neither she, nor as far as she knew, Edward gave that document to Duan and Li.  She then said “Similarly, Attachments 11 – 13 … mention neither names of Mr Duan nor Mr Li.”  She then said as those documents were either a draft, unsigned or not affixed with any company seal, their authenticity was highly questionable.

201. Ms Kwok’s evidence under cross examination in relation to the above documents attached in Li Jie’s 1^st witness statement was, however, again rather vague. She said she did read Li Jie’s 1^st witness statement but was not able to recall whether she had read the attachments.  When asked as she had responded as above stated in her 2^nd witness statement, she must have read the attachments before she responded, her answer was then “it was possible”.

202. Li Jie’s evidence was that the Kwok Siblings had provided to Attachments 7 -10 to him and Duan for “審閲”, and that they were drafts, and he was not clear whether the originals were later signed.  Li Jie admitted that he and Duan did not provide any comments / advice on those documents.

203. Among those attachments, Attachment 8 was a draft of the 31.05.05 Welchem Resolution, and Mr Wong SC had put it to Li Jie that the draft was manufactured by him since the Kwok Siblings could not have drafted the 31.05.05 Welchem Resolution.

204. As I understand it, Attachments 7-10 were not alleged by Li Jie to be provided to him and Duan at the first meeting in April 2005. This seemed apparent if one read paragraphs 8 and 9 of Li Jie’s 1^st witness statement.  At the trial, Duan had said Ms Kwok did contact him after the first meeting and told him about the Hiccup concerning Li Zhengli. 

205. Attachment 8 was in exactly the same terms of the signed 31.05.05 Welchem Resolution.  I do not quite understand Ms Kwok’s case.  It was not clear how Li Jie could have manufactured Attachment 8, or from what document or information could he have manufactured Attachment 8.  If Li Jie had in his possession a photocopy of the signed 31.05.05 Welchem Resolution, it would have be much simpler for him just to say that Ms Kwok had given him the photocopy, rather than went to all the trouble to manufacture Attachment 8.  If Li Jie did not have a photocopy of the original, he could not have manufactured Attachment 8 which was in exact terms of the original, save that the venue, date, time and present directors and name of chairman and signatures were omitted.  On the other hand, I am of the view there would be more reason for the Kwok Siblings to produce to Duan and Li Jie an unsigned and undated draft version of the 31.05.05 Welchem Resolution, to reduce the circulation of the signed and dated version which they were anxious to cancel.

206. As for Attachments 12 and 13, during the trial, Li Jie had said under cross examination that these two documents were in fact provided to him by Beijing Zhonghaixin.

207. I accept this was not made clear by Li Jie in his 1^st witness statement, but he had explained that a Mr Yang of Beijing Zhonghaixin who was a business partner of Duan in Hainan had provided to Duan and Li Jie Attachments 12 and 13 to show that they had agreed to accept 1100 sq m of floor area in Charity Plaza from Welchem in settlement of Edward’s debt of RMB 23m to them.

208. As for Attachment 14, this was a letter from Welchem to Shanghai Mingyuan and Li Jie said this was provided to him and Duan by Ms Kwok for them to understand the division of the various floors in Charity Plaza.

209. Mr Wong SC pointed out to Li Jie that in item 2 of Attachment 14, there was reference to Welchem no longer claiming any units in Prince Apartments in the 23.05.05 CRED Huadong Resolution, but there was in fact no mention of Prince Apartments in the 23.05.05 CRED Huadong Resolution, and that the drafter of Attachment 14, if indeed the Kwok Siblings, could not have made such careless and simple error.  Further, the company which was involved in Prince Apartments was not Welchem, but another of the 3 HK Companies.

210. What Li Jie said was that Welchem was confirming giving up the 20 units in Prince Apartments in accepting the 4126 sq m, namely the entire 9^th and 20^th and part of 4^th floors in Charity Plaza as settlement.  Mr Wong had criticized this explanation to be absurd and incomprehensible.  I do not this was a fair criticism.

211. However, even though the 23.05.05 CRED Resolution did not specifically mention the Prince Apartments, it was not disputed that the Kwok Siblings had given up their interest in Prince Apartments in the overall settlement with CRED Huadong.  In any event, there was also no suggestion put to Li Jie as to how he could have obtained Attachment 14, if not provided to him by Ms Kwok.

212. As I have said earlier, I find Ms Kwok’s evidence vague.  I thus find Li Jie’s evidence more probable since there was no sufficient evidence that he could have obtained Attachments 7–14 or the information contained therein other than the way he said, namely given to him by Ms Kwok.  I find that, on a balance of probabilities, Attachments 7–14 were indeed provided to him and Duan by the Kwok Siblings.

213. Li Jie had also produced an undated handwritten fax sent by Edward personally to Duan (Attachment 21), a draft settlement agreement between Welchem and Shanghai Mingyuan (Attachment 22) and the signed SM Settlement Agreement (Attachment 23), and the 19.08.05 Fax (Attachment 24). 

214. The authenticity of Attachment 21 was not challenged by P. In Attachment 21, Edward had attached draft proposed settlement terms (“Proposed Terms”) in his fax and had asked Duan to give advice on the Proposed Terms[53].  I note in the Proposed Terms, Party A was described as “Edward and related shareholders” and Party B was stated to be Shanghai Mingyuan, and the Proposed Terms had included the restructuring of the board of directors of HK Huadong and the re-structuring of the board of directors of Welchem.

215. P had challenged the authenticity of Attachments 22 and 24.  I have dealt with Attachment 24 earlier.  Attachment 22 was a draft of a proposed settlement agreement between Shanghai Mingyuan, Noble City, Konwide, Welchem, HK Huadong, Edward and eCyber and was an 8 page detailed document with a lot of details as to the background of the Charity Plaza Dispute set out in the recital[54].  In the recital, it was stated that according to the search record on 22 July 2005, the shareholders of Welchem and HK Huadong were Noble City and Konwide[55].

216. Mr Wong SC had pointed out that the draft agreement in Attachment 22 was never actually executed and that the eventual signed agreement was the SM Settlement Agreement.  

217. Both Attachment 22 and the SM Settlement Agreement were produced by Li Jie.  Attachment 22 was clearly a draft.  When asked about Attachment 22, Li Jie had said he was not clear about the relationship of all those companies mentioned in that document. I accept what he said.  I find it was not probable that Li Jie could have falsified Attachment 22 which seemed to have contained a lot of detailed terms in relation to not only the division of the floors in Charity Plaza, but also the proposed restructuring of the board of HK Huadong and Welchem , including the consent of eCyber to the draft terms concerning Konwide and Noble City, said to be the then shareholders of Welchem.  In my view, the information in the  draft could only have come from Edward/Kwok Siblings since there was no other suggestion how Li Jie could have obtained all that information.

218. In fact, Attachment 21 and Attachment 22 further indicated Edward’s involvement with the 3 HK Companies, at least HK Huadong and Welchem, and also the Charity Plaza Dispute.

219. In any event, in light of all the above, I have come to the view that the Assistance provided by Duan and Li Jie could not have been merely talking to Li Zhengli on two to three occasions, or limited to merely stopping Li Zhengli from making use of the 1^st Welchem P/A or overseeing Li Zhengli after the Hiccup. I find Ms Kwok had deliberately played down the Assistance she and Edward had sought from Duan. 

220. Even if, as Ms Kwok claimed, Welchem and CRED Huadong had in principle reached a consensus over the Charity Plaza Dispute just prior to the first meeting between the Kwok Siblings and Duan, in my view, by June 2005, there was clearly no final settlement agreement signed yet between Welchem and Shanghai Mingyuen and there were still matters to be ironed out including the Hiccup.  There was also no final settlement agreement signed with Beijing Zhonghaixin which appeared to be signed only on about 16 September 2005[56].

221. Again on the question of what Assistance was provided by Duan and Li Jie, having weighted up the evidence, I find Li Jie’s version more probable than Ms Kwok’s version.

Was the 1^st Assignment Agreement part of the reward for the Assistance?

222. Li Jie’s version was that the Kwok Siblings and Duan discussed the reward for the Assistance when they met in late August or early September 2005 in Zhuhai after the SM Settlement Agreement (“Zhuhai Meeting”). Duan and Li Jie had asked for HK$8m for their reward, but the Kwok Siblings only agreed to pay a cash sum of HK$2m, and offered the assignment of the Loan in addition, and that this was accepted by Duan and Li Jie after consideration. 

223. Again, Ms Kwok gave a very different version. It was her case that there was a verbal agreement made about one to two weeks after she first met with Chen Sanlin, Duan and Li Jie in June 2005 between Welchem and Chen Sanlin to pay him, Duan and Li Jie remuneration of HK$2m for the Assistance. 

224. According to Ms Kwok, Duan told her during their first meeting in June 2005 that he knew Ke and that D1 had just won a litigation in Hainan and there was the Hainan Judgment Debt payable to D1, and  as set out by Mr Wong SC, the evidence of Ms Kwok as to what Duan told her at this meeting was as follows:[57]

a.   他告訴我說他認識柯先生，他說是在當兵的時候認識的；

b.   他告訴我它們 [D1] 打贏官司，有一筆錢在海南島；

c.    他們說很簡單，你給我轉讓書，我就幫你搞定；

d.   當時我也不是很相信能收回；[所以] 沒有向段先生查詢這筆錢；

e.    那時真的沒想，是到9月才知道真的有這一筆錢；

f.    當時大家都知道是演戲，是出師有名，哪可能1元賣給他！

225. Ms Kwok did not mention the Zhuhai Meeting at about end of August / early September 2005 in her witness statements and during the trial had disputed about what Li Jie had said as to what happened at the Zhuhai Meeting.

