MA WAI WAH AND ANOTHER v. SUEK CHAI KIT CHRISTOPHER AND OTHERS

HCA 508/2011 and
HCA 669/2013
(Heard Together)

[2018] HKCFI 842

HCA 508/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 508 OF 2011

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(Heard Together)

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J U D G M E N T

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INTRODUCTION

Introduction

1.  This is the hearing of the trial of two actions, HCA 508/2011 (the “first action”) and HCA 669/2013 (the “second action”) ordered to be heard together, pursuant to the order of Master Ho dated 19 March 2015. 

2.  There are altogether sixparties in these two actions.  But the real contestants are the 1^st plaintiff, Ma Wai Wah (“Ma”), and the 1^stdefendant, Suek Chai Kit Christopher (“Suek”), in the first action.  They were co-founders, directors and shareholders of Neway Karaoke Box Ltd (the “Company”).  Their dispute is about a money transaction which was entered into orally towards the end of 2007 while they were planning to float the shares of the Company in the Hong Kong Stock Exchange (the “IPO”).  Ma’s case is that the transaction was an oral agreement (the “Second Agreement”) which was made to rescind an earlier oral agreement (the “First Agreement”) for the sale of his shares in the Company (the “Subject Shares”) to Suek.  Suek’s case is that the transaction was a loan agreement (the “Loan Agreement”).  The First Agreement and Second Agreement never existed.

3.  Ma’s causes of action in the first action are breach of contract, misrepresentation, conspiracy to injure, and knowing receipt.  His cause of action in the second action is for unpaid dividend of the Company declared in August 2007.  The defence in both actions are denial. In the first action, Suek also counterclaims for repayment of the outstanding loan.

4.  The disputes in these two actions are mainly factual.  The most crucial issue is which of the two transactions identified by Ma as the “Second Agreement” or by Suek as the “Loan Agreement” existed and what were its terms.

Dramatis personae

5.  Ma Wai Wa is the 1^st plaintiff in the first action and the sole plaintiff in the second action.  He and Suek had known each other for thirty years.  He is a relative of Suek’s wife.  They were co-founders of the Company of which he was a minority shareholder with 8% interest, while Suek’s wife and companies under Suek’s control were the majority shareholders holding the remaining 92% interest.  Ma was responsible for operation of the karaokebusiness.  Suek was responsible for providing finance and management.  The Company operated a very successful karaoke business in Hong Kong.  Ma and Suek also operated another karaoke business in the Mainland in which Maalso had 8% interest.  In 2006, at the repeated requests of Suek and, according to Ma, in order to avoid upsetting him, Ma reluctantly sold his interest in the Mainland karaoke business to Suek for $1,248,000 which he continued to manage until September 2007.

6.  Suek Chai Kit Christopher (“Suek”) is the 1^st defendant in the firstaction.  He was the majority shareholder of the Company.  He is a successfulbusinessman.  He operated a printing company which later changed its name to “Neway Group Holdings Limited (Cayman)” (“Neway Cayman”) and became listed on the Hong Kong Stock Exchange.  He was the chairman of Neway Cayman.  Song recording business and artists’ management business were injected into Neway Cayman.

7.  All Jolly International Ltd (“All Jolly”) is the 2^nd plaintiff in the first action.  It is an overseas company acquired by Suek in late 2007 as an intermediate company in the IPO process.  Ma is and was its sole shareholder.  Mak was appointed by Suek as its sole director.  At all material times, its company kit, company seal and company corporate documents etc were kept bySuek until 6 May 2011 sometime after commencement of the first action, when Suek’s solicitors, Messrs Tony Au & Partners sent them over to Ma. 

8.  Mak Wing Lin (“Mak”) is the 3^rd defendant in the first action.  She was a certified public accountant and close friend of Suek.  She was appointed by Suek as the sole director of All Jolly.  In that capacity, she transferred All Jolly’s eight shares in Neway Strategies to Betterway on 5 November 2008 for the stated consideration of $32 million.

9.  Betterway Ltd (“Betterway”) is the 2^nd defendant in the first action.  It is a BVI company controlled by Suek.  Together with Multichance, they held 87% of the shareholding of the Company.

10.  Multichance Holdings Limited (“Multichance”) is a British Virgin Islands (“BVI”) company held by the trustee of Suek’s family trust.  Suek is a director of Multichance.  Together with Betterway, they held 87% of the shareholding of the Company. 

11.  Neway Karaoke Box Limited (the “Company”) is the defendant in the second action.  It was founded by Maand Suek.  87% of the shareholding of the Company was held by Multichance and Betterway which are companies owned and/or controlled by Suek, while his wife held another 5%.  Ma was a minority shareholder.  He operated the karaoke business and contributed the know-how.  Suek was effectively the majority shareholder who provided funds and management.  The Company was extremely successful and became the leader in karaoke business. Its net profit exceeded $100 million for the years 2004 to 2007.

12.  Neway Strategies Investment Ltd (“Neway Strategies”) is a BVI company incorporated on 30 October 2007 to facilitate the IPO process.  It was intended to be the upper tier or ultimate holding company of the Company in the intended IPO, with Neway Enterprise Holdings Limited as intermediary holding the Company. 

13.  Neway Enterprise Holdings Ltd (“Neway Enterprise”) is a BVI company of which Suek is a director.  It is an intermediary in the intended IPO. It is a company controlled by Suek and to which Ma’s Subject Shares were eventually transferred. 

14.  ICEA Capital Ltd (“ICEA”) is a subsidiary of Industrial and Commercial Bank of China and the sponsor of the intended IPO.

15.  Jonas Chan was an officer of ICEA.

16.  Messrs Trautman Sanders (“Trautman Sanders”) was the firm of solicitors acting for the Company in the intended IPO.

17.  Monin Ung was one of the solicitors of Trautman Sanders who handled the IPO matters for the Company.

18.  Sze Kwan Pan is the manager of the information management system department of the Company.

19.  Peter Yung is an accounting officer of the Company.

20.  Ronnie Chan is an accounting officer of the Company.

21.  Ma Tit Man, now known as “Ma Wing Kau”, is a supervisor of the Company.

Admissibility of Ma’s e-mail dated 21 July 2010 to his solicitors

22.  Ma was cross-examined on an e-mail issued from the e-mail address of the Company and extracted from his computer in the office of the Company.  The e-mail was dated 21 July 2010, which was a few days after Ma had paid the last instalment under the Second Agreement.  It was issued by Ma to his solicitor, Ms Karis Leung in connection with his ancillary relief proceedings, in which reference was made among other things, to a sum of $32 million for the sale of his interest in the Company. 

23.  The e-mail was first disclosed by the defendants on 2 April 2015.  The plaintiff challenged its authenticity.  As result, the defendants filed the first witness statement of Sze Kwan Pan on 11 September 2015 to prove its authenticity.  The matter then stood there for about two years until 17 June 2017 when the plaintiff’s solicitor repeated their challenge on authenticity.  At no stage was the issue of legal professional privilege raised.  It was not even raised when filing the trial bundles for the purpose of the pre-trial review. As result of the plaintiff’s letter dated 17 June 2017, the defendants filed the second witness statement of Sze Kwan Pan to prove authenticity of further documents.  On 31 July 2017, the plaintiff’s solicitors replied raising no objection to the filing of the witness statement, but expressly stating that it was without prejudice to their claim for legal professional privilege and right to challenge authenticity.  In that context, such challenge and reservation only referred to the other documents mentioned in the second witness statement of Sze Kwan Pan and not the e-mail now in question.  At trial, Ma maintained his challenge on authenticity and in the alternative claimed legal professional privilege.

24.  It is trite law that communications passing between lawyer and client in relation to the seeking or obtaining of legal advice and documents which were created for the dominant purpose of gathering evidence for use in proceedings are not required to be disclosed to the opponent: see Phipson on Evidence [1]. Mr Mak, leading counsel for the defendants, argues that all along Ma had been challenging authenticity of the e-mail and had raised no claim for privilege.  Ma has adduced no evidence at all that the e-mail falls within either of the two categories above to assert such privilege.  I respectfully disagree.  In the course of cross-examination it became clear that the e-mail was prepared for the purpose of contesting Ma’s ex-wife’s claim in the ancillary relief proceedings.  On the face, that e-mail must be created for either of the two dominant purposes. 

25.  I am more concerned about confidentiality of the e-mail.  It is a pre-condition to a claim of privilege that the document in question is confidential as against the person against whom the privilege is claimed: see Simpkin v Berkeley Group Holdings plc [2].  By sending the e-mail through the e-mail system of the Company and permitting access by the Company, it showsthat for whatever purpose Ma was pursuing through that e-mail, the object was not the Company.  The e-mail was not intended to be confidential vis-à-vis the Company.  For this reason, the argument of privilege cannot even get off the ground.

26.  Even if this e-mail were confidential, the privilege must have been waived by reason of Ma’s conduct in the litigation.  A waiver may be intentional or may be imputed by operation of law.  A waiver by operation of law may be contrary to the subjective intention of the party who has lost the privilege: see Mann v Carnell [3] quoted by the Court of Final Appeal in Nam Tai Electronics v Pricewaterhouse Coopers [4].  I have outlined the background leading to inclusion of the e-mail in the trial bundle.  For almost two years since the use of the e-mail in this litigation was first suggested, Ma adopted the same challenge of authenticity only.  As result, Sze Kwan Pan filed his first and then second witness statements to prove authenticity.  Ma must be taken to have consented to the use of these witness statements and the e-mail in open trial.  As such, the legal professional privilege, if it existed, must have been intentionally and/or by imputation of law waived by Ma.

27.  Lastly, in any event, the objection is raised too late.  There is a distinction between (a) a party claiming privilege in order to resist disclosure of the privileged documents and (b) a party trying to restrain the opponent’s use of the privileged documents that are in the opponent’s possession.  The e-mail in question which is stored in the Company’s e-mail system, is in the possession of the defendants.  Thus, the situation falls within the second scenario for which the only redress that the party who wants to seek protection under legal professional privilege is to seek an injunction enjoining the opponent from using the privileged documents.  The timing for making such an application is absolutely crucial.  May LJ said in Goddard v Nationwide Building Society [5]:

“ If a litigant has in his possession copies of documents to which legal professional privilege attaches he may nevertheless use such copies as secondary evidence in his litigation: however, if he has not yet used the documents in that way, the mere fact that he intends to do so is no answer to a claim against him by the person in whom the privilege is vested for delivery up of the copies or to restrain him from disclosing or making any use of the information contained in them.”

