CHOW FU HSIEN v. K VISION INTERNATIONAL INVESTMENT (HK) LTD

HCA 2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2884 OF 2004

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D E C I S I O N

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The Application

1.  By an order of this court dated 19 July 2007, summary judgment was entered in favour of the plaintiff against the defendant wherein a declaration was made that the defendant held 35% of its interest in the project in Beijing known as Celebrity Plaza (the project), including all income and profits attributed thereto, on trust for the plaintiff and the defendant was obliged to account to the plaintiff all the income and profits generated.

2.  The order further provided that the defendant should pay the plaintiff the sum due upon taking account of its interest in the project, with interest at such rate and for such period as the court should determine at the taking of the account.

3.  The defendant appealed to the Court of First Instance against the above order.  The Court of First Instance has confirmed the order.

4.  The plaintiff applied to the court for taking the account, but the defendant opposed the application.  The defendant had put forth a number of reasons, which are no longer relevant now as this issue has been determined by Mr. Justice Cheung in his Judgment delivered on 10 March 2009.  Having fully considered the matters raised by the defendant, the learned Judge decided that the accounting exercise must go ahead. See paragraph 29 of the Judgment.

Factual Background

5.  The project is a very valuable and substantial property development in Beijing near the Olympic Game site comprising shops, entertainment centers, office building and service apartments, covering building area of about 11,000 square meters.  See bundle B page247-45, paragraph 4 [B-247-45, 4].  In June 1994, the plaintiff introduced this project to Mr. Qu Hong, the majority shareholder of the defendant because she had already had other property developments in Beijing and she did not want to overstretch her financial commitment in this project.  The defendant formed a joint venture company called Beijing K. Vision Building Construction Company Limited (Beijing K Vision) with another corporation called Beijing Residential Development Construction Holdings Company (Beijing Residential) as its partner, each holding 80% and 20% shareholding of the joint venture company respectively.

6.  Mr. Qu had no experience in property development himself.  In order to tap on the plaintiff’s experience in property development, Mr. Qu on behalf of the defendant, had entered into a written agreement whereby the defendant agreed to assign 35% of its interest and indebtedness in Beijing K Vision to the plaintiff and hold it on trust for her in consideration of her agreement to render her experience and expertise in the project and for further development of the joint venture business. [A-5]

7.  In August 1995, the defendant sold 55% of its shareholding in Beijing K Vision to a company called Sino Science International Trust Co. Ltd. (Sino Science).

8.  In 1995, the defendant bought from Beijing Residential 20% of Beijing K Vision’s shares.

9.  In 1996, the defendant further sold 25% of its shareholding in Beijing K Vision to another company called Far East Petroleum Company Limited (Far East).

10.  It can be seen that at this point, the project was controlled and owned by Beijing K Vision with 3 joint venture partners, viz. the defendant, Sino Science and Far East having shares of 20%, 55% and 25% in Beijing K Vision respectively.

11.  The project was completed in November 2004.

12.  In December 2004, the defendant commenced arbitration against Sino Science, making Far East as a party as well.  In April 2006, the Arbitration Tribunal made a winding-up order against Beijing K Vision.  A Liquidation Committee was appointed to administer the liquidation process, which has not completed up to date.

13.  In July 2004, the plaintiff had, through her solicitors, demanded for an account of her interest in the project.  The defendant denied her interest in the project whereupon the plaintiff took out this Action against the defendant in December 2004.  As said before, a summary judgment was entered against the defendant in July 2007.

The Hearing

14.  Madam Chow and Mr. Qu have given evidence in court. As far as their credibility is concerned, fortunately I have the documentary evidence to which I can make reference for verification.  Therefore, it is not necessary to place heavy reliance upon their demeanors in court.  Of course, I will bear in mind that the witnesses have their commercial interest to serve in this hearing.  Mr. Qu has given affirmation evidence in the summary judgment proceedings and the application for staying the proceedings.  The court did not accept his evidence.  This will, no doubt, affect his credibility when this court is left with no other evidence, documentary or otherwise for reference and verification.  All these factors are relevant for assessing the credibility and/or reliability of a witness as stated clearly in Four Seas Fish Balls Company Limited v Yeung Hung Sin and Cheung Bik Chun HCA4159/2003 at paragraph 20.

