AKAI HOLDINGS LTD (In Compulsory Liquidation) v. EVERWIN DYNASTY LTD AND OTHERS

HCCL 42/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 42 OF 2005

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J U D G M E N T

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INDEX

A. Introduction

B. Akai’s Case

C. Mr Ting’s Case

D. Akai and the Akai Group

E. Mr Ting’s Duties

F. Proof of Breach: the Burden and Standard of Proof; Evidential Value of Previous Proceedings

G. Mr Ting’s Control over Akai and the Akai Group

G.1 Mr Ting

G.2 Other Directors

G.3 Persons Acting under the Control and Direction of Mr Ting

G.3.1 Ms Loh and Mr Tam

G.3.2 Ms Lee

G.4 Other Individuals

G.5 Mr Ting’s Control of Akai was Unfettered

H. The Collapse and Winding Up of the Akai Group

H.1 Appointment of and Investigation by the Liquidators

H.1.1 Appointment

H.1.2 Investigation

H.1.3 Sale of Akai’s Listing Status on the SEHK

H.1.4 Reconstruction of Akai’s Books and Records

H.1.5 Mr Ting’s Attempts to Avoid Examination

H.1.6 Discovery of Serious Fraud

H.2 Mr Ting’s Criminal Trial

H.3 Mr Ting’s Section 221 Examination

H.4 Other Litigation Pursued by the Liquidators

H.4.1 Akai Holdings Ltd (in Liq) v Ernst & Young (a Hong Kong Firm) HCCL 29/2004

H.4.2 Akai Holdings Ltd (in liq) v Thanakharn Kasikorn Thai Chamkat (Mahachon) HCCL 59/2004

H.4.3 Akai Holdings Ltd (in liq) v Ho Wing On, Christopher HCCL 34/2005, HCCL 40/2005

I. The Present Proceedings

I.1 Commencement

I.2 The Bermuda Proceedings

I.3 Resumption of these Proceedings

I.3.1 Pleadings and Expert Evidence

I.3.2 Akai’s Bankruptcy Petition and Mr Ting’s First VCF Application

I.3.3 Mr Ting’s Second VCF Application and Supplemental Witness Statement

I.3.4 Mr Ting’s Confirmation of Non-Attendance

J. The Documentary Evidence

K. The Alleged Defalcations

L. Payments made without Discernible Commercial Purpose

L.1 Group 1 Ting Recipients

L.2 Group 2 Ting Recipients

L.3 Group 3 Ting Recipients

L.4 Ting Associates

L.5 Proceeds from Exercise of Share Options

L.6 The Relationship between Mr Ting and the Group 2 and 3 Recipients, Ting Associates and the Share Capital Recipients

L.6.1 The Relationship between Mr Ting and the Group 2 Recipients

L.6.2 The Relationship between Mr Ting and the Group 3 Recipients

L.6.3 The Relationship between Mr Ting and the Ting Associates

L.6.4 The Relationship between Mr Ting and the Share Capital Recipients

M. Concealment of Payments and the “free” issue of Shares

M.1 The BT-Deposit and Temporary General Ledger Accounts

M.2 The GL Accounts

M.3 Unusual features of the BT-Deposit General Ledger Account

M.4 My findings on the nature and use of the BT-Deposit and Temporary General Ledger Accounts

N. The Undisputed Payments and the “free” issue of Shares were not made for a Commercial Purpose

O. The Undisputed Payments and the “free” issue of Shares were made by Mr Ting

P. The Undisputed Payments and the “free” issue of Shares were Defalcations

Q. The Disputed Payments

Q.1 Everwin –The Fu Tak Transactions

Q.2 CTS Capital

Q.3 Golfland – The Merrywide Transactions

Q.4 Goaltop

Q.5 Investco

Q.6 Worldwide

Q.7 Calculus – The Digiconic Transaction

Q.8 Primewood (Akai Electric Bonds)

Q.8.1 Factual Backgroud: Primewood, Rosalie and Tisco Transactions

Q.8.1.1 Primewood

Q.8.1.2 Rosalie

Q.8.1.3 Tisco

Q.8.2 Mr Ting’s Case

Q.8.2.1 Commercial Purpose

Q.8.2.2 No Loss to be Compensated

Q.8.2.3 Subsidiaries Not Akai

Q.8.2.4 Tisco

Q.8.3 Akai’s response

Q.8.3.1 Mr Ting’s Speculative Theories

Q.8.3.2 “Akai Group” theory

Q.8.3.3 “Payment on Behalf” Theory

Q.8.3.4 “Payments to TISCO HK” Theory

Q.8.3.5 “Brinlow Repayment” Theory

Q.8.3.6 Akai’s Concluding Submissions

Q.8.4 Analysis and Findings

Q.8.4.1 Transactions between Akai Subsidiaries and Primewood

Q.8.4.2 Rosalie

Q.8.4.3 Tisco

Q.8.4.4 TISCO HK

Q.8.4.5 Commercial Purpose

Q.8.4.6 Primewood, Rosalie and Tisco Transactions were Defalcations

Q.9 The TriAsia Transactions

Q.10 Primewood, Rosalie and Cyclonics were Group 3 Ting Recipients

Q.11 The Disputed Payments were Defalcations

R. Equitable Compensation

S. Methods 1 to 5, Tomei Receipts and Disregarded Credits

S.1 Method 2

S.2 Method 3

S.3 Method 4

S.4 Method 5

S.5 Methods 4 and 5 are Rejected

S.6 Method 2

S.7 Method 3

S.8 The Disregarded Receipts, including the Tomei Receipts

S.8.1 Cash Received by Akai from Subsidiaries

S.8.1.1 Mr Ting’s Case

S.8.1.2 Akai’s Case

S.8.2 Cash Received by Subsidiaries but booked into Akai’s Books

S.8.2.1 Mr Ting’s Case

S.8.2.2 Akai’s Case

S.8.3 Tomei Receipts

S.8.3.1 Mr Ting’s Case

S.8.3.2 Akai’s Case

S.8.4 Analysis and Findings

S.8.4.1 Cash Received by Akai from Subsidiaries

S.8.4.2 Cash Received by Subsidiaries but booked into Akai’s Books

S.8.4.3 Tomei Receipts

T. Limitations

U. My Award of Equitable Compensation

V. Deductions in Respect of Recoveries from Other Parties

W. Compound Interest

X. Costs

A. Introduction

1.  In this action, the liquidators of Akai Holdings Limited (“Akai”) make substantial claims against the 4^th Defendant (“Mr Ting”).  During the course of a 10 day trial, I received into evidence a considerable amount of documents and heard oral evidence from Mr Cosimo Borrelli (“Mr Borrelli”)[1], a joint and several liquidator of Akai[2], and from Akai’s accounting expert Mr David Spence (“Mr Spence”).  Despite every liberty granted to him to facilitate him giving evidence at the trial of this action, Mr Ting did not avail himself of the opportunity to do so.  The only evidence called by Mr Ting was the opinion evidence of his accounting expert Mr William Bowyer (“Mr Bowyer”).

