PANCO INDUSTRIAL HOLDINGS LTD v. DING PENG AND OTHERS

HCA 5370/1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5370 OF 1993

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(Heard Together)

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J U D G M E N T

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Introduction

1. These two cases which are related to each other and which I have heard together concern matters which took place in Hong Kong and Shenzhen in 1992 and 1993. Although he is not a party in either case the pivotal figure in these actions has been Mr James Peng. If the Plaintiff companies were to succeed this would represent a major turnaround in Mr Peng's fortunes, the low point of which was his sentence to 18 years imprisonment imposed by the Shenzhen Intermediate People's Court in October 1995 for offences of theft and misappropriation of RMB$290,000 and RMB$800,000 respectively from SCIC, together with the forfeiture of his shareholding in SCIC, a major company that he had founded and controlled and which he had been able to have listed on the Shenzhen Stock Exchange.

2. Having served six years of his prison sentence he was released, under executive order, following diplomatic lobbying on his behalf at the highest possible level by the Australian Government, Mr Peng having acquired Australian nationality some years before this. Upon being released he set about reactivating these actions, which had remained dormant during his imprisonment, with the intention of getting back his shares in SCIC and/or to claim damages and other necessary relief from the persons, and companies which he says were used by them, to cause him harm and loss.

3. This has been a substantial trial (22 days) which could well have taken a longer course but for the quality of the representation on both sides. Counsel have been able to manage the material in such a way that only what is strictly relevant has been placed before the court. That having been said the papers' run to 42 lever arch-files with the inevitable consequence that this judgment must be of some length as I, inevitably, will have to describe the issues that call for resolution, the main parts of the evidence that bears on them and the opposing legal contentions that the parties have disposed against each other.

Dramatis Personae

4. To understand how these disputes have got this far it is necessary to say something of the cast of characters that have occupied this particular stage.

5. Mr James Peng is the central figure in all of this. Including his time in the witness box when the trial started on 31 March last year and was then unavoidably adjourned to resume in October, Mr Peng has given evidence over a period of 7 days. There is no doubt that he is a person of great intelligence, vision and vigour. He comes from humble origins having been born in China in 1959. He is now 44 years old. After leaving school at the age of 17 he was sent to work in a village, in common with many young people of his age, on the instructions of the Central Government as part of a redevelopment policy. A year later he started work for a local government organization at county level. Three yeas later he transferred to a government-owned film company doing administrative work for them. In 1981, then aged 22, he joined the Shenzhen Import and Export Group. This too was a state-owned company. Six months later he became a supervisor and during this time he learned the operations and running of a large conglomerate which operated a number of businesses. By 1987 he was able to set up his own company which he called Yuen Yee. This was a textile company. He was just 28 years old at the time. In January 1990 this company changed its name to Shenzhen Champaign Industrial Corporation (SCIC), the company which this litigation is all about. In 1989 Mr Peng and his family emigrated to Australia under the investment and entrepreneurial scheme, a category under which would-be immigrants into Australia can obtain residence and hopefully, in due course nationality, which he and his family were given in 1991. In the meantime by dint of clever business strategies and links to useful and influential partnerships with individuals and corporate organizations within China and overseas, SCIC rapidly developed into a very substantial multi-business corporation. In March 1990 it was listed on the, then still new, Shenzhen Stock Exchange as the first Sino-Foreign company to do so. The effect of that was to produce an inflow of millions of yuan for SCIC to enable it to further invest and grow as a company dealing in textiles, property and other ventures. Mr Peng himself also saw much of this inflow of capital come to him and to companies in the BVI, the Cook Islands and Australia which he owned and controlled. By now he had become an extremely wealthy man by any standard whilst still in his early thirties. I have said enough at this stage to indicate the extent of his ability and enterprise. In due course I will also need to explain the veritable web of companies which he owns, either by himself or through nominees, individual and corporate, through which he operates his businesses. I will also need to consider with care the other side of the case which is that this corporate web is simply a device for deceit used by a clever and devious man to siphon-off overseas the huge profits made by SCIC in order to line his own pockets and steal from SCIC's shareholders and investors. To all of this I must return in due course.

6. Madam Ding Peng is the next significant personality in the trial, together with her associate Mr Andrew Zheng. Madam Ding is a niece of the late Deng Xiao Ping, paramount leader of the People's Republic of China. One needs only to state that fact to realize that she was a person who could exercise considerable influence in any commercial venture within China that she cared to involve herself in. Having regard to her membership of such a prominent family she enjoyed the advantages of a very good education having graduated from the Technical Engineering College of Luoyang which, despite its name, offered degrees in Chinese Literature which she read for and obtained. In common with all undergraduates she also studied English, but she says that her English was not and is not good. Having regard to that there has been an issue as to whether she is capable of reading, writing and speaking English; this being relevant to the question of whether she might have been able to read a number of company documents that she was required to sign and which are of great significance in the trial. Her evidence is that she cannot read English to any meaningful standard. As a result, she has been challenged in cross-examination to the effect that her English was far better than that, which she does not accept. In the absence of any persuasive evidence to the contrary I must proceed on the basis that for all practical purposes she is monolingual speaking Mandarin and that she only reads Chinese, save for perhaps a few words in English. At the time that is relevant for the purposes of these actions, and by that I mean 1992 to 1994, she was based at Xiamen and operating businesses of her own. One particular venture was a department store which was in the planning and development stage. She had obtained licences which were required and extremely difficult to come by, in order to conduct import and export transactions which such a venture would necessarily undertake. Before that from 1977 until 1982, she had worked as a civil servant for government departments in Beijing, Wuhan and Fuzhau.

7. As will shortly become apparent Mr Peng turned to her to assist him with very serious difficulties that he was experiencing with the regulatory authorities in Shenzhen over his conduct of SCIC's affairs. At this stage it is sufficient for me to merely advert to the main allegation by Mr Peng which is that she and her associate Mr Zheng, seeing his weakened position caused by his dispute in Shenzhen, decided by unlawful means in Hong Kong and done without his knowledge, dismantled part of his corporate structures through which he owned over 50% of the shares in SCIC and in that way were able to transfer that shareholding to companies controlled by them. Thereafter, and having regard to her close and co-operative relationship with the Shenzhen regulators, she was able to have what had been Mr Peng's shares in the original SCIC transferred to companies now owned and controlled by her and Mr Zheng, which in turn were allocated shares in a new company SFC, set up by the authorities to continue the business of the original company. The short answer to these allegations by Madam Ding and Mr Zheng is that they considered that by an oral agreement on the 18th March 1993 Mr Peng had transferred those controlling interests to them but he had in fact deceived them by altering part of the corporate structures which had the effect of leaving him in control. Once they realized what he had done they felt that they were left with no alternative but to, in effect, to take matters into their own hands and by a series of corporate manoeuvres which I must describe in some detail presently, undo Mr Peng's 'secret' structures and take back from him what they considered he had transferred to them. Mr Peng's case is that he had transferred to them a small, but potentially very valuable portion of his shareholding in his organization in recognition of the assistance that he hoped they would be in a position to offer him with Shenzhen and also to provide them with a financial incentive as well as sufficient standing within SCIC's shareholding structure so that they could negotiate with the Shenzhen regulatory authorities. That in its barest outline is how the battle-lines are drawn in these actions. Much more will need to be said but by referring to the nature of the dispute it will have become apparent that Madam Ding has also had her integrity called into serious question.

8. Mr Andrew Zheng is Madam Ding's right hand man in these matters. Whilst he can claim no particular pedigree in terms of family connection he is a person who has made the most of the opportunities that have presented themselves to him. He is now in his 40's and highly educated. He was born in Xiamen and took a degree in Mechanical Engineering at the Harbin Shipbuilding Institute. Thereafter, he did a Masters degree in Computer Science at Xiamen University and in 1988 received a doctorate, from the prestigious Tsinghua University, in economics and management. Subsequent to that he attended the University of Wisconsin in the United States to do research and also some teaching in macro-economics. Not surprisingly, he speaks good English and reads and writes it very well. He started his business career in Hong Kong in 1990, as a commodity trading adviser, for a small company called Carleo Pacific. He then joined a company called APF and through some connections in APF he met Madam Ding in the autumn of 1991.

9. Mr Ng Hui Nam is one of the two unrepresented defendants in HCCL 98/1995. He also comes from a well-connected family in southern China. His father was Provincial Secretary of Guandong Province and had also been Mayor and Secretary of Shenzhen. It was he who had the idea of turning Shenzhen into a special Economic Zone which was adopted by the Provincial Committee and subsequently approved higher up in Beijing. Mr Ng accepts that he comes from a very influential family, particularly so in the 1980's, and until his father's retirement from office in 1991. He too is a highly educated man having read Chinese Literature at Zhongshan University and thereafter obtained a Master of Arts degree in Oriental Languages and Literature at the University of California, Berkley. Whilst he gave evidence in Cantonese he is also perfectly fluent in Mandarin having cross-examined the Mandarin speaking witnesses in that dialect and of course his English is fluent, on occasions addressing the court in English. Although still in his 50's he has retired from full time work and lives with his family in Canada. Despite the size of the case he has shown a mastery of those parts of the evidence that concerned him, and the other unrepresented defendant Mr Deng Liu Gen, and he has been able to cross-examine effectively and get over his points clearly. After university he had worked for an American company and then came to Hong Kong where he was initially employed by a small company for a short period of time. He then joined China Weal, a very substantial Mainland Chinese conglomerate, which was involved with the importation of aluminum into China as well as other investments, co-operating with companies wishing to invest in China. It is said that China Weal has strong connections with the commercial interests of the People's Liberation Army. After 1990 and 1991 China Weal began to invest in the property market in Hong Kong. It built its own office building here and amongst other investments purchased 9, Queen's Road Central from the original developer Hong Kong Land. Mr Ng had been an important executive of China Weal and it is through Mr Peng's association with China Weal that Mr Ng has become a defendant in the way that I will need to consider in due course.