28.  The position was put more expressly by Nourse LJ as follows [6]:

“ … The crucial point is that the party who desires the protection must seek it before the other party has adduced the confidential communication in evidence or otherwise relied on it at trial.

…

… The injunction is granted in aid of the privilege which, unless and until it is waived, is absolute.  In saying this, I do not intend to suggest that there may not be cases where an injunction can properlybe refused on general principles affecting the grant of a discretionary remedy, for example on the ground of inordinate delay.”

Even if the e-mail were protected by legal professional privilege, it is now too late for Ma to raise any objection to its admissibility. 

29.  As for authenticity, Sze Kwan Pan described in his first witness statement how he extracted, inter alia, the e-mail from the computer used by Ma when he was still occupying a room in the office of the Company.  In his second witness statement, Sze Kwan Pan exhibited, inter alia, a disc containing a copy of what he had extracted from that computer.  When cross-examining Sze Kwan Pan, Mr Lam, counsel for Ma, tried hard to create a doubt whether the hard copy of the e-mail was identical to the soft copy in the computer.  Such attack was in total disregard to the fact that the softcopy had already been given to Ma via Sze Kwan Pan’s second witness statement and no issue had been raised.  I have no doubt that authenticity is proved and admit this e-mail into evidence.

30.  After all these arguments and in the eventual analysis when all the evidence has been presented, this e-mail and the series of related e-mails are of little evidential value.  The e-mail was even favourable to Ma’s case.  It suggested there was a sale of the Subject Shares in 2007, albeit for $32 million. The e-mail was prepared for Ma’s ancillary relief proceedings.  It obviously contained much false information such as the number of cheques and consideration.  I give no weight to this e-mail.

CREDIBILITY OF WITNESSES

Introduction

31.  The dispute in this case is largely factual. The events occurred about ten years ago.  My finding of fact dictates the outcome of these two actions.  One peculiar feature in this case is that the most important agreements in issue in the tune of tens of millions of dollars are allegedly made orally, while the truthfulness, not authenticity, of the most important contemporaneous documents in support of the parties’ case are denied by the signatory.  Thus, my fact finding on these issues depends on my finding of credibility of the witnesses.  The most reliable test of credibility is inherent probability of the witness’ evidence and its consistency with contemporaneous documents when viewed against the surrounding circumstances, the most significant circumstance is the progress of the intended IPO.

32.  The evidence of Mak, Sze Kwan Pan, Ronnie Chan and Peter Yung was not challenged.  Thus, Ma, Suek and Ma Tit Man are the three most important witnesses in this trial.  Herein below, I deal with the general attacks on the witnesses’ credibility, leaving the more germane attacks to be dealt with in my analysis of the evidence.  My assessment of the witnesses’ credibility was reached only after reviewing all the evidence. 

Ma’s credibility

33.  The theme of Ma’s evidence is that he was a gullible front man in the karaoke business, did not have much involvement in the management of the Company, was not involved in the intended IPO, did not know much about its progress and simply signed a lot of documents as Suek told him.  He did not even know he is the sole shareholder of All Jolly and initially sued All Jolly as the 2^nd defendant which cost him $230,000 in legal costs to put right the mistake.  He only came to know about the conspiracy and what really happened by a re-construction from the documents.

34.  Mr Mak attacked Ma’s credibility based on six blatant lies.  The first and most important one is Ma’s denial of authenticity of his e-mail to Ms Karis Leung representing him in his matrimonial proceedings with his ex-wife in 2010.  For reasons as explained in the preceding subsection, I have found against him.  That e-mail, as its content shows, was an important piece of communication for the purpose of resisting his ex-wife’s claim for ancillary relief.  Specifically, it mentioned that his interest in the Company had been sold for $32 million.  Ma could not have no recollection that he had given such information to his solicitors in those proceedings.  Ma’s challenge as to its authenticity demonstrates a lack of good faith in his conduct of the litigation.  He has no hesitation to raise any issue or lie to advance his case.  His challenge damaged his credibility. 

35.  The second blatant lie is Ma’s denial of knowledge as to the source and nature of the sums of $20 million and $30 million paid to him by way of three cheques dated 13 August 2007 and four cheques dated 23 August 2007.  In his witness statement, he asserted that he did not pay special attention to the payer or on which bank account the cheques were drawn nor did he know that there might be any particular legal implications in relation to the cheques, ie the Company financing the purchase of its own shares.  For reasons as I shall explain in paragraphs 76 to 80 below when investigating the issue of whether the Companying had financed the purchase of the Subject Shares, I find not only that the $50 million was dividend but also Ma actually knew it was dividend.  

36.  Knowledge of the source of funds for purchase of the Subject Shares as such is not of much significance.  However, the thrust of Ma’s case isthat he had entered into the First Agreement which Suek later sought to rescind on the basis of his concern about the Company financing the purchase of the Subject Shares.  If Ma knew the funds were dividends which may lawfully be applied to purchase the Subject Shares, he was knowingly concocting a false case against Suek.  That severely damaged his credibility.  The fact that Ma later changed his case to Suek using financial assistance as a pretext to persuade him to rescind the First Agreement cannot undo the damage done to his credibility.

37.  Third, Ma’s case is that Suek obtained his 8% interest in the Company (then in the form of eight shares in Neway Strategies) by way of a conspiracy.  In his first supplemental witness statement he unequivocally asserted that he had never received any e-mails addressed to him sent to the group address of projectkb@newaykb.com.hk (“Project KB”).  He even asserted that it was Suek who chose not to include him in the recipient list.  To reinforce his assertion, he said he only had knowledge of Monin Ung’s e-mail dated 11 January 2008 (an e-mail which he relied heavily as evidence in support of the First Agreement) because it was sent to his personal e-mail address in addition to Project KB. 

38.  His access to the e-mails sent to that address was crucial to the issue of whether he had knowledge of the sale of his eight shares in Neway Strategies for $32 million to Betterway on 5 November 2008.  The documentary evidence is that Warren Chan had openly copied all e-mail discussions relating to that sale to Project KB.  I shall deal with that in my analysis of the evidence. 

39.  However, in the face of his own e-mail responses to e-mails sent toProject KB relating to the intended IPO, Ma retracted his allegation by asserting that he was not on the recipient list only since August 2008.  That is a substantial retraction which suggests Ma’s tendency to exaggerate.  Those e-mails not only discredited Ma’s evidence that he had no knowledge of the sale of his eight IPO shares but also his lack of knowledge of the progress of the IPO.

40.  Fourth, Ma asserted that he had no knowledge of the progress of the IPO and drafting of the prospectuses.  He repeatedly and adamantly insisted under cross-examination that the draft prospectuses for the IPO were never circulated to him as they were “high-level” matters, while he was of “low-level” and would not understand the substance of the draft prospectuses anyway.  That is obviously untrue as the e-mails in Project KB showed he was consulted and responded.  Furthermore, he could not be of “low-level” as he was named as the executive director in the company to be floated under the intended IPO (the “Listco”).  One e-mail from Monin Ung, in particular, specifically requested response from him.  Ma persisted by alleging that all his replies were prompted by unidentified colleagues, effectively suggesting that the substance of the replies were dictated to him by those unidentified colleagues.  I find that utterly incredible.  He is an exaggerating witness.  

41.  Fifth, Mr Mak criticised Ma’s denial of knowledge as to his ownership in All Jolly because Ma had personally signed the application for shares in All Jolly.  This is the most important building block of Ma’s caseof conspiracy against Suek.  Ma said that all along and at all material times, he thought All Jolly was a company owned and controlled by Suek.  Under cross-examination, he tried to cut down the scope of his denial from lack of knowledge that he was the sole shareholder to his belief that he was a minority shareholder with Suek as the majority shareholder in the same way as they were in the Company.  Then he backtracked and asserted he was not aware of the fact that he had signed the application for shares in All Jolly.  Mr Mak criticised Ma’s honesty and credibility based on his change in evidence. Mr Mak seemingly suggests that with his knowledge of his ownership in All Jolly, Ma knew he needed no safeguard for his Subject Shares and hence he knew the declaration of trust was made some other purpose, such as stamp duty saving, which in fact was the case as the transfer of the Subject Shares was adjudged to attract no ad valorem duty payable.  That may be a little too much to expect of a layman.

42.  Furthermore, Ma did name All Jolly as the 2^nd defendant and Neway Enterprise as the 3^rd defendant in the first action which resulted in his having to pay $230,000 in costs for rectifying his mistake.  Had he really known he was the sole shareholder of All Jolly, he would certainly not have done such stupid thing as suing his own company.  All Jolly’s name appearedalong with the names of Suek’s wife, Multichance and Betterway together with the corresponding percentage of shareholding throughout the various versions of the draft prospectuses.  There is no evidence of any deception practised on him by Suek.  I accept Ma’s explanation that he had been given lots of documents by Suek to sign and he signed without noticing their contents and appreciating their effect.  I accept he was honestly mistaken.  He honestly believed All Jolly was owned by Suek which was untrue.  He also honestly believed that All Jolly was controlled by Suek and indeed it was.  The mistake was compounded by his solicitors not doing a company search to find out who were behind All Jolly before commencing legal action.  His performance in the witness box was that of a confused witness.  I think Mr Mak was over-emphasising Ma’s mistake.  I draw no adverse inference on Ma’s honesty for having made the wrong assertion.

