ACTIVE PROFIT LTD v. NISSHO IWAI HONG KONG CORPORATION LTD AND OTHERS

HCCL 47/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.47 OF 1998

---------------------

----------------------

-------------------------

J U D G M E N T

-------------------------

Introduction

1. This is a claim by a disgruntled investor which was an indirect participant in a joint venture set up to develop a housing project on agricultural land near Tai Wai, Shatin. In the event, the development did not proceed, and the joint venture was cancelled. However the plaintiff, the investor in question, maintains that other parties to the joint venture have acted so as to deprive it of the fruits of its investment. Whether that be the case represents the subject-matter of this litigation.

2. The plaintiff, Active Profit Ltd, is a private company incorporated in Hong Kong. It is part of the Playmates group of companies, and functions as the property arm of that group.

3. The 1st defendant, Nissho Iwai Hong Kong Corporation Limited, is also locally incorporated, and is the subsidiary of Nissho Iwai Corporation of Japan. I shall refer to these entities simply as 'Nissho Hong Kong' and 'Nissho Japan' respectively.

4. The 2nd defendant, Milemore Investment Limited, is an Hong Kong company. It is wholly-owned by, and functions as, the private investment vehicle of the 3rd defendant, Motoyuki Kodera, a Japanese entrepreneur who has been based in Hong Kong since the mid-1970's.

5. The 4th defendant, Carlos Cho, is an associate and erstwhile investment partner and adviser to the 3rd defendant, and is an architect in Hong Kong. As has been the situation throughout this trial, these two gentlemen are referred to simply as 'Kodera' and 'Cho'.

The Factual Background

6. This case is larded with detail. Nevertheless, the broad outline of that which took place is tolerably clear, and represents either common ground or is undisputed; this case is unusual in that there are few, if indeed any, significant disputes of fact requiring determination. At the outset, therefore, it may be useful to set out the major landmarks in a series of events which, in greater part, spanned the period 1993 to 1997.

Acquisition of the site

7. The starting point, however, took place well before 1993, and represented a degree of prescience on the part of Kodera who, together with Cho, since 1988 had been purchasing agricultural land in the To Fung Shan, Shatin area. The corporate vehicle used for such land acquisition was their company, Beachshore Limited, and by 1990 they had acquired, with an eye to future redevelopment, a block of some 11,570 square metres (124,539 sq. ft). This site effectively became the starting point for that which followed, and in this case has been referred to as 'Property A'.

8. At this time Kodera and Cho were aware that Sun Hung Kai Properties Limited ('Sun Hung Kai') itself was undertaking a major redevelopment project, 'Pristine Villas', in the area, and it was thought that there might be scope for cooperation. Accordingly, on 27 March 1990, under the name of his own architecture firm, Cho wrote to Sun Hung Kai inviting the acquisition by Sun Hung Kai of a parcel of land adjacent to Property A with a view to a joint development with the land already held by Beachshore. Sun Hung Kai indicated interest in this proposal, and by July 1990 had acquired, through its nominee company Tsuen Kwong Limited ('Tsuen Kwong'), the site which in this case has been described as 'Property D'.

9. Additionally, in December 1991 and August 1992, two smaller adjacent sites were purchased by two companies, Golden Essence Limited and Bright Essence Limited (each jointly owned by Beachshore and an Sun Hung Kai nominee, Yosha Investment Limited). These are the properties which have become known as 'Property B' and 'Property C' respectively.

10. By these means a large site made up of these four properties was created, and after some adjustments these properties subsequently became held by Beachshore and Sun Hung Kai on a 50 : 50 basis, a Deed of Exchange ultimately vesting the properties in Beachshore and Tsuen Kwong as tenants in common in equal shares.

11. The site thus created served to maximize its redevelopment potential, but at the same time the site remained no more than agricultural land, and was designated as such by the Government. To redevelop into residential units, a premium to be assessed by the Government would have to be paid for modification of the permitted land user via in-situ surrender and regrant. It is this premium, as ultimately assessed, which was to have a destructive impact upon the redevelopment plans which had been the driving force behind the acquisition of Properties A, B, C and D properties which were to be supplemented in December 1993 by the purchase by Sun Hung Kai of yet further land known as the 'Additional Properties', which were acquired in order to cater for a projected Phase 2 of the then anticipated development.

The development vehicle: Mainplaza Investments Limited

12. But this is to get ahead of the story. From Kodera's standpoint he required the financial muscle to implement the joint venture with Sun Hung Kai, and in this regard he turned to Nissho Hong Kong. There were two advantages to this course. Not only did he have a very good personal relationship with a Mr Okuyama, who between 1988 to 1994 was in charge of Nissho Hong Kong's property investment activities in Hong Kong, but in addition there already existed a close business relationship between Nissho Hong Kong and Sun Hung Kai; in fact, it was known that in its business dealings Sun Hung Kai preferred to deal with entities it knew and trusted, so that Nissho Hong Kong was clearly in a strong position to play a leading role in the proposed redevelopment with Sun Hung Kai.

13. In the event, the corporate vehicle chosen so to participate and to marshall the necessary resources was Mainplaza Investments Limited, ('Mainplaza'), an Hong Kong company which it was intended would purchase Property A from Beachshore and thereafter to carry out the redevelopment with Sun Hung Kai.

14. Mainplaza had an issued capital of 10,000 shares, and four shareholders: Nissho Japan held 2,000 shares, Nissho Hong Kong 3,000, whilst the other 50% of the share capital was held by Milemore, Kodera's company, with 2,000 shares and Highs Development Limited, ('Highs'), holding the remaining 3,000 shares.

15. Highs was a construction company incorporated in Hong Kong which was controlled by Penta-Ocean Construction Company Limited, a listed construction company in Japan; Highs' involvement in Mainplaza was not only to obtain hoped-for development profits but also to be in a position to participate as a building contractor in the development project itself.

The Share Acquisition Agreement : 5 March 1993

16. Mainplaza's pursuit of the redevelopment, through the purchase of Beachshore, was the subject of a Share Acquisition Agreement dated 5 March 1993 entered into between Kodera and Cho, as Vendors, and Mainplaza, as Purchaser, of 969 out of the 1,000 shares constituting the entire issued share capital of Beachshore, which, of course, held title to Property A.

17. Under this Agreement ('SAA'), Kodera and Cho agreed to sell Beachshore to Mainplaza for a stated consideration of HK$260,039,256.34 (less the amount of HK$15,241,143.56 representing repayment of a loan owed by Beachshore to another Kodera company, Bumper Harvest Company Ltd.) subject to certain adjustments dependent upon the ultimate rate of premium to be charged by the Government.

18. The consideration adjustment mechanism within the SAA (and the identical provision within its successor, the Share Subscription Agreement) has assumed significance within this case, and at this stage it may be useful to refer to it in more detail. In Clause 4.1 of the SAA the computation of the figure of HK$260,039,256.34 was stated to be arrived at by application of the following formula :

Basic Price Per Square Foot x 96.9% x Assumed
Gross Floor Area (305,470 sq feet) minus
HK$15,241,143.56 (the Bumper Harvest loan)

The 'Basic Price Per Square Foot', defined to mean HK$930.00 before premium adjustment, was specified to be arrived at "on the basis that the Premium is equivalent to the Basic Rate of Premium", the latter being agreed by the parties within the SAA to mean HK$1,200 per square foot. Some provision thus had to be made in the event of deviation of the actual premium from the assumed figure of HK$1,200, and to deal with this eventuality Clause 4.1 of the SAA continued thus :

"In the event that pursuant to the Architect's Certificate on Premium, the Premium shall be higher than the Basic Rate of Premium, then the Price Per Square Foot shall be the Basic Price Per Square Foot as reduced by an amount equivalent to the difference between the Premium and the Basic Rate of Premium. In the event that ... the Premium shall be lower than the Basic Rate of Premium, then the Price Per Square Foot shall be the Basic Price Per Square Foot as increased by an amount equivalent to the difference between the Premium and the Basic Rate of Premium."

19. The problem with this formulation is that there was no 'capping' provision within the SAA, nor indeed within its successor, the SSA, to cover the then unanticipated eventuality that the premium to be required by Government would be such that the differential between the premium demanded and the Basic Rate of Premium would exceed the HK$930.00 agreed as the pre-adjustment Basic Price Per Square Foot; the effect of this would be that the consideration formula for the share purchase was rendered nugatory, since in this event the figure derived from application of this formula would produce a negative result. Indeed, it was this fact that, as will shortly be seen, formed the background to the Premium Agreement of 29 August 1995, and its 1994'prototype', which was backdated and bore the date 5 March 1993.

20. Consequent upon signing the SAA, a deposit of HK$55,056,000 was paid to Kodera and Cho, and the balance of the consideration, subject to the relevant adjustments, was to be paid upon Completion, which was stipulated to take place within seven days of Mainplaza being notified in writing by Kodera and Cho of the issue of, inter alia, of the Architect's Certificate on Premium annexing a copy of the Government's Offer Letter offering the basic terms, including the premium payable for the land regrant and the permitted maximum floor area of flats in respect of the anticipated redevelopment.

21. More important, at least in the context of arguments raised in this case, it was further provided that if the Offer Letter or the Initial Development Agreement was not signed by 31 July 1994, the Purchaser should be entitled to rescind whereupon the Vendors were to repay the deposit with interest, and that "if the Offer Letter is not issued ... by the 31st day of August 1994, this Agreement shall be at an end and of no further force and effect ..."

22. On the same day as the SAA, that is, 5 March 1993, the four shareholders of Mainplaza signed a Joint Venture Agreement, otherwise known as the Mainplaza Shareholders' Agreement, regulating their rights and obligations as shareholders inter se, this Agreement reciting that the primary object of the company "shall be to participate through Beachshore" in the anticipated redevelopment of the site, and providing for the meeting of various "funding obligations" including the provision of funds as may be required for the consideration stipulated under the SAA and the Joint Development Agreement.

23. The broad result of these events, therefore, was that a framework had been put in place for Mainplaza to begin to pursue the anticipated joint development with Sun Hung Kai. At this stage, however, the plaintiff in these proceedings, Active Profit, had not yet entered the picture. It did so several months later as a consequence of that which in these proceedings has been referred to as the 'Nissho Participation Agreement' and the 'Milemore Participation Agreement'.

Active Profit's Involvement : The Participation Agreements

24. Active Profit's involvement and interest in this redevelopment appears to have come about as the result of exchanges between Mr Okuyama of Nissho Hong Kong, and Thomas Chan, the managing director of Active Profit until March 1994. As matters transpired, this court has heard from neither. Mr Thomas Chan was not called to give evidence, whilst Mr Okuyama regrettably died in November 1998.

25. That which clearly had happened, however, was that Thomas Chan and Okuyama had had previous business property investment dealings, and Thomas Chan was open to further investment opportunities. Accordingly when in December 1992 Okuyama instructed First Pacific Davies to explore the possibility of involving other potential investors in the anticipated Shatin redevelopment project Thomas Chan responded favourably. A letter dated 9 January 1993 has been produced wherein First Pacific Davies wrote to Thomas Chan at Playmates Properties Ltd. regarding the project at Tung Lo Wan, Area 39, Shatin suggesting a "proposed joint venture arrangement" between Nissho Hong Kong and Playmates Properties Ltd., or nominees, with regard to this development project; a number of terms were canvassed, the first of which was that Playmates would participate in the joint venture "as a silent shareholder" by signing a formal agreement with Nissho, the figure of 10% then being mooted.