10. Mr Deng Liu Gen who is also unrepresented is a Defendant, together with Mr Ng, in HCCL 98/1995. Unusually in an action such as this he has elected to ask no questions of the witnesses, give no evidence himself and make no final speech. This despite my having explained to him the procedure and the potential effect of not cross-examining and of not giving evidence. He has been content to allow Mr Ng (their cases being identical in every respect) to make the running on behalf of both of them. As a result of this approach there is very little that I can say about him. He has been described as Mr Ng's superior in China Weal and once was I cannot really tell what his situation is nowadays a substantial businessman and senior executive of China Weal.

11. The remaining witnesses in the trial, although important in their more limited way, I can refer to as and when I summarize the effect of their evidence on the issues that they touch upon in the action.

The Companies

12. In the course of the evidence I have heard about very many companies, some of which are parties to the actions, others being corporate vehicles mostly used by Mr Peng, and of other companies also used by the individual defendants in the course of the events that have given rise to this litigation. A number of these companies have also been made defendants in the actions. It would not be helpful to consider their purposes and uses in the course of these events in a vacuum, as it were, by referring to them now by way of introduction without providing some context and background, which can only be done in the course of my review of the relevant evidence. At the same time it will become necessary to show in table form the main corporate structures of Mr Peng's businesses and to demonstrate how these structures were to change over a period of time as he disposed of shareholdings in his attempts to come to terms and deal with the investigations and directives of the regulatory authorities in Shenzhen concerning the affairs of SCIC.

A chronology and narrative of the main events

13. I have the advantage of a very full chronology prepared on behalf of the Plaintiff's for the purpose of Mr Whitehead's opening. I do not propose to recite that helpful list here again. It forms part of Mr Whitehead's opening bundle to which reference may be made. I will of course need to refer to the important dates as part of the history of these matters, but my main purpose now is to provide an understanding of what actually occurred before drawing out the issues which emerge from those events and then consider the evidence behind them, as the basis for the important findings of fact that I will be required to make.

14. I have already related something of Mr Peng's background. In July 1987 he established Shenzhen Yuan Yee Textiles ("Yuan Yee"). In January 1990 it changed its name to Shenzhen Champaign Industrial Corporation ("SCIC") and as I have already related it was listed on the Shenzhen Stock Exchange in March 1990. It is the Plaintiff companies case, and through them Mr Peng's case that SCIC enjoyed great financial successes from the outset and that these successes accelerated following its listing on the stock market. This upset people in positions of influence in Shenzhen who felt that they ought to have shared in that success. A bold assertion is made by Mr Whitehead that this was a highly significant cause of the investigations by the Shenzhen authorities into SCIC's affairs. These investigations began in April 1992. The materials are at volume 10A/1 & 3.

15. I should just pause here to indicate this court's position in relation to the course of the Shenzhen investigation and the measures that were adopted as a result. I do so because Mr Peng has said that he found himself the victim of dark and corrupt forces in high places in Shenzhen which were at work against him. Whilst these are not his words they aptly describe his sentiments. His spectacular success gave rise to resentment, perhaps contributed to by a perception of youthful arrogance where a more modest and even humble attitude might have been helpful to him. There is no doubt whatsoever that the investigations that were carried out were highly professional, thorough and very well-documented. The course of the investigations and the findings that followed them are in the court's papers. These enquiries drew in a variety of government bodies that were separately represented in the investigations. The conclusion was that Mr Peng had acted dishonestly over a substantial period of time. According to the committee's findings this was a systematic course of dishonest conduct by him. It culminated in his arrest, trial and conviction for large scale corporate theft for which he received an 18-year prison sentence. His case has been that this was all part of a pre-arranged 'put up' agenda by the authorities that had been well planned and executed. I have been referred to these materials on a number of occasions during the trial. Nevertheless, it is no part of my function to decide whether these investigations were justified or whether their conclusions were correct. In any event such a course may ultimately prove unnecessary for the purposes of what I am required to decide on the pleadings. These investigations form the background to this trial and they inform the various decisions that were made by Mr Peng in Hong Kong and the other individual defendants either by themselves or through the companies that they represented. It is necessary that I should make this clear at the outset. The decisions made in Shenzhen were those of the Shenzhen authorities no order of this court can affect that directly; nevertheless, I do, of course, have jurisdiction over the parties in Hong Kong that is to say the individual defendants, as I do over the activities of the Hong Kong companies even though, as is the case here, some of them own, either directly or indirectly, substantial shareholdings in SFC (a China company) the new creature of the Shenzhen Restructuring Committee, which was an important body established as a result of the investigations into SCIC and Mr Peng. In the event that I decide these cases in such a way that it becomes open to me to affect the Hong Kong companies shareholdings in SFC in Shenzhen, I will need to act prudently, and with circumspection whilst at the same time recognizing and giving appropriate effect to the findings that I will have made on the merits of the case. I express it in this way because whilst I may not be bound by the various decisions made by the Shenzhen authorities as to the shareholdings in SCIC, their re-distribution, and the creation of SFC and the share allocations in that company I must also recognize the realities of what was done by those authorities in the course of 1993 and 1994. This therefore will be my approach should I find in favour of the Plaintiff companies in these actions. Whilst nothing may ultimately come of it, I have taken a little time to set out the court's position because of what may become a delicate situation particularly where the strong judgments made about Mr Peng's allegedly dishonest behaviour in no way bind me. In due course I will need to demonstrate the effect of those findings against Mr Peng as they may impact on the issues that I need to decide. Mrs Kaplan, who appears for all the represented defendants has, as part of her case, sought to make much of Mr Peng's, as she would describe it to say the least, highly questionable ethics and business methods, the significance of which will need to be explored and put into proper context in the circumstances of these actions.

16. From that necessary deviation I now return to the chronology. In June 1992 the People's Bank of China (Shenzhen Branch) and a number of other banks called in loans that they had extended to SCIC and to Panco (the Plaintiff in the 1995 action) through which Mr Peng owned a shareholding of over 50% in SCIC. These measures, in financial terms, severely squeezed SCIC's ability to trade. Mr Peng says that this was a deliberate ploy on the part of those behind the investigations that were designed to break his hold on SCIC. More will need to be said when I consider the evidence that relates to this.

17. On 12 June 1992 in an effort to alleviate the financial consequences of what had happened Mr Peng sought to raise capital by entering into an agreement to sell 67% of Prosperfield, a company that he controlled through Hark Herald another of his companies, to Jadegarden which was owned by China Weal to which I have already referred in relation to Mr Ng and Mr Deng. Apart from having cash injected into SCIC in that way Mr Peng also hoped to get some advantage from China Weal's important connections in Shenzhen. As will be seen that did not prove successful because Jadegarden was to default on a payment of $120 million to Hark Herald in circumstances of mutual re-crimation which eventually came to the court in Hong Kong. This occurred on 13 August 1992 following the suspension of trading in SCIC's shares on the Shenzhen Stock Exchange on 7 July 1992.

18. On 18 December 1992 the Shenzhen Intermediate People's Court handed down a judgment. (See Vol. 8A/1) The Plaintiff was the Bank of China with SCIC and Panco as Defendants. This judgment held, inter alia, that the loan between the bank and SCIC had been null and void on the basis that Panco's shares in SCIC had been illegally obtained and therefore the security that had been provided by Panco was not valid.

19. By then Mr Peng had realized that he would need further assistance in Shenzhen if he was to come to a workable solution with the authorities there. In early 1993 he invited Madam Ding Ping (together with Mr Zheng as her assistant) to join Prosperfield and help to resolve SCIC's difficulties in Shenzhen.

20. On 9 January 1993 there was an EGM of SCIC, from which Mr Peng's representatives were excluded, which asked the Shenzhen Government to restructure SCIC.

21. On 19 March 1993 the Shenzhen Government Directive 117/93 (Vol. 8A/42) paved the way for the restructuring of SCIC.

22. During March 1993 events that are fundamentally important to these actions took place. At this stage I will merely recite what is said to have taken place and leave over fuller consideration of these events to when I rehearse the relevant parts of the evidence. In order to give Madam Ding a proper 'locus' to negotiate for Panco, representing Mr Peng's shareholding in SCIC, she was paid a fixed salary of $80,000 (although Madam Ding does not accept that this was a salary) and given an 18% shareholding in Hark Herald represented by a 30% shareholding in PIL (then known as PIHL) which had been incorporated on 12 March 1993 as part of an addition to his corporate structure, which had been designed by Mr Peng to accommodate the arrival of Madam Ding and in order to provide further distance between him and Panco the ultimate shareholder of his shares in SCIC. The reason for this being that he was by then persona non grata in Shenzhen so that any perceived connection with him might prejudice Madam Ding's negotiation with the Shenzhen authorities on behalf of Panco. This corporate structure will become clearer in due course when I set out the Peng corporate table which will illustrate the position. On 16 March Madam Ding and Mr Zheng together with Ernest Sin, who was employed by Mr Peng as an accountant and office manager, were also appointed as directors of PIHL.

23. In addition to this Madam Ding and Mr Zheng were also made Directors of Mr Peng's companies, Panco, Crofton and Prosperfield (the Plaintiff in the 1995 action). All of this being further designed to give her standing in Shenzhen to negotiate for Panco. That, at all events, is Mr Peng's version of the situation.