The Expert’s Report

15.  By an order of this court dated 6 February 2009, the plaintiff and the defendant were given leave to adduce affirmation evidence and the evidence of one accountant expert for each [A-21].  The plaintiff has adduced one accountant’s report [B-229 to 245].  The defendant did not adduce any accountant’s report, but has only filed an affirmation of an accountant, which I do not find it very useful for the present purpose.

16.  The whole exercise of taking account in this hearing is based upon the plaintiff’s expert, Mr. Tam’s report.  In the conclusion of his report, Mr. Tam held that the approximate profits generated from the project for the defendant were the summation of:

(a)    approximately HK$142,289,710.94; and

(b)   the property rights of 3,000 square meters of the completed office building of Celebrity Plaza; and

(c)   26.7% of the net asset value of Beijing K Vision (excluding the service apartment premises); and to deduct

(d)   the payment of interest for the period from 16 March 2005 until settlement of the amounts payable to Far East for RMB2,950,057.08; RMB449,455 and RMB4,290,130 respectively as awarded by the Arbitral Tribunal. [B-242]

The value of the plaintiff’s interest in the project is 35% of the aggregated value of the above components.

17.  Below is a table of summary of the sales of the shareholdings by the defendant to Sino Science and Far East extracted from Mr. Tam’s report [B-240]:

Description	Amount in US$	Amount in RMB	Unsettled Items
(1) Sale of 55% shares -  Amount received in accordance to the First S & P Agreement -  Property rights entitled to be received from Sino Science	22,000,000.00	105,690,000.00	3,000 sq. m. of the completed office building of the Celebrity Plaza
(2) Sale of 25% shares -  Amount received in accordance to the Second S & P Agreement -  Amount not received and shall be applied to offset to the amount due to Far East	16,826,100.00 411,900.00
(3) Remaining 20% shares -  Amount to be determined by the liquidation committee of Beijing K Vision			26.7% of the net asset value of Beijing K Vision (exclude the service apartment premises)
(4) Total costs
(i)   Contribution to Beijing K Vision	(12,000,000.00)	(156,353,563.74)	To be determined
(ii)  Payable to Far East
-   public construction cost		(2,950,057.08)
-   interest up to 15-3-2005		(1,231,902.93)	To be determined
-   interest from 16-3-2005 until settlement
(iii) Payable to Far East
-   land transfer fee and its penalty charge		(449,455.00)
-   七通一平 cost		(4,290,130.00)
-   interest up to 15-3-2005		(1,745,768.79)
-   interest from 16-3-2005 until
-   settlement
-   offset of consideration	(411,900.00)	3,409,090.00
(iv) Audit fee receivable from Sino Science		50,000.00
(v)  Arbitration fee receivable from Sino Science		296,999.73
(vi) Counter claim arbitration fee payable to Far East	(24,086.30)
Total	26,802,013.70	(57,574,787.81)
Net profit denominated in HK$ (assumed exchange rate HK7.75 to US$1 & HK$1 to RMB0.88)			HK$142,289,710.94

18.  HK$142,289,710.94 represents the net profit of the defendant’s sale of its shareholding in Beijing K Vision to Sino Science and Far East in 1995 and 1996 respectively after deducting the total costs for the project.  In his report, Mr. Tam said that he had made reference to the findings of the Arbitral Tribunal, which the defendant accepted.  He concluded that the said amount of HK$142,289,710.94 was the net sales proceeds.  He took the view that the court should base on this amount to work out the plaintiff’s share of interest.

19.  The defendant argued that HK$142,289,710.94 was the gross sales proceeds only, without taking into account of the following costs and outgoings of the project:

(1)   RMB105,690,000, being the payments of RMB20,000,000 to Beijing Residential; RMB62,201,000 to Beijing Land Management Bureau for Land Use Fees and RMB23,489,000 to Beijing K Vision for investment;

(2)   Tax for the amount of RMB27,459,585;

(3)   Tax penalty for late payment;

(4)   Interest on the loan of USD12 million made by the defendant from Oriental Patron Finance Limited (OPL) for the registered capital of Beijing K Vision.