2.  Akai was a company listed on the Hong Kong Stock Exchange which, at its peak, was the holding company of one of the top 10 consumer electronics manufacturing groups in the world.  The majority of Akai’s shareholders were members of the public.  Akai’s collapse in August 2000 was, at the time, the largest corporate insolvency in Hong Kong’s history,its reported assets plummeting from US$2.325 billion as at January 1999 to only US$265 million within a 12 month period.

3.  Mr Ting was the Executive Chairman and Chief Executive Officer of Akai at all material times and had a high level of control over Akai and the Akai Group[3].  Mr Ting’s control over Akai and the Akai group was exercised through his control of over 40% of Semi-Tech Corporation (“STC”), which in turn held over 40% of the issued shares of Akai.  Mr Ting was also the principal executive officeholder of each of the other listed entities in the Akai Group, namely, Akai Electric Co Limited (“Akai Electric”), The Singer Company NV (“Singer”), Sansui Electric Company Limited (“Sansui”), Tomei International (Holdings) Limited[4] (“Tomei”) and GM Pfaff AG (“Pfaff”)[5].

B. Akai’s Case

4.  Akai was represented by Mr Charles Manzoni SC leading Mr Jason Karas and they presented the following case on its behalf.

5.  Akai submitted that there was a glaring absence of corporate governance controls in the conduct of Akai’s affairs, giving Mr Ting unrestricted and unfettered access to Akai’s cash and assets.  Mr Ting’s power to sign cheques and authorise payments from Akai’s bank accounts singly and in unlimited amounts was admitted.  This case was about Mr Ting’s blatant and serial abuse of that power, through his dishonest and concealed self-dealing with Akai’s assets, primarily its cash assets.  The dishonesty and inappropriateness of Mr Ting’s misconduct, sustained over the course of at least 2.5 years from February 1997 to July 1999 (“the Claim Period”), could not be overstated.

6.  Mr Ting’s dishonest misconduct benefitted himself and his wife, offshore companies under his direct and indirect control and business associates and companies they controlled. Conversely, Mr Ting’s dishonest misconduct caused Akai and its shareholders and creditors the most extraordinary losses conceivable. It was difficult to conceive of more egregious dishonest breaches of fiduciary duty and dishonest misappropriation by a trustee of other people’s assets.

7.  By this action, Akai, through its court appointed Liquidators, sought to hold Mr Ting accountable for his dishonest misconduct and to recover compensation for its creditors and shareholders.  Mr Ting had gone to extreme lengths to impede the Liquidators’ investigations and stifle this action, over the course of almost 10 years.  This had included resort to forgery, creation of false evidence and by engaging in conduct in bad faith, these findings having been made by Chief Justice Ground of the Supreme Court of Bermuda and upheld by the Privy Council, in proceedings to which Mr Ting was a party.

8.  Despite Mr Ting’s obstruction, the documentary evidence obtained by the Liquidators established beyond question the concealed payment of hundreds of millions of dollars of Akai’s cash assets by Mr Ting to offshore companies under his direct and indirect control and to his business associates and companies they controlled over the Claim Period from February 1997 to July 1999.  This documentary evidence included contemporaneous records of Akai and of numerous banks.

9.  Of the total claimed defalcations[6] and misappropriations of US$837,118,799, Mr Ting’s signature was on cheques and payment instructions for total payments by Akai of US$484,301,070.  In addition, there was an irreducible core sum of US$408,123,278 which Mr Ting did not dispute was paid out from the assets of Akai (or which Mr Ting caused Akai to be deprived of, in the case of the share capital defalcations)[7].  Mr Ting accepted that there is no evidence of value having been received by Akai for those payments and Mr Ting had offered no explanation for them.  Yet Mr Ting did not accept that Akai had established that these payments constitute defalcations from the assets of Akai.

10.  These undisputed payments of US$408,123,278 comprise:

(1) 23 individual payments in the total sum of US$139,186,668 paid by Akai to four companies Mr Ting had admitted to directly owning and controlling[8];

(2) 93 individual payments in the total sum of US$200,832,662 paid by Akai to nine companies indirectly owned and controlled by Mr Ting through his personal assistant and “instrument” Ms Lee Yin Yin, Filomina[9] (“Ms Lee”);

(3) 6 individual payments in the total sum of US$22,020,714 paid by Akai to five companies otherwise connected with Mr Ting[10];

(4) 7 individual payments in the total sum of US$23,494,311 paid by Akai to Mr Ting’s wife, Ms Angela Tseng Su Lan (“Ms Tseng”), and to the Grande Holdings Limited (“Grande HK”), TriAsia Limited (“TriAsia”) and Fu Tak International Limited (“Fu Tak International”), being companies controlled by longstanding business associates of Mr Ting, namely, Mr Christopher Ho Wing On (“Mr Ho”) and Mr Spencer Kuo Ruey-yeu (“Mr Kuo”)[11];

(5) Depriving Akai of the proceeds of 9 amounts receivable by Akai from the exercise of share options between 4 March 1997 and 13 May 1997 in the total sum of US$22,588,923.

11.  Of these undisputed payments of US$408,123,278, Mr Ting’s direct fingerprint was on payments totalling US$290,311,014, in that he personally signed the Akai cheque or Akai bank payment instruction to cause those payments to be made.

12.  There could be no serious dispute that these payments totalling US$408,123,278 constituted defalcations and misappropriation from the assets of Akai for which Mr Ting was liable to fully restore.  In particular:

(1) Over 70% of these payments were personally signed for by Mr Ting;

(2) The payments were made by Akai to offshore companies directly or indirectly owned and controlled by Mr Ting, otherwise connected with him or connected with other companies controlled by longstanding business associates of Mr Ting;

(3) There was no apparent commercial purpose or actual or potential value to Akai from these transactions;

(4) None of these payments are disputed by Mr Ting and Mr Ting has proffered no explanation whatsoever for these payments, despite being in a unique position to do so;

(5) These payments were not disclosed by Mr Ting to Akai’s board, auditors, public shareholders or the Hong Kong Stock Exchange, despite having been made to connected persons and entities;

(6) To the contrary, their existence was concealed through false accounting in Akai’s general ledger, in particular through a fictitious general ledger account titled “BT-Deposit” which was brought to a nil balance at each financial year-end;

(7) Even Mr Ting’s accounting expert Mr Bowyer could not point to any evidence of value having been received by Akai for any of those payments.

13.  Accordingly, Mr Ting was strictly liable to restore these misapplied assets of Akai (or their cash value plus interest) in specie to the company.

14.  The remaining balance of the sum claimed by Akai from Mr Ting was US$428,995,521 (being US$837,118,799 less US$408,123,278), comprising 30 out of the 165 individual payments or other defalcations claimed by Akai.  These 30 payments or other defalcations were disputed by Mr Ting, primarily on the grounds that Mr Ting’s accounting expert Mr Bowyer considered that:

(1) he had found some evidence of value having been received by Akai in respect of these payments; and/or

(2) there was a possible commercial explanation for the payment.  Akai’s case was that Akai received no value for these payments; that the payments were self-evidently defalcations and that Mr Bowyer’s evidence was based upon speculation and supposition such that it was of little if any weight.