24. The contrary position centres on an alleged oral agreement on 18 March 1993 made between Mr Peng on the one hand and Madam Ding and Mr Zheng on the other. This is the single most important issue in the case. The Defendant's, ultimately pleaded, case is that Mr Peng would arrange to have SCIC sell its entire issued share capital in Hark Herald to PIHL which would thereby become 100% beneficially owned and controlled by Madam Ding and Mr Zheng. This sale would be subject to all claims and liabilities which Hark Herald and SCIC were facing at that time. At that stage Hark Herald was still involved in litigation with Jadegarden over the sale of 67% of its share in Prosperfield. Mr Peng would be released from any liability over $60 million allegedly taken by him from Hark Herald being part of the consideration paid to Hark Herald by Jadegarden for its purchase of 67% of Prosperfield, and that Madam Ding and Mr Zheng would assume responsibility for the outcome of the litigation between Hark Herald and Jadegarden. No further cash consideration would be paid to Mr Peng. Having regard to the pivotal importance of this alleged agreement I will need to consider, amongst other matters, the inherent likelihood of such an agreement having been entered into by Mr Peng in the circumstances that he then found himself in.

25. Between 18 and 20 March there then followed a series of share transfer transactions that according to which side's account is to be accepted, the oral agreement of 18 March was further put into effect, or as Mr Peng will have it, these were routine transactions which took place in order to put as much distance between him and his holding in Panco and through it in SCIC. This includes a meeting at PIL's offices in Wanchai when Madam Ding says that she was deceived by Mr Peng into signing share transfers which had the effect of depriving her of the absolute control that she thought that she was going to receive under the oral agreement of the previous day. This event of 19 March is the second most important factual issue that I will need to explore in the evidence.

26. Thereafter, on 20 March 1993 there was a series of corporate reorganizations, all of which were instigated by Mr Peng, the paper work for which was prepared by Baker & MacKenzie and Irene Low & Co. two solicitors firms of the highest reputation, which had the effect of maintaining Mr Peng's ultimate grip on his shareholding in SCIC whilst as a matter of corporate structure distancing him from any apparently immediate connection with Panco and SCIC. If Mr Peng is right this reorganization which, for present purposes, the detail of which I need not recite was entirely in accordance with his agreement with Madam Ding and Mr Zheng. This reorganization affected the whole corporate tree of Mr Peng's companies from Benlora (his Australian holding company) at the top, down to SCIC. Apart from appearing to distance Mr Peng from SCIC these changes were also made to assist in any new business initiatives in the PRC by the Prosperfield group of companies in which Madam Ding and Mr Zheng were now involved and also to make it more attractive for new investors to invest in either SCIC or into the Prosperfield group. In this regard the involvement of Madam Ding and Mr Zheng was seen to be of positive assistance especially after the measures taken by the Shenzhen authorities against SCIC. From that brief description one can see how diametrically opposed the parties versions are.

27. In early May 1993 (the precise date being illegible on the face of the document) the Higher People's Court of Guangdong Province delivered its judgment on Panco's appeals against the Intermediate Court's judgment of 18 December 1992 (see Vol. 8A/8) in which it, in part, allowed Panco's appeal. It held that the loan agreements between SCIC and the creditor banks were valid; that Panco's shareholding in SCIC had been properly acquired and that the creditor banks could therefore not challenge the legality of Panco's holding in SCIC. This had the effect of allowing SCIC more breathing space and an ability to continue trading albeit restricted by the ongoing investigations.

28. On 20 May Madam Ding was appointed a director of Hark Herald. This, according to the Defendants, being in conformity with the oral agreement whereby control of this part of Mr Peng's corporate structure had passed to her. On 25 May Madam Ding, Mr Zheng, Mr Ng and Mr Deng were appointed directors of Panco, Crofton and Prosperfield which coincided with the settlement of the outstanding action in the High Court in Hong Kong between Hark Herald and Jadegarden which Madam Ding had been able to negotiate.

29. On or above 26 May Madam Ding and Mr Zheng say that they first learnt of Mr Peng's deception over the alleged oral agreement of the 18 March and thereafter they set about dismantling his corporate reorganization in order to restore their control over the Prosperfield group and ultimately down to Panco's shareholding in SCIC. If they are right about this they merely took back what Mr Peng had agreed to give them as a result of the oral agreement of 18 March.

30. The mechanics of how they achieved this was carried out by Mr Zheng during the course of the month of June by means of 'home made' drafting of share transfers and board resolutions. I will elaborate further on what was done when I rehearse the relevant evidence in respect to this.

31. Once Mr Peng came to know of this he immediately resorted to the courts in Hong Kong for injunctions with the intention of negativing and freezing the effect of what Madam Ding and Mr Zheng had done. The first injunction was granted by Leonard J. on 23 June (Vol. 2/1) directed against Tripole and Mr Zheng. That order was continued by Deputy High Court Judge Wesley Wong on 21 July (Vol. 2/2). Mr Whitehead has made much of the fact that these injunctions were deliberately and contemptuously ignored by the Defendants which he describes as an aggravating factor in the case against them. Mrs Kaplan's reply to that charge is that these orders could not bind them for reasons which will require further consideration presently. By then the case against Mr Peng in Shenzhen was very much in full swing. The restructuring committee there published its report on 9 August (Vol. 6A/5) which was a daming indictment of Mr Peng and his methods and 10 days later on 19 August the Shenzhen Government issued its Directive 355/1993 (Vol. 8A/43) which disposed of Panco's shareholding in SCIC, the most significant disposal for the purposes of this case being the transfer of over 17 million of SCIC's shares to China Projects Limited, the 5th Defendant to the 1995 action, a company controlled by Madam Ding and the transfer of 3 million of Panco's shares in SCIC. This Directive had the effect of putting paid to Mr Peng's control over SCIC the company that he had founded and once controlled.

32. On 2 September a further ex parte injunction was obtained from Deputy High Court Judge Wong (Vol. 2/5) against Madam Ding, Mr Ng and China Projects in an attempt to neutralize the effects of the Shenzhen Directive and leave was also given to commit Madam Ding, Mr Zheng, Mr Ng and China Projects (Vol. 2/4) for failing to comply with the previous injunctions. As will be seen nothing came of that as the individual Defendants had remained outside the jurisdiction of the Hong Kong Courts.

33. Thereafter, matters moved on quickly. On 5 September there was an EGM of SCIC which resolved to accept the restructuring committee recommendations to restructure SCIC (Vol. 6A/19-32).

34. On 13 October Mr Peng, who was on business in Macau, was arrested in his hotel room and taken across the border at Zuhai which culminated in his trial, conviction and imprisonment two years later.

35. On 29 December 1993 the Shenzhen Government issued its Directive 918/1993 (Vol. 8A/44) assenting to the creation of a new company, Shenzhen Fountain Corporation (SFC) to succeed SCIC and the redistribution of SCIC's shares to this new company. This represented the final nail in the coffin for Mr Peng's holdings in SCIC. They were totally extinguished and redistributed. Madam Ding's company China Projects were as a result given 38.235% in SFC.

36. From then until October 1995 Mr Peng had been held on remand in custody until his conviction and sentence to 18 years' imprisonment. In September 1995 an attempt was made by Mr Zheng to strike out the 1993 action which application was dismissed by Findlay J (Vol. 2/9). Thereafter, nothing of significance to this litigation occurred until November 1999 when Mr Peng was released from prison and immediately set about trying to restore his position largely through these two actions. In September 2002 the Defendants sought to strike out the actions for want of prosecution which was dismissed by Stone J and which then paved the way for the trial itself starting in March 2003.

37. This concludes the 'road map' by which these two actions have got to court after a long journey interrupted shortly after they started in 1993 and 1995 as a result of Mr Peng's 6 year detention in Guangdong.

38. I have sought to trace Mr Peng's rise from modest beginnings through to his highly successful and profitable creation of SCIC and on to his troubles with the Shenzhen authorities and his associations with Madam Ding and Mr Zheng through whom he had hoped to form a valuable alliance by which to manoeuvre his way though his difficulties in Shenzhen. The fundamental dispute will centre on whether he had orally agreed to dispose of his control of SCIC by giving Madam Ding and her associate control of his shareholding in Panco and thereby of SCIC. If he is right that there was no such agreement then the result is that he has been cynically 'robbed' of his companies by Madam Ding and Mr Zheng with the knowledge and acquiescence of Mr Ng and Mr Deng. But if, Madam Ding and Mr Zheng are right then it is he who has been deceitful in his dealings with them and it is fortunate that they found out in time and were able to reverse what he had done and were then able to participate in the restructuring of SCIC to the benefit of the company's shareholders as a whole who had fallen victim to what Mr Peng had been doing to SCIC's assets which had brought it to the verge of financial collapse. It is difficult to imagine two more divergent accounts about which I will have to come to a decision on.

The issues that arise from these events

39. This case has produced a large number of disputes on the evidence. The fact that Mr Peng has been cross-examined for over 5 days speaks for itself. Whilst in a case of this importance counsel on both sides have had to cover much detail in the course of examination and cross-examination of the witnesses in order to investigate evidence and to confront the opposing witnesses with their side's version of events, it will not be necessary for me to re-visit the majority of these disputes in the course of this judgment. To do so would not serve any useful purpose and may in fact have the undesirable effect of blurring the essential issue of fact which is whether there was an oral agreement on 18 March 1993 as contended for by Madam Ding. It is this single issue which must ultimately be determinative of the action on liability, although both counsel have in the course of their final speeches proposed alternative ways of viewing the evidence based on the effect of a number of legal propositions that are said to support their cases even without the existence of the oral agreement which Madam Ding and Mr Zheng are relying on. Having regard to the central importance of the existence or otherwise of 18 March agreement it will be helpful if I concentrate on that matter first. This will require an examination of the evidence as to how it was that Mr Peng came to associate himself with Madam Ding and Mr Zheng in the first place and evidentially to set the scene as to why the Defendants say that Mr Peng would have wished to enter into such an agreement.