226. Anyway, according to Ms Kwok, it was only at the meeting in Shanghai on 15 September 2005 that the matter was raised again out of the blue by Duan.  I will go into what happened on 15 September 2005 later.

227. Ms Kwok had told the court that Duan was the “underling” or “馬仔” of Chen Sanlin, and she had agreed under cross examination the meeting she had with Chen Sanlin, Duan and Li Jie in June 2005 was over a property dispute and had nothing to do with the Loan.  Ms Kwok also admitted that it was she who brought up the Loan to Duan during their casual conversation and then Duan then told her about the Hainan Judgment Debt.

228. At that time, the present action had gone dormant for over 3 years, and the Loan had nothing to do with the Charity Plaza Dispute or the Hiccup.  There was no reasonable explanation from Ms Kwok as to why she would suddenly bring out the matter of the Loan to D1 or mention Ke to someone she met the first time.

229. Further, as pointed out by Mr Lam SC, by June 2005, P had not been able to identify any assets of D1 since issuing the writ herein in 2001.  If what Ms Kwok said was true, then what Duan told her should be good news for P, and yet it appeared that Ms Kwok did not make any further enquiry with Duan or any one else.  She did not take any other steps to find out more about D1’s financial situation, or to revive the present action, nor was there any evidence of any follow up by her / P. 

230. Ms Kwok had said she did not really believe what Duan told her, but if this were indeed the case, then one would have thought she  should at least try and seek more information from Duan or to conduct her own investigation through her lawyers or otherwise.  If the information received by her from Duan were indeed true, common sense would indicate that any delay would increase the chance of any funds recovered by D1 from the Hainan Judgment Debt being dissipated or used up by D1.  In fact, as it was subsequently revealed in the financial statements of D1 for year ended 30 June 2005 by 30 June 2005, only about a net balance of only about RMB 21m remained as at 30 June 2005. 

231. The Consultancy Agreement was only signed on 8 October 2005.  This was, almost 4 months after Ms Kwok said the verbal agreement was reached in mid-June 2005.  There was no adequate explanation from Ms Kwok as to why it took such a long time to sign the agreement.

232. It had been suggested that Welchem and P were separate entities and there was no reason for P to use its asset as a reward for the Assistance given to Welchem.  In Atttachment 5, the authenticity of which I accepted earlier, Shanghai Mingyuan had referred to Edward being the de facto controller of the parent company of Welchem.  P is owned and run by the Kwok family.  D3 had in his evidence had referred to Edward being the lender of the Loan.  Although legally, each company is a separate entity, the evidence throughout this case indicated that most transactions were discussed and conducted by and through individuals, such as on Ds’ side, their discussions were with Edward and Ms Kwok, and on P’s side, their discussions were with D2, Chen Sanlin, Duan and Duan’s associates including Li Jie, and it is only when agreements needed to be signed, then these individuals would decide which of their companies to be used.

233. That the Kwok Siblings would themselves use different companies for their own purposes could in fact be seen from the fact that Noble City was for some reason used by the Kwok Siblings to sign the Consultancy Agreement. 

234. Based on P’s own argument, there was no reason as to why Noble City should assume the liability to pay the reward of HK$2m for services provided to Welchem, as the two companies were also separate entities, whether they were associated companies or not.

235. It had also been suggested to Li Jie that it was unbelievable that he and Duan did not agree to the amount of the remuneration at the first meeting before starting to provide the Assistance.

236. On Ms Kwok’s own case, she had only just met Duan and Li Jie at the time of the verbal agreement in their first meeting and the Hiccup had just occurred.  This would be at a very early stage of their discussion and the extent Duan could help to resolve the Hiccup would not have been known or certain.  Ms Kwok herself had said during the trial that mainlanders were not to be trusted, and it would not seem probable that an agreement for the reward could have been reached orally then and there at the first meeting.

237. Mr Wong SC had attacked Li Jie’s version in that there was no document to support what he said about the assignment of the Loan being part of the reward, and that further it was contradicted by the Consultancy Agreement.

238. Li Jie accepted there was no documentary evidence to support what he said.  His evidence was that during the discussion with the Kwok Siblings over the reward, it was Edward’s suggestion that the Consultancy Agreement was to be signed by Chen Sanlin (using his company China Holdings), and that the other part of the reward, namely the assignment of the Loan under the 1^st Transfer Agreement, was to be signed by HGRED.

239. Li Jie had explained the private agreement between Chen Sanlin and Duan for sharing the HK$2m cash reward was not important and that was why he had not mentioned it.  Further, Li Jie admitted that the assignment of the Loan was not disclosed to Chen Sanlin, and he explained that there was no need for them to disclose and also there was only a 50/50 chance of recovering the Loan.

240. I accept that the above evidence was not in Li Jie’s witness statements.  However, it was Ms Kwok’s own evidence that apart from being the middle man between the Kwok Siblings and Duan, Chen Sanlin did not provide any other services in the Charity Plaza Dispute, and that it was Duan and Li Jie who provided the Assistance.  Such would accord with Li Jie’s evidence as to why there was to need to disclose to Chen Sanlin the assignment of the Loan.  I also do not think the non-disclosure of those details by Li Jie in his witness statements would detract from his overall evidence that there were two parts of the reward to Duan and him, the first was the cash sum of HK$2m pursuant to the Consultancy Agreement, of which Chen Sanlin would be entitled to a cut, and the second part was the assignment of the Loan under the 1^st Transfer Agreement, which was not disclosed to Chan Sanlin.

241. After weighing up the two versions, I find Li Jie’s version was the more probable one, that the discussions over the reward only took place in the Zhuhai Meeting and that it was the Kwok Siblings who had brought up the matter of the Loan and it was they who had proposed that the assignment of the Loan to HGRED was to be part of the reward for the Assistance rendered by Duan and Li Jie, at the time when the discussions for the reward were taking place and Duan and Li Jie were asking for RMB 8m.

Did Ms Kwok give further documents relating to the Loan to Duan / Li Jie?

242. According to Li Jie at the Zhuhai Meeting, the Kwok Siblings had also expressed that they did not wish to hold any shares in CRED Huadong after the settlement of the Charity Plaza Dispute and they had proposed to transfer to HGRED their 20.28% shareholding in CRED Huadong.  This was denied by Ms Kwok.

243. Li Jie said when he and Duan agreed to consider Ms Kwok’s suggestion about the assignment of the Loan, they had asked Ms Kwok to provide to them all the information about the Loan and the background of the “boss” of D1, whereupon the Kwok Siblings then  provided to them documents in relation to the Loan.  Li Jie said Ms Kwok provided two sets of photocopies of documents relating to the Loan, consisting of 9 documents (“9 Proof Documents”), and that he had chopped his company’s chop on the two sets of the photocopies of the 9 Proof Documents with a “齊縫章”, one set returned to Ms Kwok as acknowledgment of receipt, and the other set retained by Li Jie for HGRED. 

244. Li Jie had  produced copies of  the 9 Proof Documents in his 1^st witness statement (Attachment 25)[58], which were as follows:

(i)   Copy of the Loan Agreement (1)

(ii)   Copies of the 2 Guarantees (2)

(iii)   Copies of P’s then solicitors’ Letters Before Action to D1, D2, and D3 with a table showing the total amount due (3)

(iv)   Copy of the writ herein (1)

(v)   Copy of the Statutory Demand with covering letter dated 28 June 2001 from J Chan, Yip, So & Partners (P’s then solicitors) (1)

(vi)   Copy of the 2^nd Debit Note (1)

245. It was the evidence of Li Jie during the trial that the 9 Proof Documents were handed to him and Duan during the Zhuhai Meeting and it was during that meeting that the parties orally agreed on the reward to Duan and Li Jie being RMB 2m plus the assignment / transfer of the Loan to HGRED.  Further Li Jie had said he regarded the Loan having been assigned at the Zhuhai Meeting.

246. It was not disputed that what Li Jie alleged to have been given to him were only photocopies, and not originals nor notarized / certified copies. Under cross examination, Li Jie had said, if the photocopies had come from a stranger, then of course he would ask for originals, but at that time, he did not think of asking for originals or notarized / certified copies.

247. Ms Kowk’s case was simply she never gave copies of the 9 Proof Documents to Duan, Li Jie or their agents at any stage before or after September 2005[59].  Under cross examination, she said she believed the 9 Proof Documents were provided by Ke to Li to make up a false story.

248. What seemed to be suggested by Ms Kwok was that there was some sort of collusion or conspiracy between Ke and Li, or D1 and HGRED.  She did not say this in her witness statements.  There was no sufficient evidence to support her suggestion / belief which I accept was pure conjecture on her part.

249. Among the 9 Proof Documents was a copy of the Statutory Demand under copy of a covering letter dated 28 June 2001 from P’s then solicitors.  As pointed out by Mr Lam, this copy, although dated 28 June 2001, bore a fax date 22 June 2001 and fax number of P’s then solicitors.  In fact, the copy of the Statutory Demand and covering letter all seemed to be part of the 18 pages of documents faxed from P’s then solicitors on 22 June 2001, including copies of the Letters Before Action, as seen from the fax header.  It did not seem probable that D1 or Ke could have obtained a copy of the covering letter containing the Statutory Demand with a fax date of 22 June 2001, since D1’s letter of 28 June 2001 to its then solicitor and the receipt chop of the covering letter of the Statutory Demand showed that D1 only received that letter on 28 June 2001[60].

250. Further among the 9 Proof Documents was a copy of the writ herein which bore a fax date of 27 June 2001 which was the date of issue.  There had been no evidence that the writ had been faxed to D1 by P’s then solicitors on that date by way of service, and it did not seem probable that D1 would have in its possession a faxed copy of the writ bearing that date, as the writ would have been served by P’s then solicitors in the normal way according to the procedural rules.

