LIN SAN JIH AND OTHERS v. CHAI ZHEN ZHONG AND OTHERS

HCMP1197/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1197 OF 2005

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BETWEEN

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J U D G M E N T

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Background

1.  These proceedings concern a golf course in Guilin, China.  The golf course was owned by Guilin Li River Golf & Country Company Limited (“the Golf Club”), a wholly foreign owned enterprise established in around 1993 in Guangxi Zhuang Autonomous Region in the Mainland.

2.  An entity known as the Farm in these proceedings (Guilin Overseas Chinese Farm桂林華僑農場) owned 15% of the Golf Club while one Success Fortune International Development Enterprise Company Limited owned the remaining 85%.  In around 2000 Success Fortune transferred the 85% shareholding to D5.

3.  Until 1 December2003, P1[1], P3 and P4 were shareholders of D5.  They held respectively 4, 2, and 1 issued and paid-up shares.  There were only seven issued and paid up shares at that time, and 99,993 unissued shares.

4.  Previously on 15 July 1997 Success Fortune took out a loan with one Asian Investment Network Co. Ltd (“AINET”) for USD5,000,000 (“the Loan”).  On 24 December 1999, AINET transferred the loan to Global Funds Trust Company, in its capacity as trustee of Chinese Enterprises Investment Fund (“the Fund”).  The Fund was managed by D6, the CEO of which was one Mr Junchi Goto (“Goto”).

5.  On 21 July 2001, D1 faxed P1 and requested repayment of the Loan.  An authorization letter dated 23 July 2001 was also sent to P1 where it was said that Goto, on behalf of D6, authorised D1 to collect the Loan.

6.  Between 2001 and 2003 P1 remitted US$830,000 by 16 remittances to Yoky Filters Company Limited (“Yoky Filters”), a company owned by D1 with Mr Goto being the Vice Chairman.  The defendants admit that these were repayments of the Loan.  However Mr Goto said he was not aware of these repayments until these proceedings.

7.  There was some dispute as to what happened thereafter.  What is certain is that on 2 December 2003 an Equity Transfer Agreement (“the ETA”) was reached between P1 and P3 on one hand, and D4 on the other hand (represented and signed by D1).  D4 is a company incorporated on 18 June 2003 in accordance with the laws of Hong Kong.  D1 to D3 were shareholders and directors of D4 until 19 April 2007, when D2 became the sole shareholder and director.  The circumstances leading to the signing of the ETA and whether a Supplemental Equity Transfer Agreement (“the SETA”) was entered at the same time are heavily disputed issues.  Apparently, after the ETA was signed the defendants took over the management, and under their leadership the Golf Club had made a turnaround and had been seeing some profit. 

8.  The plaintiffs are represented by Mr Laurence Li throughout the trial and with Mr Wayne Hariman being involved at the time of written submissions.  D1 to D5 were originally represented by the same legal team comprising Mr Kenneth C.L. Chan and Mr Billy N.P. Ma and they were instructed by Messrs Tse Yuen Ting Wong.  However on the 2^nd day of the trial (6 January 2011) they ceased to act for D1 to D5.  D3 is an employee of D1 with no blood relationship to D2.  D1 and D3 (“the Chai camp”) have been represented by Mr Valentine Yim, Mr Kan Fook Yee and Mr Laurence Cheung whereas D2 and D4 (“the Sino Master camp”) have been represented by Mr Walker Sham.  D5 has not been represented.  D6 is all along represented by Mr Ivan Cheung.  For the sake of convenience, I will refer the two camps as the Chai and Sino Master camps.

9.  There are numerous legal and factual issues that need to be resolved.  All parties conceded that if I am with the plaintiffs on the issue of the validity of the SETA, there will be further trial and submission on the counterclaims.  In the final submission, Mr Li, Mr Yim and Mr Sham took the approach of attacking the main witnesses (P1 and D1) of the opposing party when evaluating different factual issues. This approach is understandable as the main gist of their submission is that these two main witnesses are not to be believed.

10.  However, this judgment will take a different course of evaluation.  Instead of focusing on the quality of P1 and D1’s evidence in general, their evidence relating to each issue will be separately evaluated against the documentary evidence and the evidence of other witnesses, always bearing in mind the general quality of their evidence.

11.  The issues are categorised as below :

(1) whether D1 purported to represent D6 in entering the ETA;

(2) the circumstances leading to the signing of ETA and SETA, including whether the defendants had entered into the SETA;

(3) the interpretation of the ETA and the validity of the purported SETA;

(4) the quality of P1’s and Mr Xu’s evidence;

(5) did Mr Lu Chien Lung, being the son of P2, have authority to sign the ETA and SETA on behalf of P2 and P3;

(6) did D1 have the authority to sign the ETA and SETA on behalf of D6; and

(7) the impact of any ruling against the Chai camp on the Sino Master camp.

Issue 1: whether D1 purported to represent D6 in entering the ETA

12.  The first issue is whether D1 purported to represent D6 in entering the ETA.  It is undisputed fact that D1 first approached the plaintiffs qua collector.  However, it was heavily disputed in what capacity D1 entered into the ETA.

13.  The Chai camp story is that P1 first came up with the idea of allowing D1 to manage D5.  D1 agreed in his personal capacity to take 80% stake in D5 in return for his management expertise.  D6 avers that it had never authorised D1 to obtain any stake in D5 on behalf of D6, and it knew nothing about the ETA and SETA until these proceedings.

14.  The plaintiffs aver that D1 purported to be acting on behalf of D6 when the ETA and SETA were entered on 2 December 2003.  D1 told the plaintiffs that the Fund wanted to obtain an operating control stake (「經營控股權」).  If they refused, the Fund would instruct a team of lawyers to sue them and the plaintiffs would leave the Golf Club with nothing.  D1 said the Fund drafted the ETA and the SETA, on which he signed on the Fund’s behalf.  The plaintiffs relied on the following items to support its case and I shall consider them in the following order :

(1) Clause 3.9 of the ETA;

(2) Minute of Board Meeting on 25 October 2005;

(3) recollection of the events by the plaintiff witnesses and Mr Xu’s notebook; and

(4) the letter sent to D1 and D3 dated 6 September 2002.

1.1 Clause 3.9 of the ETA

15.  I shall right away consider Clause 3.9 of the ETA.  An excerpt of the clause is reproduced here :

「作为国际风际投资基金(即亚洲投资网络有限公司 [AINET]/环球信托基金公司及其管理公司后成东方投资管理有限公司)的贷款追缴受托方已经获得一切权利和授权签署并履行本协议。乙方 [D4] 保证在本合同上签字的代表已经获得授权签署本合同，并对乙方具有法律约束力。」

16.  This clause plainly agrees with the plaintiffs’ version and differs greatly from the version offered by the Chai camp.  An important feature of this clause is that it repeatedly emphasised that D1 was acting qua collector and had the authority of the Fund to enter into the ETA.