15.  In respect of the payments of US$428,995,521 disputed by Mr Ting:

(1) US$38,461,538 was paid on 18 November 1997 by Akai to Everwin Dynasty Limited (“Everwin”), a BVI company controlled by Mr Ting through his personal assistant, Ms Lee, for which the cheque making the payment was signed by Mr Ting personally – this was the only one of 18 payments by Akai to Everwin which is disputed by Mr Ting;

(2) The payment of US$38,461,538 (HK$300,000,000) by Akai to Everwin was a defalcation which was concealed by a fictitious transaction contrived by Mr Ting, designed to give the appearance that a subsidiary of Akai had acquired a purported investment in a Bahamian incorporated company, Fu Tak International, which purported to own an indirect interest in a television factory in Tianjin, China via an entity which did not exist at the time of the payment and fictitious agreement. In fact, there was no dispute that these funds were disbursed by Everwin, including a payment for a residential apartment in Mid Levels;

(3) US$3,846,154 was paid on 23 January 1998 by Akai to CTS Capital Limited (“CTS Capital”), a BVI company controlled by Mr Ting through his personal assistant. Ms Lee, for which the bank payment instruction was signed by Mr Ting personally. The payment of US$3,846,154 (HK$30,000,000) by Akai to CTS Capital was a defalcation.  Mr Bowyer’s tentative suggestion of Akai making a payment to CTS Capital on behalf of Kong Wah Holdings Limited (“Kong Wah”) in connection with an asset sale was shown at trial to be no more than unfounded speculation;

(4) US$68,784,592 was paid between 1 December 1997 and 4 December 1998 by Akai to Golfland Limited (“Golfland”), a BVI company controlled by Mr Ting through his personal assistant Ms Lee, by way of seven individual payments of which five were signed for by Mr Ting personally – one other payment by Akai to Golfland of US$12,936,611 on 17 December 1998 was not disputed by Mr Ting. The payments of US$68,784,592 by Akai to Golfland were defalcations which were concealed by fictitious transactions contrived by Mr Ting, designed to give the appearance that subsidiaries of Akai and Kong Wah had acquired an investment in a Shenzhen listed company. The Liquidators’ detailed investigations established that no interest in the Shenzhen listed company was ever acquired;

(5) US$20,000,000 was paid on 23 and 24 December 1998 to Goaltop Limited (“Goaltop”), a BVI company controlled by Mr Ting through his personal assistant Ms Lee, for which the bank drawdown instructions were signed by Mr Ting personally – these were the only two payments to Goaltop which were disputed by Mr Ting out of a total of 49 payments to Goaltop actually made.  Rather than Akai paying Goaltop directly, the two payments totalling US$20,000,000 were made to Goaltop in circumstances where Mr Ting caused Akai to provide security for a loan which allowed the payments to Goaltop to be made.  Akai lost its security as a consequence of the payments to Goaltop, such that Akai’s assets of US$20,000,000 were misapplied for the benefit of Goaltop and therefore constituted defalcations;

(6) US$1,475,762 was paid on 15 July 1999 by Akai to Investco Trading Group Limited (“Investco”), a BVI company controlled by Mr Ting through his personal assistant, Ms Lee, for which the cheque making the payment was signed by Mr Ting personally – this is the only one of 13 payments by Akai to Investco which is disputed by Mr Ting;

(7) The payment of US$1,475,762 by Akai to Investco was a defalcation.  Mr Bowyer’s suggestion that Akai simply passed on funds received from its subsidiary (Space Mountain Limited (“Space Mountain”)) to Investco was shown at trial to be entirely speculative in the absence of any evidence identifying a legitimate commercial relationship between Space Mountain and Investco;

(8) US$14,272,905 was paid on 27 February 1997 by Akai to Worldwide International Limited (“Worldwide International”), a BVI company controlled by Mr Ting through his personal assistant, Ms Lee, in respect of which the identity of the person responsible for the payment could not be discerned – this was the only one of eight payments by Akai to Worldwide International which was disputed by Mr Ting. The payment of US$14,272,905 by Akai to Worldwide International was a defalcation.  The fact that a payment was made on the same day by Worldwide International to a subsidiary of Akai Electric (Kilter) did not change the underlying nature of the defalcation of Akai’s assets to Worldwide.  Mr Bowyer accepted that cash stolen by Mr Ting from Akai could not be used to legitimately fund Akai’s subsidiaries;

(9) US$118,399,119 was paid between 14 and 27 January 1998 by Akai to Tisco Securities Limited (“Tisco”), a BVI company controlled by Mr Ting through his personal assistant, Ms Lee, by way of 11 individual payments of which six were signed for by Mr Ting personally – five other payments by Akai to Tisco were not disputed by Mr Ting.  The 11 payments by Akai to Tisco totalling US$118,399,119 were immediately repaid by nine separate payments from Tisco to Akai totalling US$116,357,743, which represented a series of recycling transactions with the improper objective of reducing the BT-Deposit General Ledger Account to US$ nil on 31 January 1998.  Mr Ting’s and Mr Bowyer’s attempts to characterise the payments by Akai to Tisco as having a commercial purpose according to various alternative theories were exposed as being inconsistent with the objective evidence and as entirely speculative;

(10) US$12,936,611 was paid on 11 January 1999 by Akai to Calculus Investments Limited (“Calculus”), a BVI company controlled by Mr Ting through Akai’s employee, Ms Joanne Tang Wah Sin (“Ms Tang”), for which the cheque making the payment was signed by Mr Ting personally.  The payment of US$12,936,611 by Akai to Calculus was a defalcation which was concealed by a fictitious transaction contrived by Mr Ting, designed to give the appearance that a subsidiary of Akai had acquired a purported investment in a Californian technology company which did not exist at the time of the fictitious agreement.  Further highlighting the contrived nature of the transaction, a purported refund of US$6.5 million of the investment amount was in fact a disguised payment by an Akai subsidiary (Space Mountain) to Akai effected by Mr Ting;

(11) US$134,178,256 (being US$140,333,333 less US$6,155,077 which was conceded by Mr Bowyer) in respect of the discharge of the obligations of Primewood Limited (“Primewood”) to Akai in connection with the bonds issued by Akai Electric which involved false and misleading public announcements by Mr Ting.  Mr Ting caused Akai to be deprived of the proceeds of the sale of Akai Electric 2000 bonds to Primewood in the amount of US$140,333,333.  This defalcation was not constituted by actual cash payments by Akai to Primewood but was concealed by two debit entries recorded in the BT- Deposit General Ledger Account.

(12) US$16,640,584 was paid by Akai to TriAsia, a company controlled by Mr Ting’s longstanding business associate,  Mr Kuo, in four separate payments on 25 June 1997, 24 December 1997, 10 July 1998 and 8 January 1999, for which the bank payment instruction was signed by Mr Ting personally.  While there was no dispute that Akai made those four payments, Mr Bowyer disputed that TriAsia received the funds and/or benefited from the US$16,640,584. The four payments constituted defalcations of Akai’s assets on the basis that:

(i) the third party banking documentation exhibited to Mr Borrelli’s statement readily established that Akai’s payments were made to pay off a loan provided to TriAsia by a bank; and

(ii) in any event, no alternative explanation of any legitimate commercial purpose for the payments of US$16,640,584 had been put forward by Mr Ting or his accounting expert Mr Bowyer.