26. Mr Thomas Chan accepted the various proposals in what was a 'Subject to Contract' document, and manifestly this is the precursor of the formal Participation Agreement of 1 June 1993 entered into between Nissho Hong Kong and Faser Limited later novated by the substitution of Active Profit for Faser by means of a subsequent agreement dated 30 September 1993.

27. This Nissho Participation Agreement is an important event in this case. In outline, the Agreement declared that Nissho Hong Kong would hold one third of its interest in Mainplaza and in the redevelopment Joint Venture on trust for Active Profit, and that in consideration of such declaration of trust Active Profit would pay to Nissho Hong Kong the sum of HK$27,528,040 (subject to adjustment) upon completion of the SAA, of which HK$5,505,608 was to be paid as deposit upon the signing of the Participation Agreement. Adjustment of the principal sum was to follow the adjustment formula set out in clause 4 of the SAA.

28. The end result of this Participation Agreement, therefore, was that, through Nissho Hong Kong, Active Profit secured a 10% interest in Mainplaza (Nissho Hong Kong holding 30% of Mainplaza's issued share capital), and in return Nissho Hong Kong not only received from Active Profit a financial commitment towards its share of the purchase price of the Beachshore shares but also a commitment to one third of "any funding obligations" of Nissho Hong Kong under the 5 March 1993 Agreement signed by the four shareholders of Mainplaza.

29. Pursuant to the Nissho Participation Agreement, on 1 June 1994 Active Profit paid to Nissho Hong Kong the sum of HK$5,505,608.00 representing the agreed deposit.

30. Participation by Active Profit in Nissho's interest in Mainplaza, and of the anticipated redevelopment, appears to have paved the way for a similar degree of participation in Milemore's interest. Hence the Milemore Participation Agreement of 30 September 1993. Under this Agreement Milemore declared that upon completion of the SAA that it would hold one half of its interest in Mainplaza and in the anticipated development project in trust for Active Profit, whilst Active Profit in turn agreed to be responsible for half of the funding obligations of Milemore as a 20% shareholder of Mainplaza.

31. The price for this additional 10% interest similarly was HK$27,528,040 (again subject to adjustment under clause 4 of the SAA), with immediate payment of a deposit of HK$5,505,608, and the balance, subject to adjustments, to be paid upon completion of the Beachshore share purchase under the SAA. In terms of participation in Milemore's interest, however, there was a further and distinct payment provision, described in the Agreement as an "arrangement fee" but in fact representing an additional sum reflecting the additional price demanded by Kodera on behalf of Milemore of HK$13,275,000, of which a deposit of HK$2,655,000 was payable immediately, and the balance of this further principal sum (again subject to adjustments under clause 4 of the SAA) to be paid on completion of the SAA.

32. Accordingly, pursuant to the Milemore Participation Agreement, on 4 October 1993 Active Profit paid to Milemore deposits totalling HK$8,160,608.00.

33. Consequent upon entry into the two Participation Agreements, therefore, by the end of 1993 Active Profit had secured a 20% investment in Mainplaza (and hence in Beachshore), and what would amount to a 10% interest in the anticipated redevelopment, given that Mainplaza and Sun Hung Kai were to participate in the redevelopment on a 50 : 50 basis.

34. By this stage, of course, actual redevelopment of the four Shatin properties remained no more than a speck on the horizon, albeit the corporate framework was beginning to be established. It was almost one year later, however, in September 1994, until anything further of significance occurred. And it was at this time that there was a reorganization of the existing Mainplaza/Beachshore arrangements, with shortly thereafter a formal Joint Development Agreement being signed with Sun Hung Kai.

The Share Subscription Agreement : 9 September 1994

35. By 31 August 1994 the cut-off date in the SAA no Offer Letter had been received from Government, and the Mainplaza shareholders reconsidered the position, which included discussing new terms for the proposed redevelopment. This resulted in the signing of the Share Subscription Agreement ('SSA') on 9 September 1994, and cancellation of the initial Share Acquisition Agreement by means of a Cancellation Agreement of the same date. This latter Agreement provided, inter alia, that the SAA "is hereby cancelled and shall have no further effect whatsoever", and further set out that the deposit paid under the former agreement should be refunded and that each of the parties to the SAA released the other "from all obligations and liabilities" under that agreement.

36. In effect the Share Subscription Agreement as executed was the SAA revisited, but with modifications. Under the new SSA, Kodera and Cho would procure Beachshore to issue and allot to Mainplaza 39,000 new shares in consideration of the sum of HK$260,039,256.34, subject to adjustments, and a deposit of HK$55,056,000 was to be paid by Mainplaza upon signing that agreement. These sums remained the same as those in the SAA by virtue of an alteration in the Assumed Gross Floor Area in the land represented by the Beachshore shares (from 305,470 sq ft in the SAA to 290,600 sq ft in the SSA), whilst the other difference was that as the result of the SSA Mainplaza's percentage holding of Beachshore's issued share capital was to become 97.5% from the previous 96.9%.

37. The adjustment mechanism for the consideration to be paid by Mainplaza was identical to that under the original SAA, whilst in terms of completion of the share purchase the balance of the adjusted consideration was to be payable upon fulfillment of conditions similar to those contained in the SAA, namely receipt of the Offer Letter from Government and Architect's Certificate as to premium, although the date for such completion was stipulated not to extend "beyond the 30th day of September 1995". In addition, Mainplaza was to be entitled to rescind this agreement by written notice to the shareholders if the conditions for completion had not been met "on or before the 31st day of August 1995 or any extended date".

38. During the period between the SAA and the successor SSA the 'Additional Properties' had been acquired by Sun Hung Kai in order to expand the existing site to cater for the proposed Phase 2 of the development, and initially the sale under the SSA included an additional price of HK$30 million relating to this Phase 2. In the event, however, all references to Phase 2 were deleted from the SSA as finally executed, and this element was dealt with separately under a new Shareholders' Agreement of 9 September 1994 as executed between Mainplaza and its four shareholders.

39. Under this new Shareholders' Agreement, Mainplaza's share of liabilities and benefits in respect of Phase 1 of the development project remained as specified in the SAA, whilst Mainplaza's share of liabilities and benefits in respect of Phase 2 was to be solely borne and enjoyed by Milemore, provided that Nissho Hong Kong was to be granted an option effected pursuant to a subsequent Option Agreement dated 7 April 1995 between Kodera and Nissho Hong Kong to become entitled to such liabilities and benefits in respect of Phase 2 upon payment of an 'Option Fee' of HK$30 million. It appears that the decision that Kodera and Cho were to retain the original 1,000 shares in Beachshore, and that these in fact were not to be onsold to Mainplaza, was made on the basis that these shares would represent Beachshore's interest in the proposed Phase 2, whilst the Option Agreement served as assurance to Sun Hung Kai that Nissho Hong Kong also remained interested in Phase 2.

40. Other arrangements consequential upon the execution of the SSA were the appointment of a new board of directors of Beachshore, and, more important, that the allotment of 39,000 Beachshore shares to Mainplaza was to be at par, that is, for the sum of HK$390,000, notwithstanding absence of full payment for such shares pursuant to the post-completion payment provisions within the SSA. It appears on the evidence, and I accept, that Sun Hung Kai required Mainplaza to have these shares allotted to it prior to Sun Hung Kai entering into its own joint venture agreement with Mainplaza.

The Development Agreement with Sun Hung Kai : 19 September 1994

41. As yet, notwithstanding the understanding with Sun Hung Kai regarding the development of the anticipated project, no formal agreement had been executed. This took place on 19 September 1994 by means of a Development Agreement of that date. This was entered into between Tsuen Kwong Limited (the Sun Hung Kai nominee in which the Sun Hung Kai properties were vested), Beachshore and Sun Hung Kai Real Estate Agency Limited (which was to be project manager and exclusive sales agent of the proposed development), wherein the parties recited their agreement jointly to develop their properties, and agreed that Properties A, B, C and D, together with the subsequently-acquired Additional Properties, were to be surrendered in-situ, with regrant of New Lot, and by a Deed of Exchange of the same date this land was to be held by Beachshore and Tsuen Kwong as tenants in common in equal shares. Consistent with such regrant and exchange, the premium required was to be borne on a 50 : 50 basis by Beachshore and Tsuen Kwong.

42. Co-terminus with this Development Agreement, on the same date, 19 September 1994, a series of letters containing cross-guarantees of the respective obligations of Beachshore and Tsuen Kwong under the agreement were issued by Sun Hung Kai to Beachshore, and by Nissho Hong Kong, Penta Ocean and Ever Gain (another Kodera company) to Tsuen Kwong.

Extension of the Subscription Payment Date

43. After this burst of activity in September 1994, matters effectively ground to a halt pending provision by Government of an Offer Letter containing an indication of the premium required for the land regrant and change of user. In the event, such Letter of Offer would not be forthcoming for a full 30 months thereafter, and to deal with this hiatus two Supplemental Agreements dated respectively 21 July 1995 and 8 October 1996 were entered into between Beachshore, Mainplaza, Cho and Kodera, the effect of which was to extend the Subscription Payment Date under the SSA to 31 August 1997.

The Premium Agreement : 29 August 1995

44. It seems clear that whilst no Offer Letter had been issued, by mid-1995 the shareholders of Mainplaza had formed the view that if such Offer as to premium were then to be issued, the premium to be required would be in the region of HK$1,500-$2,000 per square foot. In the event, such apparent belief forms the backdrop to the execution of an agreement, the 'Premium Agreement' dated 29 August 1995. This Agreement has caused controversy. Active Profit maintains that it was not told about it, nor was it given any indication of the provisions therein until well after the event; at trial this document, and its precursor, were required to be, and were, specifically proved.

45. The Premium Agreement of August 1995 appears to be the successor to another earlier document as to the existence of which Active Profit again says that it had no knowledge which has been referred to as the 'prototype' of the Premium Agreement. This prototype, which bears the date 5 March 1993, but on the evidence was executed in mid-1994 and backdated, is but a single page, and constitutes little more than a memorandum. The parties thereto are Mainplaza, Kodera and Cho, and in essence this document set out upper and lower-limit premium 'caps', and provided for the cancellation of the sale and purchase of the Beachshore shares, under what then was the SAA, if the premium as ultimately demanded by Government became higher or lower than the specified levels.

46. As earlier observed, the provenance of the Premium Agreement had been the failure to include within the original SAA, and in turn within its successor SSA, a provision catering for the situation in which the premium ultimately demanded by Government turned out to be far larger than had been anticipated, with the consequence that the formula provided in the two share purchase agreements for determining the consideration payable by the purchaser would produce a negative result. Accordingly, it was this situation which the 'prototype' agreement had sought to canvass, and the Premium Agreement now formally addressed.

47. Under the Premium Agreement, entered into between Kodera and Cho of the one part and Mainplaza on the other, it was agreed that the Premium Agreement should form "part of and shall be read as one with" the SSA, and it set upper and lower premium limits of HK$1,560 and HK$840; it further provided for the right of either party to cancel the SSA in the event that the other party did not agree to pay the consideration for the shares, subject to these revised adjustments. I return to this revised adjustment formula later in this judgment; for the present suffice to say that, absent such premium 'capping' at either end of the spectrum and the concomitant right to cancel should such capped levels be exceeded, the sum payable as representing the consideration for the Beachshore shares potentially could vary by as much as HK$400 million.