17.  Faced with such devastating evidence, the Chai camp put forward numerous explanations to neutralise the effect of Clause 3.9. The first attempt was to accuse the plaintiff of adding this clause without D1’s consent, because they wanted to bind the Fund firmly to the ETA (Transcript p. 479Q-S, Transcript p. 612N-P).  Not long after, this version of fact was retracted abruptly and without explanations (Transcript p. 613I-U).

18.  A new version of facts was put forward by D1 in his examination in chief.  D1 testified that at the time of signing the ETA he suddenly noticed the existence of this clause, which was new to him at that time.  He inquired about the nature of this clause and specifically asked P1 why D4 was said to be representing the Fund when it was not.  P1 then replied that he knew full well that D1 (through D4) was entering into the ETA in his personal capacity or “as a free man” as P1 purportedly said.  The reference to “full autonomy” (「一切权利」) actually meant that D1 was contracting in his personal capacity.  At that time D1 agreed that Clause 3.9 could be interpreted as such and went on to sign the ETA.

19.  I do not believe D1’s account of the facts.  As is evident from the excerpt above, Clause 3.9 plainly means D1 had obtained the necessary authority from the Fund.  The words “authorised” (「获得授权」) must be read in light of the reference to D1 in his capacity as a collector for the Fund earlier.  The literal meaning of the words (「作为」) is that D4 was acting in the capacity of collector for the Fund.  This must be the only meaning of the sentence (「作为国际风际投资基金 (即亚洲投资网络有限公司 [AINET]/环球信托基金公司及其管理公司后成东方投资管理有限公司) 的贷款追缴受托方已经获得一切权利和授权签署并履行本协议。」).

20.  I am well aware of the possibility that D1 was misled by P1 into believing the non-literal meaning offered by P1.  I hold that this is unlikely for two reasons.  The first reason is that P1’s explanation goes directly to the issue of D4’s capacity.  The wording in Clause 3.9, if not obviously different from, should at least be suspiciously contrary to that purportedly offered by P1.  A reasonable man with D1’s experience would have insisted upon an alteration to shut out all other contrary meanings.  The second reason is the rather dubious way in which the Chai camp approached the issue.  D1’s evidence that he noticed Clause 3.9 for the first time at the time of signing the ETA followed by P1’s “explanation” seems to suggest that the masterminds behind Clause 3.9 are the plaintiffs.  This seems to be a faint resurrection of the retracted case mentioned above.  I am not satisfied that the Chai camp was telling the truth in relation to Clause 3.9.

1.2 Minute of Board Meeting on 25 October 2005

21.  The second item that supports the plaintiffs’ interpretation of Clause 3.9 is the Minute of Board Meeting of the Golf Club dated 25 October 2005.  The minute says that D1 made several declarations, the first one being that D1 entered the Golf Club at the insistence of the original directors of the Golf Club.  This part collaborates with the Chai camp’s story. 

22.  However it went on to say that D1 did not enter the Golf Club to shoulder the debt, rather he entered qua creditor. This collaborates with the plaintiffs’ story regarding the interpretation of Clause 3.9.

23.  The Chai camp tried to escape the literal meaning of the minute by arguing that whoever prepared it, probably a youngster from the Farm, got it wrong.  This error inter alia was discovered later and was not adopted in the Board Resolution signed after the meeting.

24.  The Chai camp story is incredible for several reasons.  First, none of the plaintiffs was present in the meeting, as evidenced by the minute itself.  Assuming that the secretary in the meeting was indeed mistaken about the content of D1’s declarations, one wonders from where the secretary got this mistake from.  One must remember that the mistake was not merely grammatical, but that it went to the content itself.   Since the secretary was purportedly provided by the Farm, there is no reason to suppose that the plaintiffs could ‘feed’ the mistaken information to the secretary. None of the Defendants had reason to feed the mistaken information to the secretary.  There is no credible explanation as to why the secretary held this particular mistake, viz. D1 entered the Golf Club qua creditor.  The more likely inference is that the secretary got the ‘mistaken’ story from D1 and recorded it faithfully.

25.  The second reason is that since the allegation against the secretary is merely that he was mistaken, but not that he fraudulently invented the content of the meeting; D1 probably said something about his capacity in the meeting.  According to the Chai camp’s story, D1 was obviously concerned of his capacity in entering the ETA so much so that he purportedly inquired about the nature of Clause 3.9 before signing. 

26.  Piecing everything together, the Chai camp story becomes : In the meeting, D1 was concerned of his capacity in entering the ETA (and thus the management of the Golf Club).  So concerned was he that he made a declaration about his capacity.  The declaration was recorded wrongly but D1 signed it anyway. 

27.  I am unable to believe that D1 made the error of making an important declaration, only to neglect checking it before signing the minute.

28.  The Chai camp argued that the Board Resolution did not adopt the contentious part, and that points to D1’s awareness of the error shortly after the meeting.  While it is true that the contentious part (the first declaration) was not adopted, one must not forget that the other four declarations were not adopted as well.  If the first declaration was excluded because of the mistake therein, why were the other four excluded as well?  The Chai camp did not submit that all five declarations were plagued with errors. There was also no rectification of the first declaration either, even though it was such an important matter to D1.  I am not satisfied that D1 knowingly excluded the first declaration because of the purported mistake in it.  The more likely explanation is that D1 did not think there was a mistake and he excluded all the declarations for some other reasons.

1.3 Recollection of the events by the plaintiff witnesses and Mr Xu’s notebook

29.  The third item that supports the plaintiffs’ contention is the recollection of events by P1 and one Mr Xu Zhenglu, a consultant of the Golf Club.  Mr Xu’s evidence is supported by the various notebooks he purportedly wrote on during the relevant period of this case.  The first notebook covered some time up to 12 August 2003 and was relied upon by Mr Xu as he was drafting the witness statement.  It was lost when Mr Xu moved homes.  The second notebook covered the events after the first notebook with the last entry dated 14 October 2003.  It was marked as Exhibit P5.  The third notebook covers October to December 2003 and was marked as P3.  The fourth notebook covers June 2004 to July 2005 and was marked as P6.  P3 was produced on 12 January 2011 while P5 and P6 were produced together on 18 January 2011.

30.  I turn to P1’s evidence first.  As will be explained below, I am not at all satisfied with the quality of his evidence.  He appeared to have given little thought about his answers and their implications.  I do not find his evidence entirely reliable.

31.  Mr Xu’s evidence is significantly better than P1.  He emerged relatively unscathed in the lengthy cross-examination, and his evidence was usually honest and direct.  I shall evaluate the quality of their evidence near the end of this judgment.

32.  In the trial much time was used to establish or attack the authenticity of Mr Xu’s notebooks (“the Notebooks”), purportedly used to record meetings and events during the relevant periods concerning the case. 