43.  Sixth, Mr Mak criticised Ma for denying he had knowledge as to the identity of people who replaced him as directors of the Company since his resignation on 13 October 2008.  Ma asserted it was part of Suek’s plan to “kick” him out of the Company so as to secretly misappropriate his eight shares in Neway Strategies by suggesting to him that as result of an impending prosecution for copyright infringement all personal directors should resign and be replaced by corporate directors.  He was asked to particularise his complaint.  The particulars he gave was that he only discovered the truth after commencement of these proceedings that he was not replaced by corporate directors but by Warren Chan and Nicholas Wan.  He was again discredited when it was shown that it was he who signed the Companies Registry form giving notice of these appointments.  He had to concede that he knew about the appointments when he signed the form.  This shows that Ma is an unreliable witness who has a tendency to make assumptions, to exaggerate and to make allegations unsupported by evidence.

44.  In addition, I also find Ma dishonest in pocketing a sum of about $76,000 when instructed by Suek to remit a sum of 804,000 Australian dollars to Australia.  It was not a small sum of money which need not be accounted for in view of his relationship with Suek and Suek’s tremendous wealth.  He cannot expect such act of dishonesty would not adversely affect his credibility. 

45.  In conclusion, I find Ma an unreliable witness. He is a careless witness who readily makes assumptions.  He changes his evidence as and when it suits him.  He tends to exaggerate and make convenient allegations which come to his mind.  When his evidence is tested against the surrounding circumstances, I find his evidence incredible and his case improbable.  From my subsequent analysis of his evidence, I find that he could not have no knowledge of the true nature of the transaction in issue.  He was not, as he alleged, re-constructing what had happened from the documents which later became available to him.  He was actively constructing or concocting a case against Suek.

Suek’s credibility

46.  Mr Lam has not made any meaningful attack on Suek’s performance in the witness box.  Suek seldom evaded any questions during cross-examination.  There was no backtracking in his evidence.  Save for the following two criticisms, his answers were direct, unequivocal and to the point.  He spent pages in his witness statement seeking to explain Monin Ung’s e-mail dated 11 January 2008 relating to the sale of the Subject Shares.  He went to the length of asserting it was her conjecture and that despite he had informed the partner in charge about the mistake it was not rectified.  He was ready to put the blame on others for his own interest.  I also find him dishonest in asserting that the dividend in the sum of $4 million payable to Ma was upfront interest belonging to him under the Loan Agreement.  Despite these criticisms, I find his evidence more inherently probable than Ma’s.  He was also a more impressive witness than Ma.

Mak Wing Lin’s, Ma Tit Man’s, Sze Kwan Pan’s and Peter Yung’s credibility

47.  Their evidence is not seriously challenged.  I accept their evidence. 

THE PARTIES’ CASE

Ma’s case of the First Agreement and Second Agreement

48.  A year after Suek purchased Ma’s interest in the karaoke business in the Mainland, Ma alleged that Suek started to negotiate the purchase of his minority interest in the Company.  Ma suggested that Suek wanted to acquire his interest before initiating the IPO process.  Suek denied.  His case is that it was Ma who proposed to sell his Subject Shares to him but he declined and then the parties reached the Loan Agreement.

49.  Ma’s evidence is that Suek approached him and told him that Suek was going to step down and let one of his two sons take over the karaoke business and be the chairman of the group.  He said that the new chairman should have his own management team and that there might be a generation gap between Ma and his sons.  He suggested to buy him out at a very attractive price of $53.6 million as a reward for having started the business from scratch with him and developed it to what it then was.  Pausing here, it would be convenient to note that Ma’s allegation is inconsistent with Suek’s intention as reflected in the draft prospectuses in which Ma was named as the executive director of the Listco and Suek’s sons as non-executive directors.  One of the selling points in the draft prospectus was Ma’s vast experience in the karaoke business.

50.  Returning to Ma’s and Suek’s discussion, Ma insisted that as the Company had accumulated much profits, he should have the right to receive his share of dividend for all the net profit accumulated between June 2006 and the completion date of the sale and purchase.  Suek agreed as such a cut-off date is reasonable and applicable to sale and purchase of securities and real properties.  As he was not in need of money, Ma left it to Suek to decide the payment terms.  Then, to secure his agreement and to show sincerity, Suek paid him $3.6 million by cheque and promised to pay the balance within a month.  The First Agreement was reached.  It was an oral agreement.  Ma understood it to be a “golden handshake”.

51.  It is common ground that between July and August 2007, Suek paid Ma $53.6 million.  The first payment was effected by a cheque dated 6 July 2007 in the sum of $3.6 million drawn on the bank account of Multichance as described above.  The second payment was by way of three cheques all dated 13 August 2007 in the sums of $1 million, $17.4 million and $1.6 million, totalling $20 million, drawn on the bank accounts of the Company.  The third payment was by way of four cheques all dated 23 August 2007 in the sums of $16.1 million, $2.4 million, $1.5 million and $10 million, totalling $30 million, drawn also on the bank accounts of the Company.  These payments are not disputed by Suek, but Suek says they were loans advanced to Ma pursuant to the Loan Agreement and not payment for the purchase of Ma’s Subject Shares. 

52.  The sale and purchase of the Subject Shares was completed in around September 2007, when at Suek’s request Ma executed an undated bought and sold note, instrument of transfer in respect of the Subject Shares in favour of Multichance, and a letter to the Inland Revenue Department and delivered up the share scripts.  The consideration stated on the bought and sold note was $53.6 million.  According to Suek, these events took place in September 2007.  Nothing significant turned on the difference in timing.

53.  Then about two months after the completion of the First Agreement, Suek approached Ma and expressed his concern that a substantial part of the purchase price paid to Ma under the First Agreement were paid by the Company.  Suek said that he had been advised by the IPO professionals that it was unlawful for a company to finance the purchase of its own shares.  At that time, the Company had initiated IPO process.  The first due diligence meeting had been held on 2 October 2007.  Ma was not interested.  He replied that insofar as he was concerned, the sale and purchase of the Subject Shares had been completed.

54.  Sometime later, Suek approached Ma again and suggested to rescind the First Agreement under terms which would permit Ma to keep part of the payment received.   He proposed to treat a sum of $32 million as pre-paid dividend; that Ma should repay him the balance of $21.6 million; and that he would return the Subject Shares upon receipt of full payment.  Ma declined as he did not wish to upset his retirement plan and to draw the sum of $21.6 million from his resources.  He suggested to Suek that the IPO professionals would have means to get around the problem.

55.  However, Suek pleaded repeating the complication and difficultieswhich may be caused to the intended IPO by the sale and purchase and offered incentives to improve his offer.  First, he would adopt a near 100% dividend policy, which meant a dividend of at least $8 million for Ma per year, based onthe average net profit of over $100 million for the past few years.  That would exhaust the pre-paid dividend of $32 million in four or five years’ time, after which Ma would be entitled to dividend again.  Suek also assured Ma that he would not withhold declaring dividend or only declared very small dividend.  He told Ma to treat the $32 million as safe in his pocket and that he would not try to get it back.  Second, Suek said he would not set any time frame for repayment of the $21.6 million.  Ma could pay when as he wished.

56.  Then the parties agreed and entered into the Second Agreement to rescind the First Agreement on the very meticulous terms as pleaded in paragraph 13 of the re-amended statement of claim.  These terms are as follows:

(1)  The sum of $32 million that had been paid to Ma be kept by Ma but as an “advanced dividend” from the Company and not as part of the purchase price for the Subject Shares;

(2)  Ma could for all practical purpose treat the $32 million as paid dividend and further that Suek would not get it back;

(3)  Suek would procure and take all necessary steps to transfer back to Ma such interest in the Subject Shares as had passed to Suek and/or to Multichance under the First Agreement and/or the undated instrument of transfer and the undated bought and sold note (if any or if applicable), in the form or manner that Suek would return the undated bought and sold note and the undated instrument of transfer to Ma for his cancellation;

(4)  Ma would for all purpose be restored back to his (original) status as being the 8% shareholder of the Company holding the Subject Shares;

(5)  Therefore, Ma had the right to receive dividends on the net profit of the Company immediately upon the conclusion of the Second Agreement but it would be subject to set-off against the $32 million advanced dividend quota;

(6)  Further (it being also one of the terms in the First Agreement), Mawas entitled to receive dividends on the net profit of the Company earned prior to completion of the First Agreement which was not subject to set-off against the $32 million advanced dividend quota; 

(7)  Suek would hold the physical scripts of the undated bought and sold note and the undated instrument of transfer as “lien” pending Ma’s paying him $21.6 million;

(8)  Suek would give the physical scripts, the undated bought and sold note and the undated instrument of transfer back to Ma for cancellation as soon as Ma finished paying him $21.6 million;

(9)  Suek would arrange the Company to adopt a near 100% dividend policy;

(10)   Then in that case it would take about four to five years for Ma to exhaust his $32 million dividend quota (or advanced dividend quota, as the case may be) for subsequent dividends;

(11)   There might be a pretty good chance that Ma would be able to receive dividend in five or six years’ time later;

(12)   Ma would pay the sum of $21.6 million to Suek or his nominees and it was Ma’s only payment to Suek to get back the Subject Shares.  Suek would not set any rigid payment date(s) for Ma to repay this sum of $21.6 million to Suek.  This sum of $21.6 million from Ma to Suek would not carry any interest.

The Second Agreement was made orally. After reaching agreement, Suek told Ma to forget about the First Agreement. Suek denied having discussed about and entered into the Second Agreement.  An oral agreement containing such meticulous terms in relation to such a huge sum of money appears a little inherently improbable to me.

57.  In accordance with the Second Agreement, Ma repaid $8 million after about a month on 21 December 2007.  As there was no fixed repayment term, Ma was rather relaxed in repaying the balance.  During the period of about two and half years between December 2007 and July 2010, Ma made seven repayments in the total sum of $21.6 million.  But when Ma asked Suek for the return of his eight shares in Neway Strategies, Suek replied that those shares had been sold to a company controlled by him for $32 million as repayment for the second portion of the loan.  Ma protested, but Suek ignoredhim.  Then Ma started to collect evidence in support of his case.  These allegations are denied by Suek but he admitted receiving $14.3 million as repayments under the Loan Agreement.