16.  Akai’s primary case was that the disputed payments were plain and obvious defalcations, by reference to the identity of the Recipient, their concealment and nature.  In the particular circumstances of this case, any unexplained dealing with Akai’s assets with no obvious commercial purpose must amount to a defalcation.  Accordingly, the Court was in a position to readily draw the conclusions sought by Akai.  It was apparent that Mr Ting’s personal fingerprint was on the majority of those disputed payments.  Of the total defalcations claimed in the sum of US$837,118,799, Mr Ting’s signature was on cheques and payment instructions for total payments by Akai of US$484,301,070.Despite Mr Ting’s pervasive and direct personal involvement in the vast majority of the claimed defalcations, including the disputed payments, Mr Ting had elected to proffer no explanation whatsoever.  This was despite the fact that he was plainly best placed to provide the Court with the relevant evidence.  The most cogent reason for his failure to do so was that there is no honest explanation for his conduct.  Accordingly, the Court was able to more readily accept the evidence adduced by Akai and draw all reasonable inferences of fact from Akai’s evidence.

17.  The extensive documentation disclosed in these proceedings and, in particular, exhibited to Mr Borrelli’s statements was obtained as the result of the full investigation of the affairs of Akai by the Liquidators as officers of the Court in accordance with their duties.  The documentation established the full extent of Mr Ting’s blatant self dealing and the nature and extent of the concealment of Mr Ting’s defalcations in the accounting records of Akai.

18.  The overwhelming indicia of Mr Ting’s fraud and concealment included:

(1) non disclosure of the transactions constituting the defalcations in Akai’s financial statements, corporate governance documents or public announcements;

(2) the use of fictitious accounts in Akai’s general ledger;

(3) the false and misleading recording of defalcations in Akai’s general ledger, including within the fictitious general ledger accounts;

(4) further false accounting and transactions with Recipients to reduce the balance of the fictitious general ledger accounts to US$ nil at financial year end to avoid scrutiny;

(5) the absence of any current or loan accounts with any of the entities that received Mr Ting’s thefts; and

(6) the intermingling of the defalcations with legitimate transactions.

19.  As to the oral evidence at trial, Akai submitted that:

(1) Mr Borrelli’s evidence was forthright and straightforward as to both what the objective documents demonstrated to him, and as to his investigations into the affairs of Akai, and can be accepted without reservation;

(2) Mr Spence’s evidence was measured and appropriate, with the benefit of substantial experience in accounting and the investigation of major frauds, and can likewise be accepted without reservation; and

(3) The utility of Mr Bowyer’s evidence was limited by his lack of contact with Mr Ting and unrealistic assumptions that the Ting Recipients were not controlled by Mr Ting.  Mr Bowyer’s evidence was accordingly substantially speculative rather than grounded on any objective contemporaneous documentary evidence.  On a number of occasions in cross-examination, when confronted with objective documentary evidence, Mr Bowyer was unwilling to make obvious concessions.  Accordingly, Mr Bowyer’s evidence was of little assistance.

20.  As to the quantum of equitable compensation payable by Mr Ting, Akai submitted that the starting point must be that Mr Ting was liable to restore to Akai US$837,118,799, being the total of his defalcations. A fiduciary who has misapplied assets of his beneficiary was strictly liable to restore those assets to the beneficiary.

21.  The principal issue on the quantum of equitable compensation payable was the extent, if any, to which Mr Ting was entitled to a credit in respect of sums paid to Akai by the Recipients.  Akai submitted that Mr Ting was only entitled to a credit to the extent that he could establish payments to Akai were specifically identifiable as repayment of a prior defalcation.  As a result of Mr Ting having proffered no explanation whatsoever, the Court would be justified in not allowing Mr Ting any credit and ordering equitable compensation calculated by Method 1[12] of US$837,118,799 plus interest.

22.  However, as the objective contemporaneous documentary evidence demonstrated that a limited number of transactions between Akai and the Ting Recipients were circular (such as the Tisco transactions), the Court might conclude that the sums misapplied in these transactions were restored to Akai, such that it was appropriate that credit be given.  On that basis, the Court could permit Mr Ting limited credits and adopt Method 2.

23.  There was no basis for any further credits in favour of Mr Ting and the Court ought not to speculate in his favour, such as to give Mr Ting the benefit of entirely disconnected and concealed payments to Akai.  Mr Ting could not pierce the corporate veil of the Recipients for his own benefit.  Accordingly, none of Methods 3 to 5 or any further method advanced by Mr Ting would be an appropriate method of calculating Mr Ting’s liability to pay equitable compensation to Akai.

24.  The question of whether Mr Ting should be given credit for the Tomei Receipts was of little consequence if the Court adopted Method 1 or Method 2, but was material if the Court were to adopt another method.  The Tomei Receipts were sums misapplied from Tomei (a separate listed company) by Mr Ting, paid to a Ting Recipient, and then paid on to Akai, for reasons unknown.  Either Mr Ting (the perpetrator) or Akai (the victim) stood to benefit from these receipts.  Plainly Mr Ting should not be permitted to benefit from his own wrongdoing by being given credit against his defalcations in respect of these payments.

25.  Akai accepted that credit was required to be given to avoid double recovery.  Akai did not dispute the revised calculation put forward by Mr Ting’s legal team.

26.  Finally, Akai was entitled to compound interest, as the law would presume that Mr Ting had used the misapplied funds to earn profits. Akai submitted that the commercial rate of USD Prime + 1% at monthly rests was appropriate.

27.  Applying these principles, Akai was entitled to equitable compensation, inclusive of interest, of US$2,134,784,647 (Method 1) or US$1,589,158,615 (Method 2) or US$1,583,245,277 (Method 2, less the Tomei Receipts).

C. Mr Ting’s Case

28.  Mr Ting was represented by Mr Nigel Kat, together with Ms Chyvette Ip and Mr Hew Yang Wahn and, in addition to their detailed submissions, they presented the following overview of his case.

29.  The burden of proof was on Akai to prove fraud by compelling evidence.  The Court should not draw adverse inferences against Mr Ting at any stage of these proceedings founded either upon the absence of relevant documents for which he was not responsible or because he did not give evidence, for which he has provided genuine and credible justification.

30.  Akai had not proved that Mr Ting was responsible for each of the impugned payments.

31.  The Liquidators over-reached. US$837 million was a gross over-claim.  Akai was only entitled in law and equity to be compensated for its deficiency: Libertarian Investments[13].  Equitable compensation was awarded to compensate, not to punish the defaulter.  The claim must initially be reduced by the amount which Akai has admitted it has received from Recipients and by the double-counting it has included.  The Liquidators’ methodology for identifying payments as ‘defalcations’ and quantifying them did not produce equitable compensation.  It excluded evidence of receipts by Akai which the Court was bound to take into account in determining any deficiency which is to be compensated.

32.  Whether or not the Court applied the Liquidators’ methodology, the matters pleaded to constitute the ‘Primewood’ claim do not amount to a ‘defalcation’.  They also produced no loss to, or deficiency in Akai which required to be restored.  In addition, a number of significant payments claimed were, on Akai’s own documentary evidence, made for a commercial purpose and thus could not be ‘defalcations’.