33.  I accept that the Notebooks to be genuine on the balance of probabilities.  The primary consideration is the truthfulness of Mr Xu’s testimony.  I accept that he had a habit of taking notes in those meetings he participated.  Although he was found to have made no notes for a period of time, it was probably because he was too busy in that period of time.  The Notebooks recorded the events in some detail and they include events that are not relevant to these proceedings.  The sequence of the production of Notebooks also supports the inference that the Notebooks were authentic.

34.  None of the defendants could say for sure that Mr Xu did not make any notes during the meetings.  The attack on the Notebooks is mainly that they are inconsistent with the two camps’ story.  The Notebooks are also found to have some minor discrepancies with the plaintiff’s version.  In my judgment none of these criticisms is sufficient to justify the contention that the Notebooks were fabricated.

1.4 The letter sent to D1 and D3 dated 6 September 2002

35.  The fourth item relied on by the plaintiffs is a letter dated 6 September 2002.  The letter is a plea to forbear legal proceedings and an offer to repay the RMB$1 million already paid to the Fund’s legal team addressed to D1 and D3.

36.  D1 denied that he had told the plaintiffs the Fund was preparing to sue them (Transcript p. 831H-L).  He testified that he did not know why the plaintiffs would write about such thing.

37.  When D3 took the stand she testified for the first time that she, together with D1, had earlier instructed a lawyer (魏明霞) in their negotiation with the plaintiffs.  In around May 2002 the plaintiffs were repaying with a small amount of about US$20,000 or US$30,000, D3 then tried to reach P1.  D3 complained to P1 over phone and have the lawyer talk to P1 about the repayment.  The lawyer advised P1 that the Fund might sue, and the legal costs could reach a million.  After this occasion P1 faxed the letter dated 6 September 2002.

38.  Mr Li submitted that D3’s story is a fabrication for two reasons.  First, D3 admits it was the first occasion where she mentioned about the lawyer 魏明霞 (Transcript p. 875G-K).  Second, the story offered by D3 does not sit well with the wording of the letter itself.

39.  I agree.  It is strange for the Chai and the Sino Master camps to ignore the story about this lawyer until D3 testifies.  D1 seemed to have forgotten about this lawyer altogether when he testified, even though D3 said she and D1 jointly instructed the lawyer.  More importantly, in the letter P1 offered to repay the RMB$1 million already paid by the Fund to lawyers while according to D3 all that was said was that the potential legal costs could reach RMB$1 million.  If what D3 testified were true, P1 would have no reason to offer to repay the maximum when the possible legal proceedings did not even materialise.

40.  The more likely explanation is that this is a fabrication by the Chai and Sino Master camps for explaining the existence of the letter dated 6 December 2002.

The Defence

41.  Mr Yim and Mr Sham submitted several items to support his assertion that D1 did not enter into the ETA qua creditors :

(1) The plaintiffs did not allege that D1 represented D6 in entering into the ETA in the early stage of these proceedings.

(2) P1 did not clarify D1’s authority with D6 in entering into the ETA.

(3) The plaintiffs did not ask Mr Goto about the ETA when he visited the golf course on 18 July 2004.

(4) In his witness statement, P1 said the retention of shares by D4 provided by the purported SETA was meant to be “personal compensation” for D1 and his team.

(5) The plaintiffs alleged the ETA and the purported SETA required Mr Goto’s approval but they acted as if no approval was needed.

(6) The plaintiffs knew even after D1 (through D4) had taken over the management of the Golf Club, they would have to continue repaying the Loan.

(7) The identity of the drafter of the ETA.

42.  Turning to the first item, Mr Sham’s submission is that the plaintiffs did not allege that D1 entered the ETA on behalf of D6 in the early stage of these proceedings.  He submitted that this is because they knew full well that D1 entered into the ETA in his personal capacity.  Therefore their allegation against D1 was a fabrication.

43.  However this is not the only reason.  The late addition of this allegation may also be attributable to the fact that they did not discover D1’s lack of authority to enter into the ETA until a later stage of the proceedings.

44.  Regarding the second point, while it is true that the plaintiffs should have asked D6 about the extent of D1’s authority, this neglect must be viewed in light of the Authorization Letter signed by Mr Goto and given to the plaintiffs by D1.  The letter is said to “authorize [D1] to collect the overdue loan” in English, but the Chinese version seems to give D1 more power :

「我，後藤順一主席全權授權於柴振中先生處理有關…貸款及利息的收回事誼。」

45.  The Authorization Letter itself does not contain any limit on D1’s authority, and the plaintiffs might have been influenced by such absence in believing D1 had the authority.  As Mr Xu testified, the plaintiffs initially trusted D1 immensely, which might also explain why the plaintiffs did not ask Mr Goto.

46.  The third item concerns a visit by Mr Goto on 18 July 2004, after the signing of the ETA.  As Mr Xu recorded in the Notebooks, Mr Goto pressed P1 for repayment during the visit.  Mr Xu said he thought it contradictory that Mr Goto would press for repayment when D1 had told the plaintiffs the Fund would not do so until the Golf Club was generating profit.  Mr Yim submitted that because the plaintiffs did not inquire about the contradiction, the plaintiffs were lying and that they knew Mr Goto did not authorise D1 in entering the ETA.

47.  The plaintiffs’ explanation is that they thought it strange that Mr Goto would press for repayment at that time. On second thought, Mr Xu admitted it would probably be best if the plaintiffs had taken this issue with Mr Goto.  But at that time they thought as the ETA was signed to facilitate repayment it was only natural for Mr Goto to press for repayment.  They also trusted D1 at that time.

48.  The plaintiffs may fairly be criticised for lack of prudence, but their neglect could not be said to be so unreasonable that the plaintiffs’ account must be unbelievable.

49.  For the fourth item, in my judgment the “personal compensation” awarded to D1 and his team is consistent with the plaintiffs’ case.  The word “personal” refers not to the capacity of D1, but the effort he was to put into the management of the Golf Club.  The plaintiffs’ story is that D1 was to manage the Golf Club personally and that was the reason for “personal compensation”.

50.  For the fifth item, the plaintiffs’ story is that they have signed two copies of the ETA and the SETA but they were taken away by D1, who said they needed to be approved by Mr Goto for the Fund. The two camps say that four copies of the ETA were signed, and the plaintiffs kept wo signed copies.

51.  Three signed copies have now been handed over to this court, one from the plaintiffs, one from the Chai camp and one from the Sino Master camp.  As there is no evidence that any one of the three copies was forged, the plaintiffs’ recollection of the number of signed copies must be wrong.

52.  Mr Sham submits that more importantly, the plaintiffs’ action does not sit well with their assertion that D1 took all signed copies for Mr Goto’s approval.  He drew the Court’s attention to a memorandum dated 3 December 2003, i.e. one day after the signing of the ETA.  The memorandum urges, inter alia, D4 to take over the management of the Golf Club.  Mr Sham submitted that if the ETA were subject to Mr Goto’s approval, the plaintiffs would not have urged D4 to take action one day after the signing of the ETA.