251. Also, as pointed out by Mr Lam, copies of the Letters Before Action from P’s then solicitors produced by Li Jie were exactly the same copies of those produced by P, save that those produced by Li Jie bore the HGRED chop. Those produced by P bore the same fax header and handwritten words as those on the copies produced by Li Jie.  It would seem improbable that the Letters Before Action sent to D1, D2, and D3 would have borne the same handwritten words and fax headers.

252. Mr Lam had also pointed out that P’s pleaded case in its Re-Re-Re-Amended Reply was that under clause 6 of the 1^st Transfer Agreement (“Clause 6”), the only document required to effect the assignment of RMB 46.6m was the physical delivery of the “original” of the Loan Agreement[61].  If indeed there were any conspiracy or collusion between Li and Ds, as Mr Lam had pointed out, it would have been much easier for Ds to provide Li Jie with the original Loan Agreement, or a copy thereof, rather than complicated matters by Li Jie saying that Ms Kwok had provided the 9 Proof Documents.

253. Having considered the evidence of Ms Kwok and Li Jie, I find on a balance of probabilities, that Li Jie’s version was the more probable one, that it was Ms Kwok who had provided copies of the 9 Proof Documents to Duan and Li Jie, and this was during their Zhuhai Meeting.

254. There was also an issue on construction of Clause 6 as to whether the 9 Proof Documents would constitute Proof of Loan / 債權憑證 referred in Clause 6 and I will deal with this later in this judgment.

What happened on 15 September 2005?

255. Li Jie had said that after the Zhuhai Meeting he and Duan returned to Haikou City in Hainan and he personally prepared the draft for the 1^st Transfer Agreement and also the draft for the Share Transfer Agreement.  According to him, he had sent the drafts to Ms Kowk by fax, who told him that apart from her own consideration of the drafts, she had also sent the drafts to her lawyers to consider, and after confirmation, she then arranged to meet with Duan and Li Jie in relation to the signing of the two agreements.  Originally, it was the arrangement of the parties to sign in HaiKou City in Hainan, but later Ms Kwok said as she had to go to Shanghai, she asked to meet and sign in Shanghai, and Duan and Li Jie agreed, and Li Jie said he brought the relevant company seal of HGRED to Shanghai for this purpose.

256. According to Li Jie, as the parties had already confirmed the contents of the agreements, on the date of signing 15 September 2005, Li Jie signed on behalf of HGRED, and Ms Kwok signed on behalf of P and also HK Huadong.  Both the 1^st Transfer Agreement and the Share Transfer Agreement in fact bore the date of 28 June 2005, but it was Li Jie’s evidence that that date was a mistake and both agreements were signed on 15 September 2005. 

257. The 1^st Transfer Agreement was signed by Ms Kwok on behalf of P and chopped with P’s company seal on one part, and Li Jie signed on behalf of HGRED.  The Share Transfer Agreement was signed by Ms Kwok on behalf of HK Huadong and chopped with the company seal of HK Huadong and Li Jie signed on behalf of HGRED.

258. Li Jie had said that there were 4 signed sets of each agreement.  So far as the 1^st Transfer Agreement was concerned, he had placed two signed sets of the 1^st Transfer Agreement and RMB 1 for the consideration in a “file envelope” and handed to Ms Kwok, and the other two signed sets were placed in another “file envelope” for him to keep for HGRED.

259. As for the Share Transfer Agreement, according to Li Jie, as Ms Kwok indicated that CRED Huadong had not yet effected the division of the floors in Charity Plaza, HGRED was to retain only one signed set of the agreement temporarily and the other three signed sets were to be kept by her, and there was temporarily no need to pay the consideration of RMB 1, until CRED Huadong had effected the division.  Duan said he agreed and only took one signed set of the agreement.  It was not disputed that eventually, the parties did not proceed with the Share Transfer Agreement and Duan had returned the one signed copy to Ms Kwok.

260. Ms Kwok’s evidence as to what happened on 15 September 2005 was again quite different from Li Jie’s.  Ms Kwok had said she went to Shanghai for matters unrelated to this litigation and only took the opportunity when she was there to meet with Duan and discussed with him about other matters.  According to her, it was Duan who brought up the topic of the Loan again, and he confirmed that D1 had succeeded in recovering the Hainan Judgment Debt of approximately RMB 40m odd, and Duan volunteered to assist P in recovering the Loan.  She had also said that Duan had mentioned his keeping half of whatever sum recovered but she could not recall whether such term was finally agreed.

261. It was further Ms Kwok’s evidence that Duan had said that an authorization was insufficient for him to recover the money from D1 on behalf of P and that P would need to assign the Loan to his nominee company in Hainan, namely HGRED, to properly entitle him to assist in recovering the Loan.  Thus, as described by Ms Kwok, the 1^st Transfer Agreement was a “tool”.

262. Ms Kwok had said that she was not expecting Duan to prepare the 1^st Transfer Agreement for her to sign on the spot, and that she did not have the chance to obtain authority from the P’s board of directors, and that she had expressly told Duan she agreed to sign the 1^st Transfer Agreement but that would be subject to the board’s ratification and that Duan expressly told her he understood.

263. It was not disputed by Ms Kwok that the 1^st Transfer Agreement was signed by her on behalf of P on 15 September 2005.  She did not mention the Share Transfer Agreement in her 1^st witness statement at all, and then in her 2^nd witness statement, although she denied what was said by Li Jie to be the reason for the Kwok Siblings deciding to transfer the 20.28% HK Huadong held in CRED Huadong to Duan, she had not denied that the Share Transfer Agreement and the 1^st Transfer Agreement were signed on the same day. 

264. I therefore accept Li Jie’s evidence in this regard, namely that both agreements were signed on the same day, 15 September 2005.

265. It was not clear what other matters Ms Kwok went to discuss with Li Jie or Duan.  Anyway, according to Ms Kwok, she met with Duan, Li Jie and other friends for coffee at a hotel and then decided to drop into Duan’s office.  She then said “順便去佢地 office” or words to that effect.  She further said the other friends of Duan and Li Jie were present at the meeting, which lasted just over an hour “個零鐘”.

266. Ms Kwok had also said when she was on business trip, she would always bring P’s company seal with her.  It would seem that on this occasion, not only did she have P’s company seal, but also HK Huadong’s company’s seal.

267. Ms Kwok’s evidence would make the whole meeting a very rushed one, as according to her, Duan raised the matter of the Loan out of the blue, and then there were discussions about her giving a power of attorney to Duen and according to her, Duan said this would not be sufficient and that Duan then asked for assignment of the Loan and that she said they agreed that the 1^st Transfer Agreement was only a “tool” to be used by Duan to assist P to recover the Loan from D1. The agreement was prepared then and there.  Also, Ms Kwok made no mention of the signing of the Share Transfer Agreement.  All this, according to Ms Kwok took place in just over an hour, and there were also other people there.

268. Li Jie denied that Ms Kwok had told him and Duan that she had to obtain P’s board approval / ratification for the 1^st Transfer Agreement.  When he was cross examined on whether HGRED had asked P for a board resolution before signing, Li Jie had said he had understood that Ms Kwok already had obtained the board authorization, and he gave 2 reasons, namely firstly without the authorization, she would not have signed and secondly, before the signing, he had sent the draft to her by fax, and she said she would show the draft to her lawyers.

269. Ms Kwok denied that she had shown the draft of the 1^st Transfer Agreement to her lawyers.  Mr Wong SC had also pointed out many errors in the 1^st Transfer Agreement, and that whoever prepared it must have prepared it in a rush, and that it would be unlikely to have been reviewed by any one at all, in particular Ms Kwok or her lawyer.

270. Li Jie had admitted that the agreement was copied by him based on a standard form.  The errors were not material, as Mr Wong SC had accepted but he submitted that this was because the agreement was never intended to be a true assignment, and that it was only a sham. It seemed clear that no one had spotted the errors.  Li Jie’s explanation was that since Ms Kwok had said that she would ask her lawyer to review the draft, and as there were no amendments by her/her lawyer, he did not check again.

271. Although Ms Kwok denied what was said by Li Jie, she was not able to explain, if she indeed did not have the requisite authority, why did she have to sign the 1^st Transfer Agreement then and there on 15 September 2005 in such a rush?  There was no evidence that Duan or Li Jie or any one had forced her to sign, nor was there any evidence that if the agreement was not signed then, the whole deal would be off.  She could have telephoned her other directors, namely her mother and her other brother before signing.  She could have telephoned Edward, or her lawyers before signing.

272. Even if she were only provided with the 1^st Transfer Agreement at the meeting on 15 September 2005, according to her immigration records, she did not arrive back in Hong Kong until 17 September 2005.  She could have taken away the draft and considered it overnight.  Ms Kwok had had plenty of time to consider the matter before signing. 

273. By 2005, Ms Kwok had had working experience for about 20–30 years.  She was not an uneducated woman.  She had said repeatedly during the trial that mainlanders were not to be trusted.  From my observation of her during the trial, she was cautious in giving evidence and did not appear to be a person who would act impetuously.

274. I do not find what Ms Kwok said about signing the 1^st Transfer Agreement in a rush was credible.  On a balance of probabilities, I prefer Li Jie’s evidence that the drafts of both the 1^st Transfer Agreement and also the Share Transfer Agreement had been sent to Ms Kwok prior to the signing on 15 September 2005.  I find that Ms Kwok had gone to meet with Duan and Li Jie for the purpose of signing both the 1^st Transfer Agreement and the Share Transfer Agreement and she had thus brought along the companies’ seals with her for signing those agreements.  There was no sufficient evidence that she had told Duan or Li Jie that she did not have authority to sign.

275. Further, there was no evidence from the other directors, namely her 80 year old mother, and her other brother, to support what she said, namely that there had been no prior authorization, or that they refused to ratify afterwards.  In any event, I do not find it probable that she did not seek the necessary board authority for signing those agreements prior to her signing.   