40. In the course of my examination of the evidence I will be in a position to make a number of crucially important findings of fact. What I will not be able to do is to either condemn (as the Shenzhen authorities were able to do) Mr Peng of the misconduct that resulted in his conviction and imprisonment nor will I be able to return a "not guilty" verdict on those matters. I desire to make that clear now and to say why that is so.

41. Although Mrs Kaplan has covered some of the material that brought Mr Peng before the Shenzhen authorities, she has delved into it more as a matter of credit rather than as a substantive exercise. Time has not permitted such an enquiry and as a matter of admissible evidence the witnesses have not been produced to speak of the events that are said to support those conclusions. The reports from Shenzhen, although detailed in their condemnation and conclusions cannot provide the primary evidence that would support such a case before this court. The result is that Mrs Kaplan is left with submitting that the general flavour of Mr Peng is of an unethical businessman whose desire for the acquisition of personal wealth supersedes any sense of commercial probity. That he is a person who will manipulate any situation to achieve the end result, which is profit for himself, irrespective of the adverse effects that they have on partners and shareholders. In assessing the worth of that submission and its impact on Mr Peng's credibility I am only able to have regard to the admissible evidence before me. Whilst that may include the general backdrop of the Shenzhen investigations I can only rely on matters proved in evidence before me.

The evidence that bears on the alleged oral agreement of the 18th March 1993

42. The first matter to refer to is the corporate tree which shows Mr Peng's holding in SCIC just before the start of the Shenzhen enquiry. What this does not show is the massive web-bike structure of his businesses. As to that I need only refer to it (see DCB79). It speaks for itself in terms of complexity and scale covering a number of well-known "jurisdictions" from the BVI to the Cook Islands. Mrs Kaplan has put to Mr Peng that this unnecessary complexity is deliberate in order to obfuscate the extent and nature of his business affairs and it is this unnecessary complication that was used by him to dupe Madam Ding and Mr Zheng as to the true nature of their ultimate holdings in SCIC. The table I now need to refer to shows the immediate shareholding position above SCIC as at 12 June 1992. It appears as Diagram I to Mr Whitehead's opening (Tab 4).

DIAGRAM 1

A diagram is put in here

What emerges from this is that the dominant company was Hark Herald which in turn was 85% owned by Champaign Ltd, a company controlled by Mr Peng.

43. Diagram 2 shows what happened after the sale of 67% of Prosperfield to Jadegarden for $300 million.

DIAGRAM 2

A diagram is put in here

This transaction was concluded under a series of agreements which are in Vol. 4A1/16. I have already referred to this transaction and the reasons which motivated Mr Peng to seek outside assistance. By then, as from April 1992, the Shenzhen Government had launched its enquiry into SCIC and into Mr Peng's conduct and in June, the Bank of China had started its action against SCIC and Panco for the repayment of loans made to both of these companies. Mr Peng needed an injection of substantial capital into SCIC and Panco and he also needed influence in Shenzhen. He thought that China Weal could provide both. China Weal was by now very well established in Hong Kong and it appeared to have commercial connections with the Army. Mr Ng who was one of its executives also had good connections through his father. China Weal nominated its 100% owned subsidiary Jadegarden to enter into the transaction. Whilst much has been made of the falling out between Jadegarden and Hark Herald and as to what ultimately became of $60 million that was paid to Mr Peng, the truth of the matter is that, important as this transaction may have been at the time that it was entered into, it really provides no more than background and history to what was to follow. Mrs Kaplan says that it serves to lend some colour to Mr Peng as a 'sharp' operator and that it is likely that he had made off with the $60 million. Mr Whitehead says that on the contrary this demonstrates that despite SCIC's troubles in Shenzhen, the fact that China Weal, no doubt very well advised by its solicitors Deacons, was prepared to pay $300 million only goes to show that far from being insolvent SCIC was seen to be a very valuable asset. As to the $60 million Mr Whitehead had said that this has been properly accounted for.

44. My own judgment is that the real significance of the sale is that it merely establishes the basis for Mr Peng having to look elsewhere for assistance which brought Madam Ding and Mr Zheng into the picture as it did, Mr Ng and Mr Deng the executive directors of China Weal and the architects of the purchase of 67% of Prosperfield. I need only relate, without more, that Jadegarden failed to pay the second tranche of the purchase price, with justification say Mr Ng and Mr Deng and in plain breach of the agreement according to Mr Peng. I have already related that Hark Herald then sued Jadegarden under the agreement in Hong Kong and that this action remained extant until purportedly settled by Madam Ding after she had, according to her, lawfully acquired control of Hark Herald from Mr Peng.

45. In view of the falling out with Jadegarden Mr Peng was in pressing need of further assistance. Jadegarden had defaulted over the payment of the $120 million on 13 August 1992 and on 18 December 1992 the Intermediate Court at Shenzhen had delivered its judgment in the action brought by the Banks. By then it is fair to say that Mr Peng's position had become very urgent. He turned to Madam Ding which also entailed the involvement of Mr Zheng. This was in early 1993.

46. Madam Ding says that she was at first a little reluctant to get involved with Mr Peng. His name had been mentioned to her by a friend of hers, Mr Cheung King On of the Xinhua News Agency, in Hong Kong but at the time she was occupied with her own business of affairs in Xiamen and in any event did not think that her import and export company in Xiamen had much in common with what SCIC was doing in Shenzhen. Nevertheless, although at first declining to get involved she changed her mind after being pressed by Mr Cheung and by Mr Zheng who had already become involved with Mr Peng by having played a part in brokering the sale of 67% of Prosperfield to Jadegarden.

47. There is a dispute as to the terms of Madam Ding's employment. The Plaintiff companies case is that she was paid a monthly salary of $80,000 and reimbursed all her accommodation and travel expenses in and out of Hong Kong. Her response to this has been a vigorous denial that she would have been paid a salary, almost to the extent that it would have been beneath her dignity to receive a salary. She has accepted that she received regular payments at this rate the Prosperfield ledger (9A/163-169) amply confirms that and that she would have needed accommodation and travel expenses to enable her to do her work on behalf of the Peng companies over their difficulties in Shenzhen but that these payments are in no way to be equated with this status of a salaried employee, albeit a very important one. Mr Zheng was paid $55,000 a month and he too has vehemently denied any employer/employee relationship with the Peng companies although the fact is that application forms were filled out to show that he was an employee of PIHL. The importance of whether they could properly be described as employees is raised by Mr Whitehead. He submits that if they were salaried employees in the accepted sense of that status then this would militate against the notion that they were Mr Peng's partners in his organization. I will need to consider this aspect more fully in a moment when I rehearse the arguments on the issue of the existence of the alleged agreement of 18 March.

48. I have already related the rival positions as to Madam Ding's and Mr Zheng's involvement in the affairs of SCIC. The lead up to this was that according to her Mr Peng was to withdraw from the affairs of SCIC and the companies through which he held his shares in SCIC. Prior to 18 March she had had some discussions with the authorities in Shenzhen and thereby obtained a measure of the problems that SCIC was facing. She had also gone to Beijing to talk to two state-owned enterprises that were interested in participating in the re-structuring of SCIC. Her talks there were fruitful in that the heads of these enterprises indicated to her that if she was to take part in the SCIC re-structuring process they were willing to withdraw and fully support her role in assisting the Shenzhen Government in re-modelling SCIC. This meeting had taken place on 17 March. She spoke to Mr Zheng who she says she invited to come on board with her. He was good with the accounting and financial side of things and he was already familiar with SCIC's problems because of his part in the sale of 67% of Prosperfield to Jadegarden.

49. Having therefore received all the right indications from the persons that mattered in the SCIC re-structuring the field was clear for her to establish her position with Mr Peng. Her case is that as his position in Shenzhen was quite untenable she had to come to an agreement with him whereby she would have control of his shareholding in SCIC for which he would need to be appropriately compensated. The amount would have to be one commensurate with his now severely weakened position having regard to what the authorities in Shenzhen were about to do to SCIC. He would then withdraw and she could get on with dealing with Shenzhen, which she felt sanguine about having regard to who she was and in view of the indications that she had received in Beijing and from the re-structuring committee in Shenzhen.

50. It is against this background that one needs to understand Madam Ding's and Mr Zheng's case before one looks in a little more detail as to what Mr Peng is said to have received in return.

51. His case is that he would never have just walked away from what was his life's work. He accepts the extent of his difficulties in Shenzhen but with Madam Ding on board as part of his organization he had grounds for believing that the problem could be resolved. In offering Madam Ding an 18% shareholding in Hark Herald through a 30% holding in PIL in addition to $80,000 a month plus reimbursement of living and travel expenses he suggests that this was a most generous financial incentive for the assistance that he believed she could provide. The effect of this shareholding would have given her something like 9% in SCIC.

52. This oral agreement, says Madam Ding, was arrived at over dinner at a Japanese restaurant on the 18th, the day following her discussions at Beijing.

53. Given the importance of this I ought to rehearse the argument on both sides for and against a finding that such an agreement had been made. I take Mr Whitehead's points first which he has helpfully set out in his note to his final speech. I stress that I am now dealing with a pure question of fact in a case where much law, some of it not entirely uncomplicated, has been displayed before me for my assistance.