Suek’s case of Loan Agreement

58.  Suek’s case is that in May 2007 Ma offered to sell him the Subject Shares. That was before the IPO process was initiated.  Suek was reluctant as he considered Ma pivotal to the karaoke business.  He worried that once Ma disposed the Subject Shares Ma would resign very soon.  He refused to buy but asked if Ma was in need of finance.  Then Ma asked if he could extend a personal loan of around $50 million to him.  After reviewing the Company’s financial situation, Suek told Ma in July that he could lend Ma $3.6 million immediately and a further sum of $50 million after causing the Company to declare dividend as the Company had accumulated a huge cash reserve.  Then he and Ma entered into the Loan Agreement for a loan of $53.6 million on the following terms:

(1)  the Subject Shares would be used as security for the loan;

(2)  the loan would be repayable on demand; but given the insufficiency of the security, the first portion of the loan in the sum of $21.6 million should be repaid first and the balance, ie thesecond portion in the sum of $32 million after a longer period; and 

(3)  the dividend attributable to the Subject Shares shall belong to Suek as Ma’s payment of interest for the loan.

Pursuant to the Loan Agreement, Ma repaid in total $14.3 million as set out in paragraph 100.

59.  Around that time, the IPO process was fraught with problems arising out of a litigation with a competitor California Red, the poor economy and a pending prosecution by the Customs and Excise Department of certain copyright infringements.  Ma was arrested on 8 September 2008 as a director of two subsidiaries of the Company involved in the infringement.  The legal advice given to the Company was that Suek, his son, his brother and Ma should resign from the Company so as to reduce the impact of the infringement to the Company.  Ma had totally lost his interest in the Company and the intended IPO.  Ma indicated his intention to resign and to sell his interest in the Company (by then, the Subject Shares had been swapped for the eight Neway Strategies shares) to Suek for $32 million to set off the second portion of the loan.  As that was the second time Ma wanted to withdraw from the Company, Suek did not persuade him to stay.  He accepted Ma’s resignation and offer to sell his interest in the Company.  He instructed Warren Chan to arrange the necessary formalities for the sale and purchase.  On 30 September 2008, Warren Chan instructed Troutman Sanders to transfer Ma’s eight shares in Neway Strategies held through All Jolly to Betterway.  The e-mail correspondence on this transfer was copied to Project KB. 

60.  Suek adopted the legal advice on resignation.  Ma’s resignations took effect 13 October 2008.  He allowed Ma the use of a room in the office to attend to his personal affairs.  After his resignation, Ma made another payment of $1.5 million on 27 October 2008 (Payment (4)).  The sale and purchase was duly completed on 5 November 2008 by All Jolly transferring the eight shares in Neway Strategies to Betterway at a stated consideration of $32 million.  The documentations were prepared by Troutman Sanders and signed by Mak in her capacity as the sole director of All Jolly. After that, Ma made three more payments of $1 million on 6 January 2009 (Payment (5), $0.2 million on 11 November 2009 (Payment (6), and $1.6 million on 16 July 2010 (Payment (7)).

61.  Suek admitted receiving, through Law Kit Shing the sum of 804,000 Australian dollars on 28 February 2008.  His case is that Ma was paid $5.6 million as dividend in January 2008, which should belong to Suek under the Loan Agreement.  So he told Ma to remit the Australian dollars to Law Kit Shing in lieu of returning the dividend and Ma agreed.  That sum was not counted as part of the repayment.  Suek counterclaims for the shortfall of $7.3 million.

THE FACTS

Introduction

62.  Both Ma and Suek gave a comprehensive account of their respectivecase.  Their assertions are all oral.  There is not a single document in supportof those tens of millions of dollars agreements.  Inherent probability remains the most reliable test in my fact finding.  I shall test their evidence against such documentary evidence as is available, their conduct and the surrounding circumstances.  The present dispute arose at or about the time when Suek and Ma were planning to float the shares of the Company in the Hong Kong Stock Exchange.  The evidence of the parties has to be tested against the backdrop of the intended IPO which eventually failed.

63.  There are two important building blocks in Ma’s case: the Company financing the purchase of its own shares and Monin Ung’s e-mail of 11 January 2008 about the sale of Ma’s Subject Shares.  These two issues will be separately considered first.

The intended IPO

64.  According to Suek, in or about early 2007, various investment bankers and financiers approached him to persuade him to let the Company gopublic.  Initially, he rejected the idea because any rumour of such news wouldprovoke suppliers, landlords and music record companies to raise fees and rent. Also, from his experience with Neway Cayman, once a company had gone public, it would demand a lot of his time.  However, after much persuasion, he agreed and engaged a professional team comprising of an investment banking team from ICEA, a legal team from Troutman Sanders and Hogan, and an auditing team from Deloitte, collectively the “IPO professionals”.  Both Suek and Ma participated in the IPO process.  On 2 October 2007, the first due diligence meeting was called.  The First Agreement or the Loan Agreement was negotiated and completed prior to the commencement of the IPO process, while the Second Agreement was negotiated afterwards.

65.  The IPO professionals suggested a corporate restructuring by inserting two corporate layers between the Company and its original shareholders.  Under this new corporate structure, Neway Strategies would bethe ultimate shareholding company with Neway Enterprise as the intermediary holding all the shares of the Company.

66.  Neway Strategies was incorporated in October 2007.  On 14 November 2007, it issued 100 fully paid shares; of which 5 were allotted toSuek’s wife, 70 to Betterway, 17 to Multichance and 8 to Ma.  The share ratio corresponds exactly to their shareholding ratio in the Company.  At that time, Neway Strategies was just an empty shell without any assets as the Company had not yet been injected into Neway Enterprise.  If by that time, Suek had bought the Subject Shares as alleged by Ma under the First Agreement, it would be a meaningless exercise to allot 8 shares in Neway Strategies to Ma.  Those shares should have been allotted to directly Multichance or Betterway. 

67.  The listing application was submitted on or about 28 November 2007.  The listing was approved at the hearing on 10 April 2008.  The shareholding to be offered to public comprise of 210 million new shares and 42 million shares from the existing shareholders representing 30% of their interest in the Listco.  The listing price was fixed between the range of $3.64to $4.65 per share.  On the above basis, Ma’s eight shares in Neway Strategies would be equivalent to 11.2 million shares (ie 42 million ÷ 30% × 8%) in the Listco and would have a post-IPO value of between $40.768 million and $52.08 million.  Suek’s evidence is that those eight shares would be worth $224 million on the simple basis that the capital value of the group after floatation was valued at $4 billion, 8% of which after a dilution of 30% public offer would therefore be $224 million (ie $4,000 million × 8% × 70%).  I reject Suek’s calculation as illogical.  The effect of his formula is to give away 8% of the public subscription after a 70% discount to Ma.

68.  On 15 April 2008, a number of significant events occurred.  Ma signed an application for shares in All Jolly and became its sole shareholder.  Through Suek’s arrangement, Mak was appointed as the sole director of All Jolly.  Ma signed the documents transferring the Subject Shares to All Jolly coupled with a declaration of trust signed by Mak on behalf of All Jolly that it would hold the Subject Shares on behalf of Ma as beneficiary [7].  Ma also signed a document transferring his eight shares in Neway Strategies to All Jolly at a consideration of US$1 each, but without the protection of a declaration of trust.  Ma does not dispute that he signed the relevant application and transfers, but asserts that he signed a lot of documents at the direction of Suek and did not appreciate the effect of the underlying transactions.  From the fact that Ma originally named All Jolly as the 2^nd defendant in the first action and was penalized in costs, I have no doubt that Ma honestly did not remember or appreciate the effect of those transactions.  

69.  Ma relied on the declaration of trust accompanying his transfer of the Subject Shares to All Jolly and the lack of such a declaration in respect of his transfer of his eight shares in Neway Strategies as evidence of the conspiracy between Suek and his co-defendants to lure him into transferring his Subject Shares to All Jolly and then deceiving him into transferring his eight shares in Neway Strategies to All Jolly without the protection of the declaration of trust. 

70.  Ma’s transfer of his Subject Shares to All Jolly took effect on 5 May 2008 when the undated documents were dated and presented to the Inland Revenue Department for stamping.  The instrument of transfer was adjudged to be “No Ad Valorem Duty payable” and the stamped declaration oftrust executed by All Jolly was adjudged to be “Not chargeable with any duty”. This supports Suek’s assertion that the declaration of trust was for stamp duty saving purpose and not as a means of luring Ma into parting with his Subject Shares.  The declaration of trust was prepared by the IPO professionals who obviously did so for the purpose of saving ad valorem duty in transferring the Subject Shares to All Jolly as part of the IPO process.  The transfer was on the road map of the IPO.  To suggest Suek arranging the IPO professionals to prepare the declaration of trust so as to lure Ma into transferring the Subject Shares to All Jolly as part of his conspiracy with the other co-defendants is too far-fetched to be a real possibility.  The conspiracy proposition is probably a creation of Ma or his legal team by viewing the documents in isolation without regard to the IPO process.

71.  On 16 June 2008, Betterway, Multichance, Suek’s wife and All Jolly, acting by its sole director Mak, transferred all their shares in the Company, including the Subject Shares to Neway Enterprises in exchange for 100 shares in Neway Enterprise to be issued credited as fully paid to Neway Strategies.  Effectively, this transaction is to give effect to a share swap so that the shareholdings in the Company are now swapped for equal portion of shareholding in Neway Strategies by charging the Neway Strategies shares allotted on 14 November 2007 as empty shells with value represented by 100 shares in Neway Enterprise which holds all the shares in the Company.  Thus, effectively, Ma’s Subject Shares were swapped for the eight shares in Neway Strategies which are now fully charged with 8% of the value of the Company.  The listing having been approved in December 2007, the IPO was ready to go.  On the advice of the IPO professionals, Suek was only waiting for the best time to launch the IPO at the best price.

72.  In September 2008, the global financial crisis started to take its toll on the Hong Kong capital market.  It began with the collapse of Lehman Brothers.  Then the Hang Seng Index fell from 21,000 points in September to 11,015 points on 27 October 2008.  The intended floatation became less attractive than it originally was.  With the plunge of the stock market and the Company’s engagement in a litigation with California Red, the intended floatation was aborted.  The IPO was formally abandoned in December 2008.  At about that time, ie 13 October 2008, Ma resigned from the Company.  It was also at about that time, ie November 2008,that Suek alleged that Ma lost interest in the Company, had difficulties repaying under the Loan Agreement and offered to sell his eight shares in Neway Strategies to him for $32 million to set off the second portion of the loan under the Loan Agreement.