20.  The parties accept that the value of the 3000 square meters office building of Celebrity Plaza and the 26.7% of the net asset value of Beijing K Vision (excluding the service apartments) cannot be determined in this hearing, not until after the completion of the liquidation process in Beijing.

21.  Item 16(d) refers to the interest payable by the defendant to Far East for the construction costs incurred by Far East, which Mr. Tam was unable to determine.  In any event, Far East has already withheld US$411,900 (RMB3,409,090) for setting off these payments.  As there is still substantial value in the remaining interest in the project for setting off these costs, if any, parties did not argue on this item.

22.  Mr. Wong, counsel for the defendant has raised 4 issues to challenge Mr. Tam’s report on HK$142,289,710.94, which Mr. Tam held to be the net profit after taking into account of the costs for the project.

The First Issue

23.  Mr. Wong submitted that Mr. Tam’s valuation of HK$142,289,710.94 (RMB 125,214,945.50) was wrong because it was based upon the wrong assumption that RMB105,690,000.00, which formed part of the consideration for the sales of the shares to Sino Science, was already included in the capital reserve of RMB156,353,563.74.  According to the Arbitral Award, the defendant had already injected USD12 million as the registered capital and RMB156,353,563.74 as the capital reserve in Beijing K Vision prior to 31 August 1995. [B-193]

24.  RMB105,690,000.00 was remitted in three trenches as directed by Sino Science in the following manner:

(1)   on 4September 1995, RMB20,000,000 to Beijing Residential;

(2)   on 17 October 1995, RMB62,201,000 for Land Use Fees;

(3)   on 26 October 1995, RMB23,489,000 to Beijing K Vision.

25.  The plaintiff accepted that (1) and (2) above should be treated as the costs for the project, (1) being for the building cost and (2) being fees for land use.  Mr. Tam in his evidence also agreed that they should be treated as the costs for the project, but he said that they had been included in the reserve capital of RMB156,353,563.74.  According to Mr. Tam, the defendant had contributed US12,000,000 as capital and RMB156,353,563.74 as capital reserve for the project and he said in his report under the heading of “Total costs contributed by Hong Kong K Vision” [B-238] Clause 5.2:

“Hong Kong Vision has also contributed in aggregate RMB156,353,563.74 to Beijing K Vision which was recorded as capital reserve (page 33 of the Arbitral Award No. 0126 and page 4 of the Audit Report No.007).  Such amount has been confirmed by the Audit Report No.360 and the Arbitral Award No. 0126 (page 5).  According to the Audit Report No.007, the contributions comprise of, amount other things, (i) certain waiver of debts owed by Beijing K Vision to Hong Kong K Vision and its related companies and (ii) Hong Kong K Vision to procure other creditors of Beijing K Vision to waive their respective debts.  Such amounts, as listed below in clause 5.5, have been recorded in Beijing K Vision’s books as part of the project costs with voucher no. 139 and 42 (pages 5 and 6 of the Audit Report No.007.”

26.  Clause 5.5 of the report sets out the movements of the capital reserve and the particulars of voucher 139 and voucher 42, totally RMB156,353,563.74.

27.  The strongest evidence to determine whether HK$142,289,710.94 has taken into account the costs for the project can be found from the findings of the Arbitral Tribunal, which the defendant did not dispute.  In the Arbitral Award, the tribunal found that the defendant had made a profit of RMB35,167,437 from the sale of the 55% of its shareholding in Beijing K Vision to Sino Science.  Taking into account of the fact that the property market in Beijing had risen substantially over the years, the Tribunal held that in order to be fair to Sino Science, the defendant’s original entitlement to 6,000 sq. m. property right should be reduced to 3,000 sq. m. [B-215-216].  Mr. Qu confirmed that he accepted this finding.