54. Mr Whitehead starts from the position that the Defendants bear the evidential burden of showing that such an agreement came into existence. That must be correct. He suggests that if Ding and Zheng were employees, albeit that Madam Ding had a generous ultimate 9% shareholding in SCIC through P & P and Hark Herald, then it is most unlikely that she would have been given the status of "partners" in his business. He then puts forward what he describes as the stronger point that had there been an agreement on 18 March which had the effect of Mr Peng divesting himself of his interests then there would have been no reason why these salary payments would have continued being paid which is what happened for some months after the 18 March.

55. Another feature of the evidence which is relied on by Mr Whitehead is that Peng made very substantial payments into PIHL after 18 March. This evidence is at D3/14-17. Between 26 March and 9 June he put in $3.1 million. The rhetorical question is then asked: Would Peng have made such substantial payments into PIHL as late as June 1993 had he transferred all of his interests in his companies under an agreement on 18 March?

56. The next matter that Mr Whitehead has turned to is the state of the Defendants' pleadings, much amended, and, more importantly, amended to put forward mutually inconsistent accounts of the Defendants' case. The defence as originally pleaded provides the first detailed exposition of the case as to how the agreement came into existence. Mr Zheng says that he was responsible for providing the relevant information to the solicitors so that the pleading could be prepared. In paragraph 37 the allegation is that it had been agreed with Mr Peng that they would be entitled to direct Benlora (Mr Peng's ultimate holding company) to transfer one share to either of them or to allott new shares to themselves so that they could acquire a 100% beneficial ownership of PIHL. This primary allegation has now been completely removed. In paragraph 39 it is pleaded that the Defendants had agreed and instructions were given to Baker & MacKenzie to acquire a shelf company in the Cook Islands. This allegation has also gone. It has been crossed out and replaced by a wholly different version that unbeknown to them Mr Peng had incorporated a company in the Cook Islands called Pacific Innovest Holdings Ltd (PIHL). At paragraph 44 there was the plea that the Defendants entrusted Mr Peng and allowed him to instruct Baker & MacKenzie to give directions to relevant nominee companies in the Cook's. This has been amended out and replaced by a contrary pleading that without the Defendants' knowledge and consent Peng gave instructions to nominee companies in the Cook Islands. At paragraph 48 there is the plea that Madam Ding had only agreed to become a shareholder and director of P & P Ltd in the mistaken belief that P & P was a nominee company of Mr Peng. This factual basis has now also gone and is replaced by the allegation that this was a fund management company which Peng was interested in and which had nothing to do with the Pacific Innovest Companies PIL and PIHL. This too is a material change. Lastly, Mr Whitehead draws attention to the fact that an important part of the consideration for the transfer of his interests, which are three mainland companies, which I will need to say more about, are not pleaded at all. From all of this Mr Whitehead submits that the terms of the oral agreement first pleaded are very different from what has now been suggested in the trial with the inevitable consequence that this must cast a very long shadow on the veracity of Madam Ding and Mr Zheng's evidence.

57. Mr Whitehead then draws attention to the Defendants' case that part of the consideration for Mr Peng having transferred his interests to Madam Ding and Mr Zheng were businesses in China said to be worth about $50 million. Mr Zheng agreed in the course of being cross-examined [D13/83] that this formed an important part of the oral agreement. Despite this there was no mention of it in Mr Zheng's affirmation in October 2001 [1F/105] which he affirmed for the purposes of an application to strike out the claims for want of prosecution. In the affirmation at paragraph 19 he has set out the terms of the agreement without reference to that. Mr Whitehead comments that this must also cast doubt on the reliability of the Defendants' account. He then seeks to reinforce the point by reference to Mr Zheng's witness statement dated 3 January 2003 where at paragraph 90 this part of the alleged agreement surfaces for the very first time ten years after the event and following several amendments to the pleadings and further and better particulars when, in addition to his earlier affirmation, there would have been opportunities to plead this element of the alleged agreement. Quite apart from this late introduction of these businesses as part of the consideration, Mr Whitehead has also sought to analyse the true worth of what was being exchanged for his control of SCIC with a view to demonstrating that in effect he was getting nothing. All of this to support the case that this alleged oral agreement, quite apart from being unsupported by any written memorandum or note, is one that is so inherently improbable in itself that I can safely discount it.

58. The three businesses referred to include a share in a joint venture agreement to operate Madam Ding's Xiamen Pony Department Store. The joint venture agreement is a Bundle 9E/131C and is one entered into between Madam Ding's company Pan-Pacific Import and Export Company and PIHL. This was signed on 8 March. Madam Ding has put a value of $30 million on Pan-Pacific. Quite apart from the fact that there is no evidence to support this amount one needs to look at the joint venture agreement itself to see that this was worth nothing of substance for Mr Peng. Both parties were due to fund the project but at that stage had not done so and in any event, 80% of what was due had to come from PIHL, Mr Peng's company. Licences and permissions still had to be obtained and 80% of the venture was to come from Mr Peng. Presumably, Madam Ding's 20% was calculated on the value of the building that was to house the department store and her considerable connections and influence in Xiamen. Mr Whitehead submits that all events at that stage, this joint venture was worth nothing to Mr Peng and, if anything, represented a liability to pay 80% of the investment.

59. The other business that was to be put into the scales for Mr Peng's controlling interest in SCIC was to be the Shandong Construction Oriental Company which was an investment that had been introduced to him by Mr Zheng. Mr Peng's company York Fine Investment Company Limited was to inject US$6 million and the other partner the Shandong Province Real Estate Development Corporation would be providing the land. Mr Zheng himself had put in $300,000 for initial costs including promotional expenses but, without Mr Peng's US$6 million the project simply could not get off the ground. Mr Whitehead says that it is perfectly obvious that Mr Peng was not really getting anything save for the opportunity to invest in a property development in Shandong which could only go forward if he was prepared to make a very sizable capital injection. Madam Ding and Mr Zheng were not transferring anything to him if anything, this was merely an introduction to a possible property development investment which required US$6 million from him.

60. Lastly, there is the Great Wall Construction General Company based on a piece of development land in Guangdong which according to Mr Zheng could have been made available for Mr Peng and Madam Ding. The land itself belonged to a state-owned company. [See D13/85-87 and 96-97]. Mr Zheng and Madam Ding had no interest in it. It is therefore plain that this project was very much in its infancy and that it would have been Mr Peng who would have been expected to make the substantial financial investment. There was nothing there of any substance which Mr Peng would have found persuasive in transferring his control of SCIC to Madam Ding and Mr Zheng.

61. Given the 'recent invention', as Mr Whitehead would characterise it, or, put more neutrally, the recent emergence of these three businesses as part of the bargain that went with the agreement this must cast the gravest doubt on whether such an agreement existed, particularly when on a proper analysis of them Mr Peng would have received nothing from these ventures.

62. But the matter does not end there says Mr Whitehead. He draws attention to what Madam Ding and Mr Zheng had told Mr Ng of China Weal about their acquisition of Mr Peng's interest in Hark Herald. It is through this that another version is put forward. They told them that they had purchased Mr Peng's interest for $100 million. Mr Zheng showed Mr Ng a cheque for $100 million in the street outside Mr Peng's offices in Wanchai [D17/29] and subsequently Mr Ng says that Madam Ding also showed him the cheque for $100 million at her flat in The Atrium when he pressed her about the sale of Peng's interests to her. [D17/87-89]. Mr Ng has also referred to this in his witness statement [P215/paragraph 15]. Mr Whitehead draws attention to the fact that Mrs Kaplan did not challenge this part of Mr Ng's evidence. Be that as it may it is right to say that Mr Ng gave evidence that Mr Peng had also told him that he had sold his interest for $100 million although he had not been present on the two occasions that the cheque had been shown to Mr Ng.

63. Having given that evidence about Mr Peng also telling him about the $100 million sale Mr Ng then recanted when cross-examined about it. His precise words are worth reciting here:

"...therefore now I will not insist on these words, that is saying that James Peng must have said that he had sold all the interests to Miss Ding Peng. I feel I owe the court an apology for the delay I might have caused as a result of my discrepancies in my memory and recollection of the events." [D18/4].

64. What Mr Whitehead seeks to get from this is that Madam Ding Peng and Mr Zheng did not tell Mr Ng of any oral agreement of the type now contended for but of a sale of Mr Peng's interest to them for $100 million. This is yet another very material inconsistency which leaves their account on the oral agreement in disarray.

65. There are now two other phases to which I need to refer. The first relates to the signing of some relatively straightforward corporate documents on the 19 March the day after the alleged oral agreement. There has been some uncertainty and challenges as to this date but it is now accepted, and I find as a fact, that these documents were signed on the 19th at Mr Peng's offices in Wanchai. They have been described as the P & P Ltd documents which is a Cook Islands company established to further the business relationship between Mr Peng and Madam Ding. The main purpose according to Mr Peng was to assist in the removal of 'his image' from the affairs of SCIC and as part of the arrangement which was to provide Madam Ding with the locus to negotiate with the Shenzhen authorities. Her case and that of Mr Zheng is that Mr Peng, with the assistance of his cousin a Mr Pang Kai, who was present at the time, indulged in some trickery which resulted in Madam Ding Peng signing these documents without knowing their true purpose their effect being that Mr Peng retained ultimate control of Hark Herald, Panco and down on to SCIC, contrary to the oral agreement that they had concluded the previous day. The other person who was present and involved in the sense that he had overseen their preparation is Mr Paul Tan, a partner in Baker & MacKenzie. It is clear from his evidence that this documentation had to come from the Cook Islands and this process had pre-dated the alleged oral agreement of 18 March.