53.  The problem with this submission is two-fold. First, as things stood on 3 December 2003 there was nothing to suggest that there was more than an illusionary chance that Mr Goto would not approve the ETA.  The ETA and the SETA were said to be prepared by the Fund, and the Fund’s demand had largely been met.  D1’s act of taking away the agreements would probably appear to the plaintiffs as an act of formality. Second, the memorandum also urged D4 to bring in the much needed capital when it enters the management.  If the Golf Club was in serious financial difficulty, as the two camps allege, it would hardly be surprising for the plaintiffs to push for early take-over and the capital that would come with it.

54.  For the sixth item, the plaintiffs’ story is that D1 represented to them that after D4 had taken over the management of the Golf Club there would be a suspension of repayment of the Loan.  This would only be true if D1 was acting as an agent for D6 in making this representation, and not as a free man (as the two camps allege).

55.  Mr Sham submitted that the plaintiffs knew there would be no suspension of repayment, as evidenced by the memorandum dated 3 December 2003 and Mr Xu’s notebook (B3(1)/266).

56.  Regarding the notebook Mr Xu’s evidence is that this page was written by D2 and it explains the divergent views of D1 and the Fund (Transcript p. 374C).  D1’s view was that D5 would not have to repay for two years while the Fund’s view was that repayment should be complete within two years.  This page is actually consistent with the plaintiffs’ story about D1 boasting of how he could persuade the Fund into delaying the collection of the Loan.

57.  Regarding the memorandum, Item 2 says that D5 was to repay a debt incurred in Taiwan at the same time as repaying the Loan.  The priority of repayment is dependent upon which side is more urgent.  Mr Sham submitted this shows there was no suspension of the repayment for the Loan. This argument is flawed because the memorandum does not mention when the Taiwan debt or the Loan would have to be repaid.  Moreover, the plaintiffs could have written it to prevent future arguments when the Loan becomes due.

58.  I turn now to the last item, which concerns the identity of the drafter of the ETA.  The plaintiffs maintained that D1, D2 and D3 gave the hard copy of the ETA to P1, accompanied by his wife and Mr Xu on 2 December 2003.

59.  The story offered by the two camps is that they have discussed with the plaintiffs about the content of the ETA and had earlier sent a draft to the plaintiffs.  The signed copies originated from Mr Lu’s notebook; Mr Sham submitted that Mr Lu got a copy of the draft ETA during the negotiation.

60.  Mr Li for the plaintiffs submitted that the two camps offered this version of facts late in the trial to mislead the Court.  With respect, the delay itself is insufficient to support the finding that this was fabricated.  As Mr Li noted, the primary contention of the two camps had been that the plaintiffs had ample opportunity to consider the ETA.  They had never said who the drafter was.

61.  Mr Sham drew the Court’s attention to the ETA, which lacks a place for P4’s signature.  He submitted that D1 to D3 had inspected the annual return of D5 already and knew P4 was a shareholder and director of D5.  Therefore if “the ETA was indeed prepared by Ds, one would expect the Ds to put down all the three names, [P1, P3 and P4] as the signatories on behalf of” D5.

62.  To this question one can answer by asking if the version offered by the two camps were true, and that the ETA was indeed the product of the negotiation between the plaintiffs and D1 to D3, one would expect the plaintiffs and defendants to put down all the three names, P1, P3 and P4 as the signatories on behalf of D5.  For this reason, the lack of a place for P4’s signatures plainly cannot be used to show whether the plaintiffs’ or the two camps’ stories are more believable.

63.  Mr Sham also submitted that in the statement of claim the plaintiffs appeared to have said that the plaintiffs prepared the ETA and the SETA under the instruction of D1 to D3 and/or Mr Goto. This is another futile, if not misleading attempt to show that the plaintiffs prepared the agreements.  The statement of claim only said that they were prepared under the instructions of the aforementioned persons; it never says to whom the instructions were addressed and who was ultimately responsible for drafting it.

64.  In my judgment, the issue of who drafted the ETA cannot be decided by the testimony of the witnesses alone.  Nevertheless, the treatment by the two camps regarding this issue can only raise suspicion. First there is a delay in putting forward their story, second there was a sudden and unconvincing assertion that Mr Lu printed the ETA out of his computer.  Therefore I hold that the plaintiffs’ version is more likely to be true on a balance of probability.

Resolution of Issue 1

65.  My finding regarding the first issue is that D1 represented to the plaintiffs that he was acting on behalf of the Fund when entering the ETA.  This representation was relied upon by the plaintiffs but for which they would not have entered the ETA.

Issue 2 : the circumstances leading to the signing of the ETA and SETA

66.  The circumstances leading to the signing of the ETA and SETA appeared to be the main contention of the plaintiffs in the early stage of these proceedings.  In the amended statement of claim, duress, undue influence and conspiracy to injure were pleaded as part of the plaintiffs’ case.

67.  Mr Li for the plaintiffs now admit that they are not the main thrust of the plaintiffs’ contention.  As they are nevertheless relevant to the credibility of the plaintiffs’ case as a whole, they merit some consideration.

68.  In relation to the issue of duress, the plaintiffs’ contention in the amended statement of claim is that P1 and Mr Lu Chien Lung “perceived threats to persons of themselves and/or their close relatives”.  One of the reasons why they so perceived is because they “were inhibited by [D1, D2 and/or D3] from leaving”. 

69.  P1 described the events in his witness statement as such : “D1 expressed himself to have connections with triads in Hong Kong and Taiwan and we felt that there was a real threat to life and limb.  We were not permitted to leave the restaurant and between [D1 to D3] threatening and forcing us on the one hand and artfully persuading us on the other, I signed the Equity Transfer Contract”. 

70.  The quoted parts in the above paragraphs literally mean that some threats were issued, otherwise there would be no reason why they “were inhibited” from leaving.

71.  However, the plaintiffs now recant from this stance.  They admit that P1 only perceived such threat but none of the defendants gave express intimidation.  This appears to be contrary to what was pleaded in the amended statement of claim.

72.  I am of course mindful of the fact that Mr Li submitted that the “threat” was wholly the fruit of P1’s supposition (as opposed to actual threats).  Therefore, could it be that the part about P1 and Mr Lu being inhibited from leaving was also the product of supposition as well? I do not think it was so intended when the statement of claim was drafted.  The inhibition, along with the purported triad story told by D1, were given as a reason to the plaintiff’s perception of threat, not the fruit of it.

73.  In relation to the conspiracy to injure, it was added about three years after the proceedings.  The allegation is that D1, D2, D3 and one Li Wen conspired and agreed to commit a conspiracy to defraud the plaintiffs of the shares in the Golf Club.  A Performance Guarantee Agreement (“PGA”) dated June 2006 was discovered by the plaintiffs.  The PGA was signed by D2 and it suggests that Li Wen were to be remunerated for having coerced P1, P2 and Mr Lu Chien Lung in transferring the shares in the Golf Club.  The remuneration is said to exceed RMB$8.3 million.