48. The Premium Agreement clearly represented a commercial attempt by the parties to provide an exit strategy from the contractual obligations of the SSA should the premium required by Government not conform to the 1995 expectations of the Mainplaza shareholders as to its likely parameters. In the meantime, however, the redevelopment with Sun Hung Kai was making no substantial progress, technical meetings aside, and all parties awaited a response from Government.

The Letter of Offer : 5 May 1997

49. When it eventually arrived, the content of the Letter of Offer from Government almost certainly exceeded the parties' expectations, even those conditioned by a rising market. In this letter, the District Lands Office, Shatin outlined the terms on which the Government would approve an in-situ exchange by way of surrender and regrant, and specified the premium at HK$2,607,020,000. In a fax message from Sun Hung Kai to Nissho Hong Kong dated 10 May 1997, the point was made that this premium figure provided a net Accommodation Value (land cost plus premium) of $4,404, and that if there was to be added back the cost of building the road that was required, together with a credit for the value of the lots being surrendered, the writer notes that the gross figure became "close to $5,000!" The same Sun Hung Kai fax went on to record that it "goes without saying that we [Sun Hung Kai] are most unhappy with this assessment and have already initiated action to submit an appeal to the Lands Department."

50. For their part the Mainplaza shareholders were obviously concerned by the implications of this figure; at HK$4,400 for each square foot of permitted Gross Floor Area, this was more than 3.5 times the amount contemplated at the time of signing the Share Acquisition Agreement in 1993. Given that shortly before the Offer Letter Nissho Hong Kong had been informed by Sun Hung Kai that the premium would be in the order of around HK$3,000 per square foot of GFA, and that at this level it was considered to be very much on the high side, it is perhaps unsurprising that after the issue of the Offer Letter the shareholders of Mainplaza contemplated the commercial feasibility of the redevelopment pursuant to the joint venture with Sun Hung Kai. As one witness, Mr Kakimoto of Highs expressed the position, at an Accommodation Value of around HK$5,000 per square foot, his company certainly was not prepared to participate in the development even if all the other Mainplaza shareholders were to have been prepared to proceed. At this AV, he calculated, a 1,500 square foot flat would cost some HK$20 million, "and that was in Shatin."

The decision by Mainplaza not to proceed

51. On 12 May 1997 KCA Partnership (Hong Kong) Ltd, Cho's architecture firm, formally certified to Beachshore as to the amount of the Premium at HK$2,607,020,000 and that the amount of the Premium per square foot of maximum Gross Floor Area (592,000 sq. ft) was HK$4,403.75.

52. This was followed the next day, 13 May 1997, by a letter from Nissho Japan to Mainplaza, formally invoking Article 3(a) of the Premium Agreement dated 29 August 1995, informing Mainplaza "of our opinion that the Premium figure in the Offer letter dated 5 May 1997 is far beyond our budget and it is not possible for us to complete the Subscription Agreement", the letter concluding with notice that "we are not in a position to proceed with the Project".

53. On the same day also Messrs Hastings & Co., on behalf of Kodera, wrote to Clement Ng & Co., acting for Mainplaza, noting that the Premium required was in excess of the upper figure of HK$1,560 in the Premium Agreement, and that clause 3(a) thereof permitted cancellation by Kodera of the SSA seven days from the issuance of the Offer Letter "unless your client [Mainplaza] is prepared to pay the Consideration as adjusted" under that sub-clause which sum, under the specified adjustment formula therein, in fact amounted to HK$153 million. This letter further recorded the agreement between Mainplaza and Kodera to extend by three days to 15 May 1997 the time for payment of such adjusted Consideration.

54. It is a matter of record that no such payment was made. On 16 May 1997 Minutes of a Meeting of the Mainplaza Board of Directors confirm the fact of receipt of the Letter of Offer, that under the provisions of Clause 3(a) of the Premium Agreement, absent payment of the adjusted Consideration, Kodera and Cho had the right to cancel the SSA, and that the representatives of Nissho Japan, Nissho Hong Kong, Highs and Milemore were of the view that they did not wish to proceed with the development given the premium level. Accordingly, unanimous resolutions were passed to the effect that it was not in the interest of the Company to proceed with the development of the Lot in view of the very high level of the Premium, and that "the Company will therefore not pay the adjusted Consideration to Kodera and Cho pursuant to Clause 3 of the Premium Agreement". On the same day, 16 May 1997, an EGM of Mainplaza was held confirming and ratifying the resolutions of the Board of Directors.

55. The other significant event of 16 May 1997 took the form of a letter written on behalf of Mainplaza to Kodera and Cho informing them of the Board Resolution and its subsequent ratification, which letter concluded "In the circumstances, you are at liberty to cancel the Subscription Agreement dated 9 September 1994 pursuant to Clause 3 of the Premium Agreement."

56. On 26 May 1997 a Cancellation Agreement was entered into between Kodera and Cho, Beachshore and Mainplaza which provided that the SSA of 9 September 1994 (together with its supplemental extension agreements of 21 July 1995 and 8 October 1996), and the Premium Agreement of 29 August 1995 were to be cancelled and "shall have no further force or effect whatsoever". By this Cancellation Agreement it was further provided that the deposit of HK$55 million paid by Mainplaza under the SSA should be refunded, together with interest, by Kodera and Cho, and that Mainplaza should transfer the 39,000 Subscription Shares in Beachshore at par to Kodera (90%) and to Cho (10%) or to their nominees, and that each of the parties "hereby releases the other from all obligations and liabilities under the Agreements".

Sale of the Beachshore Shares to Sun Hung Kai

57. On 25 June 1997 Mainplaza transferred 35,100 shares of Beachshore to Kodera and 3,900 shares to Cho. It is clear that discussions had been taking place about the withdrawal of Mainplaza, in particular between Kodera and Okuyama (who by then had returned to Nissho Japan), and I accept the probabilities, and so find, that it was Okuyama who brokered a sale of the Beachshore shares to Sun Hung Kai, not least because of his relationship with Kodera and Sun Hung Kai, and also because there remained in place letters of guarantee relating to the anticipated project issued by Mainplaza shareholders, including Nissho Hong Kong, in favour of Tsuen Kwong.

58. In the event, such sale to Sun Hung Kai did take place. The precise mechanics do not greatly matter. In outline, Beachshore issued and allotted one million new shares at HK$10 per share to a BVI company named Time Essence Limited, which in turn was owned by another BVI company called Beautipower Holdings Limited, which in turn was owned by Kodera and Cho. Thereafter, by an agreement dated 10 July 1997 Beautipower sold the entire issued share capital in Time Essence to a Sun Hung Kai company called Royking Limited for the sum of HK$406,422,250.

59. This latter figure, representing the consideration for sale of the Beachshore shares to Sun Hung Kai, is the figure given in a Service Agreement dated 22 July 1997 between Nissho Japan and Kodera whereby in consideration for the services rendered by Nissho Japan in finalizing the sale and purchase of the shares it was agreed that Beautipower was to pay to Nissho Japan HK$8 million "as compensation for services".

60. In addition, as part of the documentation relating to the sale and purchase of the shares to Royking, Nissho Hong Kong issued various letters of warranty dated 10 July 1997 relating to Beautipower's obligations under the sale, that the shares as sold were free from encumbrances, and also (and somewhat ambitiously) a representation and warranty that "Active Profit Limited does not have or will not have any valid claim whatsoever relating to the sale of the shares or relating to the development "whether under HCA No.4891 of 1997 or otherwise".

61. On 31 July 1997, by which time Sun Hung Kai had completed taking control of Beachshore, the representatives of Nissho Japan, Nissho Hong Kong and Highs resigned as directors of Beachshore, and the office of Nissho Hong Kong ceased to be the registered office of Beachshore.

62. On the same day, 31 July 1997, a formal Memorandum of Release was executed between Tsuen Kwong and the three guarantors of Beachshore's obligations under the Development Agreement of 19 September 1994 (as rectified by Deed dated 9 March 1995), namely Nissho Hong Kong, Penta-Ocean Construction Company Ltd and Ever Gain Company Ltd, wherein the guarantees of 19 September 1994 given in favour of Tsuen Kwong were released and discharged.

63. On 1 August 1997 the four shareholders of Mainplaza entered into a financial reckoning, a Confirmation Letter of that date setting out the costs of the project incurred to-date and the manner in which these expenses (initially borne in substantial part by Kodera to the tune of some HK$9.8 million) were to be reimbursed by the shareholders, their contributions being pro-rated to reflect the extent of their shareholdings in Mainplaza.

64. Finally, the deposit of HK$55 million, which had been paid by Mainplaza pursuant to the SAA, and had been held by Kodera throughout, was released back to Mainplaza in August 1997 subsequent to the receipt of the sale proceeds from Royking Ltd.

Information given to Active Profit; tender of the deposits; pre-action correspondence and the onset of litigation

65. Notwithstanding Active Profit's initial investment, pursuant to the Participation Agreements of June and September 1993 respectively, it is fair to say that it had had little to do with the anticipated redevelopment or with the business of Mainplaza, nor indeed had there been much, if any, contact with the other participants.

66. The person within Playmates who initially had been interested in this investment, Thomas Chan, had been superseded as Managing Director of Active Profit by his brother, Albert Chan, in March 1994, and thereafter Thomas Chan appears to have dropped out of the picture; during this trial isolated references have been made to family discord, but of this the court has been told nothing further.

67. After taking up the affairs of Active Profit, Albert Chan had had but three meetings with Nissho Hong Kong in 1994, which I find took place on 22 April, 22 August and 18 November respectively. At the third meeting Mr Chan was given by Mr Ishiwata of Nissho Hong Kong certain documentation regarding the project, including in particular the SSA (albeit not the final version thereof), the Cancellation Agreement relating to the SAA and the Mainplaza Shareholders' Agreement dated 9 September 1994, together with the Development Agreement entered between Beachshore, Tsuen Kwong and Sun Hung Kai Real Estate Agency. There was no discussion of the contents of this documentation, and for his part Mr Chan informed Nissho Hong Kong that he was intending to change Active Profit's solicitors to Messrs Kao Lee & Yip.

68. A week after this third meeting, on 25 November 1994, Active Profit wrote to Mr Okuyama/Mr Ishiwata at Nissho Hong Kong. There had been an opportunity to digest the documentation that earlier had been passed over, and queries had arisen. Clarification of certain detail was requested, and the appointment of Messrs Kao Lee & Yip was confirmed; it was said that this firm had been instructed to "prepare the revised Participation Agreement to be in line with the amended Shareholders' Agreement in respect of Mainplaza Investments Limited dated 9 September 1994." This letter concluded with the statement that "We understand that the consideration for our participation has not been affected by the said amendments."

69. This letter attracted no response. Accordingly, on 23 February 1995 Active Profit again wrote to Mr Ishiwata at Nissho Hong Kong repeating the fact that they had instructed their solicitors to prepare a new Participation Agreement, reminding him of previous requests in January and February 1995, and once again requesting the documentation required. The letter concluded by observing that six to eight weeks would be needed "to organize the funding to this project should it be required soon", and that it was understood that the land premium should be paid "around the second quarter of 1995". Again no reply was forthcoming.