28.  According to the Arbitral Award, the profit of RMB35,167,437 was arrived at by subtracting from the sales proceeds of the defendant’s shares to Sino Science of RMB294,518,200 the US12 million (RMB102,997,200) registered capital and the capital reserve of RMB156,353,563.74. [B-215, 2(3)(4)]  If the costs of the project remained outstanding, the Tribunal should have taken into account such costs before arriving at the profit. Since the Tribunal had arrived at the profit of RMB35,167,437, the cash proceeds of the sale of the defendant’s shares to Sino Science must, by common sense, have been cleared of all costs.  Obviously, the subsequent payments to the three respective parties as described in paragraph 24 supra cannot be double-counted as any additional costs.

29.  The defendant was unable to argue against the above analysis at the hearing.

30.  It will therefore be reasonable for Mr. Tam to conclude in his report that the building costs and the Land Use Fees had been paid or provided for before 31 August 1995.  Mr. Tam’s belief can be fortified by those particulars set out in Clause 5.5, the movements and set-offs of the capital reserve.  At this point, it seems quite clear that RMB105,690,000 should not be taken into account again to be deducted from the net profit of HK142,289,710.94 as found by Mr. Tam.  However, Mr. Wong had made other comments on Mr. Tam’s treatment of the accounts in the Audit Reports No.352 and No.360, I shall deal with his comments below.

31.  Mr. Tam admitted that, in making the inference that the costs for the project had been included in the capital reserve, he had relied upon the balance sheets of Beijing K Vision, which were the appendices to the Audit Report No.352 [C4-1896] and Audit Report No. 360 [C4-1903] of Beijing K Vision compiled for the sale and purchase of the defendant’s shares to Sino Science. The balance sheets set out the assets and liabilities of Beijing K Vision as at 31 August 1995. [C4-1899 & 1905].  In the said balance sheets, there is an item “預付帳款” which amounted to RMB173,463,089.  Mr. Tam described it as the amount that should be paid but not yet paid.  He said that this accounting item should have included the costs of the project, which had been included in the reserve capital of Beijing K Vision.  This is the reason why he did not deduct the building cost and the Land Use Fees from the sales proceeds of the defendant’s shares to Sino Science.  Mr. Wong had, in his cross-examination, asked Mr. Tam to identify the account entries that he considered would include the building cost and the Land Use Fees in the capital reserve.  Mr. Tam admitted that the accounting materials did not permit him to identify for sure the exact entries, but he referred to clause 5.5 of his report, which showed the movements of the capital reserve with particulars of voucher 139 and voucher 42, some of which, as I could see, well exceeded the building costs and the Land Use Fees.  It is therefore possible for the building cost and the Land Use Fees to have been taken into account from the capital reserve before the signing of the Agreement for sale and purchase of the shares to Sino Science.

32.  Mr. Wong further commented Mr. Tam’s treatment of “預付帳款”, which he put to Mr. Tam as the amount prepaid and should not be under the current asset, but should be classified under the current liability.  Mr. Tam explained that this was the mainland practice to treat this item and classified it under the current asset.  Mr. Wong had not challenged Mr. Tam’s evidence as to the mainland accounting practice.  No doubt, in Mr. Tam’s resume, he had the mainland accounting experience.  There is no expert evidence from the defendant to rebut Mr. Tam’s evidence.

33.  In any event, as was pointed out by Miss Wong, Senior Counsel for the plaintiff, the audited accounts of Beijing K Vision were prepared by Sino Science’s auditors for the acquisition of the defendant’s shares in the project.  Had the building cost and Land Use Fees remained the liabilities of Beijing K Vision, they must have been clearly stated in the Audit Reports.  But there is nothing in the Audit Reports to show that the building cost and Land Use Fees remain outstanding.

34.  Mr. Wong criticized that the 3 tranches of payment were all made after the cutoff date, namely 31 August 1995, the date of the Agreement for sale of the defendant’s shares to Sino Science, and it would be illogical to treat them as prepayment as at 31 August 1995.  Mr. Tam has already clarified the meaning of the entry “預付帳款” as the amount that should be paid but not yet paid.  There is no evidence to rebut Mr. Tam’s evidence.

35.  Mr. Wong further submitted that even if this court accepted Mr. Tam’s explanation, Mr. Tam’s opinion was not factually sound and was internally inconsistent because of the following reasons.