74.  The plaintiffs now try to distance itself from the PGA by saying that it was handed to Mr Lu by one Mr Huang Fangliang. They therefore cannot attest to the truthfulness of this document.  They also did not call Mr Lu to testify on this.  The plaintiffs also sought to call an expert in handwriting to prove that the signature on the PGA was indeed that of D3’s.  They have now abandoned this attempt purportedly because of time constraint.

75.  The treatment of the duress and PGA issues is not satisfactory.  The failure to call witness may be justifiable in light of the fact that these arguments are no longer the “main arguments”; nevertheless, the court is left wondering what prompted the change of stance in these issues, which contain grave allegations against the defendants.  The adverse inference to be drawn from the abandoned grave allegations is that they were fabricated, if not just exaggerated, by the plaintiffs.

76.  The undue influence argument was not relied upon in Mr Li’s submission.  As Mr Yim pointed out, the elements required for undue influence had not been established by the evidence.  I therefore hold that this line of argument must fail.

Issue 3 : The interpretation of the ETA and the validity of the purported SETA , including whether the defendants had entered into the SETA

77.  For the third issue, the plaintiffs’ story is that D1 said that the Fund insisted on having a controlling interest in D5 so as to better manage D5 and use the profit to repay the Loan.  The Fund drafted the ETA and the SETA, and the plaintiffs had little say in the drafting.

78.  According to them, D1 also said that he would pledge 20 to 25% of his shares in his own company, Yoky Filters, as security for the Loan.  The Fund would not sue until the Golf Club can generate some profit but in return the plaintiffs must let D1 run the Golf Club.  There would be capital injection and fresh customers would be brought to the golf course. Hopefully the profit will allow the Loan to be repaid and the Golf Club will go public. 

79.  It had always been the parties’ common understanding that the Fund would only obtain the controlling interest for operational purpose.  The Fund would eventually return part of the controlling interest to the plaintiffs.  Then it will only have 30% real ownership and 10% share in dividends and listing, as evidenced in the SETA.  The retention of shares was meant to serve as personal compensation for D1 and his team.

80.  The Chai camp story is that P1 first came up with the idea of allowing D1 to manage D5.  D1 agreed in his personal capacity to take 80% stake in D5 in return for his management expertise.  The Sino Master camp’s story largely mirrors the above.  D6 avers that it had never authorised D1 to obtain any stake in D5 on behalf of D6, and it knew nothing about the ETA and SETA until these proceedings.

81.  The first point of consideration is the ETA itself.  The relevant clauses are reproduced below :

「Clause 8.1

在签署本合同之後，甲方和乙方对有关本合同规定的事项所作出的任何口头或书面的约定或承诺均自动失效，并以本合同及补充合同的规定为准。

Clause 8.2

本合同只有经双方讨论通过方可以书面形式修改、补充或取代。

Appendix 2

林三吉先生丶陈林守女士与中鹏国际集团有限公司股权转让补充合同。」

82.  The two camps denied the existence of a supplemental agreement (「补充合同」), alleged to be the SETA by the plaintiffs.  Their submission in relation to the 3 clauses above is that Clauses 8.1 and 8.2 are standard boilerplates clauses common to Chinese contracts.  They are to allow future amendment to the ETA by way of a SETA.  In relation to the Appendix, Mr Yim submitted that even though the SETA was mentioned it never existed.  He observed that only the first item existed and was attached to the ETA.  Items 2, 3, 4 and 6 never existed while Item 5 existed but were not attached to the ETA. Apparently like items 2, 3, 4 and 6, the SETA never existed but was nevertheless mentioned.

83.  The plaintiffs’ story is that the SETA was just as important as the ETA itself.  SETA faithfully recorded the intention of the parties, being the return of some of the shares transferred under ETA back to the plaintiffs.  Mr Li submitted that the above quoted clauses should be read literally to mean that SETA existed.

84.  In approaching the clauses above, the objective interpretation of these clauses play an important, but not determinative role.   This is because the existence of a document (i.e. the SETA) cannot be “objectively interpreted”; rather it is a factual issue to be resolved.

85.  While the Court cannot give undue importance to the objective interpretation of the ETA clauses, they nevertheless merit some consideration.  This is based on the assumption that in the ordinary course of business, the objective interpretation of a contract reflects what was intended and carried out.

86.  The objective interpretation of the clauses above is clearly that the SETA was entered together with the ETA.  The interpretation offered by Mr Yim is totally inconsistent with the literal meaning.  Clause 8.2 did not mention any supplemental agreement at all.  The words补充合同were not used in Clause 8.2. All that Clause 8.2 says is that future amendment must be made in writing.  It is difficult to see how the supplemental agreement referred to in Clause 8.1 can be linked to Clause 8.2.

87.  Clause 8.1 also referred to the supplemental agreement as if it was existent at the time of signing the ETA. This, together with the lack of reference to Clause 8.2 in Clause 8.1 itself, means that objectively speaking the SETA was indeed existent.

88.  Regarding the interpretation of the appendix, Mr Yim submitted that not all items were existent at the date of signing the ETA, so it does not necessarily mean that the SETA was existent at that time.  Mr Li responded by quoting D1’s evidence, where it was admitted that all the items in the appendix, except the SETA, was either existent or had to be prepared (Transcript p. 789E-M, p. 824I-O).  D1’s evidence regarding the SETA is that it will be required or may be required in the future (「呢個應該係話以後要有，又或者係以後可能要有咁樣嘅東西」).

89.  D1’s evidence above does not necessarily rule out the interpretation submitted by Mr Yim.  It is possible that a supplemental agreement was contemplated, or thought to be necessary, and was included together with the many to-be-prepared items in the appendix.  The appendix is therefore open to interpretation that may favour either side.

90.  On the issue of objective interpretation of the ETA, I hold that objectively speaking the ETA refers to a contemporaneous supplemental agreement by virtue of Clause 8.1 only.  This interpretation, coupled with the fact that the plaintiffs’ case is consistent with it while the case of the two camps does not, means that the plaintiffs’ case is more credible.

91.  However, that alone is not necessarily fatal to the defence case.  Counsel from both sides have observed that there were other circumstantial evidence, or pointers, that favour one interpretation over the other.  I shall evaluate these pointers one by one now.

92.  The first and most important pointer is in relation to pages 9 and 10 of the ETA.  Page 9 contains the appendix referred above.  Page 10 is the declaration referred to in the appendix.

93.  The plaintiffs first disclosed the ETA, which is now accepted to have 10 pages on 6 July 2005.  At that time the Chai camp and the Sino Master camp were represented by the same previous legal team, D1 in his first affirmation disclosed a different version of ETA with eight pages only on 4 October 2005.

94.  P1’s second affirmation dated 10 November 2005 specifically pointed out that the 9^th and 10^th pages were missing from D1’s disclosure.  The plaintiffs heavily criticised this and alleged that D1 was deliberately misleading the Court.