70. As the history of this case amply illustrates, the belief prevailing in 1995 that the premium would be needed to be paid in 1995 was hopelessly optimistic in fact, the Letter of Offer announcing the sum required was not to be obtained until well over two more years had elapsed. In the event, it is fair to say that, at least until the beginning of 1997, Active Profit made little if any additional inquiry about the development project, and that so far as it was concerned matters effectively lay fallow.

71. Circumstances changed, however, in January 1997 when, on 29 January, Messrs Kao Lee & Yip on behalf of Active Profit wrote to Clement Ng & Co., acting for Nissho Hong Kong, renewing the previous request for a revised Participation Agreement. This received the reply two days later that no instructions had been received to do so. Thereafter, throughout the first half of 1997 considerable inter-solicitor correspondence took place which demonstrated a sharp divergence of opinion as to the place Active Profit occupied, or continued to occupy, in the scheme of things.

72. The detail within this correspondence speaks for itself. The main point arising therefrom is that on both the Nissho Hong Kong and Milemore fronts, Active Profit's continued participation in the business of the projected development appeared to be regarded as at an end. For example, by letter dated 11 February 1997 Clement Ng & Co. on behalf of Nissho Hong Kong stated that their clients were "minded to refund" the sum of HK$5,505,608.00 with interest in accordance with Clause 7.2 of the Share Acquisition Agreement, and subsequently tendered a cheque in that sum by letter dated 6 March 1997, in which letter it was further suggested that the Participation Agreement of 1 June 1993, as novated on 30 September 1993, had been "frustrated", whilst the SAA had been "rendered incapable of being completed".

73. A like approach was demonstrated on behalf of Milemore by Messrs Hastings & Co. by letter dated 19 February 1997, wherein it was said that the SAA and its performance "was and is frustrated and discharged", and that "in the premises" the deposit in the sum of HK$5,505,608.00 and the deposit for the 'management fee' in the sum of HK$2,655,000.00 were returned; "as a gesture of goodwill" Milemore was prepared to pay interest on the deposit at the agreed rate of 5.9% prevailing under the SAA.

74. These overtures were firmly rejected by Messrs Kao Lee & Yip on behalf of Active Profit, and the cheques as thus tendered by both Nissho Hong Kong and Milemore were returned. By its letter of 10 March 1997 Messrs Kao Lee & Yip stated that Active Profit disagreed "with your unilateral declaration that the [Participation] Agreement has been frustrated or that your client's performance of its obligations thereunder have been discharged".

75. A 'Without Prejudice' letter of 13 March 1997 (no objection has been taken to its inclusion in the documents) from Clement Ng & Co. appeared to presage a slight change of approach. Nissho Hong Kong was said to have received "an indication" from Government that the premium required would be "in the range of HK$3,000 per sq. ft.", which was observed to be "more than double" the amount of Basic Rate of Premium as defined in the SAA; it further was asserted that it was likely that there would have to be "major changes" to the Mainplaza shareholding and that "the percentage of participation which our clients might shell out to your clients would have to be adjusted", that the commercial basis of the underlying transaction had entirely changed, and that accordingly "our clients are ready to start fresh negotiations with your clients regarding your client's silent participation in the project but obviously such negotiations could only proceed on the basis that your client will accept and confirm that the Participation Agreement has been frustrated."

76. This too was rejected by Active Profit, and "a full account" of events from the date of the Participation Agreement to the present was requested, and a demand was made that Nissho Hong Kong "will honour and continue to honour its obligations under the [Participation] Agreement".

77. A further letter from Clement Ng & Co. dated 26 March 1997 reiterated the view that Active Profit's participation in the Shatin development was currently at an end. To an extent the argument set out in this letter is the precursor of argument on behalf of Nissho Hong Kong in the present case. The operative part reads :

"Our client are of the view that any prospective participation by your client in the Sha Tin Project will be a subject for fresh negotiations. One simple reason (quite apart from the fact that the Participation Agreement has, in our client's view, been frustrated) for such fresh negotiation is that the adjustment formula set out in Clause 4 of the Share Acquisition Agreement dated 5 March 1993 does not work when the actual premium payable to the Government exceeds the Basic Rate of Premium by an amount which is greater than the Basic Price Per Square Foot. One of the matters of such negotiation is to work out a new adjustment formula".

A new meeting was requested with Active Profit in view of the lapse of time after the November 1994 meeting, the issue of legal action was mooted, and lastly the cheque was re-sent to Active Profit on the basis that Active Profit was to confirm that the Participation Agreement had been frustrated, thus enabling the parties to proceed "with fresh negotiations without delay".

78. The invitation to renegotiate was rejected by letter the following day, and the cheque once again returned. A 'without prejudice' meeting subsequently held by the parties was unable to resolve the differences between them, and on 9 May 1997 a writ was issued by Active Profit, initially against Nissho Hong Kong and Milemore only in this action, which then was intituled HCA No.A4891 of 1997.

79. The onset of this litigation, together with the receipt of the Offer Letter from Government on 5 May 1997, prompted a further 'Without Prejudice' letter from Clement Ng & Co. dated 19 June 1997, (again referred to without objection) whereby Active Profit was notified of the Letter of Offer, which portended a premium of $4,404 per square foot of permitted GFA. In addition, a copy of the Premium Agreement of 29 August 1995 was enclosed as to the existence of which I accept, and so find, that Active Profit to this date had been unaware and Active Profit was informed that, in accordance with the Premium Agreement, notice had been given by Mainplaza to Kodera and Cho that Mainplaza would not pay the consideration as adjusted in accordance with the Premium Agreement, and that in addition a Cancellation Agreement dated 26 May 1997 in respect of the SSA had been signed by Mainplaza, Kodera and Cho, and by Beachshore Limited.

80. After receipt of this information, and when Active Profit became aware of the sale of the Beachshore shares to Sun Hung Kai, Active Profit wrote to Sun Hung Kai by letter dated 27 June 1997 asserting its interest "in the shares of Beachshore and in the Project" and notifying Sun Hung Kai of its objection to the proposed acquisition of the Beachshore shares. This received no response. Thereafter, letters were written in July and August to Clement Ng & Co. and to Hastings & Co., acting for Milemore, Kodera and Cho, requesting information about the Sun Hung Kai share acquisition. These inquiries again went unanswered, paving the way for the extensive specific discovery applications which became an interlocutory feature of this litigation.

The evidence

81. I have earlier noted that few, if any, primary factual disputes arise in this case. In very substantial part, the documents adequately bespeak events. Against this background, therefore, the viva voce evidence was in relatively narrow compass in terms of objective factual matters, although naturally the individual witnesses sought to place their own gloss upon that which indisputably had occurred.

82. The sole witness for the plaintiff was Mr Albert Chan, the Managing Director of Active Profit, who had taken over management of the company from his brother Thomas in late March 1994. Whilst perhaps it does not greatly matter in the circumstances of this case, wherein there is little factual dispute requiring resolution, I formed the impression during the course of his evidence that, at best, he had a less than fluent grasp of the sequence of events and, in particular, of the nature of the legal arguments arising therefrom.

83. Three witnesses gave evidence on behalf of the 1st defendant, Nissho Hong Kong. They were Mr Hidekazu Ishiwata, at the material times Manager of the Properties & Construction Section of Nissho Hong Kong until his departure for Tokyo in January 1997, and thereafter his successor in Hong Kong, Mr Michio Takizawa, whose involvement in the events leading to this case focused on events subsequent to Mr Ishiwata's recall to Japan. The third witness for the 1st defendant was Mr Yasuji Kakimoto, and who was involved in his capacity as a director of Highs and of Mainplaza.

84. Evidence for the 2nd and 3rd defendants, Milemore and Motoyuki Kodera, was limited to Mr Kodera's testimony.

85. Carlos Cho, the 4th defendant, was not called and did not give evidence.

The parameters of the present dispute

86. Notwithstanding the volume of factual detail and legal argument that has been generated from the foregoing events, the battleground between these parties is tolerably clearly defined.

87. The present case has as its starting point the use to which the monies deposited by the plaintiff were put. In essence Active Profit maintains that it was a genuine, albeit silent, investor in the anticipated development, that the monies so deposited, via the Nissho Hong Kong and Milemore Participation Agreements, were impressed with a trust or trusts, and that in the circumstances which arose it was not open to Nissho Hong Kong and Milemore to act in breach of trust and simply to throw in the towel, as occurred via the Cancellation Agreement of 26 May 1997, and thereafter seek to return the monies initially deposited by Active Profit some four years earlier.

88. To the contrary, it was maintained that that which should have transpired, if the Premium Agreement was to be regarded was binding, is that Mainplaza should have paid the adjusted consideration of HK$153 million to Kodera and Cho for the shares, which, if then onsold to Sun Hung Kai precisely as occurred, would have garnered for the Mainplaza shareholders the very significant profit which in fact was reaped by Kodera and Cho from such share sale, thereby enabling a distribution to such shareholders including Active Profit through Nissho Hong Kong and Milemore of a sum in the order of HK$253 million (HK$406 million less HK$153 million); alternatively, if and in so far as the Premium Agreement did not 'bite', thereby removing any obligation to reimburse Kodera and Cho for the shares at all, the full amount of the monies secured on the share sale, and hence the prorated distribution, correspondingly would have been greatly enhanced. But whatever the status of the Premium Agreement, the crucial allegation, from the plaintiff's standpoint, is that it was wrongfully excluded from its rightful share in the rewards which it maintains should have accrued to it, via the Participation Agreements and its indirect shareholding in the Beachshore shares, as the result of the huge increase in the land value as represented by these shares.

89. For their part the defendants took strong issue with this case. They variously disputed the assertion that the Active Profit deposits under the Participation Agreements were, or the least continued to be, trust monies, or that any fiduciary duty was owed to Active Profit, maintaining that in light of the events which occurred the SSA clearly was rendered inoperable and unworkable. It was submitted that it was entirely legitimate for the Mainplaza shareholders to have acted as they had in choosing not to proceed with the joint development and to have recourse, pursuant to the binding Premium Agreement, to invite cancellation by Kodera and Cho of the SSA, and thereafter to enter into the Cancellation Agreement and to wind up their mutual involvement in the manner in fact accomplished, including return to the shareholders of the monies initially so deposited.

90. The foregoing represents merely an overview of the respective approaches of these litigants. I now turn to consider certain prominent issues within the arguments as they were variously developed, the conclusions reached upon these issues bearing directly upon the issue of the liability sought to be attributed by the plaintiff to each of the defendants.

Status of the Active Profit deposits: trust monies?

91. Fundamental to the argument in this case is the plaintiff's assertion that the monies respectively deposited with Nissho Hong Kong and Milemore were, and continued to be, trust monies. Is this contention justified?

92. Mr Chang SC for the plaintiff submitted that there could be no doubt about the position. He maintained that the deposits paid by Active Profit formed part of the agreed contribution towards the funding obligations of Nissho Hong Kong and Milemore, and gave rise to an immediate trust under Clause 9 of the Nissho Participation Agreement and Clause 10 of the Milemore Participation Agreement, with the result that all rights and benefits accruing from such contribution were to be held in trust for Active Profit.