Monin Ung’s e-mail dated 11 January 2008

73.  Ma relies heavily on the reference to sale of his Subject Shares mentioned in Monin Ung’s e-mail dated 11 January 2008 and the various draft versions of the prospectus as evidence in support of his case of sale under the First Agreement.  Monin Ung’s e-mail reads:

“ Dear All:

We have some enlightenment on the Ng/Ma share transfer, pertaining to Q78 as follows:-

The parties negotiated the sale of individuals’ shares to Dr. Suek’s family trust back in early 2007, verbally only. At that time, the figure used as a basis for the negotiations was the total assets less liability as at 30 June 2006, ie. HK$142,550,000.

Based on this ballpark,

[Suek’s wife] will sell 5% at approximately 3.5 times of total assets = [Suek’s wife] will receive a consideration of Hk$25,000,000 from Multichance in all.

Mr Ma will sell 8% at approximately 5 times of total assets = Mr Ma will receive a consideration of HK$53,600,000 from Multichance in all. The discrepancy occurs from different negotiations and considerations, on the one hand, Mr Ma did contribute to the success of the Group through his past efforts whilst [Suek’s wife] remained at all times a passive investor. Furthermore, with [Suek’s wife] as a family member, it was easier to persuade her to accept a lower consideration.

Thanks,

Monin.”

This e-mail set out how the price for the Subject Shares was arrived at.  It contained an explanation for the difference in price between Ma’s Subject Shares and those of Suek’s wife.  All this information points to the existence in early 2007 of the sale of the Subject Shares by Ma to Multichance at the consideration of $53.6 million. 

74.  Suek tried to explain away the adverse inference to be drawn from this e-mail by asserting it was Monin Ung’s mistake.  He gave no particulars.  Under cross-examination, he said that it was an invention by Monin Ung and he did not know how she made it up.  He then asserted that he had told Olivia Lee the partner in charge of the intended IPO either directly or, indirectly via Warren Chan, about the mistake.  Again, he could not give any particulars as to what he had told directly or indirectly.  Then, he asserted that he had told Olivia Lee that the transaction should be a mortgage and not sale.  Again, he could not be sure whether he had told Olivia Lee directly or through Warren Chan.  This could not be true because the mistake survived in the various versions of the prospectus, although the “Subject Shares” were replaced by shares in Neway Strategies.  Suek’s assertion that an IPO solicitor conjured something without instruction and that the partner in charge did not rectify the mistake after having been informed begs belief.

75.  Mr Mak argues that Monin Ung’s e-mail as well as the draft prospectuses are drafts of what was planned to happen in the events leading to the IPO.  They are not statements of fact which had actually happened.  I agree.  From the draft prospectuses dated 19 November 2007 through to the draft dated 8 August 2008, it is clear that the IPO professionals were working on the scenario that a sale of Ma’s Subject Shares to Suek was intended to take place sometime in the future as opposed to being a done deal or that it would be a done deal at the time when the prospectus was to be published.  At the time of the e-mail, no sale at whatever price or form had taken place.  The sale was part of the process of the intended IPO of inserting two corporate layers between the Company and its original shareholders.  I would place no significance on the reference to a sale in this e-mail.  But I do note the remarkable figure of $53.6 million stated in the e-mail.  It is same as the price under the First Agreement and the loan under the Loan Agreement.  It might have been a figure agreed by the IPO professional as appropriate for the intended IPO.  Even having regard to that coincidence, I am unable to conclude from this e-mail that there was indeed a sale and purchase.

Financial assistance by the Company in the purchase of its own shares

76.  An important building block of Ma’s case of the First Agreement and Second Agreement is the Company financing the purchase of its own shares.  That was what brought about the Second Agreement.  Ma painted a picture that at the time of the making of the First Agreement he did not notice that the seven cheques in the total sum of $50 million used to pay for his Subject Shares were issued by the Company, and then Suek negotiated with him about rescinding the First Agreement because of Suek’s concern about the Company financing the purchase of its own hares.  Suek denied there was such negotiation and said that the funds for the purchase was dividend and there could be no question about his having any concern about the Company financing the purchase of its own shares.  He produced minutes of the board of directors meeting declaring the dividend of $50 million as supporting evidence.  

77.  Ma relentlessly tried to pursue a theory that the board minutes were post-event fabrication because it did not bear his signature.  He even argued in his re-examination that the minutes were not in existence until 15 May 2013.  His argument is wholly misconceived.  Minutes as opposed to board resolutions are by definition records of a past event which normally require one signature as authentication. The same practice was adopted for the resolution to declare dividend in January 2008 which Ma did not challenge. Ma was also unable to refer to any provisions in the articles of association requiring the minutes to be signed by more than one director. 

78.  On the substantial issue, when the seven cheques were examined, two glaring facts were revealed.  First all the seven cheques were signed by Ma and another co-director.  They were in large significant sums.  Ma could not have signed them without reading them and the accompanying vouchers or documents and without knowing what the payments were for.  He could not have failed to notice that these cheques were issued by the Company to pay for what he now alleged to be the purchase of his Subject Shares.  Second and more importantly, the amounts of the cheques were all proportionate to the shareholdings of Suek’s wife (5%), himself (8%), and Multichance/Betterway (87%) which corroborates Suek’s case that the sums represented payments of dividend which were used to advance the loan to Ma.  Ma had copies of these cheques as they were disclosed by him in his first list of documents dated 3 November 2011.  He could not give any credible explanations as to why and how he could have ignored those material facts.  Ma could not have no knowledge that the cheques were dividend payments. 

79.  Furthermore, given the almost $180 million of reserve in the Company as of 30 June 2007 and Suek’s control of 87% interest in the Company, even if the Company were to finance the purchase of its own shares, it would not amount to a violation of the rule against financial assistance under section 47E(2) of then Company Ordinance, Cap 32.  

80.  Ma’s case of financial assistance is a knowing concoction of his own.  Realizing his difficulty, Ma changed his case during Suek’s cross-examination from one of financial assistance to using financial assistance as an excuse to induce him to enter into the Second Agreement.

Ma’s resignation as director of the Company

81.  Ma alleged that he was induced by Suek to resign under the pretext of legal advice that as result of an impending prosecution for copyright infringement all personal directors should resign and be replaced by corporatedirectors. As he subsequently discovered, he was not replaced by a corporate director.  He asserted that the pretext was part of Suek’s plan to “kick” him out of the Company so as to secretly misappropriate his eight shares in Neway Strategies.  It was an act evidencing the conspiracy.  Suek denied.  He said at that time the financial tsunami took its toll.  As result of a down turn in the economy and business of the Company, the impending prosecution, and that the intended IPO was about to be aborted, Ma lost interest in the Companyand resigned.  At the time Ma could not repay the loan and offered to sell his eight shares in Neway Strategies for $32 million to offset the second portion of the loan.

82.  The whole basis of Ma’s theory of conspiracy was Suek’s representation that all personal directors should be replaced by corporate directors and then concealing from him the identity of his replacement.  As the incontrovertible evidence shows, Ma was actually the one who notified the Companies Registry of his resignation and the appointment of Warren Chan and Nicholas Wan as directors.  There was absolutely no room for his conspiracy theory.

83.  It is common ground that Ma resigned as director of the Company on 13 October 2008.  He ceased to receive salary from the Company in November or December 2008.This tied in with the sale of his eight shares in Neway Strategies to Betterway on 5 November 2008, the abortion of the IPO process and his clean break from the Company.  If Ma did not intend a clean break, he could have simply stepped down as director, retained some executive role in the Company and continued to receive salary.  I reject his evidence of conspiracy and find that he resigned voluntarily.  I defer for later consideration the issue about clean break and sale of his shares in Neway Strategies.

Whether the First Agreement and Second Agreement or Loan Agreement

84.  Ma’s case of the First Agreement and Second Agreement is that Suek offered him a good price for his Subject Shares as Suek wanted to acquire them before initiating the IPO process.  The price included payment of undeclared dividend from accumulated profits.  Then having acquired his Subject Shares, Suek offered him very favourable terms or “sweeteners” underthe Second Agreement in order to rescind the First Agreement because of Suek’s concern about the Company financing the purchase of the Subject Shares.  Now that his theory of financial assistance has been shown to be a concoction of his own, his case of the First Agreement collapsed and with that his case of the Second Agreement also fell like dominos.  The Second Agreement cannot stand on its own.  However, after a weekend adjournment, Ma advanced an alternative theory that the financial assistance was Suek’s excuse to induce him into entering the Second Agreement. 

85.  In addition to his oral testimony, Mr. Lam relied on two printouts from the Company’s accounting system as evidence in support of the existence of the First Agreement.  The printouts were obtained from the Company’s accounting staff Ronnie Chan on or about 11 November 2010 when litigation was imminent.  The two printouts showed that the $20 million and $30 million payments were for the purchase of the Subject Shares.  However, Ronnie Chan’s evidence was watered down by the evidence of his supervisor Peter Yung who was responsible for inputting information into the Company’s accounting system.  His evidence was that he was instructed by the accounts manager to deposit the seven cheques issued to Ma on 13 and 23 August 2007 into Ma’s bank account.  He deposited the cheques but did not know what information to enter into the accounting system.  Two months later, when glancing through the Company’s file record he found the undated bought and sold notes which Suek left on the file.  So he assumed the payments represented purchase price for the Subject Shares and entered that informationinto the accounting system.  Later, the internal auditors brought to his attention that the bought and sold note was undated.  He then made enquiries from the accounts manager and was informed that the cheques were dividend payments.  By then, the information in the system could not be amended.  The queries raised by the internal auditors were well justified.  The bought and sold note was undated indicating that no sale had yet taken place.  The probability is that the bought and sold note was, as Suek alleged, a security document.  The fact that the transfer was not effected at least for four months until, as Ma alleged, the First Agreement was rescinded lends further support to Suek’s case that the bought and sold note was just a security document.  Thus, all the evidence that Ma could offer about the First Agreement was his oral testimony.  I also refer back to my earlier observation of the improbability of his allegation that Suek wanted to buy him out for his sons to take over the karaoke business.  His case of the First Agreement is, in my view, very flimsy indeed.  But I do bear in mind that Ma’s case does not end with breach of contract.  It went further to allege that the agreements were part of a conspiracy to obtain his Subject Shares at no or minimum cost.