Whether the 1^st Transfer Agreement was intended to assign the entirety of the Loan

276. Clause 1 of the 1^st Transfer Agreement was headed “轉讓標的” and stated that: “甲方擁有對《香港》華健控股有限公司《下稱華健公司》的債權，共計為4650萬元人民幣《下稱轉讓權的》。ˮ

277. It was also P’s case that the 1^st Transfer Agreement was, at most, only a partial assignment of the Loan in the sum of RMB 46.50m, since according to Ms Kwok, by 15 September 2005, the principal and interest owed by D1 under the Loan Agreement had already exceeded HK$129m. Ds’ case was, on the other hand, the assignment was for the entirety of the Loan.

278. It was not disputed that at official exchange rate  of  1 RMB : HK$0.9592 on 15 September 2005, the principal of the Loan of HK$40M  would only be RMB 41,701,418, ie about RMB 41.7m, and would not be equivalent to RMB46.50m.  Li Jie had explained that the calculations were done by a financial staff member of HGRED who had possibly used the then “black market” exchange rate.  He said there was no reason for him to doubt the calculations by the staff, nor did Ms Kwok disagree to the amount of RMB 46.50m at that time. 

279. Ms Kwok had said in her 2^nd witness statement, the amount of RMB 46.50m was suggested by Duan and Li and according to them, D1 “would receive further interest on the Judgment Debt”[62].  It is not clear what she meant.

280. According to Ms Kwok, Duan and Li never explained to her why they put such a figure into the 1^st Transfer Agreement, but she believed that their intention was to “scoop up” the whole of the monies which D1 had in Hainan, and as she had no information in relation to the Hainan Judgment Debt, she did not query their suggestion.  As mentioned earlier, she denied that she had prior to 15 September 2005 sought legal advice on the 1^st Transfer Agreement.

281. According to the Financial Statements for the year ended 30 June 2005 published by D1, which were released on 17 June 2008 to the public, the amount of the Hainan Judgment Debt received by D1 was approximately RMB 44,992,000, although it seemed that by 30 June 2005, only a net balance of about RMB 21m remained.

282. Anyway, there was clearly a discrepancy between RMB 44.992m and RMB 46.5m.  Ms Kwok was unable to explain the discrepancy when cross-examined.  Even if she said she had no information on the amount of the Hainan Judgment Debt, there was no reason why she could not have found out such information before signing.

283. There was no explanation from Ms Kwok as to why the amount was RMB 46.5m.

284. RMB 46.5m was about RMB 1m higher than the Hainan Judgment Debt, and it was put to Li Jie during cross examination by Mr Wong SC that RMB 46.5m had included an estimated amount for the expenses to be incurred in the recovery process.  Li Jie disagreed.  There was no evidential basis for such suggestion, and this was not Ms Kwok’s case.

285. Clause 1 referred to the assignment of P’s “債權”.  There was nothing in the 1^st Transfer Agreement to indicate that the assignment / transfer only related to a partial amount of the Loan. 

286. Ms Kwok had herself referred to “selling the debt” on several occasions during cross examination, such as that her mother had criticized her saying she was stupid to “sell the debt” for RMB 1.  The impression she gave in these answers was that she was referring to the entire debt.  Mr Lam had asked her as to why she did not explain to her mother that she was only “selling” one third of the total amount of what she claimed to be outstanding to P at the time. She then became somewhat evasive in her answers but in the end she admitted she did not explain to her mother that the 1^st Transfer Agreement was for only a partial amount.

287. Having considered all the above, again, I find Li Jie’s explanation was the more probable one.  In my view, the entirety of the Loan of HK$40m was assigned / transferred under the 1^st Transfer Agreement and that this was the parties’ common intention at the time of the signing of the 1^st Transfer Agreement.

Whether the consideration of RMB 1 was paid by HGRED

288. Pursuant to clause 4 of the 1^st Transfer Agreement, HGRED was obliged to pay RMB 1 to P immediately after the execution of the agreement: “乙方在本協議簽訂後即支付轉讓標的受讓金一元人民幣 给甲方。ˮ

289. There was no receipt for the RMB 1 which Li Jie said he placed a together with two signed copies of the 1^st Transfer Agreement in an “file envelope” for Ms Kwok.  Li Jie had said under normal circumstances, if the amount was large, there should be a receipt, but RMB 1 was a small nominal sum, and further at that time, he had trusted Ms Kwok.

290. There was no suggestion of any practical difficulty whatsoever for HGRED to pay RMB 1.  I do not see why HGRED would fail to pay this amount.  In any event, I have found earlier that the 1^st Transfer Agreement was part of the reward for the services of Duan and Li Jie.

291. In my view, as the non payment of RMB 1 was raised by P, the burden of convincing this court that on a balance of probabilities that it had not been paid fell on P.  This burden was not discharged by P.  I will nevertheless consider later in this judgment the legal issue as to the effect of non payment.

Whether there was agreed cancellation of the 1^st Transfer Agreement

292. As mentioned earlier, it was P’s case that the 1^st Transfer Agreement was cancelled on 17 September 2005 with the agreement of Duan.  Ms Kwok said she had asked Duan to return all the originals of the 1^st Transfer Agreement but eventually, it was only at a subsequent meeting on 14 December 2005 Li Jie and Shan finally returned two original copies of the 1^st Transfer Agreement to her, and according to Ms Kwok, that was the end of the matter.

293. Li Jie denied there was any agreed cancellation of the 1^st Transfer Agreement on the part of HGRED / Duan.  According to Li Jie, the cancellation agreed by Duan was only of the Share Transfer Agreement.

294. According to Li Jie, in early December 2005, Ms Kwok arranged to meet with Duan and Li Jie on 9 December 2005 in Shanghai, and Duan had to fly there from Guangzhou after signing with Guangdong Zhongling the 2^nd Transfer Agreement.  She had asked that the signed original of the Share Transfer Agreement be returned to her when they met.  Ms Kwok had explained to Duan and Li that this was because HK Huadong had decided to keep its shares in CRED Huadong.  Duan agreed but Li Jie said in a rush, he brought only a coloured photocopy of the signed agreement and at that time no one noticed.  Li Jie had said, it was also at the meeting on 9 December 2005 that Duan was requested by Ms Kwok to sign a document to resign as director of HK Huadong, which Duan duly signed. 

295. Further, according to Li Jie, it was also at the meeting on 9 December 2005 that he and Duan had told Ms Kwok that they had difficulties to recover the Loan from D1 and that they had further assigned the Loan to Guangdong Zhongling.

296. Li Jie then said subsequently on 12 December 2005, Ms Kwok telephoned to inform him that what he gave her was only a coloured photocopy, and not the original, and they then arranged to meet on 14 December 2005 when the signed original of the Share Transfer Agreement in HGRED’s possession was returned to Ms Kwok.  Shan was also present at this meeting.   

297. On the other hand, according to Ms Kwok, after the signing of the 1^st Transfer Agreement and after she returned to Hong Kong on 17 September 2005, there was a board meeting of P held at her home between her, her mother and younger brother, as a result of which P decided to cancel the 1^st Transfer Agreement. 

298. Ms Kwok had said that her mother and younger brother became the shareholders and directors of P in about 2003 – 2004 so that they could share some of P’s profits.  Ms Kwok was the chairman of the board of directors and in my view she was clearly the one in charge.  Ms Kwok’s mother was an 80 years old housewife, and did not seem to have received much education.  However, Ms Kwok tried to portray her mother as having practical sense and was authoritative, and that according to Ms Kwok, her mother criticized her severely for “selling” the Loan at RMB 1 and also scolded Ms Kwok for being so stupid.  Such evidence of Ms Kwok did not in fact appear in her witness statement.

299. Ms Kwok’s evidence was not consistent with her own case that the agreement was a sham.  She did not seem to have explained to her mother that the agreement was a sham, namely a “tool” only for the purpose for Duan to recover the Loan for P.

300. Ms Kwok agreed that, although P was a family company, it was still necessary to record decisions including board resolutions of the company in writing.  There was, however, no written record whatsoever supporting Ms Kwok’s evidence or any board resolution passed on 17 September 2005.

301. Further, as I have said earlier, P could have called Ms Kwok’s mother and younger brother to give evidence on this issue and yet P chose not to.

302. Ms Kwok had agreed that, when the agreement was signed on 15 September 2005, it would not have occurred to Duan that there would be any problem in this respect.  There was no evidence that Duan knew who the other shareholders of P were at that time or that they were Ms Kwok’s family members.  As pointed out by Mr Lam SC, If indeed what Ms Kwok said was true, when she told Duan that P decided not to proceed further, Duan should have been extremely surprised at the news, particularly when the assignment of the Loan was part of the reward, and nothing was offered in exchange. 

303. Yet, according to Ms Kwok, Duan did not ask her any question, nor did he ask her to produce evidence that P had indeed decided to cancel the agreement, nor did Duan tried to persuade her to reconsider the matter and simply agreed to cancel the agreement and agreed to return all the original signed copies to her.  I do not find what she said credible.

304. After Li Jie’s 1^st witness statement, Ms Kwok then suddenly produced copy of a fax dated 28 November 2005 in her 2^nd witness statement to support her case (“28.11.05 Fax”).  Li Jie had challenged the authenticity of the 28.11.05 Fax or that it was indeed faxed to Duan.  Although the fax was not addressed to Li Jie, Li Jie had said that Duan would have told him if there was indeed such a fax having been received as Li Jie was also involved in the matter. 

305. Ms Kwok did not provide any satisfactory explanation as to why she only disclosed the existence of the 28.11.05 Fax in her 2^nd witness statement in January 2013.  It was not disclosed at the time of Ds’ Striking Out Summons, nor at the time of P’s O14 Summons.