93. In my view this must be correct. Clauses 9 and 10 respectively employ the words "any funding obligations", and there seems little doubt that the deposits paid by Active Profit constituted part payment of the 'Consideration' for the shares and formed part of the contribution towards the funding obligations of Nissho Hong Kong and Milemore under the SAA.

94. The immediate trusts so created must be distinguished from what have been referred to as the 'Clause 2 trusts' within both the Nissho Hong Kong and Milemore Participation Agreements, which in each instance declare that "upon completion of the Shares Acquisition Agreement" Nissho Hong Kong and Milemore would hold one third and one half respectively of "its interests and rights in its shares and investments ... in Mainplaza and in the Joint Venture in trust for the Participant ...". So that in this instance there was a contingent trust only pending completion.

95. So far as the SAA was concerned, completion did not, of course, occur. To the contrary, the SAA was cancelled by means of a Cancellation Agreement of 9 September 1994 and the signing, on that same date, of the SSA. However, notwithstanding the wording of the Cancellation Agreement, which provided, inter alia, that the deposits paid under the SAA should be refunded and the parties released from liability thereunder, it is clear that as a matter of fact the parties treated the SAA as surviving in the SSA.

96. Although initially both Nissho Hong Kong and Milemore had taken what has been referred to as the 'survival' point, there now is a sharp divergence of approach. Nissho Hong Kong no longer maintains that the Nissho Hong Kong Participation Agreement did not survive the cancellation of the SAA; to the contrary, by amendment it is Nissho Hong Kong's case that its Participation Agreement survived the cancellation of the SAA, and was fully effective in the context of Nissho's rights and interests in the SSA. Indeed, in his evidence on the point Mr Ishiwata made it clear, and I accept, that "everybody" involved considered that the position remained as it had before, notwithstanding replacement of the SAA by the SSA.

97. It is, however, argued on behalf of Milemore and Kodera that by reason of the absence of a Letter of Offer by 31 August 1994, and pursuant to Clause 7.2 of the SAA, that the Milemore Participation Agreement fell by the wayside, and that as a consequence Active Profit no longer retained any interest in the proposed redevelopment.

98. I reject this argument, and in so far as Mr Kodera's evidence purported to be to this effect, I reject that also. Nor, for that matter, do I accept his belated suggestion that the Active Profit deposits were no more than 'earnest monies' serving only to permit a re-entry into negotiations consequent upon the lapse of the SAA. Plainly this was not the case.

99. It is abundantly clear on the evidence, and I so find, that the rights and interests of Nissho Hong Kong and Milemore in Mainplaza survived into the SSA, and through Mainplaza the interests of these two entities in the joint venture continued to subsist; accordingly at the level of the Participation Agreements I find that Active Profit's interests equally continued.

100. I further accept the submission that, as a matter of practical politics, Kodera/Milemore at no time maintained a stance independent from Nissho Hong Kong in terms of the transition from SAA to SSA, nor in the matter of the Active Profit deposit, and I have grave doubts about the suggestion that Kodera had been concerned to return such deposit. Not only is this position clearly unsupported on the evidence of Mr Ishiwata (whose evidence on this issue I accept), but the unvarnished fact is that the Active Profit deposits were not attempted to be returned by Nissho Hong Kong and Milemore until 1997 (and ultimately, and in the event, in fact were returned only pursuant to an order of this court, dated 27 November 1998, by way of the plaintiff's successful, and hotly contested, application for interim payment).

101. There is no doubt that prior to the replacement of the SAA by the SSA all parties were proceeding on the basis that the Mainplaza shareholders definitely would acquire Beachshore, and this intention patently did not change with entry into the refined SSA. In my view it is fair to observe, as Mr Chang did, that there could be no evasion of the primary obligations under the Milemore Participation Agreement by alteration in the form in which the Beachshore shares were to be acquired. In this connection I further agree with the contention that the conduct of Milemore was such that any right to cancel the Participation Agreement must have been waived, alternatively that in the circumstances Milemore is precluded from arguing that the Agreement had come to an end, given that it had left the matter in the hands of Nissho Hong Kong, which, of course, now specifically accepts that Active Profit's interest continued notwithstanding the replacement of the SAA by the SSA.

102. Nor do I consider that Active Profit's subsequent request for a "revised agreement" impacts upon this analysis; to the contrary, given the revision of the SAA and its re-emergence as the SSA, this does not strike me as unreasonable.

103. At the end of the day, therefore, the submission by Milemore/Kodera on the 'survival issue' fails, and in my judgment fails clearly. This conclusion, however, is not determinative as to whether the 'Clause 2 trusts' remain contingent only, which in turn raises that which was referred to as the 'completion point', that is, the argument that no trust arose before completion of the SSA.

104. In this regard Mr Chang submitted that in fact completion had taken place under Clause 7.1 of the SSA, and I have concluded that this submission is correct. It seems clear (and I so find) that all the completion transactions set out in Clause 7.1 had taken place, and that the correct analysis of the position in these particular circumstances is that payment of the balance of the Consideration constitutes a post-completion event, a somewhat unusual situation admittedly, but a conclusion which nevertheless appears justified on the documents. In this connection I also reject the idea that there is anything within the SSA suggesting that completion under the SSA was conditional upon completion of the proposed redevelopment. It seems tolerably clear that everything required to be done under the SSA, including payment of the balance of the Consideration, would have been performed well before the actual redevelopment had commenced.

105. If this conclusion be correct, it follows that, absent payment of the outstanding balance, there is no scope for argument that an unpaid vendor's lien on the shares could arise the remedy for non-payment would be damages for breach of contract, not for return of the shares and consequently that Mainplaza, as registered shareholder, was under no restriction in terms of any disposal of the Beachshore shares pending payment of the full purchase price therefor.

106. Finally under the 'trust' head, if and in so far as such be necessary I also accept the argument that the use to which Active Profit's deposits were put namely, in forming part of the approximately HK$55 million which was used as the deposit and part payment of the Consideration under the SSA, which in turn made possible the completion of the SSA in September 1994, thereby enabling Mainplaza to become a shareholder in Beachshore and to secure resulting rights and interest in the proposed joint venture development in itself permits characterization of these monies as monies held upon resulting or constructive trust, irrespective of the position of these deposits under the Participation Agreements, and thereby prima facie requires Nissho Hong Kong and Milemore to account for the use of these deposits.

Specific arguments

107. In addition to the contentions arising consequent upon the progression from SAA to SSA, and to the status to be accorded to the Active Profit deposits, particular arguments were variously raised by the defendants in support of their respective cases. Although to some extent there is overlap within the arguments, it may assist at this stage to marshall these diverse contentions.

(i) Frustration

108. It was strongly argued on behalf of Nissho Hong Kong that the SSA lapsed or was frustrated by reason of the inordinately high premium demanded in the Letter of Offer of 5 May 1997.

109. In my view this is a bad point. The Clause 4 adjustment in the SSA was designed specifically to cater for a fluctuation in premium in either direction, and I fail to see how the Offer Letter, when it arrived, can be categorized as a supervening frustrating event. In short, a high premium already was contemplated by the parties as an existing risk, and indeed the Premium Agreement of August 1995, together with its earlier 'prototype', emerged precisely to deal with such eventuality.

110. In the circumstances, therefore, the frustration argument, which noticeably was abjured by the other defendants, cannot succeed, and I reject it.

(ii) Contractual capping of Total Land Cost

111. On behalf of the Nissho Hong Kong Mr Chan advanced the further argument that the precondition for proceeding with the redevelopment was that the Accommodation Value should remain at HK$2,130.00 per square foot, and that such 'fixing' of this AV figure could be discerned within the existing contractual documents.

112. The provenance of this argument appears to be the reference to "Total Land Cost" of HK$630,480,000.00 within the Interpretation Clause of the Mainplaza Shareholders' Agreement of 5 March 1993 (which produces the figure of HK$2,130 per square foot), although neither this term nor the composite figure appears within the operative part of that Agreement.

113. Clearly at the time when the shareholders joined the project in 1993 the overall sum of approximately HK$630 million was, and in the circumstances could be, no more than an estimate, and was subject to adjustments, including the premium ultimately to be charged by Government. Nor was there any reference to this figure, or its characterization, in the 1994 Mainplaza Shareholders' Agreement, whilst the entry by Mainplaza into the Premium Agreement of August 1995 clearly contemplated that the AV and the Total Land Costs would exceed the figures of HK$2,130 and HK$630,480,000.00 respectively.

114. Accordingly I reject this argument also, which again was solely mounted on behalf of the 1st defendant. I am inclined to agree with Mr Chang's submission that this theory represents little more than ingenious afterthought. Certainly there was no reference to it in the witness statements filed on behalf of Nissho Hong Kong; to the contrary, the viva voce evidence called by the 1st defendant, in particular that of Messrs Takizawa and Kakimoto, manifestly failed to support the point, no suggestion being made to the effect that if the AV exceeded HK$2,130 per square foot that Mainplaza could no longer proceed with the redevelopment, although it was recognised that the more the figure departed from that level the more tenuous would become the project's financial viability.

(iii) Proposed implied term within the SSA

115. Certain specific arguments were raised by Mr Sarony SC solely on behalf of the 2nd, 3rd and 4th defendants. The first of these was his submission that that which ultimately took form in the Premium Agreement is founded in an implied term to be discerned within the SAA and the SSA. Mr Sarony's starting point here is that it is clear beyond peradventure that the Mainplaza shareholders understood the Clause 4 formula within the SSA to be subject to the implied term that the vendors of the land, in form of the Beachshore shares, were entitled to be paid valuable consideration, and that it was never contemplated by any of the shareholders that the adjustment formula could be 'manipulated' so as to obtain the land for no cost.

116. In the event Mr Sarony invited the court to find that such implied term, to be read in conjunction with the Clause 4 formula, would read as follows : "Provided that there shall be no further adjustment to the consideration payable to the vendor under Clause 3 if the actual premium is 30% greater or less than the agreed rate of premium."

117. Whilst in light of the conclusion I have reached as to the applicability of the Premium Agreement it perhaps does not greatly matter, in principle such an attempt to imply a term in this form seems to me to be ambitious and, in the circumstances, doomed to fail. The SSA contains an 'entire agreement' clause, and the term now sought to be implied goes against the express provision of Clause 4, which on its face is wholly 'uncapped'.

118. Moreover, as Mr Chang remarked, quite apart from the established principle that the subjective intentions of the parties (in this instance Okuyama/Kodera) are not admissible for the purpose of construing a contract, why should it not be, for example, 40 or 50% up or down, and how can this term, as now formulated, be regarded as so obvious that its inclusion goes without saying?

119. I agree. In my view this argument as to implied term does not get off the ground. There was no attempt to incorporate the content of the Premium Agreement, or its prototype, into the SAA or the SSA (as variously amended), and in light of the existence of these separate side agreements I see no reason why the court should accede to the submission that it should divine the existence of such an implied term, as now is suggested.

(iv) The 'beneficial interest' and 'package' arguments

120. An argument also was put forward that the issue and allotment at par to Mainplaza of the 39,000 new shares of Beachshore consequent upon payment of the deposit sums did not involve transfer of the beneficial interest in such shares, which as at the date of the SSA were worth something in the region of HK$275 million. In this connection Mr Sarony prayed in aid the evidence of Kodera that at all times during the relevant transactions he regarded himself as the beneficial owner of the Beachshore shares and the property represented by those shares, notwithstanding that they had been transferred to, and were held by, Mainplaza.