95.  D1 replied with equally unmistakable terms. In his witness statement dated 19 June 2009 he alleged the plaintiffs modified the content on page 9.  D1 in his cross examination explained that the modification really referred to the lack of signatures and company seals.  I find it difficult to believe that he was referring to the lack of signatures and seals when he accused the plaintiffs of modifying the content, as it would be contrary to the literal meaning. 

96.  To support his allegation of modification against the plaintiffs, D1 also said that if one were to line up the pages, one would not be able to find a well-aligned paging seal.  The seal referred to (「騎縫章」as the parties call it) is the one stamped across all pages of one set of ETA.  This practice was designed to prevent unauthorised modification of the ETA.

97.  At the beginning of the trial, the new legal teams representing the Chai camp and the Sino Master camp disclosed two sets of ETA with pages 9 and 10.  These pages are consistent with the ones disclosed by the plaintiffs on 10 November 2005.  All parties now agree to the content and existence of pages 9 and 10.  In effect, D1 has retracted his allegation of modification.

98.  The Chai camp tried to excuse the change of stance regarding pages 9 and 10 for the following reasons :

(1) D1’s staff accidentally gave only the first eight pages to solicitors; and

(2) Paragraph 18(2) of the Amended Defence of the 1^st to 5^th Defendant dated 10 October 2008 admitted that there were 10 pages of ETA

99.  The first explanation is hard to believe.  As it has now been admitted, a paging seal was affixed across the edges.  This seal would probably alert those who handle the documents about the missing pages.  The mistake was not limited to D1’s staff, but necessarily shared by the recipient solicitor as well.  Because of the importance of this document, it is hard to believe that the handling solicitor would fail to notice the missing pages.

100.  The second explanation does not assist the Chai camp story in any way.  This is because while it admits that the ETA has 10 pages, it also goes on to say that the Appendix “does not mention any Supplemental Agreement, contrary to what is alleged by the Plaintiffs…”

101.  The Supplemental Agreement was clearly mentioned in the Appendix on page 9, contrary to what para. 18(2) of the Amended Defence says.  D1 explained that there was a typo, the correct meaning should be that the Appendix does not mention any signed (or signing of) Supplemental Agreement, contrary to what is alleged by the plaintiffs.

102.  D1’s explanation regarding para. 18(2) is totally incredulous.  First, the typo, if there was one, would be easily discoverable because the literal meaning was far apart from what was intended. Second, the way para. 18(2) was drafted does not support D1’s assertion. Assuming the drafter had indeed made a mistake and that the intended version was “The Appendix does not mention any signed/signing of Supplemental Agreement”, what is the conclusion to be drawn from this statement in the context of the Supplemental Agreement mentioned in the Appendix?  Does it mean that the Supplemental Agreement was agreed and put into writing, but not yet signed?  Or, does it mean the Supplemental Agreement was contemplated but never put to writing?

103.  A far better approach would be to say that the Supplemental Agreement mentioned in the Appendix was not in fact signed or even put into writing.  The drafter, who was presumably a lawyer, would have used this or similar wording, rather than the confusing one stated in the previous paragraph. 

104.  The proper inference to be drawn is that para. 18(2) faithfully recorded the attempt by the two camps to deceive this Court.  They intended to hide the existence of the SETA by hiding pages 9 and 10 from this Court.  They later changed the story by saying that pages 9 and 10 indeed exist, but page 9 is not what the plaintiffs disclosed.  After the true copies were disclosed they could no longer claim the page 9 disclosed by the plaintiffs was forged, so they recant their previous account.  The fact that D1 in his witness statement accused the plaintiffs of modifying the content of page 9 supports this inference as well.

105.  This begs the question of why the defence did not follow through one of the two lies but had to change its stories multiple times.  Although strictly not necessary for me to decide, a possible explanation is that the paging seal made it very difficult to leave out the two pages or substitute one page with another.  Even if one of the defendants had the seal and could stamp it on a new set of modified ETA, there would still be the question of getting P1 to sign on page 8 and 10 of this set.  In short, the defence contemplated a fraud which could not be perpetrated, so it had to change its account.

106.  I find as a fact that there was a deliberate attempt to mislead the Court regarding the content and existence of page 9 of the ETA by D1 to D4 when they were jointly represented.  The adverse inference to be drawn against D1 to D4 is that the SETA was indeed entered.

107.  As the two camps both maintained that the SETA was never entered into, which I have found to be a false assertion, this Court can only look to the plaintiffs’ explanation in ascertaining the content of the SETA.  As there is no credible evidence against the SETA submitted by the plaintiffs, I hold that it was the one entered between the plaintiffs and D4 at the time when the ETA was signed.

108.  Mr Yim submitted several reasons why the SETA did not exist, some of which were not easily comprehensible.  Nevertheless in fairness to the Chai camp I shall briefly deal with these reasons below :

(1) Pages 9 and 10 were prepared on 2 December 2003;

(20 Some of the clauses in SETA could have been incorporated into the ETA.

(3) The plaintiffs allowed D1 to take away the ETA and the SETA for Mr Goto’s approval.

(4) The paging seal was not affixed on the SETA.

(5) The plaintiffs did not insist upon having a copy of the SETA.

(6) There is a notable difference in drafting style between the ETA and SETA on one hand, and the loan document on the other hand.

(7) Mr Xu did not record the occasion when D3 told the plaintiffs there was no supplemental agreement.

(8) Mr Lu Chien Lung did not testify.

109.  It is the Chai camp’s eventual story that pages 9 and 10 were prepared on the date of signing the ETA (2 December 2003). According to D1, everyone was talking at the scene and he could not recall who suggested making an appendix.  D1 intended to make a (「說明書」) but by mistake a (「聲明書」) was created.  In the end Mr Lu Chien Lung printed the two pages out from his computer.  D1 did not pay attention to page 9 when he signed on page 10.

110.  P1 agreed with Mr Yim that the two pages were created on that date.  He later said he could not remember.  Mr Yim then submitted that P1 changed his story knowing this admission would deal a deadly blow to the plaintiffs’ case.

111.  With respect, it can hardly be said that the time for preparing the Appendix could have any bearing on the existence of the SETA.  The Appendix recorded numerous items and it is hard to link it specifically to the SETA.

112.  Also, as Mr Li pointed out, it is out of character for D1 to say that he did not read page 9 carefully.  He meticulously spotted the wording on Clause 3.9, which suggested he was careful with contracts.  This casts some doubt on the veracity of D1’s account.

113.  Moving to the second point, Mr Yim submitted that the SETA could have been and should have been incorporated into the ETA.  Some counter arguments can however be made to Mr Yim’s submission.

114.  First, there are no contradiction between the ETA and the SETA.  The legal effect of the SETA would be upheld if its existence were honoured.  Second, the plaintiffs maintained that the ETA and the SETA were drafted by D1 or his agents.  Instead of asking the plaintiffs why they did not incorporate the ETA into the SETA, the more appropriate question would be to ask D1 why he put the content onto a separate agreement. Although the plaintiffs did not provide direct evidence regarding this question, the inference must be that D1 intended to defraud the plaintiffs by disputing the existence and/or content of the SETA later.