86.  Ma’s case of the Second Agreement is even more improbable.  His case is that because of his concern about financial assistance, Suek offered him “sweeteners” to induce him to enter into the Second Agreement.  The “sweeteners” ware Ma’s retention of $32 million as prepaid dividend and an interest free loan of $21.6 million without any fixed term for repayment.  By allowing Ma to retain $32 million and to be returned his Subject Shares upon paying only $21.6 million, the $32 million is a give-away for nothing.  Besides, to exhaust $32 million dividend quota, the Company would have to generate total profits of $400 million.  Even on Ma’s own evidence, the parties anticipated that would take five to six years. This term is just nonsensical.  The interest free loan without repayment term is practically another give-away.  Ma would continue to be paid dividend without having to repay any part of the $21.6 million loan at all.  He had the benefit of the Subject Shares without having to repay.  What he did not have was physical possession of the scripts only, but he has the option to get them back when as he liked by repaying $21.6 million.  Mr Mak wonders why Ma would only repay $8 million in December 2007 and the balance, which is disputed, in a span of two years.  I rather wonder why Ma would have paid anything at all if the loan was interest free and he would be paid dividend even when the loan remained unpaid.  The Second Agreement does not make sense, let alone commercial sense.  It is too good to be true. 

87.  Initially, Ma formulated his case on Suek’s concern about the Company financing the purchase of its own shares.  That concern has now been shown to be non-existent.  Then Ma shifts his case from one of concern about financial assistance to using the concern as an excuse.  That may assist him to overcome the hurdle about no evidence of financial assistance, but it creates another impossibility for his case of breach of contract.  It would be a non-sense to offer attractive terms under the First Agreement to secure the purchase of the Subject Shares and then to use financial assistance as an excuse and to offer Ma more attractive terms to rescind that agreement. I note of course that Ma also alleged that all these were part of a complicated conspiracy to deceive him of his Subject Shares.  But what is fatal is that on my finding Ma actually knew what he alleged to be payments for the purchase were in fact dividend in the hands of the Company’s shareholders and not funds of the Company.  How could he be induced to rescind the First Agreement and enter into the Second Agreement?  He could simply correctSuek by telling him that the purchase price was paid by way of dividend.  His case of the First Agreement and Second Agreement is concocted, convoluted and incapable of belief.

88.  Apart from the existence or otherwise of the First Agreement, oneparticular term of the agreement about undeclared dividend from accumulatedprofit which was carried over into the Second Agreement was so unreasonable and did not make commercial sense.  The purchase price usually would have priced in all the assets and liabilities of the company, including its accumulated but undeclared profits and potential liabilities.  Indeed, the price of $53.6 million was already very high.  On my calculation, it was higher than the maximum price obtainable under the intended IPO.  The double payment was illogical.  Worst still, Ma’s stance on this particular term was continually shifting.  In theoriginal statement of claim, Ma’s case was a straightforward sale and purchase of the Subject Shares for $53.6 million with no complicated terms and he was entitled to retain $32 million as pre-paid dividend subject to set-off against dividend declared.  Suek sought to strike out Ma’s case on the ground that he would not be paid the dividend of $5.6 million in January 2008 as the same should have been set-off against the pre-paid dividend.  In his 4^th affirmation filed on 20 July 2012 for the purpose of resisting Suek’s application, Ma asserted for the first time after more than a year since filing the original statement of claim that one of the terms of the First Agreement was that he wasentitled to all dividend declared or to be declared for all profits of the Company earned before the completion date, assuming it to be 30 September 2007.  In other words, despite his shares had been sold, he would still be entitled to all undeclared profits accumulated before completion date.  He repeated that assertion in his witness statement and Re-amended Statement of Claim.  Under cross-examination, Ma backtracked and said that he was only entitled to the dividends for profits between 1 July 2006 and 30 September 2007.  He denied he was resiling from his pleaded case.  This is the classic case of a witness changing his evidence when he realized his case was hard to believe or did not make sense.  That reflected adversely on the credibility of his pleaded case.

89.  Ma has been shown to be an unreliable and exaggerating witness who tends to make assumptions and accusations.  His case is convoluted and toogood to be true.  He has been changing his case which is evidence of concoction.  Viewed in the round together with his failed theory of financial assistance, his overall incredibility, I am not satisfied that Ma has discharged the burden of proving the First Agreement and the Second Agreement.

90.  Though Ma failed to prove the First Agreement and Second Agreement, that does not mean Suek has proved the Loan Agreement and its terms. If Suek wishes to pursue his counterclaim, he has to bear the burden of proof. It is common ground that Suek paid Ma $53.6 million and Ma was to repay $21.6 million to Suek.  Having rejected Ma’s evidence about the Second Agreement, the sum of $53.6 million must be a loan.  This much of the Loan Agreement is proven, but its terms are not.  The essential terms of the Loan Agreement are that:

(1)  the loan was for an amount of $53.6 million;

(2)  it is repayable on demand;

(3)  there shall be upfront interest equivalent to the declared dividend in August 2007 in the sum of $4 million;

(4)  for as long as any part of the loan remains unpaid Suek shall be entitled to dividend; and

(5)  the Subject Shares were to be deposited with Suek as security for the loan. 

The second of these terms is not uncommon for a loan of that size and is deemed to be proved.

91.  On Suek’s case, Ma offered to sell him the Subject Shares in May 2007, but he declined.  Then Ma asked for a loan of about $50 million.  After reviewing the Company’s financial position and after consulting his wife, Suek told Ma in July 2007 that he could lend Ma $3.6 million immediately and a further sum of $50 million after causing the Company to declare dividend, making the total loan of $53.6 million.  He identified the seven cheques issued to Ma on 13 and 23 August 2007 as his payment of the further advance of $50 million.  Thus, Suek’s case is an unequivocal loan of $53.6 million.  Suek also alleged that it was agreed that the dividend attributable to Ma’s Subject Shares declared before the full repayment of the loan would also belong to him as interest.  Then, in the face of Ma’s claim against the Company in HCA 669/2013 for unpaid dividend in the sum of $4 million, Suek said in evidence that the $4 million was never pocketed by him but was given to Ma which was applied in settlement of upfront interest under the Loan Agreement.  Suek explained that in effect the agreement between him and Ma was that he would extend a loan of $49.6 million to Ma, but Ma would have to repay $53.6 million.  That made a nonsense of his evidence as it has always been his unequivocal evidence and his case that he lent Ma $53.6 million.  

92.  Suek then further explained that upfront interest is not unusual and put forward calculation showing that the upfront interest of $4 million on the net principal of $49.6 million for an expected duration of 18 months was only 5.3% per annum which was hardly extortionate.  That calculation was also nonsense.  Suek’s adoption of a base period of 18 months on the basis that the next round of dividend would only be declared in January 2009 flies in the face of the fact that dividend was declared only five months later in January 2008.  The interest rate was 19.4% (ie $4 million ÷ $49.6 million × 100% ÷ 5 months × 12 months).  Such a rate of interest would be extortionate. 

93.  In my view, upfront interest is very uncommon.  It is not charged by banks or reputable financial institutions.  It is often associated with loan sharking activities.  Charging such extortionate rate of interest in this case, though not illegal, is not the conduct of a thirty year’s friend and relative and close business partner.  If Suek had actually raised such a term with Ma during negotiation of the loan, Ma would have rebuked him.  I find this allegation of upfront interest is Suek’s concoction when trying to explain an ill-pleaded case.  I find in truth he had agreed with Ma for a loan of $53.6 million and paid Ma the sum $53.6 million, which included Ma’s dividend forAugust 2007.  He might have honestly overlooked the fact that the $4 millionactually belonged to Ma.  When challenged on the issue of Ma’s dividend, he concocted the upfront interest argument.  In effect, he had only lent Ma $49.6 million.  Upfront interest was not part of the term of the Loan Agreement. 

94.  As for payment of interest by way of dividend, it is not an unreasonable term as such, though it would have been reasonable to provide for proportionate reduction with partial repayment.  However, a flat rate of interest is not uncommon.  Ma’s case is that the loan was interest free.  I shall test this term against the parties’ conduct. 

95.  On the facts, a dividend of $70 million was declared in January 2008 and Ma’s share of dividend was therefore $5.6 million.  Suek’s case is that he knew that Ma had been issued three cheques for payment of this dividend which were then deposited into Ma’s account by the Company’s staff.  He didnot wish to interrupt the arrangement and later reminded Ma to pay him back by remitting a sum of 804,000 Australian dollars to Law Kit Shing for purchasing a house in Adelaide in Australia. Ma did not object and made the remittance on 28 February 2008 as repayment of the dividend of $5.6 million.  Ma’s case is that he was paid the dividend and he made the remittance on Suek’s instruction as repayment of the sum of $5.6 million. 

96.  However, I noted that the amount of Australian dollars remitted is short of the repayment of $5.6 million by as much as $76,000.  When questioned about the shortfall, Suek said he was not aware of the shortfall.  On the other hand, Ma gave no response other than that the remitted amount was agreed to be a set off for $5.6 million.  If the remittance was accepted by the parties as repayment of the sum of $5.6 million, it is consistent with Suek’s case that the dividend belonged to him.  If the remittance was an independent repayment of the loan, it is consistent with Ma’s case that the loan was interest free.  In view of Ma’s response, I have to accept that the remittance was not an independent repayment of the loan but his return of the dividend received.  In other words, the parties’ conduct is consistent with the term as alleged by Suek.  Ma betrayed himself by dishonestly retaining the difference.  Had hecounted the remittance as repayment of $5.524 million, it would have been open to me to find in favour of an interest free loan.