306. Li Jie said he had not asked Duan about this fax in January 2013 because Duan was already very ill in hospital.  Li Jie said he did not know how to contact Chen Sanlin but Li Jie admitted that he was not familiar with Chen Sanlin personally.  Li Jie said he had also lost contact with Shan since about 2007.  Li Jie, however, said he had personal knowledge about the matters mentioned in that fax and pointed out various inaccuracies and his doubts, and why he believed that the fax was not a genuine document. 

307. The 28.11.05 Fax was on Noble City’s fax header and was purportedly sent by Ms Kwok and a Mr Ho on behalf of Noble City, and it was addressed to China Holdings, attention to “Chen / Duan”.  It could thus have been received by Chen, instead of Duan.  There was, however, no sufficient evidence that the 28.11.05 Fax was not authentic.

308. Nevertheless, assuming that the 28.11.05 Fax was genuine and indeed sent to and received by Duan, I do not think it really helped P’s case that there had been an agreed cancellation of the 1^st Transfer Agreement in the manner as alleged by Ms Kwok.

309. The subject matter of the 28.11.05 Fax was stated to be in relation to payments under the Consultancy Agreement.  The paragraph relied on by P/Ms Kwok was the last paragraph, namely:

“另外，貴司單總答應退回我 China Gold 與海南公司所簽的協議書 (正本) ，已經3個星期，如不慎遺失，我司會安排出律師函証明失效及取消並請貴司簽署。”

310. “3 weeks ago” would be around 7 November 2005,  but there had been no mention at all by Ms Kwok in her witness statement to any promise made by Shan whether on behalf of HGRED or on behalf of China Holding on about 7 November 2005 to return the originals.  Shan’s name in fact only appeared when Ms Kwok in her witness statement was describing what happened at a meeting with Duan, Li Jie and Shan at a hotel coffee shop on 9 December 2005[63].

311. If what was said in the 28.11.05 Fax was correct, this would seem to indicate that any promise to return the originals was only in early November 2005 and not on 17 September 2005.  Alternatively after the alleged agreed cancellation of the 1^st Transfer Agreement on 17 September 2005, no steps had been taken by Ms Kwok to retrieve the signed originals until about 7 November 2005, and then even after 9 December 2005 when she discovered only coloured photocopies had been given to her, there seemed to be no follow up complaint letters from Ms Kwok or action taken by any lawyers.

312. According to Ms Kwok, in the end it was only on 14 December 2005 that Li Jie and Shan returned 2 originals / signed copies of the 1^st Transfer Agreement to her at a restaurant in Shanghai, and they did not mention to her about HGRED having informed D1 about the 1^st Transfer Agreement, nor did they mention any further assignment to Guangdong Zhongling.

313. On Ms Kwok’s own case, notwithstanding that Duan agreed to cancel the 1^st Transfer Agreement on 17 September 2005, she did not take any steps to try to get back the signed originals of the agreement from Duan as soon as possible and allowed Duan to delay the matter for several months.

314. Ms Kwok was quite specific about the dates of the meetings on 9 and 14 December 2005 in her 1^st witness statement which was dated 2 March 2012.  There was no satisfactory explanation from Ms Kwok as to how she could remember so precisely those dates and that the return of the 2 originals took place on 14 December 2005.  She did not keep a diary. Her travel record only showed that she was out of Hong Kong from 4–15 December 2005.

315. The last paragraph of the 1^st Transfer Agreement stated that :

“本合同一式四份，具有相同法律效力。各當事人各執一份，其他用于履行相關法律手續”

316. Ms Kwok had said that she could not recall how many originals the parties had signed (there could be two to four) and, according to her, by the time when she found Duan only gave her coloured photocopies, she was suspicious of Duan.  One would have thought by reading the coloured photocopy, she would and should have noticed that there should be 4 signed originals.  Yet, she had not asked Duan to confirm in writing that he had handed over all the signed originals, nor did she ask any lawyer to follow up on this matter when according to her only 2 were handed to her on 14 December 2005.

317. Her inaction was to be viewed, in particular, against the various immediate steps Ms Kwok took, including instructing lawyers to follow up, when she tried to cancel the 1^st Welchem P/A after the Hiccup.  It would appear that Ms Kwok simply accepted Duan’s agreement over the telephone to the cancellation and even though the originals were not returned to her immediately and only returned almost 3 months later, there were no other steps taken by her within those 3 months to ensure that the 1^st Transfer Agreement was cancelled. 

318. Li Jie had said in his witness statement that on 15 September 2005 when the 1^st Transfer Agreement was signed, two originals had been given to Ms Kwok.  Li Jie also said that, of the two originals that kept by him / HGRED, he gave one to D1 and another one to Guangdong Zhongling subsequently at the time when the 2^nd Transfer Agreement was signed with Guangdong Zhongling.  In particular, Li Jie said, and Ke agreed, that on 19 September 2005, Li gave a written notice of the 1^st Transfer Agreement to D1.  The notice expressly stated that one of the annexures was the 1^st Transfer Agreement.  Neither Li Jie nor Ke had been cross-examined about this annexure.  Ke had said he lost the signed original given to him when P moved office in Guangzhou and thus, Ds would no longer have in their possession of any signed original of the 1^st Transfer Agreement.

319. It was not in fact clear whether the agreement referred to in the last paragraph in the 28.11.05 Fax was the 1^st Transfer Agreement signed by P and HGRED on 15 September 2005, since no date was mentioned.  Even assuming the agreement referred therein was indeed the 1^st Transfer Agreement, what was stated therein was only that the agreement was no longer valid, namely “失效”.  There was no reference to the agreement being a “sham”, nor was there mention of any agreed cancellation on 17 September 2005 due to lack of board authority.  The entirety of the 28.11.05 Fax was in relation to the resolution of the Charity Plaza Dispute and the payment under the Consultancy Agreement.  If anything, the fax did not seem to support Ms Kwok’s case was that the 1^st Transfer Agreement was unconnected with the Charity Plaza Dispute.

320. I do not find that the 28.11.05 Fax was sufficient evidence that there was any agreed cancellation of the 1^st Transfer Agreement on 17 September 2005 as alleged by Ms Kwok due to lack of board authority.  In fact, in the PRC Judgment produced by Mr Wong SC on behalf of P, it would appear that Duan and his other company had relied on the Supplemental Agreement, which appeared to be supplemental to the 2^nd Transfer Agreement.  This would further indicate that Duan did not regard the 1^st Transfer Agreement as having been cancelled on 17 September 2005 or at any time prior to 8 December 2005, otherwise, there would not have been the 2^nd Transfer Agreement or the Supplemental Agreement signed on 9 December 2005.

321. It was the case of P/Ms Kwok that the 1^st Transfer Agreement had been cancelled by agreement on 17 September 2005 due to P’s lack of board authority to sign, and the burden was on them to prove this on a balance of probabilities.  In my view, P/Ms Kwok was not able to discharge this burden.

Was notice of the 1^st Transfer of the Loan given to D1

322. I will deal with the legal issues on the giving of notice later.

323. So far as the facts were concerned, it was common ground that P did not give any notice of the assignment of the Loan under the 1^st Transfer Agreement to D1.  The notice was given instead by Li Jie on behalf of HGRED by handing to Ke the 1^st Notice on 19 September 2005[64].  Both Li Jie and Ke had produced a copy of the 1^st Notice, the authenticity was challenged by P (Attachment 29 in Li Jie’s 1^st witness statement).

324. Ke was asked during the trial why D1 did not contact P for confirmation, or informed its lawyers or applied to strike out P’s claim on such ground immediately.  Ke explained that he was introduced to HGRED by a good friend, Chu Fung Cheong and he believed that the 1^st Transfer was genuine. 

325. According to Ke, when he met Duan and Li Jie on 19 September 2005 in Guangzhou, they had shown him a signed original of the 1^st Transfer Agreement, the 1^st Notice, and a set of Proof of Loan documentation.  Ke said this was the first time he met Duan and Li Jie.  This was confirmed by Li Jie.

326. D1 explain that he only applied to strike out P’s claim in January 2007 because the Hong Kong Stock Exchange imposed a deadline for D1 to sort out its assets; and the auditors had been consulted. 

327. There was no sufficient evidence from P to contradict what was said by Li Jie and Ke about their meeting and the giving of the 1^st Notice or the authenticity of the 1^st Notice, and I find that more probably than not, that notice was indeed given by HGRED to D1 of the assignment of the Loan under the 1^st Transfer Agreement by way of the 1^st Notice.

The subsequent assignment of the Loan by HGRED

328. According to Li Jie, at the meeting on 19 September 2005, Ke refused to confirm the Loan claiming that this was a historical problem before he became chairman / major shareholder of D1.  As earlier mentioned, Ke had suggested instead some projects to co-operate with HGRED and Li Jie said they were not interested.

329. Li Jie, however, had mentioned in his 1^st witness statement that he and Duan, through another Shanghai company, was involved in a dispute with a construction company over the Sanxiang Property project and at that time Guangdong Zhongling was interested in participating in that project, and was also willing to help HGRED in resolving their then dispute with the construction company.  According to Li Jie, this was why HGRED agreed to further assign the Loan to Guangdong Zhongling.  Li Jie then said that Duan later went to Guangzhou and signed the 2^nd Transfer Agreement. 

330. Li Jie had produced a copy of the 2^nd Transfer Agreement (Attachment 30), a copy of the 2^nd Notice (Attachment 33) and the settlement agreement (Attachment 34) and supplemental settlement agreement (Attachment 35) as between D1 and Guangdong Zhongling. The authenticity of these documents were also challenged by P.