33.  The Liquidators’ claims were barred by limitation in any event, unless the Court found them to be fraudulent or self dealing (which was denied) within s.20(1)(a) or (b) of the Limitation Ordinance.

34.  Akai’s claim must also be reduced by the amount which it has recovered in respect of these claims in other proceedings, plus any sum recovered from the 3^rd defendant, Ms Lee.

35.  Simple interest was appropriate in this case.  If, however, compound interest was ordered, the appropriate rate(s) and rests would require evidence and argument.

36.  I will address Mr Ting’s detailed submissions below.

D. Akai and the Akai Group

37.  The following facts have been established to my satisfaction by the evidence of Mr Borrelli and from the documentary evidence.

38.  Akai was an investment holding company carrying on business throughout Asia, Europe and the USA, from its headquarters at Two Exchange Square in Hong Kong[14].

39.  Akai was incorporated in Bermuda on 10 October 1991 under the name Semi-Tech (Global) Company Limited.  It was a public company at all material times.  It was registered in Hong Kong as an overseas company on 19 June 1992.  On 30 June 1992, pursuant to a scheme of arrangement and reorganisation, Akai became the holding company of a separate company named Semi-Tech (Global) Limited (“STG”) (formerly known as Semi Tech Microelectronics (Far East) Limited) and assumed the listing status of STG on the Hong Kong Stock Exchange[15].

40.  By the beginning of 1997, Akai was the holding company of a group that controlled the consumer electronics businesses of  Akai Electric, Kong Wah, Sansui and Tomei as well as the sewing machine group Pfaff.  The Akai Group was one of the top ten consumer electronic manufacturers in the world.  It manufactured and distributed televisions, video recorders, audio systems, telecommunication products and component parts, under international brand names including “Akai” and “Sansui”.  Akai had interests in businesses carried on in Hong Kong, China, Japan, USA, Germany, France, Austria, England, Switzerland, Singapore, Australia and Finland and had manufacturing and research and development facilities in Malaysia, Finland, England, Japan, USA and in China, amongst other places.  In China alone, the Akai Group employed 25,000 workers.  Akai’s consumer electronic products were distributed globally.

41.  As at 31 January 1997, the audited financial statements of Akai recorded shareholders’ funds of HK$8.175 billion (equivalent to US$1.048 billion) and a net profit after tax of HK$484 million (equivalent to US$62 million).[16]

42.  The following diagram is a simplified representation of the Akai Group corporate structure as at 31 January 1997:[17]

43.  As at 31 July 1999, the structure of the Akai Group had changed as shown in the following diagram:[18]

44.  Further corporate structure charts for the Akai Group at all material times are at Tab 16 of the Borrelli Statement.[19]  Details of the major companies within the Akai Group are set out at §§17-50 of the Borrelli Statement.[20]

45.  As can be seen in the relevant diagrams, in some cases the interests of persons in the Akai Group companies changed over the Claim Period.  The following table sets out in simplified form the changes in ownership of key Akai Group companies:

Person	Interestin	31 January 1997	31 July 1999
Mr Ting	STC	44.6%	45%
STC	Akai	43.1%	25.7%
STC	Singer	49.7%	49.6%
Akai	Akai Electric	66%	71%
Akai	Pfaff	80%	-
Akai Electric	KongWah	100%	100%
Akai Electric	Sansui	16.6%	12.3%
KongWah	Tomei	43.4%	19.7%
Samsui	Tomei	15.4%	-

46.  STC was an investment holding company listed on the Toronto Stock Exchange and as at 31 January 1997 held 43.1% of Akai’s shares.[21]  At the same time, Mr Ting controlled approximately 44.6% of the issued voting shares in STC and he was at all material times the President, Chairman and CEO of STC.[22]  In September 1999, STC filed voluntary petitions for relief under Chapter 11 of title 11 of the United States Bankruptcy Code.[23]

47.  Akai Electric was a public company incorporated in Japan in 1929.  Its shares were listed on the Tokyo, Osaka and Nagoya Stock Exchanges.  As at 31 January 1997 and 31 January 1999, Akai controlled 66% and 71% respectively of the issued shares in Akai Electric through wholly owned subsidiaries.[24]  Akai Electric carried on business as a manufacturer and distributor of video and audio equipment and electronic music instruments.  Akai Electric had interests in businesses operating in various countries, including Hong Kong, Australia, the UK, Germany, France, Singapore and Thailand.  From February 1995 until 29 June 2000, Mr Ting was the Chairman and a director of Akai Electric.[25]

48.  Akai Electric also controlled Sansui which was listed on the Tokyo and Osaka Stock Exchanges[26] and carried on business as a manufacturer of electrical appliances and communications equipment. Mr Ting was the Chairman and a director of Sansui from 30 March 1994 to 30 March 2000.[27]

49.  Kong Wah was incorporated in Bermuda in 1991 and had its shares listed on thew Hong Kong Stock Exchange from January 1992 until 2 December 1996.[28]  Kong Wah was engaged in the design, manufacture and marketing of consumer electronic products, primarily televisions, audio and telecommunication products.  The shares in Kong Wah were held at all material times by Kilter Limited (“Kilter”) and Spiritfields Limited, both wholly owned subsidiaries of Akai Electric.  Mr Ting was a director of Kong Wah from 23 August 1995 to 25 November 1997.[29]

50.  Through Kong Wah and Sansui, Akai controlled Tomei, which was incorporated in Bermuda in 1991 and was also listed on the Hong Kong Stock Exchange.[30]  Tomei was engaged in the design, manufacture and sale of consumer audio and video products, components and other consumer products, investment holding and investment property holding. Mr Ting was an executive director of Tomei from 15 May 1997 until 23 June 1999, when Mr Christopher Ho’s Grande group took control of Tomei (subsequently renamed Toyo Holdings Limited).[31]

51.  From about 1991 until June 1993, Akai held 51% of the shares in Singer, which was incorporated in the Netherlands Antilles in 1991 and listed on the New York Stock Exchange.  Akai sold its entire shareholding in Singer to STC in June 1993 for US$848 million.  Thereafter Singer was approximately 50% owned by STC.[32]  Singer was one of the world’s largest manufacturers of consumer and industrial sewing machines and a distributor of other consumer durable products.  Its primary geographical area of business was Asia, but it carried out business internationally.  Singer had investments and interests in (amongst other places) Thailand, Japan, Sri Lanka, Germany and Bangladesh.  Mr Ting was the CEO of Singer from August 1991 to December 1997 and the Chairman of Singer’s board of directors from August 1991 to September 1999. Singer also filed for Chapter 11 relief in September 1999.[33]

52.  Pfaff was incorporated in Germany in 1926.  Its core business was manufacturing and marketing industrial and household sewing machines.  Until 31 December 1997, when Akai sold all its shares in Pfaff to Singer, Akai was the controlling shareholder of Pfaff, holding approximately 80% of Pfaff’s issued shares.[34]  Mr Ting was the President of the Supervisory Board of Pfaff.[35]

E. Mr Ting’s Duties

53.  I am satisfied that Mr Ting, as a director of Akai, owed fiduciary duties to Akai, including[36]:

(1) a fiduciary duty to act bona fide in the best interests of Akai;

(2) a fiduciary duty not to act for any collateral or improper purpose;

(3) a fiduciary duty not to act in circumstances of conflict;

(4) a fiduciary duty to act fairly between the shareholders of Akai; and

(5) a duty as a trustee in respect of all the assets of Akai.