121. The plaintiff's riposte to this submission is that whatever interest Kodera and Cho, qua vendors of the shares, in fact retained, this could and should have been taken care of by payment of the adjusted consideration for those shares (with or without the Premium Agreement provisions), but that in any event that Mr Sarony's argument on this point was in error.

122. In this connection Mr Chang submitted that, under the SSA, the beneficial interest in the Beachshore shares already had passed to Mainplaza upon completion of the transfer of the shares pursuant to the operation of Clause 7.1. He further argued that transfer of the legal title carried with it transfer of all rights, and that it was meaningless to talk about the transferor 'retaining' an equitable interest, citing in this connection the observations of Lord Brown-Wilkinson in Westdeutsche Landesbank Girozentrale v. Islington LBC, [1996] AC 669 at 706E-G. Accordingly, said Mr Chang, if it was to be contended that notwithstanding completion under the SSA a beneficial interest in the Beachshore shares remained vested in Kodera and Cho, the contention, in effect, was that Mainplaza was holding the Beachshore shares on trust for Kodera and Cho, and that there was nothing in the SSA, a commercial document containing an 'entire agreement' clause, which would suggest that Mainplaza was such a trustee until the balance of the Consideration be paid; to the contrary, the terms of that document, in particular clauses 7 and 8, clearly militated against such a construction.

123. In this I think that Mr Chang must be correct. The SSA is an agreement between Mainplaza on the one hand and Kodera and Cho on the other, that is, between Vendor and Purchaser, and under the SSA the 'Consideration 'the Vendors are entitled to receive comprises the consideration adjusted according to clause 4, together with the promise by Mainplaza to advance to Beachshore a loan for HK$15 million odd to discharge a loan initially due to Bumper Harvest (which loan thereafter was assigned to Kodera), and nothing else.

124. My conclusion as to the lack of validity of the 'beneficial interest' argument leads to a like conclusion in terms of an adjunct to that argument which also was mounted by Mr Sarony, namely that that which Kodera was selling was a 'package' and that Kodera and Cho were not willing to part with the land divorced from their share of the profits to be derived from the anticipated redevelopment, whether this took the form of a share in profits simpliciter or, for example, revenue from Excess Car Parks or interest in Management Fee, and that Mainplaza could not simply divorce one element in terms of the clause 4 Consideration and meet its contractual obligations.

125. In response, Mr Chang submitted that none of the items relied on over and above the consideration for the share sale can be found in the terms of the SSA, and that clearly there was here a confusion between Kodera qua vendor of the Beachshore shares and Milemore's interest in Mainplaza. He argued that if the share sale had proceeded under the SSA, once Mainplaza had paid the consideration under clause 4 and advanced the HK$15 million loan, that Kodera and Cho no longer would be in the picture, and that thereafter if Mainplaza decided not to proceed with the redevelopment, and instead had chosen to sell the Beachshore shares (whether to Sun Hung Kai or anyone else) Kodera and Cho could have had no complaint. Moreover, he argued, on the final version of the SSA the 1,000 shares, that is 2.5% of the Beachshore share capital which was retained by Kodera and Cho, never constituted part of the subject matter of the SSA, and thus was immaterial to the question of what constituted the Consideration under that Agreement. In my view this analysis is correct, and I reject the 'package' argument also.

The Premium Agreement

126. The Premium Agreement of 29 August 1995, together with its back-dated prototype of mid-1994, looms large in terms of the facts of this case. The fundamental effect of the Premium Agreement is not in doubt. Its status, however, remains the subject of dispute.

127. This Agreement evidently was designed to mitigate the rigours of an unanticipated premium being demanded by Government. I have earlier referred to the fact that the formula expressed within clause 4 of the SSA for computing the Consideration for the Beachshore shares contained an inherent problem in that it contained no 'capping' mechanism, so that potentially there could be huge swings in the total amount of the consideration so payable. For example, under the SSA formulation, if the rate of premium demanded was HK$700 per square foot, the consideration based on the SSA formula would be just over HK$408 million, whilst at the other end of the spectrum, a requested rate of premium of, say, HK$2,000 per square foot would produce a consideration payable of some HK$23.2 million, and indeed a premium demanded of HK$2,130 and upwards would produce a 'nil' consideration payable for the shares.

128. Against this background, therefore, the commercial rationale for the Premium Agreement is clear. The parties to the Agreement, namely Kodera and Cho on the one hand and Mainplaza on the other, agreed that in the event of the premium exceeding a certain amount that Kodera and Cho should have the right to cancel the SSA, and in the event of the premium falling below a certain amount, Mainplaza would have the right to cancel the SSA unless the consideration be further adjusted on the terms of the Premium Agreement.

129. In fact, the upper and lower 'caps' selected under the Premium Agreement were, at the top end "more than $1,560.00" and at the bottom end "less than $840.00". In real terms, therefore, the applicable figures for the Consideration based on the Premium Agreement were HK$366.598 million (on the basis of a premium rate of $840), and HK$153.478 million (at a premium rate of HK$1,560), although it seems fair to say that in August 1995 there could have been no realistic expectation of a premium being demanded at the lower end of the spectrum; in fact, at the time when the Premium Agreement was executed it appears on the evidence that the anticipated premium would be somewhere between HK$1,500 and $2,000.

130. Evidently, then, the practical result of this Agreement was of crucial importance to the vendors of the Beachshore shares, because no matter how high the premium in fact demanded over the benchmark figure of HK$1,560 there was not only in place a guaranteed sum of HK$153 million odd, but in addition there existed the inbuilt right of cancellation of the SSA if and in so far as the purchaser, Mainplaza, was not minded to proceed under the SSA and to purchase the shares. To the contrary, however, if the vendors of the shares did not exercise their right to rescind when the premium exceeded $1,560, Mainplaza was obliged to proceed under the SSA.

131. Against this background, the submission was no doubt correct that the Premium Agreement represented an important alteration of the rights and obligations as they existed under the SSA, and amounted to a significant alteration of the risk profile enshrined within clause 4 of the SSA. I further accept, and so find, that it was not until 19 June 1997 that Active Profit was first made aware of the existence of the Premium Agreement, a copy of which was sent to Messrs Kao, Lee & Yip by Nissho Hong Kong's solicitors, Clement Ng & Co., under cover of a "Without Prejudice" letter of that date.

132. On this basis, Mr Chang argued that such remedies as may be available to his client in this case should be predicated upon the unenforceability of the Premium Agreement against Active Profit. If such were to be the case, of course, this would permit argument leading to the highly unusual result that the only consideration payable to Kodera and Cho for the Beachshore shares under the SSA would be the provision of the $15 million odd interest-free loan, given that application of the clause 4 formula at the premium as in fact demanded by Government would produce a negative result.

133. Unsurprisingly both Mr Sarony and Mr Chan supported the intrinsic validity of the Premium Agreement. Mr Chan pointed out that although Active Profit may not have been shown nor informed of this "very sensible" agreement "obviously because of oversight" the existence of the Premium Agreement was no secret amongst the Mainplaza shareholders, and that it had been specifically relied upon at the Mainplaza Board Meeting of 16 May 1997 at which the primary decision was taken not to proceed with the redevelopment with Sun Hung Kai at the premium level demanded.

134. Notwithstanding Mr Chang's submissions to the contrary, I am unable to agree that this case should be decided on the basis that the interests of Active Profit remained unaffected by the Premium Agreement, or that its obvious existence should for the purpose of this case be ignored. Whatever the rights and wrongs implicit in Active Profit having been kept in ignorance of this Agreement (and I do not accept at face value that this constituted mere oversight) the hard fact is that this Premium Agreement constituted a fundamental and crucial element within the decision leading to the cancellation of the SSA and the decision of the Mainplaza shareholders not to proceed with the share purchase, and thereby with the proposed redevelopment. This Agreement was signed by all Mainplaza shareholders, and indeed formed the basis of and background to a final accounting exercise between them in terms of expenses thus far incurred.

135. In short, with the exception of Active Profit (which in any event possessed no right of veto in terms of decisions of Mainplaza shareholders) the course of conduct of all the parties involved in the SSA, together with that of Kodera and Cho as vendors of the Beachshore shares, was determined by application of the provisions of the Premium Agreement, and in these circumstances it is difficult to see how the very existence and impact of this Agreement can be ignored, or that it should be discounted in the evaluation of any remedy to which Active Profit otherwise may be entitled. Accordingly, in considering the merits of the plaintiff's case I proceed upon that which Mr Chang recognizes is his alternative approach, namely acceptance of the applicability of the Premium Agreement.

The watershed event : cancellation of the SSA and the sale of the Beachshore shares to Sun Hung Kai

136. In the context of the plaintiff's complaints in this case, entry into the Cancellation Agreement of 26 May 1997 constituted a watershed. At the stroke of a pen not only were the various parties' rights and interests under the SSA extinguished in terms of participation in the proposed redevelopment, but the 39,000 subscription shares in Beachshore were returned at par to Kodera and Cho. Thereafter the deposit of HK$55 million, which had been paid by Mainplaza under the SSA, and which represented the interests of the depositors in the proposed redevelopment, was remitted to Mainplaza subsequent to the receipt, from Royking Ltd, of the sale proceeds received consequent upon the sale of the Beachshore shares to Sun Hung Kai.

137. These events represent the focal point of Mr Chang's attack. Even on the basis of the applicability of the Premium Agreement (which I have held now to be the case) it was plainly still more profitable for Mainplaza to have paid the adjusted consideration of HK$153 million under the Premium Agreement to Kodera and Cho, and for Mainplaza itself to have onsold the shares to Sun Hung Kai for the sum which they in fact commanded, namely HK$406 million. As Mr Chang pointed out, some HK$55 million (including the Active Profit monies) had already been paid as deposit, and thus the actual amount which needed to be found would have been less than HK$100 million, a not inconsiderable sum, but one which paled in contrast with the then value of the land as represented by these shares.

138. In terms of the share sale as ultimately took place, it seems to me on the evidence that the overwhelming probabilities are that it was well before the critical date of 26 May 1997 that preliminary negotiations had begun with Sun Hung Kai for the purchase of the Beachshore shares from Kodera and Cho.

139. According to Kodera, however, the idea was canvassed on 17 May 1997 on the telephone with Okuyama, who then was in Tokyo, when Okuyama suggested selling to Sun Hung Kai "because of the Letters of Guarantee and the business relationship between Nissho HK or Nissho Japan and SHK". In fact, shortly thereafter Okuyama came to Hong Kong to negotiate with Raymond Kwok of Sun Hung Kai, and this was followed on 25 May when Okuyama told him that Sun Hung Kai would consider buying the shares and that Mr Takizawa of Nissho Hong Kong (whom, it will be recalled, had taken over from Mr Ishiwata in January 1997) had been appointed to handle this matter for him in Hong Kong; on 27 May 1997 Takizawa, Kodera and Cho visited Sun Hung Kai's offices to finalise the sale.

140. Mr Chang nevertheless submitted, in my view with considerable justification, that Nissho Hong Kong and Milemore/Kodera must have been were thinking of various options, including a possible sale to Sun Hung Kai, at a much earlier stage in 1997. In this connection it is difficult precisely to fix a date, although the suggestion that this was the situation "at least by February 1997" is not inconsistent with the surrounding evidence.