331. That there was a further assignment / 2^nd transfer of the Loan to Guangzhou Zhongling was supported by the PRC Judgment.  During the trial, Ke had produced the original of the 2^nd Notice (exhibit D23) and the originals of the two settlement agreements with Guangdong Zhongling (exhibits D24 & D25).  In the circumstances, I do not find there was sufficient evidence that Attachments 30, 33–35 in Li Jie’s witness statements were falsified. 

332. Mr Wong SC had attacked the credibility of Li Jie, in that Li Jie had said that any amount to be recovered by Guangzhou Zhongling from D1 was to be injected into the Sanxiang Property project, which Li Jie then later fell through because there was no recovery, and that he was evasive when asked whether he had signed any other agreement with Guangzhou Zhongling.

333. At the time of cross examining Li Jie, Mr Wong had not yet produced a copy of the PRC Judgment.  Li Jie had said he did not go to Guangzhou to sign the 2^nd Transfer Agreement, and only Duan went.  His evidence was that he did not recall whether any other agreement was signed with Guangzhou Zhongling.

334. Li Jie was not recalled after Mr Wong SC produced the PRC Agreement and there was thus no chance to ask him any further questions in relation to the PRC Judgment.

335. Although Li Jie did not mention the Supplemental Agreement which seemed to indicate the consideration was RMB 20m and not RMB 2 as he had mentioned, he had said it was Duan who went to Guangzhou, and he was not present.  The matter of the Supplemental Agreement was simply not put to him and there was no opportunity for him to respond.  In any event, the two settlement agreements between D1 and Guangdong Zhongling, the originals were produced by Ke were dated 15 May 2006 and on 9 June 2006, were entered into subsequent to the Supplemental Agreement and Ke’s guarantee.

336. I do not find the PRC Judgment necessarily contradicted Li Jie’ evidence as he had said he did not know whether any other agreement had been signed by Duan and Guangzhou Zhongling.  There was also no sufficient evidence that Li Jie had worked for Duan’s company which was sued by Ke.  I accept it would seem unlikely that he did not know about the Supplemental Agreement but in my view such non disclosure, if any, would not affect the overall credibility of his evidence in relation to the 1^st Transfer Agreement.  On the other hand, the PRC Judgment would seem to support Li Jie’s evidence that there had been no agreement on the part of Duan / HGRED for the cancellation of the 1^st Transfer Agreement, in that Duan had not regarded that the 1^st Transfer Agreement had been cancelled, otherwise he would not have entered into the 2^nd Transfer Agreement / Supplemental Agreement.

337. As for Ke’s evidence, he only admitted to the existence of the Supplemental Agreement and the guarantee signed by him after the PRC Judgment was put to him.  Ke had tried to explain that the guarantee was not in fact signed on 9 December 2005 notwithstanding the finding of the PRC Court.  He then said he had lodged an appeal.  I accept all this affected Ke’s credibility somewhat, although he had apologized to the court for failing to disclose the Supplemental agreement and explained that he did not believe that they were relevant. 

Legal / Construction Issues

Whether the validity and subsistence of the 1^st Transfer Agreement was conditional upon the ratification by  P’s board

338. Earlier in this judgment, I have accepted Li Jie’s evidence that the draft of the 1^st Transfer Agreement had been sent to Ms Kwok prior to her signing in Shanghai, and there was no sufficient evidence that Ms Kwok had told him or Duan that she needed board ratification to her signing the 1^st Transfer Agreement.  I have also found that it was unbelievable that Ms Kwok did not obtain board authorization prior to her signing.

339. Ds had also relied on Clauses 9.1 (2) and 9.1 (3) of the 1^st Transfer Agreement and contractual estoppel.

340. Clause 9 was headed “Statements and Warranties”.  Clause 9.1 (2)  and 9.1 (3) stated as follows:

341. Ms Kwok, as “legal representative”, or a director of P, had stated or declared and warranted clearly that all necessary authorization to sign the 1^st Transfer Agreement and to perform its obligations therein had been obtained, and further had stated or declared and warranted that the agreement was binding and enforceable on P on the date of signing.

342. In my view, as submitted by Mr Lam SC, P was bound by the above statements, declarations and warranties and P was estopped from claiming that it was not bound because there had been no board approval / ratification.

Whether the Loan was assignable 

343. This issue was raised by Mr Wong SC in his opening submissions who submitted that there had been no valid transfer / assignment of the Loan under the 1^st Transfer Agreement, in that Clause 13 in the Loan Agreement had imposed two conditions in Clause 13.2 on any purported transfer and the conditions were not met.

344. There was no dispute that the Loan Agreement was governed by the Hong Kong law.

345. Mr Wong SC had referred to Yook Tong Electric Company Limited v Pirelli Cavi E Sistemi SpA [2004] 3 HKLRD 103 where the Court of Appeal had considered and gave effect to a clause contained in a contract prohibiting its assignment:

“The fundamental point is that a contracting party is entitled to choose whom it wishes to do business with. If it wishes to enter into a contract with A, subject to the bargaining powers of the parties, it can stipulate in the contract that A cannot assign the rights and obligations under the contract without its consent.”[65]

346. Mr Wong  SC had also referred to  Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and Others [1993] 1 AC 85.

347. However, in the present case, Clause 13 of the Loan Agreement was differently worded from those clauses under consideration in the above cases.  Clause 13  stated as follows:

“13. ASSIGNMENT

13.1. Benefit of Agreement: This Agreement shall be binding upon and ensure to the benefit of each party thereto and its successors and permitted assignees and transferees.

13.2.  Assignments and Transfers by the Borrower: the Borrower shall not be entitled to assign or transfer all or any of their respective rights, benefits or obligations hereunder.  The Lender shall be entitled to assign or transfer all or any of their respective rights, benefits or obligations hereunder, by giving a written notice to the Borrower.”

348. It was clear from Clause 13.2 and it was never disputed by Mr Lam SC that only the “Lender” in the Loan Agreement, P, was entitled to assign or transfer under Clause 13.2, and not the “Borrower”,  D1.  The issue was only whether as submitted by Mr Wong SC, that on construction, Clause 13.2 imposed two requirements / conditions to be fulfilled for any assignment or transfer.

349. According to Ms Wong SC, the two conditions were:

(a)   That the Lender had to give a written notice to the Borrower;

(b)   That the notice had to be given to the Borrower prior to the assignment.

350. Mr Wong SC accepted that Clause 13 did not contain an outright prohibition, but he submitted that the position in the present case was similar to the case of Hendry v Chartsearch Ltd [1998] CLC 1382.  In that case, the relevant clause under consideration was in the following terms:

“26. Assignment

The Client [Defendants] shall not be entitled to assign licence or otherwise transfer the benefit of this Agreement whether in whole or in part without the prior written consent of the Interface ... Interface shall not be entitled to assign or otherwise transfer this Agreement in whole or in part or to sub-contract any of obligations hereafter without the prior written consent of the Client which shall not be unreasonably withheld.”

351. It was held by Millett LJ  that:

“… It is sufficient to provide, as the present contract does, that a party should not be entitled to assign the benefit of the agreement without the prior written consent of the other.

Such a clause takes effect according to its tenor. The assignment which was made without the prior written consent of the defendants was effective as between assignor and assignee, but was ineffective as between the assignor and the defendants. The making of such an assignment did not put the assignor in breach of contract, let alone in repudiatory breach; it simply did not affect the defendants’ legal position and could be disregarded by them with impunity[66].”

352. However, again in my view, the relevant clause in Hendry was differently worded from Clause 13.2 in the Loan Agreement.

353. Anyway, it was the submission of Mr Wong SC that on a proper construction of Clause 13.2, the first of the 2 conditions should be that the written notice should be given by “the Lender” or P, and that although the 2^nd of the condition was not immediately obvious on the wording of Clause 13.2’, it made no sense to speak of a condition to an entitlement if the condition could be fulfilled after the entitlement was exercised.  Mr Wong submitted that as the entitlement was worded in the form of a future tense, namely “shall be entitled ”and the condition of giving the said notice was worded in the form of a present continuous, namely “by giving”,and thus as a matter of timing, the condition must clearly be satisfied before the entitlement arose. 

354. The principles on how to interpret a contract have been set out by Lord Hoffman in the well known case of Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279.  Briefly, the construction of a document is not a game with words, and it is an attempt to discover what a reasonable person would have understood the parties to mean, and this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve[67].

355. Mr Lam SC submitted that the correct interpretation of Clause 13.2 was that the sentence should be considered in two halves. The first half was “The Lender shall be entitled to assign or transfer all or any of their respective rights, benefits or obligations hereunder”.  The second half was “by giving a written notice to the Borrower”. It was his submission that the second half dealt with the separate and distinct question of what ought to be done to render the assignment effective against the “the Borrower”.

356. Clause 13.2 did not in fact state that the notice must be given by the Lender, or that the notice needed to be given before the assignment. 

357. Mr Lam SC submitted that the purpose of the giving of notice was for the purpose of safeguarding the interest of the “Borrower”, namely to ensure that it would know to whom it should discharge its liabilities.  In this respect, Mr Lam also relied on s 9 of the Law Amendment and Reform (Consolidation) Ordinance Cap 23 (LARCO).  S 9  states that:

“Any absolute assignment, by writing under the hand of the assignor (not purporting to be by way of charge only), of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this section, section 11 of this Ordinance and sections 25 and 49 of the Conveyancing and Property Ordinance (Cap 219) had not been enacted) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor:

Provided that if the debtor, trustee or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or any one claiming under him or of any other opposing or conflicting claims to such debt or chose in action, he shall be entitled to call upon the several person making claim thereto to interplead concerning the same, or he may pay the same into the court under and in conformity with the provisions of any Ordinance relating to trustees.”

358. Under s 9 above, a legal assignment is effective so long as “express notice in writing has been given to the debtor”.  Mr Lam had referred to the following in  Chitty on Contracts 31^st Ed, 2012:

“On the other hand, the statute does not prescribe any limit of time within which the notice musts be given, nor does it lay down that the notice must be given by any particular person[68].”