36.  First, Mr. Wong said that the itemized breakdown of the Development Costs in the balance sheets of Beijing K Vision attached to the Audit Reports [C4-1899] would have included the remaining 60% of Land Use Fee, namely the 2^nd tranche of payment amounting to RMB62,201,000, the Land Use Fees under the Assignment Contract between Beijing Land Management Bureau and Beijing K Vision dated 6 December 1994 [B-247-52].  It seems that the Audit Reports of Beijing K Vision as at 31 August have already included the remaining 60% Land Use Fee, which was payable within 60 days from the signing of the Assignment – 6 February 1995.  I see no criticism on Mr. Tam’s treatment of this entry in the Audit Reports.

37.  Second, Mr. Wong submitted that “the prepayment” to Beijing Residential in the sum of RMB173,463,089 as specified in the 3^rd schedule attached to the Audit Report No.352 of Beijing K Vision [C4-1901] did not even cover the payment stipulated in the contract with Beijing Residential in the sum of RMB213,000,000 [B247-46].  Mr. Wong was referring to the Co-operation Development Agreement made between Beijing Residential and the defendant dated 23 April 1994.  Clause 5 of the Agreement provides that the defendant shall provide for the first stage building cost of RMB213,000,000.  Under this Agreement, the obligation to pay the sum of RMB213,000,000 is on the defendant, not Beijing K Vision.  Obviously, the sum of RMB213,000,000 should not appear in Beijing K Vision’s balance sheet.

38.  Third, Mr. Wong said that it was unclear why Mr. Tam thought the prepayment to Beijing Residential would have included the Land use Fees since the obligation to pay the Land Use Fees fell on Beijing K Vision, not Beijing Residential. It seems that this issue was not put to Mr. Tam in the cross-examination. It is also unclear what was the sale price of the shares of Beijing Residential to the defendant. This is due to the unavailability of complete accounting records of Beijing K Vision, which the defendant has been ordered to produce to the plaintiff for this hearing.

39.  Fourth, Mr. Wong submitted that there was no reason to doubt Mr. Qu’s evidence that the 3^rd tranche payment of RMB23,489,000 to Beijing K Vision represented the defendant’s share of the continued investment into the project.

40.  Mr. Qu has given evidence and said that all the 3 tranches of payment mentioned in paragraph 24 were the costs for the project and thus should be taken into account for the valuation of the profit from the sale.

41.  As to the incomplete set of accounts of the defendant, Mr. Qu explained that Miss Lam, the financial controller of the defendant, had changed the accounting records of the defendant.  She is still being involved in litigation taken out by the defendant.  The defendant had attempted to obtain her affirmation to verify its accounts, but she had refused to cooperate.  This is the reason why the defendant is unable to supply a complete set of its accounts for this hearing.

42.  Mr. Qu remains the major shareholder of the defendant.  The litigation between Miss Lam and Mr. Qu had commenced before 2004 [D-2230].  There is no evidence to show that the defendant had attempted to get another accountant to sort out the accounts for this hearing.  Not was there any evidence of attempt by the defendant to make enquiry with the liquidator of Beijing K Vision in relation to the payments made by it.

43.  However, Mr. Qu has made affirmations to say that out of the purchase price of shares to Far East, USD15,700,000 had been paid to one Hainan Overseas Chinese Investors Co. Ltd. [A-31,20B(9)]; that defendant had borrowed from OPL in excess of USD12 million [A-48(9)-(10), 18-19]; that the defendant had borrowed from other parties [A-48(10), 14]; that the defendant had made payments into the accounts of other parties directly in discharge of its liability incurred in developing the project [A-48(8),10(2)] and that the defendant had made payments directly to Beijing K Vision for the purpose of developing the project [A-48(8),10(3)].  Through Counsel, defendant conceded that there was no evidence to support those allegations.  I have no hesitation to dismiss them.

44.  Mr. Qu was unable to give a reasonable and satisfactory explanation as to why the defendant should further inject RMB23,489,000 to Beijing K Vision for the project, it being a minority shareholder holding only 20% of the interest of the project.  He also could not explain what return he had obtained from the investment of RMB23,489,000 in Beijing K Vision.  There is no increase of the defendant’s shareholding.  It defies commercial sense for the defendant to inject RMB23,489,000 in Beijing K Vision for nothing.  His evidence is simply inherently impossible of belief.