66. The allegation against Mr Peng is that at the crucial moment when Madam Ding needed to sign these documents Mr Peng took Mr Zheng away to another room on a pretext that he needed to speak to him about another matter. The reason for this being that because Madam Ding could not read English she would have required Mr Zheng to read and explain these documents to her. Mr Peng did not want that to happen lest Madam Ding and Mr Zheng realized on reading the documents that arrangements were being put in place which ran counter to their agreement of the previous day.

67. Mr Paul Tan's evidence has been entirely straightforward. I should observe that it was the Defendants who had originally subpoened him to come and give evidence but on the resumption of the trial Mrs Kaplan indicated that he would not be called with the consequence that the Plaintiffs' had to call him. He has told me that he speaks perfectly good Mandarin and that it is in this dialect that he spoke to Madam Ding. He gave evidence of a routine procedure which, as an experienced corporate lawyer, he had gone through on countless occasions. The documents were straightforward and he had no difficulty explaining them to her. His evidence's is at D12/41-44 and P57. He told me that Mr Peng had introduced him to Madam Ding as a kind of partner through which they would jointly co-operate. This was to be effected through joint shareholdings in companies. Mr Tan says that this was explained by him to Madam Ding and he was sure that she understood what he had said to her [D12/41]. It is alleged that Mr Pang Kai, who had been a party to the deception, took over and explained to her that these documents related to a co-operation with an investment fund, which of course was not the case and which was contrary to what Mr Tan had told Madam Ding. Pang Kai and Mr Tan do not accept that this was said. Had it been said Mr Tan would have heard it and corrected that error. Mr Whitehead submits that there is no reason to doubt Mr Tan's evidence. He is a highly professional lawyer and entirely neutrally in this matter. He had been instructed to have these straightforward documents prepared and to explain them to Madam Ding. He uses Mandarin professionally with regularity and Madam Ding would have understood him. If his evidence is accepted this not only puts an end to the notion that Madam Ding was separated from Mr Zheng so that she might be misled into signing the documents by Pang Kai but it is further proof that there was no oral agreement the previous day. These documents signed the following day are all consistent with Mr Peng's account of co-operation with Madam Ding to represent his interests in Shenzhen whilst at the same time providing her with sufficient standing to conduct her talks with the mainland regulatory authorities.

68. Mr Whitehead also makes the point that when all is said and done there would have been no need to trick Madam Ding over this matter. Mr Peng could have held the shares in P & P himself or he could have got some one else to hold the shares, there was no need to have Madam Ding as a shareholder in P & P. That misses the point says Mrs Kaplan, because the real purpose of the exercise was to shift the assets away to another company in which Madam Ding had no interest at all. The net result, as I have already observed was that Madam Ding had a 30% shareholding in P & P which gave her 18% of PIHL which in turn translated itself into 9% of SCIC which was what had been agreed between them. This being Mr Peng's version of events.

69. The final phase of this crucial factual dispute relates to the signing of further corporate documents on 20th March at the offices of Irene Low & Co. Mr Whitehead submits that on a proper analysis of these documents it is simply not possible to say that there had been an oral agreement on 18th March to transfer Mr Peng's interest in Hark Herald to Madam Ding and Mr Zheng. The documents that were signed just two days later militate against such an agreement having been entered into. These are substantial documents both in content and length. That being so they could not have been prepared, literally, overnight on 19th March. Instructions would have had to have been given and the drafting done by the next day even making every allowance for what a draftsman can now do on a computer. The allegation by Madam Ding and Mr. Zheng is that the Peng interests had been transferred to them personally. What was signed by the parties on the 20th does not begin to reflect that. Mr Whitehead points out that this would have been obvious to Mr Zheng even on a cursory perusal of the documents. Notwithstanding this, his evidence was that:

"We believe it was clear at the time from the above documents that Mr Peng had transferred all his interests in Hark Herald to Miss Ding and me." [P104 paragraph 105 of his witness statement].

Madam Ding's witness statement P23 paragraph 52 is to this effect:

"We believe that all the documents correctly and accurately recorded the terms of the oral agreement..."

Nevertheless Mr Zheng was forced to accept, when pressed in cross-examination, that the documents effected the transfer of interests to the company and not to them personally. [D14/21].

70. Mr Whitehead submits that the nature of these documents and the obvious time that it would have taken to have them prepared by the solicitors is entirely consistent with the Plaintiffs' case that Mr Peng and Madam Ding had agreed in early March to co-operate together in resolving to work through SCIC's difficulties in China with her getting a generous block of shares in SCIC through her holding in P & P and Hark Herald as well as a salary and expenses.

71. Finally, I should refer to additional comments that Mr Whitehead makes on the question of timing. Mr Zheng's evidence is that the events of 19 March, when he had been separated from Madam Ding, created an unpleasant atmosphere and that Mr Peng took them all out to lunch to calm them down. More particularly this had made him and Madam Ding suspicious that Mr Peng had not honoured the agreement. The other matter that made them suspicious was the proposal by Mr Peng in April/May that Simon Chiu, his right-hand man, and Mr Miu Nam should be made directors of Panco, Prosperfield and Crofton. There would have been no reason for that request had Mr Peng really divested himself of all his interest in Hark Herald and the subsidiary companies that came with his control of Hark Herald. They say that these matters caused them to go to Mr Peng's offices and look at the corporate documents again, only to discover that he had not honoured their agreement and that he still retained control of the corporate structure. Mr Whitehead suggests that had there really been an oral agreement on 18th March and had Mr Peng sought to trick Ding and Zheng that would have been immediately apparent from the documents that they had signed on the two subsequent days. There was no need to wait for two months in order to go to the documents to confirm those suspicions. He submits that the real reason for the delay before Mr Zheng "knocked down Mr Peng's secret structures" was that it was necessary for Madam Ding and him to first settle the Hark Herald dispute with Jadegarden which they did on 25 May. In doing so, in a way which Mr Ng found upsetting to the point of not wishing to settle the dispute until his associate Mr Deng persuaded him that they really had no choice in the matter, Hark Herald ended up with 51% and China Weal with 49% thereby ceding control to Hark Herald. Once that was achieved Mr Zheng and Madam Ding then moved on to divest Mr Peng of all his interest in Hark Herald and down through to Panco in SCIC. This says Mr Whitehead is why they delayed for two months they needed to see off China Weal before they could turn to Mr Peng. Had there really been a genuine suspicion that Mr Peng had not honoured their oral agreement on 18 March they could and would have known and done something about it by 20th March at the latest. Their case was that they had been made the owners of a majority shareholding in a public company worth millions of dollars by virtue of these oral agreements on 18 March. Acting on a 'suspicion' two months later does not ring true.

72. The last of Mr Whitehead's comments concerns the continued involvement of Mr Chiu into as late as June. He was very much Mr Peng's man on the board and it was he who signed the settlement agreement for Panco in the dispute for Jadegarden. The comment is therefore made that it is most unlikely that had Mr Peng really divested himself of his interest in the Hark Herald structure his own man would have continued as a director of Panco so late in the day this in addition to the matter that I have already referred to concerning Mr Peng's continuing to fund the company organization in excess of $3 million as late as June.

73. That formidable argument on the facts is answered more shortly by Mrs Kaplan. The substance of it appears at paragraph 10 of the note to her final speech. To get a proper sense of it one needs to understand the evidence as to the state of SCIC's affairs in China. The Defendants' case is that by March 1993 the position of SCIC was quite untenable. The chronology which I have set out in an earlier part of the judgment starting in paragraph 13 shows that since April 1992 (11 months before) the regulatory authorities were well and truly onto Mr Peng's conduct of SCIC and making life difficult, if not impossible, for him and the company. By June 1992 SCIC had been sued by the banks and in July trading in its shares on the stock market had been suspended. He had seen the writing on the wall and he needed to sell 67% of Prosperfield through Hark Herald to China Weal (Jadegarden) to raise cash, $300 million had it all gone smoothly, and hopefully to have China Weal's influence on his side of the dispute. By August that agreement was in trouble when Jadegarden refused to go on with the second payment of $120 million and Hark Herald was obliged to sue in Hong Kong. In December 1992 the Shenzhen Intermediate Court had upheld the Bank's suit on the validity of the loans to SCIC and by January 1993 its board was asking the Shenzhen Government to re-structure the company that was by now burdened with debt. From this Mrs Kaplan submits that by March 1993 Mr Peng was completely boxed in. His reputation in Shenzhen had gone, and he was being branded incompetent and dishonest. For all of these reasons it was hardly surprising that he came to Madam Ding not only asking for her help but for a way out. He would try to get as much as he could out of it principally by keeping the doubtful $60 million that he had received on round one of the Jadegarden agreement, an opportunity to invest in further projects in China (the three businesses) which involved Madam Ding and her ability to make things happen there and he could wash his hands of the potentially troublesome Hark Herald/Jadegarden litigation. A perfectly good deal in the circumstances?

74. Having made that submission and on the assumption that it would hold good that there was an oral agreement to that effect on 18th March, the balance of Mrs Kaplan's argument is based on that and on the premise that it was Mr Peng who had been duplicitous by reneging on the agreement in the way that I have already considered. It is from that factual basis that Mrs Kaplan has mounted, if I may say so, an interesting and well researched submission on the legal effects of what Mr Peng is said to have done.