54.  The existence and content of these fiduciary duties pleaded by Akai is well-established at law.  Moreover, as was stated by Sir Richard Scott VC (as he then was) in Re Barings Plc[37]: “the higher the office within an organisation that is held by an individual, the greater the responsibilities that fall upon him.”

55.  The high standard expected of company directors is exemplified by the stringent requirements of Akai’s Bye-Laws and the Stock Exchange of Hong Kong (“SEHK”) Listing Rules.  Akai’s Bye-laws required Mr Ting to disclose any personal interest in any contract with Akai and that he abstain from voting to approve any such contract.[38]  The Listing Rules required disclosure of “connected transactions”, which included transactions to persons under Mr Ting’s control.[39]

56.  The misappropriation of corporate assets by a director is a flagrant breach of the pleaded fiduciary duties.  A director cannot honestly believe that such a transaction is in the best interests of the company.  There can be no proper purpose for such a transaction and it involves a blatant conflict of interest.  Such conduct can constitute preferential treatment of himself as opposed to the majority of the shareholders.

57.  In a case involving the misappropriation of corporate assets by a director, the director’s duty as a trustee in respect of the company’s assets is of particular significance.  As Robert Walker LJ (as he then was) stated in Bairstow v Queens Moat Houses Plc[40]:

“There is ample authority, spanning well over a century, establishing that although company directors are not strictly speaking trustees, they are in a closely analogous position because of the fiduciary duties which they owe to the company.”

58.  A director responsible for the misapplication of corporate assets is under a strict liability to restore the misapplied asset (or its cash value plus interest) in specie to the company.  The remedy against the director is the same as equity will order against a trustee who has misapplied trust property in breach of the relevant trust instrument.

59.  Although a “duty not to defraud the company” or a “duty not to misapply company funds” is not generally specified in legislation codifying directors’ duties (for example in the UK and Australia), nor identified in case law as a stand-alone duty, such a duty will necessarily overlap with the other established duties.  It is difficult to conceive of a more fundamental breach of duty by a fiduciary than the dishonest misappropriation of funds under his care.  As Mortimore stated in Company Directors: Duties, Liabilities and Remedies[41]:

“The duty not to defraud the company … will in practice overlap with the duty to act within powers and the duty to promote the success of the company. In the same vein, there is no express mention [in the UK legislation] of the principle that directors are to be regarded as trustees of property belonging to the company which is in their hands or under their control, nor of their duty not to misapply such property.”

60.  There is clear authority that a misappropriation of corporate funds is a breach of fiduciary duty:

(1) The following statement is from Company Directors: Principles of Law and Corporate Governance[42]:

“The misappropriation rule

9.2 A director may not apply company property either for the director's personal benefit or for the benefit of any other person, without the authority of the company. Where the misappropriating conduct is undertaken with an intention to deprive the company of its property, the prohibition extends well beyond fiduciaries in the usual sense, to include (for example) employees and agents of the company, and involves contravention of the criminal law.  But the misappropriation rule belongs to the law of fiduciary responsibility because, as applied to fiduciaries, it extends to conduct having the effect of misapplying the company's property, whatever the intention, and the application of the rule exposes the fiduciary to equitable remedies such as an accounting for profit and the imposition of a constructive trust.”

(2) In Bishopsgate Investment Management Ltd (In Liquidation) v Maxwell (No 2)[43], Hoffmann LJ, as he then was, treated the misappropriation of assets as a breach of the duty to act bona fide in the interests of the company and for proper purposes. In that case it was alleged that Mr Ian Maxwell had acted in breach of his fiduciary duties as a director by signing transfer forms which allowed the misappropriation of company assets by his late father, Mr Robert Maxwell.  In circumstances where there was no allegation of fraud against Mr Ian Maxwell, Hoffmann LJ stated (at p.265e):

“Mr Maxwell was in breach of his fiduciary duty because he gave away the company's assets for no consideration to a private family company of which he was a director. This was prima facie a use of his powers as a director for an improper purpose and in my judgment the burden was upon him to demonstrate the propriety of the transaction.”

(3)  In Grupo Torras SA v Al-Sabah (No 5)[44], which concerned the liability of a third party as a recipient of trust property, Mance J (as he then was) simply stated (at p.1664): “if B, an officer or employee of company A, misappropriates company A’s money,  B is in breach of fiduciary duty.”[45]

(4) Regardless of whether misappropriations of company assets by a director are characterised as thefts or merely unauthorised payments, there is “no doubt” that the misappropriation amounts to a breach of fiduciary duty: Clark v Cutland, per Arden LJ, with whom Schiemann and Potter LJJ agreed[46].

(5) The siphoning off of corporate opportunity and business from a company and misappropriation of company assets amounted to “flagrant breaches of [the defendant’s] duty as a director of the Company”: Re Texgar Ltd., perDeputy Judge Poon, as he then was[47].

(6) “[i]t is virtually impossible to argue that misappropriation by a director of the company’s assets does not involve breach of fiduciary duty”: MennoLeendert Vos v Global Fair Industrial Ltd., perDeputy Judge To, as he then was[48].

61.  Indeed, misappropriation of corporate assets will generally result in the breach of multiple fiduciary duties:

(1) Deliberate misapplication of company assets is a clear breach of the director’s duty to act bona fide in the best interests of the company. A director cannot honestly believe that a dishonest misapplication of property is in the interests of the company.

(2) A deliberate misappropriation will also necessarily be for an improper purpose, as the purpose for the misappropriation is by definition not to advance the proper interests of the company.

(3) A concealed misappropriation will necessarily involve a breach of the company’s constitution, as the responsible party’s dealing with corporate assets will not have been properly authorized in accordance with the constitution.

(4) A concealed misappropriation to the benefit of the director (or his family or companies under his control) would invariably breach the conflict rule.  For a listed company, the concealed misappropriation would also be contrary to the disclosure requirements of the Listing Rules.

F. Proof of Breach: the Burden and Standard of Proof; Evidential Value of Previous Proceedings

62.  The standard of proof to be applied is a matter of settled law.  The leading authorities are two fairly recent decisions of the Court of Final Appeal which import into the common law of Hong Kong the standard of proof established by the House of Lords in England in Re H (Minors) (Sexual Abuse: Standard of Proof )[49].

63.  In Nina Kung v Wong Din Shin[50], both Ribeiro PJ and Lord Scott NPJ [51] applied the principle stated by Lord Nicholls in In Re H.  Lord Scott stated:

“625. Where allegations of this character are made, the courts rightly demand a standard of proof commensurate with the seriousness of the allegations. The remarks of Lord Nicholls of Birkenhead in Re H & Others (Minors) (Sexual Abuse: Standard of Proof ) [1996] AC 563 at p.586 are often cited and are very pertinent for present purposes. They repay repeating:

‘The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability… Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.

Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on thebalance of probability, its occurrence will be established. Ungoed-Thomas J expressed this neatly in Re Dellow’s Will Trusts [1964] 1 WLR 451 at p.455:

“The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it.” ” [emphasis added]

64.  In Re H at 586H, Lord Nicholls also held that this approach:

“ … substantially accords with the approach adopted in … the well-known judgment of Morris LJ in Hornal v Neuberger Products [1957] 1 QB 247, 266.”

65.  I was referred to the well known passage from the judgment of Lord Denning in Bater v Bater, cited by Morris LJin Hornal v Neuberger Products, which was also referred to by Hodson LJ in Hornal v Neuberger Products at pp.263-264:

“Denning L.J. referred both to criminal and civil cases when he expressed the same idea in Bater v. Bater: “The difference of opinion which has been evoked about the standard of proof in recent cases may well turn out to be more a matter of words than anything else. It is of course true that by our law a higher standard of proof is required in criminal cases than in civil cases. But this is subject to the qualification that there is no absolute standard in either case. In criminal cases the charge must be proved beyond reasonable doubt, but there may be degrees of proof within that standard. As Best C.J., and many other great judges have said, ‘in proportion as the crime is enormous, so ought the proof to be clear.’ So also in civil cases, the case may be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject-matter. A civil court, when considering a charge of fraud, will naturally require for itself a higher degree of probability than that which it would require when asking if negligence is established. It does not adopt so high a degree as a criminal court, even when it is considering a charge of a criminal nature; but still it does require a degree of probability which is commensurate with the occasion.”” [emphasis added]

66.  This requirement of a “higher degree of probability” had been the subject of some controversy until clarified by Lord Hoffmann in Secretary of State for the Home Department v Rehman:[52]

“… a ‘high civil balance of probabilities’ is an unfortunate mixed metaphor. The civil standard of proof always means more likely than not. The only higher degree of probability required by the law is the criminal standard. But, as Lord Nicholls of Birkenhead explained In re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563, 586, some things are inherently more likely than others. It would need more cogent evidence to satisfy one that the creature seen walking in Regent’s Park was more likely than not to have been a lioness than to be satisfied to the same standard of probability that it was an Alsatian. On this basis, cogent evidence is generally required to satisfy a civil tribunal that a person has been fraudulent or behaved in some other reprehensible manner. But the question is always whether the tribunal thinks it more probable than not.”

Like English law, Hong Kong law only recognises two standards and they are distinct from each other[53]. 

67.  I also accept that the degree of cogency required is heightened when the Court is asked to decide upon allegations of fraud by drawing an inference from the evidence before it.  As Ribeiro PJ stated at §78 of his judgment in Ming Shiu Chung v Ming Shiu Sum[54]:

“78. Whether, at the end of the day, the court is entitled to draw the inference sought by the plaintiffs therefore depends on the evidence as a whole, the evidence both for and against such inference. Mr Grossman correctly accepts that the plaintiffs bear the burden of showing that when the father signed the 12 documents, he did not know what he was doing. That is a matter of inference and what I stated in Nina Kung v Wong Din Shin … , albeit there stated in relation to drawing an inference of forgery, equally applies in the present case:

‘Where … the court is invited to reach a conclusion of a forgery as an inference to be drawn on the basis of circumstantial evidence, any such inference must be properly grounded in the primary facts found.  The Court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question. (§185)’ ” [emphasis added]

68.  Ribeiro PJ went on in Nina Kung v Wong Din Shin to state that inferences of fraud or serious misconduct may only be drawn where such inferences are compelling:

“187. In HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336, Sir Anthony Mason NPJ acknowledged the need for such a disciplined approach to the drawing of inferences and in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling. Dealing with an allegation that senior SFC officers had deliberately and improperly terminated an investigation in order to avoid compromising the standing of the subject of the investigation who was acting as an expert witness in a criminal trial in which the SFC was interested, his Lordship stated:

“… that conclusion was not to be reached by conjecture nor, as the respondent submitted, on a mere balance of probabilities. It was to be plainly established as a matter of inference from proved facts”. (at §72)”

Reflecting the Re H (Minors) (Sexual Abuse: Standard of Proof ) … principle he added:

“In the particular circumstances, it was for the respondent to establish as a compelling inference that very senior officers of the SFC had deliberately and improperly terminated the investigation into Meocre Li’s conduct for the ulterior purpose alleged, sufficient to overcome the inherent improbability that they would have done so.”

[emphasis added]

69.  There are no contemporaneous witnesses for these transactions and events, which took place between 14 and 17 years ago.  I recognize the need to look critically at the documentary and other evidence produced in order to determine whether, in respect of each transaction, the evidence ‘clearly’ shows or is sufficient to establish a ‘compelling’ inference that there was a fraudulent misappropriation of Akai’s property.

70.  Mr Ting rightly took the point that, as his convictions had been set aside on appeal, the criminal proceedings could not be relied on as evidence against him in these proceedings.  However, the fact of his convictions and the subsequent setting aside of the same are events that have occurred, and the fact of these events are admissible as part of the background history to these proceedings.  Mr Ting also rightly took the point that, unless an issue estoppel arose in a previous civil action to which he was a party, findings by other courts in other civil proceedings could not be evidence against him in these proceedings. However, the fact of those previous proceedings is equally admissible as part of the background history to these proceedings.  In addition, the evidence that had been adduced in previous proceedings, be they criminal or civil, may be adduced in these proceedings as admissible hearsay evidence.

G. Mr Ting’s Control over Akai and the Akai Group

71.  Mr Ting’s control over Akai and the Akai Group is confirmed by my findings set out in this part, including statements made by Mr Ting himself.  In addition to those statements, the following exposition of Mr Ting’s role leads me to conclude that he had unfettered control of Akai and the Akai Group.

G.1 Mr Ting

72.  Mr Ting founded the Akai Group (previously known as the Semi-Tech Group) in the early 1980s.[55] Mr Ting was a member of the Board of Directors of Akai’s predecessors from 1982,[56] remained a director of Akai to at least 16 November 1999[57] and was, at all relevant times, the Executive Chairman and CEO of Akai.[58]

73.  As set out at §§45 to 46 above, Mr Ting was the holder of approximately 44.6% of the issued voting shares in STC, which in turn held approximately 43.1% of Akai’s shares.[59]  In addition, Mr Ting controlled the BVI entities, Blossom Assets Limited (“Blossom”) and Costner Holdings Ltd, which between them held approximately 5.2% of Akai’s share capital.[60] The combined effect of these shareholdings was that Mr Ting controlled the largest voting block of Akai shares and, therefore, had effective control over Akai.