115.  Mr Sham submitted that the plaintiffs’ account of D1 taking away the ETA and the SETA after signing them for approval is inconsistent with the existence of the SETA.  He submitted that if it the ETA and SETA were subject to Mr Goto’s approval, Mr Goto could approve the ETA but not the SETA.  The plaintiffs would not have allowed this, so it must mean that the SETA never existed.

116.  As I have observed above, the possibility that Mr Goto would not approve both the ETA and the SETA, or disapprove the SETA only, must appear to be very remote to the plaintiffs.  I am also of the view that had Mr Goto approve the ETA but not the SETA, thus substantially changing the bargain, the plaintiffs would have sued the Fund just as they have sued the two camps. Therefore there is nothing inconsistent between the plaintiffs’ assertions.

117.  Mr Yim also questioned the lack of paging seal on the SETA.  The answer to this question is that according to the plaintiffs, D1 maintained a firm grip on matters regarding the ETA and the SETA.  If D1 had intended to defraud the plaintiffs with the SETA, naturally he would not let the plaintiffs have the benefit of an authenticating seal. Besides, the plaintiffs never obtained a copy of the SETA, the one produced in Court is a copy without signatures, company seals or even a date.  It would be most surprising if a paging seal was affixed on such contract.

118.  For the fifth point, Mr Yim’s submission is that the plaintiffs had not pursued D1 for a specific document called supplemental agreement.  The plaintiffs explained they did not single out the supplemental agreement because they did not even get a copy of the signed ETA. They considered the ETA and the SETA as one document and referred to them simply as agreements in their request.  I hold that this was in fact what occurred.  The assertion that the plaintiffs did not press for the return of the SETA, whether as part of a signed contract or as a separate document, is unbelievable in light of my finding of fact that the SETA existed.

119.  For the sixth point, Mr Yim pointed to the “great contrasts in style, format and thoroughness [between the ETA and SETA on one hand, and the loan document on the other hand], and it is unlikely that the ETA and SETA were prepared and drafted by the Fund’s lawyers.”  Mr Yim had not put in the slightest effort to convince me that there was indeed such a contrast in style, so I cannot come to a conclusion about the difference in drafting style from Mr Yim’s one-line assertion alone.  Even if there were such a difference in style, absent any proof that the Fund retained one specific draftsman, or even a firm of solicitors throughout the period, it would be hard to attribute the contrast in style to any specific cause.

120.  The seventh point relates to Mr Xu’s notes, which had thoroughly recorded most of the plaintiffs’ assertions.  Mr Yim noted there was no mention of the shock resulting from D3’s denial of the existence of the SETA in January 2005.  Mr Li noted that there were only a few notes recorded in the period near D3’s denial.  Mr Xu testified that this was because he had to travel frequently in the first quarter of 2005.  This explanation has not been disproven.  I therefore hold that the absence was attributable to Mr Xu’s busy schedule, but not the non-existence of the SETA.

121.  The last point from Mr Yim is that the Court should draw adverse inference against the plaintiffs because Mr Lu did not testify.  Mr Li succinctly replied that Mr Lu’s evidence had largely been covered by P1, so the inference is that Mr Lu’s evidence is unnecessary.  In relation to the matters arising out of the ETA and the SETA (but not to the purported Li Wen’s agreement, as explained above), I agree.

122.  There are other inferences submitted by counsel from both sides.  There is no need for me to deal with them in light of my findings above.

Resolution of Issue 3

123.  I hold that the plaintiffs and D4 had entered into the ETA and the SETA.  The content of the SETA is that offered by the plaintiffs.  The SETA was entered to complement the ETA, none of which would be entered without the other.

Issue 4 : The quality of P1’s and Mr Xu’s evidence

124.  As I have indicated above, I am not satisfied with the quality of the evidence by P1 and witnesses of the two camps. 

125.  The quality of the evidence by the defence witnesses must be very suspicious in light of my findings in Issues 1 and 3.

126.  Mr Sham had done a detailed analysis of the evidence by P1 and Mr Xu in his closing submission.  As their evidence plays an important role in evaluating the plaintiffs’ case, I believe Mr Sham’s analysis merits consideration.

127.  I agree with Mr Sham’s submission that P1 “was prepared to lie to Court about basically anything and was quite ready to change his evidence to suit his cases”.  The most important item that supports his contention is the story about the Board Resolutions.

128.  P1 testified that the signatures on the 1^st and 2^nd Board Resolutions were not his (Bundle 3/310 and 337).  His reasons were rather chaotic.  He testified that the signatures should be his, or appeared to be his, only to say it is impossible for them to appear on the document.

129.  The most important contradiction is in the 1^st Board Resolution on page 310 of the Bundle.  P1 testified that the signatures were not that of P3 and P4.   D1 to D3 forged P1’s signature on it, and tricked P2 and Mr Lu to sign on behalf of P3 and P4 by saying that P1 had already agreed to it (Transcript p. 477A).  This is significantly different from para. 29 of the Amended Statement of Claim “the respective purported signatures of [P1’s, P3’s to P4’s] appended thereon, were forged. 

130.  When asked why he never offered such version of fact, P1 answered he saw no necessity of it because the lawsuit had been dragged on for too long.  I do not accept this to be the true reason for offering this version of fact late.

131.  Because P1’s evidence is unreliable, and there is no other evidence to show that the various signatures alleged to be forged are indeed so, I hold that these signatures are genuine.  In any event, the authenticity of these signatures is not the primary contention of these proceedings.  This is because the determination of the validity of the ETA and the SETA is enough to resolve these proceedings. 

132.  I turn now to Mr Xu’s evidence.  As Mr Sham pointed out, Mr Xu changed his evidence about whether he had sent certain documents with the plaintiffs’ signatures to 桂林工商局.   Mr Xu initially denied that he handled such documents.  Only when he was confronted with page 721 of the Bundle did he finally admit he might have gone to the said bureau once.  He testified he could not remember what documents he brought with him that time (Transcript p. 173Q).  This part of his testimony certainly cast some doubt on the reliability of Mr Xu’s evidence.  However I do not believe he was deliberately lying.  It is more likely a result of his mistaken memory. I find that Mr Xu’s evidence together with his notebook are probably true.

Issues 5 and 6 : Ostensibly or actual authority

133.  The 5^th and 6^th issues concern the ostensible authority of Mr Lu and D1, respectively.

134.  The law of ostensible authority has been succinctly summarised in Mr Yim’s submission and there is apparently no dispute to the applicable law here.  The issue thus becomes a purely factual one.