141. Certainly Mr Takizawa stated in his evidence that in a February 1997 meeting called by Sun Hung Kai with the shareholders of Mainplaza, Sun Hung Kai had indicated that the likely premium would be around HK$3,000 per square foot, thereby producing a total cost for the development at around $10,000 per square foot. He further said, and I accept, that both Okuyama and he himself believed that on this basis the project would be "too risky and difficult to convince our management in Tokyo", and that he agreed that neither Nissho Hong Kong nor Nissho Tokyo should be "involved in a project with such exposure", particularly against the background of a crashed Japanese property market.

142. Mr Kodera also accepted that he was told by Sun Hung Kai about the estimated premium in February 1997, and in my view it is inevitable in the circumstances that he would have had discussions with Nissho Hong Kong, which clearly was acting throughout as his de facto agent in this matter; certainly they were close business partners with substantial shared commercial interests, and it would beggar belief if the matter then had not been discussed in some detail. Equally, Kodera accepted that the proposed redevelopment could not proceed without the contribution of Nissho Hong Kong (with the backing of Nissho Japan) and also of Highs, and indeed the whole joint venture had come into being because of the good business relationship between Okuyama and Sun Hung Kai.

143. Accordingly, the conclusion that Nissho Hong Kong and Kodera had been evaluating available options, including a sale option to Sun Hung Kai, far earlier than has been admitted strikes me as well-founded, a further straw in the wind in this context being the preparation by Chesterton Petty, upon the instructions of Nissho Hong Kong, of a valuation report dated 13 January 1997 on, inter alia, "the current open market value on cleared site basis of a site on which the proposed development will be constructed."

144. It is clear, as Mr Takizawa accepted, that in the months January to April 1997 that Nissho Hong Kong was strenuously re-evaluating the project, including possibly persuading Sun Hung Kai to take "a larger share". I am bound to note, also, that viewed against this background, some of the inter-solicitor correspondence emanating from Nissho Hong Kong and Milemore in the early part of 1997, at the time when attempts were being made to persuade Active Profit merely to accept the return of its deposits, strikes me as less than full and frank, and on occasion in my view borders upon the disingenuous.

145. Accordingly, I do not accept the assertion that Nissho Hong Kong or Milemore/Kodera had not contemplated a sale of the shares to Sun Hung Kai until very shortly before such was achieved. To the contrary, I find that this course actively had begun to be considered not long after the beginning of the year. There must, for example, have been an assurance in place that upon cancellation of the SSA, and consequent sale of Beachshore to Sun Hung Kai, that the 1994 performance guarantees would be discharged.

146. It is notable, also, at the time of the Cancellation Agreement when Mainplaza invited Kodera and Cho to exercise the right of exit under the Premium Agreement, that they must have been aware that arrangements would have to be made with Sun Hung Kai to extricate Beachshore from its obligations under the 19 September 1994 Development Agreement between Beachshore, Tsuen Kwong Ltd (the Sun Hung Kai nominee) and Sun Hung Kai Real Estate Agency Ltd, wherein by reason of the decision of 16 May 1997 not to proceed with the redevelopment, Mainplaza had placed Beachshore potentially in default under the Development Agreement, in particular clauses 4.06 and 6 thereof. In this sense, therefore, in my view Mr Chang was correct in suggesting that Mainplaza had placed itself in a position whereby unless a deal was indeed reached with Sun Hung Kai a forced sale of the shares, at Sun Hung Kai's behest, could have taken place under clause 6, and that at this point Mainplaza potentially was in 'sale mode' in relation to its interests in Beachshore.

Plaintiff's case against the 1st and 2nd defendants

147. On behalf of Active Profit Mr Chang SC put his case against Nissho Hong Kong and Milemore primarily in terms of breach of trust and breach of fiduciary duty, the fiduciary duties owed to Active Profit arising by virtue of the terms of the Participation Agreements and the holding of the deposits on trust. He relied also on breach of contract, although in the circumstances of this case this seems to me to have less significance, given that this depends upon implication of a term within the Nissho and Milemore Participation Agreements to cause or procure Mainplaza to acquire the Beachshore shares, or at the least to take reasonable steps to do so. In any event, as he recognized, the case in trust and that in contract run essentially in parallel, whilst the fiduciary relationship relied upon in this case has a firm foundation in the respective contracts. In this connection I also accept his submission that there here is no question of attempting to superimpose a fiduciary relationship so as to alter the operation of such contract; such relationship arises independently on the facts of this case.

148. At the end of the day, therefore, the fundamental thrust of the plaintiff's complaint against the 1st and 2nd defendants, if it is to be successful, lies in terms of breach of trust and fiduciary duty. Absent success in these areas, the plaintiff is unlikely to get home at all.

149. It is trite law that it is incumbent upon trustees not to deal with trust property nor to exploit their position for private advantage, and that it is equally necessary for trustees to put the interests of their beneficiaries first. In this regard the court's attention was drawn in particular to certain observations of Sir Robert Megarry VC in Cowan v. Scargill [1985] 1Ch 270, at 287-288, where it was emphasised that trustees not only have an overriding duty to obtain the best price that they can for their beneficiaries but also that "the burden would rest, and rest heavy, on him who asserts that it is for the benefit of the beneficiaries as a whole to receive less by reason of the exclusion of some possibly more profitable form of investment."

150. On the basis, therefore, of the conclusion earlier drawn that the Active Profit deposits indeed were monies held on trust by Nissho Hong Kong and Milemore respectively, and that as a consequence Active Profit's interest in the redevelopment duly was represented in the Beachshore shares as transferred to Mainplaza, inquiry necessarily focuses upon what properly should have occurred, as against that which undoubtedly did take place.

151. In terms of what did happen, it is tolerably clear that it suited Nissho Hong Kong and Milemore/Kodera for the Beachshore shares to be sold to Sun Hung Kai by Kodera and Cho. In contrast, any such sale by Mainplaza necessarily would have involved a distribution of profits thereby accruing not only to Active Profit (20%) but also to Highs (30%), whereas the course actually chosen potentially enabled the proceeds collected by Kodera to be used to discharge what appear to be significant undisputed debts due from Kodera's companies to the Nissho Iwai group as indeed appears to have occurred in terms of sums variously paid in September 1997, one instance, for example, being the payment of HK$110 million paid to Nissho Hong Kong by Bumper Harvest pursuant to a Supplemental Agreement dated 6 May 1997.

152. Additionally, Nissho Hong Kong's interests were furthered by sharing in the consideration paid for the shares by Sun Hung Kai by means of an assignment to Sun Hung Kai (in the person of Kose Top Limited) on 31 July 1997 of a HK$9.88 million loan owing to Nissho Hong Kong from Beachshore, whilst Nissho Hong Kong also was paid HK$8 million by Kodera under a Service Agreement dated 22 July 1997 "as compensation for services" in terms of the sale of Beachshore to Sun Hung Kai. Further, the payment obligations incurred by Nissho Hong Kong/Japan under the 1993 Joint Venture Agreement and the 1994 Shareholders Agreement were discharged, as were the performance guarantees given by Nissho Hong Kong and others pursuant to the 1994 Development Agreement with Tsuen Kwong.

153. There is no doubt also, and I so find, that absent the input of Nissho Hong Kong/Japan, in the persons of Okuyama and Takizawa respectively, the sale of the Beachshore shares by Kodera and Cho would not have been facilitated, and I accept the contention that Nissho Hong Kong was very much the driving force in the negotiations leading to, and in the conclusion of, the sale of these shares. Indeed, Mr Chang pointed out that Nissho Hong Kong even provided warranties to Sun Hung Kai, dated 10 July 1997, against Beautipower's failure to repay certain sums, against any Active Profit claim ("whether under HCA No.A4891 of 1997 or otherwise"), and also, somewhat oddly in the circumstances, the usual vendor's undertaking as to sole beneficial ownership of the shares free of all encumbrances.

154. Looked at in the round, therefore, it is difficult not to conclude, as I do, that in terms of the sale of the Beachshore shares by Kodera and Cho to Sun Hung Kai that Nissho Hong Kong was concerned with its own commercial interests. Unfortunately, the court has not been able to hear from Mr Okuyama, who from the outset appears to have been the guiding force in terms of Nissho's commercial relations with Sun Hung Kai, but it has received evidence from Mr Takizawa, who struck me as a strong-minded character with pronounced views as to Active Profit's proper place in the scheme of things. When Mr Takizawa took over from Mr Ishiwata in January 1997 he plainly had little sympathy for Active Profit's participation, and, I apprehend, equally had little compunction in seeking perfunctorily to get rid of Active Profit by means of the proffered return of the deposit. I appreciate that in evidence he maintained that in so doing he had received advice from counsel regarding the doctrine of frustration, but in my judgment his no doubt understandable motive throughout was to advance the interests of Nissho, and he had little patience for Active Profit, clearly regarding its presence in the scheme of things as little more than an irritant. It seems to me that the tenor and content of the post-January 1997 correspondence owes a good deal to Mr Takizawa's disposition towards the plaintiff.

155. As to that which it is said should have occurred, in my judgment there is no reason why Nissho Hong Kong (which by this stage in effect was Nissho Japan, the latter having become a 100% shareholder in Nissho Hong Kong in March 1996) and Milemore, who were controlling directors and shareholders of Mainplaza, should not have been able to procure Mainplaza to make payment to Kodera and Cho of the adjusted sum under the Premium Agreement, thus enabling Mainplaza to sell the Beachshore shares direct to Sun Hung Kai.

156. Argument has been advanced by Nissho Hong Kong that such direct sale could not have been achieved, although notably it is not said that Sun Hung Kai would not have been susceptible to such a sale. The first reason mooted is that agreement had been reached between the Mainplaza shareholders and Kodera and Cho to the effect that, as per the 1993 Joint Venture Agreement (otherwise known as the Mainplaza Shareholders Agreement), the Total Land Costs could not exceed HK$630.48 million. This argument has been rejected earlier in this judgment.

157. The alternative approach to the contention that such share sale could not have been achieved by Mainplaza centers upon the argument that the primary purpose of the joint venture embarked upon by Mainplaza was the redevelopment, and consequently that it was not the business of Mainplaza to buy Beachshore for speculative purposes.

158. I do not consider that this argument succeeds either. I accept the submission that the commercial option of a sale was legally feasible, not least because the definition of "Business" in the 1993 Agreement is defined as encompassing not only the Clause 2 meaning which stated that the primary purpose of the company should be to participate through Beachshore in the anticipated redevelopment but also specifically includes "such other business as the parties may agree from time to time in writing should be carried on by the company".

159. The latter rubric was continued into the 1994 Shareholders' Agreement, which also made provision for the Board of Mainplaza "to conduct such other business as the Board may from time to time unanimously decide", whilst the same Agreement provided that the business of the company "shall be conducted on sound commercial profit making principles so as to generate the maximum achievable maintainable profits available for distribution to the shareholders."