75. But it is plain that these submissions cannot begin to get off the ground if I was to hold against her on the alleged oral agreement of 18th March. Having reviewed the evidence and the arguments it is to this vital finding of fact that I must now turn.

Was there an oral agreement on 18 March?

76. In coming to a conclusion I need to consider all of the evidence that I have referred to as bearing on this issue and to see where the inherent probabilities lie. In doing so I must have regard to the prevailing circumstances and to the individuals concerned in this case the three main players.

77. As to Madam Ding whilst she of course comes with impeccable credentials, if I may so describe them, she is a member of one of China's most prestigious and influential families by virtue of her relationship to the paramount leader the now late Mr Deng Xiao Ping. I have no doubt that in a society where relationships are so important, I am convinced that she could have carried all before her with the Shenzhen authorities if she wished to, and she knew that to be the case, provided that she was able to make sensible proposals to them for the re-structuring of SCIC. She has told me of her successful discussions at Beijing on 17th March where she was able to persuade the heads of two large state enterprises who were on the verge of entering into the re-structuring process to stand back and allow her to make the running with their support. This speaks volumes for the sort of influence and persuasion that she was able to wield.

78. Mr Zheng had no real authority but Madam Ding saw him as an able executive in corporate matters. He was able to do the vital 'bits and pieces', the mechanics that go with corporate re-organization.

79. In terms of Mr Peng's integrity, which is central to this whole dispute, I have read and had regard to the Shenzhen documents. He is roundly accused of dishonesty and his conviction for large scale corporate theft and sentence to an 18-year prison term must cause me to be careful not to take his evidence in an unquestioning way. I have already indicated my view as to the status of the Shenzhen proceedings and I need not repeat them here again. Whilst their findings do not bind me and the vast majority of the evidence before the committee and the criminal court has not been called before me I am not prepared to completely shout it out of my mind. There is no doubt that a person like Mr Peng, obviously a highly ambitious and resiliant fighter of his corner, does not get to where he was able to get to by being na?ve or weak. A sharp, canny mind is part of the successful businessman's equipment. A degree of cunning is also helpful. I therefore have had to treat the question of Mr Peng's character and moral fibre with care. It is from this stand point that I have judged the personalities behind this disputed transactions.

80. Demeanour in the witness box has played its part as well. Madam Ding is a formidable character. Her strength is plain to see even in the course of a trial in an unaccustomed jurisdiction in proceedings conducted in English. She was able to impose herself whilst maintaining her composure and being courteous at all times. She is an unyielding powerful witness.

81. Mr Zheng is the facts and figures man. He would look after the detail for Madam Ding an efficient manager, prepared to do what his superior required of him. He was Madam Ding's eyes and ears in Hong Kong.

82. Mr Peng, I have already described at the beginning of the judgment. It is perhaps worth remembering that a 6-year term in a Guangdong prison which he sees as being partly caused by Madam Ding is capable of providing enough motive to bend the truth in order to get his own back. I have certainly borne this factor in mind.

83. The evidence has persuaded me that there was no agreement of the type contended for by the Defendants. It is not just a question of them having failed to carry an evidential burden but that the evidence has satisfied me that Mr Peng has given the correct version which was that he had by early March agreed to co-operate with Madam Ding and with Mr Zheng on terms that she was to get an interest in his companies in the way that Mr Peng has described, starting with a 30% holding in P & P with that ultimately representing a holding in SCIC of around 9%. Additionally she would be paid a salary of $80,000 and her expenses. She would, for that, have the task and financial incentive to use her influence in Shenzhen in order to iron out SCIC's difficulties as best she could. That was the agreement. It is worth reproducing here the company structure before the restructuring of the group on 20 March when the documents were signed at Irene Low & Company's offices.

DIAGRAM 3

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84. Following that the structure became as follows:

DIAGRAM 4

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After the settlement of the dispute between Hark Herald and Jadegarden it became:-

DIAGRAM 5

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Hark Herald now controlled 51% of Prosperfield and China Weal, through Officentre 49% as a result of Messrs Ng and Deng having been persuaded to give up control of Prosperfield.

85. It must follow therefore that I reject the account of an 18th March oral agreement for the reasons advanced by Mr Whitehead. Not only do the inherent probabilities go against Mr Peng giving up his control, notwithstanding his very real difficulties in Shenzhen which I have carefully weighed in my assessment of the evidence, but the contemporaneous evidence all points against such an agreement particularly the events of 19 and 20 March. I have already reviewed in full Mr Whitehead's submissions and following my analysis of the evidence I am content to adopt what he has said as to the conclusions on the evidence.

86. There is also force in the point that he has sought to make about the course taken by Mr Peng immediately after he had learnt of what Mr Zheng had done to the Company structures in dismantling, by means of his home-made drafting, of various agreements and board resolutions to wrest control from Mr Peng. It is impressive that he immediately came to court to obtain urgent injunctions to negative the effects of Mr Zheng's draftsmanship which was done of course on behalf of himself and Madam Ding. I think that it is unlikely in the extreme that he would have taken such a course had he entered into an oral agreement of the type described by the Defendants and then reneged on it in the way that they have suggested. There is also force in what is said by Mr Whitehead about the way in which the Defendants carried out all of this. Nothing would have been simpler than to obtain appropriate orders from the courts to put an end to the effects of Mr Peng having reneged on any oral agreement on 18 March and to enforce the terms of that alleged agreement. The fact that this was done in a clandestine manner by Mr Zheng really does tell against him and Madam Ding. All of these reasons in combination have also persuaded me that Mr Peng has spoken the truth about these matters.

87. As to why Madam Ding and Mr Zheng have resorted to such a course of conduct one cannot tell for certain. It is more probable than not that on seeing his weakened position and given her excellent relations with the re-structuring committee and the other authorities in Shenzhen they clearly felt that they could get away with it and deliver a fatal blow to Mr Peng from which they estimated that he would not recover. In doing so they failed to account for his resiliance and resoluteness. I have no doubt that the opportunity to acquire potentially massively profitable shareholdings in any new company must have played a highly significant part in what they did.

The effects of these conclusions

88. Where does this now leave the case where I have found against Madam Ding and Mr Zheng on this single vital part of the case. I do not need to recount in any detail what was done by Mr Zheng in 'knocking down' Mr Peng's corporate structure. That part of the evidence is not in dispute. I need only reproduce the structures after the agreement that was brought into effect by Mr Zheng and Madam Ding on 11 and 17 June respectively. These represent the final positions:-

DIAGRAM 6

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DIAGRAM 7

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89. I have before me detailed submissions from Mrs Kaplan as to what would be the Plaintiff's situation following the agreement on 18 March. Everything of substance is predicated on the basis that there was such an agreement. Mr Whitehead has, quite rightly, as a precautionary measure answered in kind as to what should be the position in law even if there had been such an oral agreement. I must now decide this case on the factual basis as found by me that there was no such agreement and that Madam Ding and Mr Zheng had wrongfully, the word hardly done justice to what they did, divested Mr Peng of his interest in his companies down to Panco and SCIC. That being so the bulk of Mrs Kaplan's clear, interesting and well-researched submissions can have no bearing on the case now. I have considered whether it would be necessary for me to decide the points raised by her in the event of an appeal where I may be found to have been in error on the question of the 18 March agreement by being reversed on fact. I have decided that such a course would be unnecessary because if I were to be held to be mistaken on fact and such an agreement should have been found by me the Court of Appeal would not require anything in this judgment on Mrs Kaplan's submissions in order that it may decide whether she or Mr Whitehead are correct on the basis that there had been an oral agreement on 18 March. In such circumstances, I do not propose to make further reference to Mrs Kaplan's nor to Mr Whitehead's submissions on the legality of what Mr Zheng had done and on the way that it was done in deconstructing Mr Peng's corporate structures in order to take his companies from him. Once I have found that what he had done was pursuant to his agreement with Madam Ding and Mr Zheng (and there was no contrary oral agreement on 18 March) it is sufficient for me to say that there cannot be any answer to the charge that what was done by them was unlawful and in most blatant way. There can simply be no justification for it.

90. This then leaves over two other matters on the question of liability.

The standing of the Plaintiff companies to sue

91. Mrs Kaplan has taken, rather in the fashion of a preliminary issue, the point of whether Prosperfield and Panco as the respective Plaintiffs' have authority to sue. This issue has also been predicated on the basis that Mr Peng, who has instigated these actions, no longer had any say in the matter as he had divested himself of his shareholding in these companies by virtue of the oral agreement (now found by me never to have existed) and therefore could not authorize the bringing of the suits. Had the oral agreement existed, Ding and Zheng would have had the beneficial interest, together with China Weal, of Panco and Prosperfield. As such they could not be subjected to any suit by the companies and further, because Mr Peng no longer had any shareholding, he could not vote at any shareholders' meeting to bring these actions.

92. That factual and legal basis is no longer available to Mrs Kaplan. I am satisfied that where Mr Peng has been wrongfully divested of his shareholding in the Plaintiff's companies that these companies do have authority to bring the actions. And I should also observe that this point had been raised by the Defendants before Findlay J in interlocutory proceedings only to concede that the companies could bring these actions. That concession had been made even before there had been a finding at this trial that Madam Ding and Mr Zheng had acted unlawfully in relation to Mr Peng's shareholdings. A fortiori this position must now be strengthened in favour of the Plaintiff's companies. [See Findlay J's judgment Vol. 2 Tab 9 pp. 34A, 35 and 38]. The point must therefore go.