97.  As for the use of the Subject Shares as security for the loan, Ma has no quarrel that the shares were security for the first portion of the loan, but Suek’s case is that they were security for the entire loan, though they were only adequate security for the second portion.  According to Suek, in September 2008, Ma agreed to transfer his eight shares in Neway Strategies to set off the second portion of the loan as he cannot repay.Then, Suek told Warren Chan to instruct Troutman Sanders to effect the transfer.  On 5 November 2008, Mak on behalf of All Jolly and on Suek’s direction transferred the eight shares in Neway Strategies to Betterway.  Ma denied any such agreement and asserted that the transfer was part of the conspiracy.  However, on the incontrovertible evidence, on 30 September 2008, Warren Chan instructed Vencci Ho of Troutman Sanders to transfer Ma’s eight shares in Neway Strategies to Betterway.  The instruction was copied to Project KB.  On 2 October 2008, Vencci Ho and Jonas Chan of ICEA responded by e-mail via Project KB.  These e-mails were open to all members of Project KB.  Ma denied having seen the e-mails as he was out of Hong Kong.  Even if Ma were out of Hong Kong, the e-mails would not disappear from the letter box.  Ma would have read them upon his return.  Ma also alleged that he was denied access to Project KB since August 2008.  But that is contradicted by the evidence of Sze Kwan Pang who said that Project KB only ceased to be operative in December 2008 when the intended IPO process was formally brought to an end.  While the transfer was the act of Suek and not Ma, I have no doubt that Ma had knowledge of the transfer and consented.

98.  At the time of negotiation of the loan, Ma was the owner of the Subject Shares.  The bought and sold note, the physical scripts and the other transfer documents were held by Suek as security.  As the intended IPO progressed, Ma was issued eight shares in Neway Strategies on 15 April 2007 which were then transferred to All Jolly on 5 May 2008.  The share swap of the Subject Shares for the eight shares in Neway Strategies became effective when the Subject Shares were transferred to Neway Enterprise on 16 June 2008 and the eight Neway Strategies shares became charged with the value of the Subject Shares.  According to Suek, to protect his interest in the security, he arranged for Mak to be appointed as the sole director of All Jolly.  The arrangement agreed among Mak, Ma and Suek was that Mak would not cause All Jolly to effect any change to its directorship or shareholding without Suek’s consent.  The securities have changed from the Subject Shares to the eight shares in Neway Strategies held by All Jolly.  Ma denied knowledge of the arrangement and alleged that Mak’s appointment and the above transfers werepart of a complex conspiracy among Suek and the co-defendants.  In view of my finding of the Loan Agreement and Ma’s incredibility, I accept Suek’s and Mak’s evidence about the arrangement.   

99.  Accordingly, I find that the parties had agreed to a loan of $53.6 million, but the sum of $49.6 million only was advanced and that it was a term of the Loan Agreement that while the loan remains outstanding the dividend payable belonged to Suek.  The other agreed terms were that the loan shall be repaid on demand and the Subject Shares and later the eight shares in Neway Strategies since 16 June 2008 held by All Jolly were to be used as security for the loan. 

Repayment of the loan

100.  According to Ma, he had repaid $21.6 million as follows:

(1)  Ma’s personal cheque dated 21 December 2007 in the sum of $8 million;

(2)  a credit advice dated 28 February 2008 in the sum of 804,000 Australian dollars (equivalent to $5.6 million) to the account of Law Kit Shing on Suek’s direction;

(3)  cash in the sum of $3.6 million on 26 September 2008 through the Company’s supervisor, Ma Tit Man;

(4)  cash in the sum of $1.5 million on 27 October 2008 through Ma Tit Man;

(5)  cash in the sum of $1 million on 6 January 2009 through Ma Tit Man;

(6)  cash in the sum of $300,000 on 11 November 2009 through Ma Tit Man; and

(7)  cash in the sum of $1.6 million on 16 July 2010 through Ma Tit Man.

Suek acknowledged receiving only $200,000 under payment (6) but denied having received payment (7).  He asserted that payment (2) was in fact the Company’s dividend to Ma, which Suek was entitled to keep under the Loan Agreement.  Suek admits receipt of the other four payments.  Thus, he acknowledged receiptin the total sum of $14.3 million and counterclaims the shortfall of $7.3 million.  In the preceding subsection, I have found that payment (2) was in fact Ma’s return of dividend to Suek which was not repayment of the loan.  The outstanding issues are related to payments (6) and (7).

101.  It is common ground that payments (3) to (6) were by way of cash payment to Ma Tit Man who had instruction from Suek to receive them from Ma.  Instant receipts were not issued.  Ma’s understanding was that a combined receipt would be issued to him later.  That was disputed by Ma Tit Man.  Ma produced three receipts signed by Ma Tit Man in the amounts of $5.1 million, $2.9 million and $8 million as evidence of payments (3) to (7). The authenticity of Ma Tit Man’s signature on these receipts are not disputed. Suek’s case is that these receipts were issued for the purpose of Ma’s divorce proceedings and were not acknowledgment of the sums stated therein.

102.  In respect of payment (6), Ma’s case is that on 11 November 2009, he closed his bank account with the Bank of East Asia, took $300,000 cash from that account to his office and gave it to Man Tit Man.  Then he phoned Suek to inform him of the payment.  Ma Tit Man’s evidence is that she only received $200,000. 

103.  In respect of payment (7), Ma’s case is that he withdrew $100,000 from his account with Hong Kong and Shanghai Banking Corporation on 8 April 2010 and kept it in his office.  On 16 April 2010, he withdrew $150,000 from his account in Standard Chartered Bank and kept $100,000 of that sum in his office.  On 16 July 2010, he took $1.4 million from his home to his office.  That was the same sum which Suek paid him three years ago for the purchase of his karaoke business in the Mainland.  Then, he lumped these three sums together making up $1.6 million and gave it to Ma Tit Man.  He telephoned Suek to inform him of the payment.  Ma Tit Man denied having received this payment at all.

104.  As that was the final payment, Ma asked for a combined receipt.  However, Ma Tit Man said that on that day she could only remember exactly the sum of $2.9 million Ma paid her in 2009 but not the amount he paid in 2008.  Ma told her that he would prepare two receipts for her signature in the amounts of $2.9 million and $5.1 million.  He also reminded her of payments (3) and (4) in 2008 which totalled $5.1 million.  After reading the receipt for the sum of $2.9 million dated 16 July 2010 (for convenience, I adopt Ma Tit Man’s nomenclature and refer to this receipt as the “second receipt”), Ma Tit Man signed but said that she had to check her records for the payments in 2008.  Later, Ma made a copy of two of his bank statements showing his withdrawal from his bank account of the sum of $5.1 million.  He put them together with a draft receipt for $5.1 million on his desk and telephoned Ma Tit Man to tell her to look for the documents.  On the next day, he found Ma Tit Man had signed on the copy receipt for $5.1 million (I also adopt Ma Tit Man’s nomenclature and refer to this receipt as the “first receipt”).  I shall not go into the details about this receipt as the amount received was not in dispute.

105.  Then, in October 2010, Ma discovered that the receipt for the sumof $2.9 million signed on July 2010 was a copy and not an original.  Thinking he had lost the original, he asked Ma Tit Man for a replacement or a duplicate receipt.  In late October 2008, he asked Ma Tit Man if she had the original receipt.  After a search, Ma Tit Man said she could not find the original receipt but said she could sign him a duplicate copy.  Then they discussed about signing a duplicate receipt for the sum of $2.9 million and a combined receipt for $8 million received and the date and wordings used.  Then Ma Tit Man signed the second and third receipts.   

106.  Ma Tit Man’s evidence is that in about July 2010, Ma telephoned her and said that he was being investigated by the Inland Revenue Department and he needed her to sign a document which he would leave on his desk as confirmation.  Later, when she returned to the office, she found the draft receipt for the sum of $5.1 million and bank statements under keyboard of Ma’s desk.  She signed that receipt.  That was the first receipt she signed in respect of these payments.

107.  Then, in October 2010, Ma Tit Man received a call from Ma saying that the receipt was erroneous and required rectification.  Ma asked her to return to the office after work to make the rectification.  Ma Tit Man returned after a night meeting at about 10:30 pm.  Ma then showed her two receipts, one dated 16 July 2010 for the sum of $2.9 million and another one dated October 2010 for the sum of $8 million.  Ma directed her where to sign and to put down her identity card number.  She was rushed to sign the receipts as she was told and Ma left hurriedly.  She had no opportunity to read the receipts or to make copies.

108.  Despite the direct conflict between Ma Tit Man’s evidence and Ma’s, she was not substantially cross-examined.  The only substantive question put to her was whether the contents of the three receipts were already written there when she signed.  She answered that they were.  Then Ma’s case that he had altogether delivered $8 million cash was simply put to her and she denied.  In the closing submission, no argument that Ma Tit Man was bound by what thereceipts stated based on the principle in Ming Shiu Chung & Others v Ming Shiu Sum & Others [8] was advanced.  In any event, I do not consider such argument open to Ma as the action is not founded on the receipts.  Those receipts only serve as previous inconsistent statements and are relevant for the purpose of assessing the weight of the parties’ evidence.  Ma Tit Man has testified on the circumstances of her signing the receipts.  Ma was her former employer.  Her readiness to oblige is understandable.  On Ma’s own evidence, Ma was on a mission of collecting evidence and thus caught her unguarded.  I give little weight to the second and third receipts.

109.  The credibility of Ma’s and Ma Tit Man’s evidence as to payments (6) and (7) is a matter of inherent probability.  Ma’s evidence in respect of payment (7) on its own is inherently improbable.  For reasons as I have already explained, I formed an unfavourable view of Ma’s credibility.  He hasdemonstrated his propensity to make exaggerations.  On his evidence, he kept $200,000 in his unlocked office for three months for no good reasons.  Also for no good reason he kept the sum of $1.4 million which was the proceeds of sale of his Mainland karaoke business in his home for three years.  I think this assertion was made to cover his lack of evidence as to the source of funds to support a concocted payment.  I do not accept his evidence.  For the same credibility reason, I do not accept his evidence about payment (6).