160. In summary, therefore, I discern no reason in terms of vires precluding Mainplaza from acting in the manner which the plaintiff says in fact should have occurred, nor any reason otherwise preventing Nissho and Milemore from procuring Mainplaza so to act. From a purely commercial standpoint such a course should have appeared obvious. It was well-known that the land represented by the Beachshore shares had risen very substantially in value since 1993, and the extremely high level of premium demanded by Government clearly reflected that obvious fact. As Mr Chang remarked, the rights and interests of the Mainplaza shareholders, and through them Active Profit's interest, did not become valueless as the result of the premium demanded; to the contrary, the premium attained the level that it did precisely because the property market had shot up. Accordingly, he submitted, and I accept, that to transfer the Beachshore shares, representing an approximate 50% interest in the site, back to Kodera and Cho at par was simply to ignore the rampant increase in the land value, an increase augmented not only by the rising market but also by the development agreement with Sun Hung Kai and the government's agreement in principle to a re-grant.

161. In this context I bear in mind, also, the existence of the default provisions within clause 6 of the Joint Development Agreement between Beachshore and Tsuen Kwong whereby, absent relevant payments the non-defaulting party had the right to purchase the defaulting party's interests in the properties, the price to be determined by an independent firm of valuers. In the event, however, there was no question of this machinery becoming operative given the arrangements for sale that I find were brokered by Nissho with Sun Hung Kai.

162. At the end of the day, therefore, in my judgment it was entirely open to Mainplaza to have grasped the opportunity that became available to it in the circumstances as arose, albeit this did not occur because of the arrangement in fact put into place to sell back to Kodera and Cho. It appears, moreover, that it was not only Active Profit, the indirect participant, whose 20% interest in this regard was left out of the picture. Cancellation of the SSA and the transfer of the Beachshore shares back to Kodera and Cho not only cut out the interest of Active Profit, but also had the effect of cutting out the potential 30% share of Highs in any such sale proceeds.

163. As to the position of Highs, there appears to be no dispute. In his evidence, which I accept, Mr Kakimoto said that he had not learned of the sale of land by Kodera and Cho to Sun Hung Kei until some two years afterwards, in or around July/August 1999, whilst under cross-examination he also said that he had been told by Nissho and Kodera that there was "no alternative" but to cancel the SSA because the premium was so high. Further, when asked whether he would agree if Mainplaza could have sold the Beachshore shares at the huge profit which would have been gained even after payment under the Premium Agreement, Mr Kakimoto simply observed "I wish it was like that". On this basis, therefore, it is fair to assume that Highs would have jumped at the chance of a sale to Sun Hung Kai had such a possibility been on the table. The reason that it was not on offer, in my view, is that any such course had been pre-empted by the prior strategy worked out by Nissho and Kodera to enable Kodera to effect the sale of Beachshore to Sun Hung Kai.

164. I have concluded, therefore although not, it must be said, without considerable of reflection - that the plaintiff's case against Nissho Hong Kong and Milemore has been established in terms of breach of trust and breach of fiduciary duty, and I reject the argument, forcefully made, that the decision on the part of the Mainplaza shareholders in terms of the Cancellation Agreement of 26 May 1997 provided complete justification for that which occurred.

165. Whilst participation in the anticipated redevelopment was brought to an end by the size of the premium demanded by Government, the unvarnished fact remains that at that time Mainplaza had title to the Beachshore shares, and that acquisition of those shares had taken place, in part at least, because of the monies which were contributed by Active Profit towards the financial obligations arising from participation in the proposed redevelopment, monies which, as I have found, were held on trust by Nissho Hong Kong and Milemore.

166. These Beachshore shares had come to be worth an extraordinary amount of money by reason of the huge escalation in land prices at that time, and although it is true that the Mainplaza shareholders did not wish to assume the financial risk of proceeding with the redevelopment (indeed no development of this land has taken place even today), in my view Nissho Hong Kong and Milemore acted in breach of trust and breach of fiduciary duty towards Active Profit in agreeing that the Beachshore shares be transferred at par back to Kodera and Cho, and for Nissho thereafter to broker the deal for the sale of those shares by Kodera and Cho to Sun Hung Kai thereby enabling the large profit from such sale to enure to Kodera and Cho and not to Mainplaza, which throughout was in position to have exercised its rights under the Premium Agreement. By the same token, Nissho Hong Kong was enabled to achieve that which appears to have been significant financial advantage from the course of dealing as in fact was adopted, and it is perhaps not unfair to observe that the full extent of such advantage may yet not be entirely clear.

167. It follows that, as against the 1st and 2nd defendants, in addition to damages to be assessed for breach of trust/fiduciary duty, there must also be an order for an account of profits thus accruing, such account to be conducted on the basis of the applicability of the Premium Agreement, together with such consequential inquiries as may be necessary. In this connection I recognize force in the submission that until it is known how much Nissho Hong Kong in fact profited, it cannot be determined whether any election between alternative remedies is required on the part of the plaintiff, and thus I accept the argument that the plaintiff cannot at this stage be compelled so to elect.

Plaintiff's case against the 3rd defendant

168. There is a certain artificiality in the division of attribution of liability between Milemore on the one hand and Kodera on the other, given that there is no issue that Milemore was and is owned and controlled by Kodera. The evidence is that Milemore currently is not active and is, as Kodera nicely put it in evidence, "sleeping", which fact, no doubt, is the reason why Kodera subsequently was added as a defendant to this action.

169. Be that as it may. Milemore's separate corporate personality necessitates consideration of Kodera's personal position. Given the finding of liability against Milemore, and the basis for such finding, it follows in my view that Kodera, as the guiding mind of Milemore, must be liable for damages to be assessed for procuring the breach of trust and breach of fiduciary duty for which I have held Milemore to be responsible in the circumstances of this case.

170. In addition, on the facts as I have found them I hold that a case also is made out against Kodera as an accessory to breach of trust in terms both of the 'knowing assistance' and 'knowing receipt' limbs, given that he was privy to the Cancellation Agreement of 26 May 1997 setting the stage for the return of the shares at par, and that undoubtedly he had knowledge that the sale of the shares to Royking arose consequent upon, and as a direct result of, the breach of trust on the part of Nissho Hong Kong and Milemore. In this connection I take the view that it is sufficient to establish liability as accessory to a breach of trust if the defendant knew all the facts making it wrongful to participate in the way that he did, that is, following the objective approach adopted by Lord Millett in his dissenting judgment in Twinsectra Ltd v. Yardley [2002] UKHL 12, following the approach adumbrated by Lord Nichols in Royal Brunei Airlines v. Tan, [1995] 2 AC 378 (PC).

171. It follows that there must also be an order for an account of profits; once again any such account must take place on the basis of the applicability of the Premium Agreement.

Plaintiff's case against the 4th defendant

172. Carlos Cho, the 4th defendant, did not give evidence, notwithstanding the filing of two witness statements on his behalf. As the result of his decision not to go into the witness box, therefore, the unsworn content of these statements has not been put into evidence in the case as advanced against him by the plaintiff.

173. Nevertheless, Mr Chang submitted that there was "ample evidence" supporting the case against Cho in terms of procuring breaches of trust/contract by Nissho Hong Kong and Milemore, and against him as accessory to a breach of trust under both the 'knowing assistance' and 'knowing receipt' heads.

174. In this context Cho's close working relationship with the Nissho Iwai group was prayed in aid, as was his relationship with Kodera, who was his business associate and adviser on the redevelopment project the subject of this action, and it is clear on the documents that Cho had been closely involved in negotiations with Sun Hung Kai leading to the conclusion of the 1994 Development Agreement, and that subsequent to that agreement he had attended meetings with Sun Hung Kai with Ishiwata, Kodera and Tsuda of Highs to review progress of the project.

175. In evidence Kodera said that he had told Cho of the Milemore Participation Agreement, and of the fact that Active Profit had a certain portion of Milemore's rights and interests therein, and it would seem wholly improbable in the circumstances had Cho also not known about the Nissho Participation Agreement, given Cho's close association with Kodera and the Nissho Iwai group; indeed, I note that the letter of agreement of 5 May 1994 recording the basic terms of the agreement between Sun Hung Kai and Nissho Iwai (and others) to participate in the project on a 50 : 50 basis was sent to Cho by the Sun Hung Kai Real Estate Agency, and was signed by him to indicate agreement to the terms therein. On the probabilities, therefore, I find that Cho was aware of both Participation Agreements.

176. I further find that Cho must have known, at the beginning of 1997, that Sun Hung Kai had put forward an estimate of the premium of $3,000, and that as a local architect and property investor intimately aware of the project details and as an apparently trusted friend of Kodera and Okuyama I find that Cho would have been aware of the view Nissho was taking at that time as to its willingness to proceed at the then anticipated premium level. I bear in mind also that it was Cho who was the person appointed by Mainplaza to certify the total Premium and premium per square foot of maximum Gross Floor Area for the purpose of the SSA in fact he issued the letter containing this information through his firm on 12 May 1997 - and, further, that it was Cho who by fax dated 21 May 1997 had approached a potential investor, one Johnny Or, on behalf of Kodera (whom he therein described as "our major shareholder of Beachshore Ltd") with a view to selling the shares of Beachshore, and thereafter participation in the proposed redevelopment, for HK$350 million.

177. On the evidence before me I am persuaded that it is not unreasonable to infer, on the probabilities, that Cho must have been aware that if Mainplaza was not to proceed with the redevelopment, it would have been open to Mainplaza to sell Beachshore to Sun Hung Kai rather than simply to return the shares at par to Kodera, whom it is accepted held 10% of such shares for and on behalf of Cho. I further find that on the probabilities Cho must have known of Active Profit's interests under the Participation Agreements prior to signing the Cancellation Agreement dated 26 May 1997, and well before completion of the sale of the shares to Royking in or about July 1997.

178. I have reached this conclusion as a result not only of Kodera's evidence, and in light of Cho's obviously close relationship with Kodera and Nissho Iwai, but also given that Active Profit had formally asserted its claim in trust by service of proceedings on Nissho Hong Kong and Milemore on 10 May and 12 May 1997 respectively, such claim also having been asserted in the solicitors' correspondence prior to the institution of this action.

179. In his capacity as vendor I note that Cho was a signatory to the Cancellation Agreement of 26 May 1997 (as had been the case in terms of the Cancellation Agreement of 9 September 1994 and the Premium Agreement of 29 August 1995), although notwithstanding the formal part that he clearly played in the events surrounding the cancellation and the return of the Beachshore shares to Kodera, I have been unable to conclude on the basis of the evidence before the court that the plaintiff has succeeded in establishing its case against him in terms of procuring a breach of trust by Nissho Hong Kong and Milemore.

180. However, the same evidence, as Mr Chang has pointed out, also supports a case of accessory liability for breach of trust under both 'knowing assistance' and 'knowing receipt heads, given that Cho knew, or at the very least was placed on inquiry that the receipt and subsequent sale of the Beachshore shares to Sun Hung Kai was in breach of trust by Nissho Hong Kong and Milemore. I accept this submission, and hold that such liability as constructive trustee has been established, leading to a remedy in damages and/or an account of profits, the latter being premised upon the applicability of the Premium Agreement.

Conclusion

181. On the basis of the foregoing, therefore, in my judgment liability has been established by the plaintiff against the defendants herein on the various bases outlined. I will hear counsel as to the form of the Order to be drawn consequent upon this judgment.

182. I wish also to hear counsel as to the issues of interest and costs, and as to any such consequential directions as may be appropriate.

183. I thank all counsel for their assistance.