45.  Mr. Tam’s is an expert in this hearing, giving expert opinion on the accounts of Beijing K Vision.  He had made it clear that the account materials were not complete. He had to refer to the Arbitral Award, which the defendant accepts.  He was subjected to vigorous cross-examination.  He was able to tell the basis on which he formed his opinion and conclusion.  On the balance of probabilities, Mr. Tam’s evidence is more reliable.

The 2^nd Issue

46.  Mr. Tam admitted, upon cross-examination, that taxes were leviable on the two transactions of shares sales to Sino Science and Far East (the transactions).  Mr. Tam refused to take tax into account in his report for the reason that there was no formal demand from the Tax Authority.  The defendant has put forth its expert’s estimate of RMB27,459,585 for the tax, which Mr. Tam did not argue.  Mr. Tam may have the reason on the basis of accounting practice to ignore the issue of tax liability in his report, but I am unable to accept such reason to ignore tax liability for the transactions for this enquiry.  Provisions must be made for the tax.  Miss Wong, Senior Counsel suggested that the tax portion should be paid into court.  But I accept Mr. Wong’s argument that the amount of tax should not be paid into court, but should be taken into account for the calculation of the plaintiff’s profit.

47.  As to the penalty on late payment of tax for the transactions, since the defendant’s expert has given an opinion to say that there is no liability for penalty because the amount of tax is still subject to the litigation between Sino Science and the defendant.  It is not yet payable.  On this basis, no provision should be given for the tax penalty.

The 3^rd Issue

48.  Mr. Wong submitted that the litigation by Sino Science Securities Co. Ltd. (Sino Science Securities), a related company of Sino Science, was in fact a re-litigation of an issue decided in favour of the defendant in the Arbitral Proceedings.  He submitted that Sino Science Securities was re-litigating that the entire RMB portion and the US15,400,000 portion of the consideration were in fact loans extended by Sino Science to Beijing K Vision. [B-247-19]  According to the PRC lawyer of the defendant, if the decision were against Beijing K Vision in full, Beijing K Vision would be liable to the extent of RMB1,200,000,000 and if the decision were against Beijing K Vision in part, Beijing K Vision would be liable to the extent of RMB600,000,000.  Mr. Wong further submitted that an adverse finding against Beijing K Vision would objectively have an adverse impact of Mr. Tam’s opinion that the entirety of the Sino Science consideration should be treated as income of the defendant.

49.  Miss Wong argued that from the statement of claim of the said Action, it could be seen that Sino Science Securities was claiming against the Liquidation Committee of Beijing K Vision for repayment of loans with interests. [B-247(19) –(21)]  Even if Sino Science Securities succeeds in the litigation, there would be a monetary judgment of the amounts of principal and interests against Beijing K Vision, resulting in the net asset value of Beijing K Vision distributable to its shareholders upon liquidation being reduced.  There is simply no evidence to show how the judgment could possibly deprive the defendant of the monies it had already received from Sino Science for the 55% shareholding in Beijing K Vision.  The Arbitral Tribunal has already found that Sino Science had already paid to the defendant USD22 million and RMB105,690,000.  The Arbitral Award is final and binding as between the defendant and Sino Science. [B-226]

50.  Mr. Wong did not call the expert on PRC law to give evidence to support his submission that the result of the litigation between Sino Science Securities and Beijing K Vision would adversely affect the cash consideration for the sale of the 55% of defendant’s shareholding in Beijing K Vision to Sino Science.  I tend to agree with Miss Wong that the result of the litigation will only affect the asset value of Beijing K Vision, not the defendant, who is not even a party to this Action.  Up to date, there is no appeal against the decision of the said Arbitral Award.  I accept that if Sino Science Securities Co. Ltd. succeeds in its claims against Beijing K Vision, the asset value of Beijing K Vision will be affected, thus the value of the 3000 square meters of office building and 26.7% interest in Beijing K Vision will also be affected. But they are not relevant for the present enquiry of the defendant’s account for the cash consideration, which is not related to the asset value of Beijing K Vision.