359. Further, as pointed out by Mr Lam, the authors noted that there appeared to be no authority on the question of whether notice could be given before the assignment took place.

360. Mr Wong SC had submitted that s 9 of LARCO was not relevant, as the present situation was not an “absolute assignment”.  Mr Lam SC, however, referred to the meaning of “absolute assignment” in Chitty on Contract, and I am satisfied that an assignment of the Loan would be an absolute assignment, as in the present case, we are not dealing with the assignment of a charge or a mortgage, where some equitable interest had been retained.  

361. Having considered the respective submissions from Counsel, I agree with Mr Lam’s interpretation.  The 2^nd half of Clause 13.2 should be construed in a way which is consistent with the statutory requirement, which would have been implied into the Loan Agreement.  I accept that Mr Wong’s submissions would impose additional conditions or requirements.

362. Mr Wong’s interpretation would also seem to bestow Clause 13.2 with a practical effect of contracting out of s 9 of LARCO, and also his interpretation could result in a party taking advantage of its own wrong, namely if P was the only one who could give a valid notice, P could choose not to do so rendering the assignment ineffective.

363. Having considered Clause 13.2 and the above, I conclude that :

(a)   the Loan was assignable; and

(b)   the assignment would be effective as against D1 so long as notice of the assignment was given to D1 irrespective by whom and when.

What constituted “債權憑證”/Proof of Loanfor the purpose of the 1^st Transfer Agreement

364. Clause 6 of the 1^st Transfer Agreement stated that :  “轉讓標的的有關憑證甲方交給乙方，該轉讓標的之權利自債權憑證交付乙方之時發生轉移”, namely that the subject rights became assigned upon delivery of  the Proof of Loan by Party A to Party B .

365. I have accepted earlier Li Jie’s evidence that the 9 Proof Documents were given to him by Ms Kwok during the Zhuhai Meeting.

366. The question would be whether the 9 Proof Documents constituted Proof of Loan.

367. Mr Wong SC submitted that the 9 Proof Documents were only information about the Loan, and they were not Proof of Loan documentation as there was no document proving the actual advancement of the Loan, such as loan remittances, written loan acknowledgments / receipts.

368. As pointed out by Mr Lam SC, this was not part of P’s pleaded case.  As mentioned earlier, in P’s Re-Re-Re-Amended Reply, its case under Clause 6 was only that the original of the Loan Agreement had to been delivered to HGRED for the assignment under the 1^st Transfer Agreement to be effective.

369. Mr Lam SC had further submitted that the term “債權憑證” was couched in ordinary Chinese language and referred to the definition of “proof ” in the Stroud’s Judicial Dictionary of Words and Phrases, namely:

“the word ‘proof’ seems properly to mean any thing which serves, either immediately or mediately, convince the mind of the truth or falsehood of a fact or proposition; and as truths differ, the proofs adapted to them differ also.”[69]

370. Mr Lam also referred the court to what Lord Alverston CJ had said in Martin v White [1910] 1 KB 665, that in relation to s 18 of the Prevention of Crimes Act 1871 and proof of convictions thereunder, in his opinion “proof ” did not mean “conclusive proof ”.[70] 

371. It was the evidence of P’s expert Madam Wang that the Loan Agreement could not on its own prove the existence of a debt or any indebtedness, and the creditor must provide evidence to show that he creditor had complied with the terms of the agreement, eg that it had actually advanced the Loan, before any rights would accrue to the creditor under the agreement.  In this connection, Madam Wang had given examples in the Joint Report such as the bank documents or receipt given by the debtor.[71] 

372. However, in my view, the kind of documents which could prove the advance of the Loan could not have been limited to only those examples given by Madam Wang.

373. Madam Wang herself had accepted that neither the PRC law nor the 1^st Transfer Agreement had set out what types of documents should be produced as “債權憑證”.

374. The copy of the Loan Agreement was only one of the 9 Proof Documents provided to Duan and Li Jie.  Among the 9 Proof Documents, there were also P’s former solicitors’ Letters Before Action which referred specifically to the advancement of the Loan with the table of calculations, the writ herein which pleaded the advancement of the Loan, the Statutory Demand, and the 2^nd Debit Note stating the amount owing as at that date.  All these documents would, in my view, constitute “proof” in that they served to convince the mind of the truth of the fact of the advancement of the Loan.

375. Clause 6 did not require “conclusive” proof.  In my view, those 9 Proof Documents would be sufficient to constitute Proof of Loan, subject to the consideration of the next issue.

Whether the Proof of Loan / 債權憑證 documentation had to be original or either original or copies for the purpose of the 1^st Transfer Agreement

376. It was not disputed that the 9 Proof Documents provided to Duan and Li Jie were not originals, and further it was not disputed that original documents would be better than photocopies.  This was frankly admitted by Li Jie who had said that on hindsight he should have asked for originals or certified copies.

377. Madam Wang had agreed that any dispute concerning interpretation of a contractual term should be resolved in accordance with the principle laid down in Article 125 of the PRC Contract Law. She also agreed with the analysis of that statutory provision in a textbook cited by Mr Chen.  In short, one should consider the language used, other relevant terms in the contract, the purpose of the contract, trade custom and the principle of good faith.  As submitted by Mr Lam, these principles under the PRC law do not seem to be materially different from the principles concerning construction of contracts under the Hong Kong law.

378. Under Article 125, one should begin with considering the other relevant provisions in the agreement.  Clause 6 did not in fact specify that P must produce the originals.  There were references in the 1^st Transfer Agreement to “photocopy” and “original” in Clauses 14.1.2 and 19, but Clause 6 did not refer expressly to “original” Proof of Loan or 債權憑證“正本ˮ.  There was no indication that Madam Wang had compared Clause 6 with the other clauses in the 1^st Transfer Agreement.

379. In cross-examination, Madam Wang had referred to “trade practice or custom” mentioned in Article 125.  Mr Lam SC submitted that what she referred to in paragraph 16 of the Joint Report was only what she described as “日常商務活動ˮ or ordinary commercial activities.  There was no authority provided by Madam Wang supporting there was any “trade custom or practice” in PRC to the effect that, in an assignment of a loan, the assignor was obliged to provide the original of the documents proving the loan to the assignee.

380. There was also no requirement that, in order to constitute a lawful and effective transfer of the Loan under the 1^st Transfer Agreement, P must produce the original documents.

381. I accept that in case of disputes HGRED would need to prove the genuineness and validity of the Loan, and it would be much better for it to have the original documents.  However Madam Wang had agreed that the absence of the original document in case of any litigation would not necessarily be fatal.  Although a photocopy document might not by itself amount to sufficient evidence, Madam Wang had agreed that, if the photocopy documents were to be corroborated by other evidence, depending on the circumstances, then could constitute sufficient proof. 

382. In cross-examination, it was put to Mr Chen that no one would like to buy a lawsuit.  Mr Wong SC pointed out to Mr Chen in cross-examination that when one considered the purpose of an agreement, one would be concerned with so-called “business efficacy”. 

383. Mr Lam SC, however, submitted that there was no difference on what “business efficacy” would mean in Hong Kong and Mainland China.  Further, “Business efficacy” would also be the test that the common law applies in considering implied terms in a contract.  As submitted by Mr Lam, the implication of a term is an exercise in the construction of the instrument.  In Twinkle Step Investment Ltd v Smart International Industrial Ltd (1999) 2 HKCFAR 255 at 261I – 262A, Ching P J reaffirmed that the test of business efficacy is one of “necessity” ie “a term will be implied if it is necessary, in the business sense, to give efficacy to the contract”; and that “reasonableness” is not the test[72].  I accept that the question that ought to be asked would be whether it was necessary, in the business sense, to give efficacy to the 1^st Transfer Agreement to impose such a requirement. 

384. Madam Wang had also made the point that the person who had a copy of the 1^st Transfer Agreement in his possession was not necessarily the owner of the Loan.  But she also admitted that, equally, the person who had the original document in his possession was also not necessarily the owner of the Loan. 

385. P was the assignor of the Loan and HGRED was the assignee under the 1^st Transfer Agreement.  The originals or notarized / certified copies would be for the purpose of protecting the assignee.  I could well understand the assignee wanting to impose such an obligation or insisting on such a construction of Clause 6, and relying on this to try and cancel the assignment, but as Mr Lam had submitted that it would seem rather “unnatural and artificial” that an assignor, in the present case P, would wish to insist on a construction of Clause 6 which would impose a more stringent obligation on itself. 

386. As earlier mentioned, P’s case appeared to have also changed somewhat, since in P’s Re-Re-Re-Amended Reply, what P had averred was that under Clause 6, the assignment of the Partial Debt (as defined therein) was to be effected by the physical delivery of the original Loan Agreement by P to HGRED[73], but later in Ms Kwok’s witness statement, Ms Kwok seemed to have accepted that under Clause 6, either the original or the copy of the Loan Agreement would be sufficient, her case being only  that she had  provided neither to HGRED[74].

387. Whether original or copy, Madam Wang did not support P’s own case in that Madam Wang had disagreed that merely the Loan Agreement would suffice as Proof of Loan under Clause 6.

388. In any event, having considered the above, on the construction of Clause 6, I accept Mr Chen’s evidence and I come to the view that Clause 6 did not stipulate originals or notarized / certified copies of the Proof of Loan documentations had to be provided.

389. Clause 6 had stated that the rights to the subject matter would be transferred upon delivery of the Proof of Loan documentation by Party A, namely P, to Party B, namely D1.  I have accepted that in the present case, the Proof of Loan documentation, namely the 9 Proof Documents were handed to Duan and Li Jie by Mr Kwok at the Zhuhai Meeting, which was prior to the signing of the 1^st Transfer Agreement.