135.  For the 5^th issue, it is undisputed evidence that on 2 December 2003 Mr Lu signed on behalf of his mother P2 and P3.  Mr Lu admits that he had no authorisation from P2 and P3 to sign on their behalf.  P2 and P3 admit they never gave such authorisation.  The remaining issue is one of ostensible authority.  Mr Yim submitted it had always been the practice for Mr Lu to sign on behalf of P2 and P3 so Mr Lu had ostensible authority.  The fallacy of this argument is that there was no evidence that P2 and P3 endorsed this practice or even knew of it.  If Mr Lu had all along signed the documents without authority, actual or ostensible, he cannot gain authority by signing enough of them — two wrongs do not make one right.

136.  In any event, Mr Lu’s authority to bind P3 must be even more uncertain.  As Mr Lu stated in his witness, he was signing on behalf of P2, who had authority to sign on behalf of P3.  There is however no evidence to suggest that P3 did in fact authorise P2, and most importantly, her delegate, to sign on her behalf.  The chain of authority had simply not been made out in the case of P3.

137.  A case could perhaps be made against P2 and P3 for having acquiesced the signatures after years of inaction.  However, since P2 and P3 have challenged the validity of the ETA and the SETA with these proceedings they can hardly be said to have taken no action at all.

138.  For the 6^th issue, the plaintiffs admit that there is little evidence to show that D1 had actual authority to bind D6 to the ETA and SETA.  The only possible source of ostensible authority is the authorisation letter, which seems to have limited D1’s authority to debt collection only.  Entering into the management of the Golf Club as a majority shareholder can hardly be said to be part of the debt collection process.

Resolution of Issues 5 and 6

139.  For the reasons above I hold that Mr Lu did not have any authority to bind P2 and P3, and D1 did not have authority to bind D6.

Issue 7 : The impact of any ruling against the Chai camp on the Sino Master camp

140.  D2 and D4 are now separately represented and collectively referred to the Sino Master camp.  In his testimony, D2 tried to distance himself from the Chai camp by denying knowledge of many of the Chai camp’s allegation.  His stance was that D1 had the lead in instructing his solicitors and he merely adopted his stance.

141.  That being the case, Mr Sham for the Sino Master camp attacked the plaintiffs case in the same manner and with the same vigour as Mr Yim.  In his submission Mr Sham had implicitly and consistently endorsed the Chai camp’s case in virtually every issue.

142.  I do not believe that D2 merely followed D1’s lead in preparing his witness statement, which adopted D1’s witness statement so far as it applied to him.  He must be taken to have exercised his independent judgment before adopting D1’s statement.  As Mr Sham had taken the same stance as that of the Chai camp in attacking the plaintiffs’ case, the Sino Master camp must be equally affected by my rulings above.

143.  D2 had however shown that he had exercised great skills in managing the Golf Club.  This will be highly relevant in the counterclaim, which will be dealt with after this judgment.

Conclusion

144.  As my findings above suggest I was unable to accept the whole case from any one party, except D6.  The plaintiffs and D1 to D3 have been found to fabricate story in various issues.  The effect is that I could not import the whole story from one side but must make use of what little reliable evidence is available and determine the issues one by one.

145.  There will be a further hearing based on what I have held in this judgment in relation to the counterclaims.  At this stage I must rule on the remedies prayed in the amended statement of claim while paving the way for the trial of the counterclaims.

146.  I grant the remedies prayed in the second para. 1, paras 2 to 4 on pages 22 to 23 of the Amended Statement of Claim as follows :

(1) Rescission of the ETA and SETA.

(2) A declaration that the 1^st and 2^nd Board Resolutions are void and consequently :

(a) a declaration that the purported retirement of P1, P3 and P4 as directors of the Company is void;

(b) a declaration that the purported appointment of D1 to D3 as directors of the Golf Club is void; and

(c) a declaration that the allotment of the shares in the Golf Club to D4 is void.

(3) An order that the register of members of the Golf Club be rectified by removing the name of D4.

(4) An order that the Companies Registrar shall rectify the Companies Record accordingly.

147.  The reason is that the ETA and the SETA were entered under a misrepresentation by D1 to D3, as agent for D4, viz. they were contracting on behalf of the Fund.  These agreements should be rescinded and I decline to exercise my power under section 3 of Cap. 284 Misrepresentation Ordinance to grant damages in lieu of rescission.  I have taken into account the advantages and disadvantages of the two options, the blame of the plaintiffs and the defendants, the difficulty of valuing the shares of D5 and the effect of counterclaim.

148.  Following the rescission the Companies Registrar should be rectified to restore D5 to its status before the ETA and SETA. I emphasise that the rectification was a result of the rescission of the agreements, but not the results of finding that the signatures on the board resolutions were forged.

149.  The position of D6 had been helpfully summarised by Mr Cheung.  I accept that D6 did not know of the ETA, the SETA or the repayment into Yoky Filter’s account until after the commencement of these proceedings.  D1 to D4 had no actual or ostensible authority to enter into the ETA and the SETA on behalf of D6.

150.  D1 had the authority from D6 to collect the repayment and direct them to be paid into Yoky Filter’s account.

151.  D1 to D4 counterclaim for the repayment of expenses incurred in relation to expenses incurred while D1 to D4 were managing the Golf Club.  As D2 had apparently exerted great effort in managing the Golf Club, a quantum meruit claim may also be available.  The issues of what occurred after D1 to D3 took over the management of the Golf Club had been touched upon when evaluating the credibility of witnesses.  As these matters do not relate well to the issues to be resolved in this judgment, I make no finding at this stage.  I just want to point out that it is apparent from the evidence of D2 that he had obtained a number of licences for the estate development around the golf course on the proposed plan submitted by an architect of the Tsinghua University.  Maybe there is a possibility of co-operation between the plaintiffs and D2.  It is however a matter for the parties.

152.  I am aware of the fact that if the counterclaim were resolved in this judgment, and the plaintiffs were ultimately required to pay a sum of money to D1, D2 and/or D3, the defendants would have the security of the shares in D5.  Now that I have ordered the allotment of the 80,000 shares to be nullified, there is a real risk that the counterclaim will not be met.  The way out is to order the plaintiffs not to issue new shares in D5, and not to transfer the shares in D5 until the determination of the further claim for damages by the plaintiffs, the counterclaim by the defendants and any other set-offs.

153.  On 19 June 2008 the Fund transferred the Loan to one Renmen Kingdom Investments Corp., and thus D6 is no longer interested in the Loan.  Since the Loan was transferred to a third party not involved in these proceedings, I order D1 to pay into Court the sum US$830,000 within 21 days hereof, which was paid by the plaintiff to Yoky Filters, which in turn is controlled by D1.  Any party (including D1) considering that he is entitled to this sum of money or part of it, may apply to Court for payment out in a separate application.  In this respect, D1 should inform Renmen Kingdom Investments Corp. about my aforesaid order.

154.  There shall be an order nisi on costs as follows :

(i) the plaintiffs shall have their costs of the Action against D1 to D4;

(ii) there shall be no order as to costs between the plaintiffs and D5; and

(iii) D6 shall have its costs against the plaintiffs who shall be indemnified by D1 to D4.