51.  I find that the 3^rd issue does not assist the defendant.

The 4^th issue

52.  The fourth issue concerns the interest payable under a loan recorded in the defendant’s account for the sum of RMB110,250,443.87 for the year 2003 [B-247-81], which the defendant said that it was the US12 million it had injected in Beijing K Vision as the registered capital.  In the hearing, parties referred to an agreement made between the defendant and OPL dated 30 June 1994. [B-106]  But according to the terms of this agreement, it was not a loan agreement, but a joint venture agreement whereby OPL paid USD12 million to the defendant for the joint venture of developing the project.  In this agreement, it was provided that OPL might recoup the capital together with 30% profit in 6 months and 40% profit in 9 months.  The defendant submitted that the interest (profit) payable should be deducted from the sales proceeds.

53.  The plaintiff argued that the court should give no weight to this agreement because the terms were not commercial terms that called for explanation, which was not forthcoming. Senior Counsel went further to say that if it were genuine, it was nothing more than a transparent ploy to provide Mr. Qu an excuse to forfeit the plaintiff’s share in the project.

54.  It would be inappropriate to rule that this agreement has no legal effect without a proper trial of the issues involved.  However, I find that it is not necessary to take into account of the interest (profit) in this exercise for the following reasons:

(1)   There is no evidence that defendant has ever paid any interest or profit under this agreement and the defendant is unable to give any reason for this.

(2)   The defendant’s solicitors had sent a letter dated 3 December 2008 to OPL inquiring about the interest due to it.  Up to date, there has been no response from OPL.

(3)   Mr. Qu has interest in OPL, yet, he is unable to offer any explanation for the above;

(4)   There is no evidence of how much the interest (profit) should be.

(5)   The time for the defendant to repay the principal together with interests has been long overdue since 1994.  OPL has taken no step to enforce the agreement.

(6)   Such interest (profit), if any, can be taken into account in the remaining asset of Beijing K Vision under liquidation.

Conclusion

55.   As a conclusion, I decide to adopt Mr. Tam’s report for the valuation of the plaintiff’s 35% in the cash consideration for the sale of the defendant’s 55% shareholding in Beijing K Vision to Sino Science and its sale of 25% shareholding in Beijing K Vision to Far East.  Of the amount of HK$142,289,710.94, tax provision of RMB27,459,585, which is equivalent to HK$34,324,481.25 as according to Mr. Tam’s report using HKS1 to RMB0.88, should be taken into account, the net amount being HK$107,965,229.69.  The plaintiff’s interest is (35% x HK$107,965,229.69) = HK$37,787,830.40 together with interest at the prime rate of the HSBC from time to time, being the commercial rate, from 26 October 1995, the date of cause of action to 19 July 2007, the date of Judgment and thereafter at the judgment rate until payment. The question of interest is subject to parties’ agreement or argument by submission in writing to be submitted within14 days from the date of delivery of this Decision.

Orders

56.  I shall make the following orders accordingly:

(1)   The defendant do pay the plaintiff HK$37,787,830.40 (35% of HK$34,324,481.25) together with interest at the prime rate of the HKBC from time to time, being the commercial rate, from 26 October 1995, the date of cause of action to 19 July 2007, the date of Judgment and thereafter at the judgment rate until payment, subject to parties’ agreement or argument as stated above;

(2)   A declaration that the plaintiff has a 35% beneficial interest in the defendant’s property rights in 3,000 sq. m. of the completed office building of Celebrity;

(3)   A declaration that the plaintiff has a 35% beneficial interest in the defendant’s 26.7% share in the net asset value of Beijing K Vision;

(4)   Liberty to apply;

(5)   Defendant do pay the costs of this application, including all costs reserved to the plaintiff, such costs are to be assessed summarily under Order 62 rule 9A of the RHC and the plaintiff shall within 14 days after the order has become absolute file and serve the schedule of costs.  The defendant is at liberty to file and serve the objections within 7 days thereafter.  A hearing shall be fixed for the summary assessment, with time estimated to be 30 minutes before Master Lung.  This is an order nisi, to be made absolute after 14 days after the announcement of this Decision under Order 42 rule 5B(6) of the RHC.

57. I thank Senior Counsel and Counsel for their assistance.