390. Mr Chen opined that if the delivery of the Proof of Loan documentation took place prior to the parties signing the 1^st Transfer Agreement, the rights would be assigned upon the parties signing[75].  There seemed to be no dispute in relation to this by Madam Wang.

391. I thus also conclude that the Loan was assigned upon the signing of the 1^st Transfer Agreement.

What would be the legal consequences if HGRED failed to pay RMB 1 pursuant to the 1^st Transfer Agreement

392. Assuming that HGRED had not paid the sum if RMB 1, in my view, this should not have affected the assignment of the Loan, as I have concluded earlier that the Loan was assigned at the time of execution of the 1^st Transfer Agreement.  Thus, by the time HGRED had to perform this obligation namely immediately after execution of the 1^st Transfer Agreement, the Loan had already been assigned.

393. It was not disputed that non-payment of the sum of RMB 1 would constitute a breach of the agreement, but whether the breach would give the innocent party the right to terminate the agreement would depend on whether the obligation was a primary one or a secondary one.

394. Mr Chen opined that the obligation to pay RMB 1 was a secondary obligation only on the ground that it was a nominal consideration.  Madam Wang denied that there was such concept under PRC law. 

395. However, this concept seemed to have been mentioned in a judicial decision[76].  In the Joint Report of Mr Chen and Madam Wang, there was reference to a civil judgment from the No 1 Middle People’s Court in Beijing where it was stated that any out-of-time payment of the nominal consideration would not lead to a ground for refusal by the other party to terminate the agreement[77].  Although this judgment might not be a binding authority on the other PRC Courts, the concept was not unknown as seemed to have been suggested by Madam Wang.

396. Mr Lam submitted that even assuming that the obligation was a primary one, a breach thereof still would not automatically terminate the agreement, nor would it have the effect of reversing the assignment of the Loan (ie a re-assignment of the Loan).  Madam Wang had agreed that, according to Article 94 of the PRC Contract Law, as under Hong Kong law, such a breach would give the innocent party the right to elect whether to terminate the agreement, and unless and until it elected to do so, the agreement would remain in force.

397. As pointed out by Mr Lam, in the present case, it was never P’s case that it had elected to terminate the 1^st Transfer Agreement on the ground that HGRED had failed to pay the said sum.  P’s case was that there was agreed cancellation of the 1^st Transfer Agreement on 17 September 2005.  The issue seemed only to be raised by P in its Re-Re-Re-Amended Reply in 2013.  There was no sufficient evidence that P had elected to cancel / terminate the 1^st Transfer Agreement by reason of HGRED’s failure to pay RMB 1 in 2005.  If the 1^st Transfer Agreement had not been elected by P to be terminated on such ground, I agree with Mr Lam’s suggestion and see no basis now to suggest that there was an automatic reversion of the assignment of the Loan back to P.

Summary of findings on the Agreed List of Issues under the Assignment Defence

398. To summarise, my findings and conclusions on the agreed list of issues are briefly as follows:

(1)   Whether the validity and subsistence of the 1^st Transfer Agreement was conditional upon the ratification by the Board of Directors of P?  If so, whether the 1^st Transfer Agreement had been ratified by the Board of Directors?

My finding was it was not probable that Ms Kwok did not obtain board approval prior to the signing of the 1^st Transfer Agreement, and in any event P was estopped from alleging that there had been no board approval / ratification by reason of its statements / declarations and warranties in Clause 9 of the 1^st Transfer Agreement.

(2)   Whether the 1^st Transfer Agreement had been cancelled by Ms Kwok (acting for P) and Duan (acting for HGRED) shortly after the same was signed on 15 September 2005?

There was no sufficient evidence that there had been an agreed cancellation in 17 September 2005 in the manner set out by Ms Kwok.

(3)   Whether the 1^st Transfer Agreement was signed for the purpose of enforcing against D1 of a Hainan judgment on behalf of P or to form part of the consideration as asserted by Li Jie?

My finding is that the 1^st Transfer Agreement was part of the reward to Duan and Li Jie.

(4)   Whether any 債權憑証 / Proof of Loan documentation was effectively delivered under Clause 6 of the 1st Transfer Agreement?

(a)   Whether, as a matter of construction of the contract, the Proof of Loan meant the delivery of the originals rather than copies of the Proof of Loan?

In my view, on proper construction of Clause 6, the Proof of Loan documentation needed not to be originals or certified true copies.

(b)   Whether, as a matter of fact, the 9 Proof Documents (Attachment 24) in Li Jie’s 1^st witness statements [78] were given by Ms Kwok to Li Jie in September 2005 as alleged?

According to my finding, the answer is Yes.

(c)   If so, whether those documents constituted valid Proof of Loan for the purpose of the 1^st Transfer Agreement?

In my view, the answer is Yes.

(5)   Whether HGRED had paid the consideration of RMB 1 under the 1^st Transfer Agreement on 15^th September 2005 as alleged?  If not, what was the legal consequences?

There was no reason why HGRED failed to pay, but in any event, the failure to do so would only entitle P to elect as to whether P would want a termination of the 1^st Transfer Agreement and there was no evidence of such election.

(6)   In respect of giving notice of the 1^st Transfer  to D1:

(a)   Whether the legal requirement in this respect should be governed by PRC law or Hong Kong law?

The giving of notice was provided in the Loan Agreement which was governed by Hong Kong law.

(b)   Whether notice of the 1st Assignment, namely the 1^st Notice, had been given by HGRED to D1?

I find the 1^st Notice was given by HGRED to D1.

(c)   Depending on the answers to (a) and (b), whether giving notice of the 1st Assignment by HGRED (but not P) to D1 was sufficient?

In my view, the answer is Yes

(d)   In any event, if there was no valid notice given to D1, whether this would affect the validity of the 1^st Assignment as between P and HGRED?

As answer to above is Yes, there is no need to consider this sub-issue.

(7)   Whether P1 had validly assigned the Loan to HGRED pursuant to the 1^st Transfer Agreement so that it ceased to have any right under the Loan Agreement; and without prejudice to the generality of this question, the following issues:

(a)   Whether the Loan was assignable under the Hong Kong Law and in that connection what is the effect of clause 13.2 of the Loan Agreement, as a matter of proper construction and as a matter of substantive law?

In my view, the Loan was assignable under the Hong Kong law and the interpretation of the second half of Clause 13.2 was that the assignment would be effective as against the Borrower so long as notice of the assignment was given to Borrower  irrespective by whom and when.

(b)   Whether the 1^st Transfer Agreement, upon its proper construction, was intended to assign the entirety of the Loan or only a stipulated part thereof?

In my view, the common intention was to assign the entirety of the Loan.

Conclusion

399. In light of my above findings and conclusions on the Assignment Defence, I dismiss P’s action against Ds.

400. Costs normally follow the event.  However, in the present case, Ds abandoned the Lack of Authority Defence and did not succeed on the Partial Repayment Defence.  Having considered this, I will make an order nisi that P to pay one half of Ds costs, with certificate for 2 Counsel.  The order will become final after 28 days.

[1] Para 8, A:12

[2] B:103, C1:198

[3] See para 6, Reasons for Judgment, 02.04.03, HCMP 2799/2002

[4] C1:199

[5] C1:200-204

[6] B:105-106

[7] See para 7, Reasons for Judgment of Kwan J dated 29.04.03, as she then was in HCMP 2799/2002

[8] At para 6, supra

[9] C1:191

[10] C1:205

[11] See Reasons for Judgment 29.04.03

[12] See paras19-23, supra

[13] A:21-74

[14] See  para 1a of board resolution of Welchem Development Limited, C1:241-243

[15] Attachment 5, C1:221

[16] Attachment 4, C1:220

[17] Paras 5-11, B:69-70

[18] C2:282-285

[19] See last para, pg 11, PRC Judgment, Exhibit P1

[20] B:41-66

[21] B-67-81

[22] CACV 90/2013 Judgment 20.03.14

[23] A:14

[24] C (1):194

[25] C (1):195

[26] C (1):196

[27] C (1):197

[28] A:127-128

[29] Para 33, B:51

[30] B:102

[31] B:103-107

[32] C1:161-165

[33] C1:166

[34] C1:108

[35] Attachments 1-5, B:13

[36] C1:206

[37] C1:215

[38] C1:218

[39] C1:220

[40] C1:221

[41] Para 6, B:42

[42] See para 7.1, Judgment 20.03.14 in CACV 90/2013

[43] C2:359-362

[44] See later 23.05.05 CRED Huadong Resolution

[45] See para 4, B:68

[46] At para 4, B:68-69

[47] C2:341-351

[48] C1:241-243

[49] C2:271-272

[50] C2:281

[51] C2:253-255, at 254

[52] Attachment:24, C2:273

[53] C2:357-358

[54] C2:259

[55] It would appear that in fact by then Noble City and Konwide were no longer shareholders of HK

  Huadong, but the transfers of shares were only stamped on 18 October 2005 and 6 December 2005

  respectively: see C2:290

[56] See fax dated 28 November 2005, C2:301

[57] 16 June 2014 pm

[58] C1:133-191

[59] Para 34, B:76-77

[60] B:102, B:105

[61] See para 4.7, Re-Re-Re-Amended Reply, A: 55

[62] Para 35, B:77

[63] Para 58, B:60

[64] C2:279

[65] At para 19

[66] At para 12

[67] At 296D-1

[68] Para 19-016 at pg 1481-1482

[69] 7^th Ed, 2006, vol 3 pg 2166

[70] At 681

[71] F4, para 14

[72] At 251I-262A

[73] Para 4.7, A:55

[74] Para 64, B:62

[75] Para 25.3, F:12

[76] F:51-58

[77] F54

[78] C1:133-191