Causation

93. A much more substantial point, really of last resort, raised by Mrs Kaplan is that any breaches of duty on the part of Madam Ding and Mr Zheng are not the effective cause of any loss or damage to the Plaintiff's companies. The dominant and effective cause of any such losses was the Shenzhen Government order No. 355/95 which restructured SCIC and distributed Panco's shares to new shareholders. That potentially conclusive submission is also predicated on the factual basis that what had been done in June by Mr Zheng on behalf of himself and Madam Ding to remove Mr Peng's shareholding in Panco and give it to their company China Projects was done under 'the authority' of what had been agreed by Mr Peng pursuant to the oral agreement of 18 March. I am satisfied that but for what had been done unlawfully by Madam Ding and Mr Zheng they would not have been in a position to demonstrate to Shenzhen that their company China Projects was the owner, through Panco, of over 50% of SCIC's shares. The Defendants cannot therefore hide behind the, for present purposes, lawful acts of the regulatory authority when it was their wrongdoing which enabled that authority to allocate a proportion of Panco's shares in the re-structured company. The unlawful agreements of 11 and 17 June had the effect of depriving the Plaintiff companies of their beneficial interests in SCIC as well as a debt owed by SCIC to Panco. It is difficult to see how that chain of wrongdoing has somehow been broken by what the Shenzhen authority did in its restructuring of SCIC. The re-distribution of shares to China Projects by the authority could only have taken place by virtue of the illegality in June by Madam Ding and Mr Zheng. The argument on causation must therefore also go.

Conclusion on liability as against Madam Ding, Mr Zheng, Tripole and China Projects

94. Subject to the question of remedies it must follow that these findings resolve the question of liability in favour of the Plaintiff companies in both actions. What was done by the two individual Defendants was by unlawful means to divest Mr Peng of his shareholding in Prosperfield and Panco as was purportedly done by the agreements that were entered into on 11 and 17 June. It is therefore now necessary to give separate consideration to what is to be ordered in favour of the Plaintiff in each action.

95. In the 1993 action in which Prosperfield is Plaintiff there must be a declaration that the Agreement dated 11 June 1993 between Prosperfield and the 1st Defendant Tripole together with the Deed of Assignment made under it are void and will be rescinded, this being paragraphs (1) and (2) of the prayer to the statement of claim. There must also be a consequential declaration in terms of paragraph 7 of the prayer as well as an order in terms of paragraph 8 for the taking of all necessary accounts and enquires and the payment by Tripole to the Plaintiff of all sums found due on the taking of the account and the making of the enquiry. As to the injunction asked for in paragraphs 3, 4 and 5 I will leave that relief over for argument consequent upon this judgment which is listed shortly after the handing down of the judgment. As to the individual Defendants (the 2nd and 4th) it must follow that the order sought in paragraphs 9, 10 and 11 must go against them, such assessment, account and other necessary enquiry to be adjourned to a date to be fixed. I will hear from counsel as to whether this should be before me, another judge or a master. I would also award interest to the Plaintiff as asked for in paragraph 12 of the prayer. I will hear the argument on costs following the handing down of the judgment and any submissions on further or other relief that may be appropriate consequent upon the judgment.

The 1995 action as against Madam Ding (1st Defendant) and Mr Zheng (2nd Defendant) and China Projecsts (5th Defendant)

96. In this action Panco is Plaintiff. I will leave over the position as to Mr Ng, the 3rd Defendant, and Mr Deng, the 4th Defendant, to follow immediately after what I now need to say about these three Defendants. It is this action which is key to Mr Peng's "turnaround", as I have described it, in the opening paragraph of the judgment. Mr Whitehead has described it as a proprietary action. Mr Peng wants his shares back through the Plaintiff company. This is to be achieved by orders for injunctions and delivery up of shares under various parts of the prayer to the amended statement of claim. I will come to this relief last.

97. Firstly, I will consider the claims for damages against all these Defendants in paragraph (i)(b) and (c). It must follow that there must be damages consequent to the matters complained of in the amended statement of claim all of which have been amply proved following Madam Ding and Mr Zheng's wrongdoing by virtue of the agreement of 17 June. I will therefore make an order for damages under (i)(a) to be assessed on a date to be fixed. The precise mechanics of this I will consider following the handing down of the judgment. There must also be an account of all profits by these Defendants from the purported sale under the agreement of 17 June. I leave over the prayer for delivery up of the shares for the time being. As against China Projects there will be an order rescinding the agreement of 17 June as asked for under (ii)(f). There will also be a declaration in terms of (ii)(g) as well as an account as asked for in (ii)(i). Lastly, there will also be general order for damages to be assessed under (iii)(j) together with interest under (iii)(k).

98. I have found the orders sought for injunctions and delivery up of the shares both worrying and difficult. I had expressed these concerns in the course of a ruling that I gave when, late in the course of the trial, Mr Whitehead had asked for injunctions to restrain further dealing in China Projects' shares in SFC pending delivery of judgment. Now of course his position must be stronger he has succeeded most resoundingly on the merits. Why should Mr Peng, through Panco, not get the fruits of his victory? He has demonstrated in the clearest possible way that he has been unlawfully divested of his shares. He should therefore get them back as well as the other relief that I have ordered. That having been said, unhesitatingly I would have ordered their return had I been dealing with an entirely domestic situation. I am not. The court is faced with orders made perfectly lawfully under PRC domestic law which have placed these shares elsewhere. I have been glad to make appropriate orders against the Hong Kong companies and the individual Defendants who are before me with the result that they will face very heavy claims for damages and an account for profits. But that may be cold comfort for the successful Plaintiffs' if the companies concerned are worthless in terms of what may be available in Hong Kong to satisfy the judgment and the same would apply to the individual Defendants. The Plaintiff would have travelled a long, expensive and arduous journey for little or no reward unless I return the shares and grant the injunctions. I am too painfully aware of all of this. Nevertheless, I consider that it would not be right to make these orders for the same reasons that I gave in my previous ruling. Ultimately, the fact that Mr Peng has had his victory in court cannot make a material difference. Frankly, it is inconceivable that the regulatory authority in Shenzhen would countenance the prospect of Mr Peng getting back, by virture of an order of this court, what was so comprehensively removed from him in 1993 following a most thorough enquiry into his activities. This was a matter for the Shenzhen authorities and they acted as they considered was appropriate. It would not be right for this court to interfere directly in what had been done in 1993. I am satisfied the only way in which Mr Peng can achieve what he wishes in terms of these shares is to make an appropriate application in Shenzhen, be it to the regulatory authority directly or through the courts there. He now has my judgment with its findings as to Madam Ding's and Mr Zheng's wrongdoing in Hong Kong which really is as bad as it gets in terms of corporate impropriety. He must now be left with the task of going to Shenzhen with the benefit of this judgment and seek to persuade the authorities there to give him the redress that he requires in terms of the return of his shares. In saying all of this I am deeply conscious that I have not done perfect justice to the Plaintiff companies and through them to Mr Peng but it seems to me that this court is bound to act realistically in the face of practical realities and not embark on what would be cavalier extra-territorial judicial muscle flexing. Accordingly, I decline to make the order for the injunctions and for the return of the shares.

99. But as to the injunctions I will hear Mr Whitehead on a limited basis as to whether I should grant him the injunctions that he failed to obtain during the course of the trial for the very limited purpose of applying to the Court of Appeal to continue such an order pending any appeal against my refusal to make these orders in his favour. This must not be taken as an indication that I necessarily have jurisdiction to make such an order (I need to hear argument) or that I would if I did. This is the extent to which I would be prepared to hear him on the injunctions. If I were to make such an order it would only be for a matter of days until he could list his application before the single Justice of Appeal to extend it pending the listing of any substantive appeal.

The position of Mr Ng (3rd Defendant) and Mr Ding (4th Defendant)

100. Of all the important witnesses I have found Mr Ng to be by far and away the most impressive. I unhesitatingly accept all of his evidence. What particularly impressed me was the fact that he was prepared to withdraw evidence having thought about it overnight, this concerning what he had previously said about Mr Peng having told him that he had sold his interest in Hark Herald to Madam Ding and Mr Zheng for $100 million. Clearly this had caused him anxiety and he was anxious to correct what he saw to be inaccurate evidence. One instinctively feels comfortable with a witness of this sort. On the basis of his evidence I am satisfied that he was deceived by both Madam Ding and Mr Zheng into believing that they had purchased Mr Peng's interest in Hark Herald for $100 million. I am equally satisfied, following his retraction, that Mr Peng had not given him a similar account.

101. Everything that he and Mr Deng did following that misrepresentation by the other two individual Defendants was based on the information that they had provided. Mr Whitehead has submitted that, be that as it may, he and Mr Deng should have enquired of Mr Peng to have that matter confirmed. In the circumstances, I believe that to be a harsh judgment. He had after all been shown the cheque for $100 million on two separate occasions and he was aware of the difficulties that Mr Peng was facing in Shenzhen from the detailed discussions they would have had prior to the purchase by Jadegarden of 67% of Prosperfield. It would not have been surprising to him to learn that Mr Peng had sold his interest for $100 million. Accordingly, I am satisfied that his participation in the illegalities created by Mr Zheng's drafting of the agreements and resolutions of 11 and 17 June were entirely innocent and therefore fall to be excused. The same applies to Mr Deng whose case is identical to that of Mr Ng notwithstanding the fact that he has elected not to give evidence. Where the Plaintiff company has failed to demonstrate knowledge, actual or constructive, and where I am satisfied that reasonably the circumstances would not have required him to make further enquiries from Mr Peng the action against him and Mr Deng must fail. Accordingly, the claims against these two Defendants must stand dismissed with the consequence that there must be judgment in their favour.

102. I will now also hear the parties as to the costs of both of actions.