110.  Another very telling feature of the alleged payments (6) and (7) isthe long gap between these payments and payment (5).  There were a series of three payments between September 2008 and January 2000.  Then there was no payment for ten months until November 2009 and then allegedly six months later in July 2010.  I just cannot stop wondering why Ma did not make any earlier payment when on his evidence he had $1.4 million lying idle in his homefor three years.  This gap casts further doubts on the veracity of Ma’s evidence.   

111.  Accordingly, I accept Ma Tit Man’s evidence about payments (6) and (7) that she had altogether received $6.3 million only from Ma.  Together with payment (1) in the sum of $8 million, the total repayment made by Ma was $14.3 million.  Thus, in respect of the repayment of the first portion of the loan, there was a shortfall of $7.3 million.

The set off

112.  On Ma’s evidence, after making the last payment in July 2009, he asked Suek for the return of his eight shares in Neway Strategies.  He was surprised to be told that they had been sold to Betterway.

113.  On Suek’s evidence, Ma resigned voluntarily on 13 October 2008as he had lost interest in the Company.  The reasons were the financial tsunami, downturn in business and the impending abortion of the intended IPO.  Ma had problem with making repayment and asked for more time to repay. He also offered to sell his eight shares in Neway Strategies to set off against the second portion of the loan. 

114.  Ma denied he had problem making repayment.  He produced a summary of his eleven bank accounts for the month of October/November 2008. That summary, supported by bank statements, showed that he had funds in the region of $48 million.  Suek argued that the account statements overlapped during that more than one-month period and there was a possibility of double counting.  Ma did not produce any summary for the subsequent months.  Atthe time, he was engaged in ancillary relief proceedings with his ex-wife.  He hadan old family to get rid of and a new one to start or maintain.  It is not known what his commitments were.  On my finding, the loan was in the amount of $49.6 million (then reduced to $35.3 million).  If he repaid, he would not have much funds left.  He had made some attempts to repay part of the loan from September 2008 through to January 2009, but he stopped paying since.  The loan was not interest free.  If indeed Ma could repay, I could find no reason why he did not repay so as to become entitled to dividend.  I give little weight to his summary of bank statement.  I accept the scenario as painted by Suek.

115.  Suek told Warren Chan to instruct Troutman Sanders to arrange transfer of Ma’s eight shares in Neway Strategies held by All Jolly to Betterway.  A series of e-mail correspondences ensued on the subject of sale of those shares together with Suek’s wife’s and Multichance’s.  The correspondence was copied to Project KB to which Ma had access.  It was done openly.  Though Ma said he was not in Hong Kong, he could have read them upon his return and knew that his shares were being sold by All Jolly to Betterway.  Ma did not object and must be taken to have consented.  While there was a possibility that Ma might not have read the correspondence, but the fact that thecorrespondence was carried on openly excluded the possibility that the sale was carried on behind Ma’s back without his consent.  I therefore accept Suek’s evidence that it was Ma who offered to sell his shares to him to repay the second portion of the loan.  I also accept Suek’s evidence that the parties agreed to the price of $32 million offered by Ma in May 2007, which was based on 8% of the then asset value of the Company.  The value had dropped, but Suekagreed to maintain that price.  This price was featured in Ma’s e-mails issued in July 2010 to his solicitors in the matrimonial proceedings.  Accordingly, I find that Ma had agreed to sell his eight shares in Neway Strategies to Betterway at the price of $32 million to repay the second portion of the loan.  A sum of $7.3 million under the first portion, however, remained outstanding. 

HCA 508/2011—MA’S CLAIMS

Breach of contract

116.  Ma has failed to prove the First Agreement and Second Agreement.  His claim therefore fails.  On the counterclaim, Suek has proved the Loan Agreement for a loan in the amount of $53.6 million.  While that amount hadbeen paid to Ma, it included a sum of $4 million in respect of which there was no dispute that it represented dividend paid to Ma.  Thus the amount of loan actually advanced was $49.6 million, which comprised of the first portion of $21.6 million and the second portion of $28 million.  In respect of the first portion of the loan Ma repaid $14.3 million which was $7.3 million short.  In respect of the second portion of loan, he repaid by selling his eight shares in Neway Strategies to Betterway for $32 million with a surplus of $4 million.  Hence, the net amount outstanding is $3.3 million.  Accordingly, the plaintiffs’ claims against the defendants are dismissed and I enter judgment in favour of the 1^st defendant in his counterclaim against the 1^st plaintiff in the sum of $3.3 million.

Misrepresentation, conspiracy, knowing receipt etc

117.  Ma’s case of misrepresentation revolves around the representations allegedly made by Suek to induce him to enter into the Second Agreement.  His claim must necessarily fail with his failure to prove the First Agreement and Second Agreement.

118.  Ma’s case of conspiracy also revolves around the First Agreement and the Second Agreement.  It must also fail with his failure to prove these agreements.  Instead of dismissing his claim summarily on that basis, I shall take a deeper look into his case of conspiracy which has been changing ever since the issue of the writ till the end of his cross-examination of Suek.  In his original statement of claim, Ma’s claim was based on the Second Agreement and the alleged breach of the declaration of trust made by All Jolly.  The entire case collapsed when Ma was confronted with the fact that he was the sole shareholder of All Jolly and the very person signing the documentation to transfer his eight shares in Neway Strategies to All Jolly.

119.  Then, Ma substantially revised his claim to sue upon the Second Agreement with a more serious allegation of conspiracy to injure All Jolly by the share transfer agreement of 5 November 2008 and the fact that the deed of trust did not cover his eight shares in Neway Strategies.   The Second Agreement and the deed of trust nevertheless remain as the important building block of his conspiracy theory.  There is no dispute that at the time of the making of the Second Agreement the IPO process was running at full steam.  At that stage, no one thought of aborting the intended IPO process.  Ma participated fully in the IPO process.  The share swap was executed on the advice and through the arrangement of the IPO professionals.  During Ma’s cross-examination, it came a stage when it became apparent that the declaration of trust over the Subject Shares was made for saving ad valorem duty and that a similar declaration in respect of the eight Neway Strategies shares could serve no such purpose.  His conspiracy theory was at risk.

120.  Another important building block of Ma’s conspiracy theory was the Second Agreement which in turn was built on his theory of financial assistance by the Company in the purchase of its own shares.  During Suek’s cross-examination, Suek refuted counsel’s suggestion of financial assistance and asserted that the funds for the purchase came from dividend of the Company.  Suek referred to the prospectus in which the dividend was mentioned.  After a weekend’s adjournment, Ma’s counsel put to Suek that he knew there was no problem of financial assistance but he used that as an excuse to induce Ma into entering into the Second Agreement.  Thus, Ma’s latest theory of conspiracy is founded on two limbs; first, that having bought Ma’s shares under the First Agreement in August or September 2007, Suek used the excuse of financial assistance to lure Ma to pay back $21.6 million out of the purchase price of $53.6 million by pretending to promise him that Suek would return him the eight shares in Neway Strategies to which the Subject Shares had been swapped; and second, to create a paper trail to misappropriate the eight shares in Neway Strategies to cause injury to Ma.

121.  For reasons as already explained, the terms of the First Agreement and Second Agreement do not stand up to reason.  These agreements were absurd and did not exist.  What Ma and Suek had entered into was the Loan Agreement.  The first limb of the conspiracy fails.  On my finding, Ma was unable to repay under the Loan Agreement and sold his eight shares in Neway Strategies to Suek for $32 million to repay the second portion of the loan.  The second limb of the alleged conspiracy also fails.  The plaintiffs’ action based on conspiracy etc must be dismissed against all defendants.

Claims against Betterway

122.  The claims against Betterway are founded on its being the recipient of the eight shares in Neway Strategies and its being a party to the conspiracy with Suek.  As the shares were properly sold pursuant to the Loan Agreement and consideration duly received, all claims of the 1^st plaintiff in this action are dismissed against the 2^nd defendant.

Claims against Mak

123.  Ma’s claims against Mak are founded on her being the sole director of All Jolly acting on the instruction of Suek in disposing of the eight shares in Neway Strategies.  On her own admission, Mak was probably in technical breach of duty as director of All Jolly in not verifying the propriety of the sale and transfer of the eight shares in Neway Strategies before disposing of them.  On my finding, Ma consented to the sale of the shares and as the shares were properly sold pursuant to the Loan Agreement and consideration duly received,Ma suffered no loss.  The conspiracy against her was also not proved.  Hence, all claims of the 1^st plaintiff in this action are dismissed against 3^rd defendant.

HCA 508/2011—CLAIMS BY ALL JOLLY

124.  All Jolly’s claims are misconceived, if its claims did not fall together with Ma’s, it was mutually exclusive with Ma’s claim.  As Ma’s claims were all dismissed against the defendants, All Jolly’s claims also fail.  The 2^nd plaintiff’s claims are therefore dismissed against all defendants.

HCA 669/2013

125.  I have found that $50 million of the loan advanced to Ma were dividends declared and paid by the Company in August 2007, out of which $4 million representing Ma’s share were handed over to Ma.  Suek might have dishonestly represented or treated the dividend as his.  That does not change the nature of the payment.  The dividend had been duly paid to Ma.  I have accordingly reduced the actual amount of loan.  The claim for dividend against the Company therefore fails. The overall result would not have been any different had I ruled otherwise. The Company would be liable in paying the wrong person and had to pay the dividend to Ma again, but Ma’s liability under Suek’s counterclaim would be increased by the same amount.  The plaintiff’s claim against the defendant is dismissed.

126.  In view of the above conclusion, there is no need to consider the counterclaim by the defendant, which, as Mr Mak submits, would only arise if I were to find in favour of the plaintiff in the claim.

CONCLUSION

127.  In conclusion, I make the following orders:

(1)  the plaintiffs’ claims in HCA 508/2011 are dismissed;

(2)  the 2^nd defendant’s counterclaim in HCA 508/2011 is allowed in the amount of $3.3 million together with interest at prime rate plus one percent from the date of filing of the counterclaim until judgment and thereafter at judgment rate;

(3)  the plaintiff’s claim in HCA 669/2013 is dismissed; and

(4)  costs of HCA 508/2011 and HCA 669/2013 be awarded to the defendants, including all costs reserved, with certificate for two counsel.