74.  In addition to his position as founder, Executive Chairman and CEO of Akai, Mr Ting was a signatory for Akai’s bank accounts with power to sign cheques or authorise payments on behalf of Akai singly for an unlimited amount.[61]

75.  Mr Ting’s influence pervaded throughout the Akai Group and he was the primary decision maker in each of Akai, Singer and STC.[62]  To summarise, Mr Ting was at all relevant times (unless otherwise specified):[63]

(1) the President, Chairman and CEO of STC and the holder of approximately 44.6% of the issued voting shares in STC, which was both Akai’s and Singer’s most substantial shareholder;

(2) the Chairman and a director of Akai Electric and an indirect shareholder in Akai Electric through Akai and STC;

(3) the Chairman and a director of Sansui and an indirect shareholder of Sansui through Akai Electric, Akai and STC;

(4) a director of Kong Wah from 23 August 1995 to 25 November 1997 and an indirect shareholder of Kong Wah through Akai Electric, Akai and STC;

(5) an executive director of Tomei from 15 May 1997 until 23 June 1999 and an indirect shareholder in Tomei through Kong Wah, Akai Electric, Akai and STC;

(6) the CEO of Singer from August 1991 to December 1997, the Chairman of Singer’s board of directors from August 1991 to September 1999 and an indirect shareholder of Singer through STC; and

(7) President of the supervisory board of Pfaff and an indirect shareholder in Pfaff through, until 31 December 1997, Akai and STC and following 31 December 1997, Singer and STC.

76.  In April 1997, Mr Ting declared his control over Akai as follows:[64]

“I am totally in control of the day to day operation of [Akai]. I have been managing all aspects of the business including administration, budget, sales, marketing and strategic planning. I make all the business decisions.”

77.  Moreover, as set out in greater detail below[65], Mr Ting conceded in the course of his s.221 examination conducted by the Liquidators that “everybody in the company” reported to him.[66]

78.  I infer from the evidence adduced before me, including:

(1) Mr Ting’s multiple roles as Executive Chairman, CEO and director of Akai;

(2) Mr Ting’s controlling stake in STC and through it and his personal companies, Akai;

(3) Mr Ting’s unlimited power as signatory to transact on Akai’s bank accounts; and

(4) Mr Ting’s own prior statements

that Mr Ting was the controlling and dominant force in the management of Akai’s operations.

G.2 Other Directors

79.  Apart from Mr Ting, the other directors of Akai at the relevant times were:[67]

(1) Ms Clara Yim Yong Loh (“Ms Loh”), who worked in Akai’s Hong Kong Office;

(2) Mr Chuck Cheuk Hung Tam (“Mr Tam”), who was resident in Canada;

(3) Dr Frank Edward Holmes (“Dr Holmes”), who was resident in Canada;

(4) Mr Michael Kan (“Mr Kan”), who was resident in Canada;

(5) Mr William Thomas Moore (“Mr Moore”), who was resident in the USA; and was a director from 2 April 1998;

(6) Dr Kenneth Carless Smith (“Dr Smith”), who was resident in Canada and was a director until 2 April 1988;

(7) Mr Tadayuki Ito (“Mr Ito”), who was resident in Japan and was a director from 24 October 1997;

(8) Mr Iftikhar Ahmed (“Mr Ahmed”), who worked in Singer’s Hong Kong office[68] and was a director until 24 October 1997; and

(9) Mr Sinniah Ramanathan (“Mr Ramanathan”), who worked in Singer’s Hong Kong office[69] and was a director until 24 October 1997.

80.  Apart from Mr Ting, Ms Loh was the only other director based in Akai’s headquarters at 3001-3004 Two Exchange Square, 8 Connaught Place, Hong Kong (“the Hong Kong Office”), which according to Mr Ting, was a “very small office” at which “just a few people” worked.[70] Ms Loh was a subordinate to Mr Ting, and had the title of “Senior Vice President”.[71]

81.  The Hong Kong Office was Akai’s principal place of business[72] at which its financial, administrative, accounting, fund raising and treasury functions were directed and conducted.[73]

82.  The records obtained by the Liquidators indicate that Akai’s board meetings were conducted mostly via telephone, twice per year, solely in order to approve the financial results.  The Board otherwise only met when the Director’s approval was required for a particular transaction.[74]

83.  There is no evidence that Akai’s Board played any effective role in the oversight of Mr Ting’s management of Akai’s business.  I find that Mr Ting’s control of Akai was unfettered by any independent oversight.

84.  Mr Ting and Ms Loh were, typically, the only directors to physically attend Board meetings, whereas, Mr Tam and Dr Holmes would usually attend via telephone.[75]  Mr Tam was another of Mr Ting’s subordinates, with the title “Executive Vice-President and Chief Financial Officer”.[76]Dr Holmes was based in Canada and was an executive director of STC.  There is no evidence that Dr Holmes played any material role in Akai’s day to day operations.[77]

85.  The remaining directors had little involvement in Akai’s board meetings during the Claim Period, whether by phone or in person.   Mr Ahmed, Mr Ramanathan, Mr Kan and Mr Ito attended few meetings, whilst Dr Smith and Mr Moore attended no meetings whatsoever.  The 1998 and 1999 Annual Reports of Akai describe Messrs Kan and Ito as independent non-executive directors of Akai.  Mr Smith is described as such in the 1998 Annual Report.[78]

86.  A number of Akai directors were also directors and executives of STC and Singer.  Specifically:

(1) Mr Ting was, at all relevant times, the Chairman, CEO and President of STC and the Chairman and CEO of Singer;[79]

(2) Mr Tam was a director, Executive Vice President and Chief Financial Officer of STC and director of Singer until 4 December 1997;[80]

(3) Dr Holmes was a director, Executive Vice President and Chief Operating Officer of STC and a director of Singer;[81]

(4) Ms Loh was Executive Director of Singer until 4 December 1997;[82]

(5) Mr Ahmed was President and Chief Operating Officer of Singer from August 1991 to December 1997 and a director of Singer from August 1991 to at least 27 July 1999;[83] and

(6) Mr Ramanathan was Vice President and Controller of Singer from August 1991 to at least 3 January 1998 and a director of Singer from March 1998 to at least 12 September 1999.[84]

87.  There exist minutes purporting to be of an “Executive Committee” of Akai, comprising Mr Ting, Ms Loh, Mr Tam and Mr Holmes. The minutes of the Executive Committee were predominantly formal minutes of the type commonly required by banks in relation to the grant of new facilities or dealings in relation to existing facilities. Mr Ting himself has previously conceded that he did not regard the Executive Committee as a formal committee with any legal status, and that he routinely made decisions and executed documents without consulting the Executive Committee.  In light of the findings of Stone J in the TFB Proceedings[85] that the relevant Executive Committee minute before him (which plays no part in this action) was false,[86] there is a question as to the veracity of these minutes.  That, however, is not an issue that I have to determine in this action.  I am satisfied that the Executive Committee minutes do not constitute evidence of any form of oversight of Mr Ting’s activities.  The Executive Committee mostly dealt with formal matters and its members were executives of Akai who answered to Mr Ting and acted on his instructions. 

88.  Further, there is no evidence of there being any internal audit function or any functioning audit committee for Akai.  Only one document has been located by the Liquidators in relation to a supposed audit committee.  This is a purported minute of an audit committee meeting held at the very end of the Claim Period on 26 June 1999 whereby Mr Ito and Mr Kan approved the Audited Consolidated Results for the year ended 31 January 1999.  There is no evidence of any actual audit function and there was no participation by the external auditors in any audit committee of Akai.[87]

89.  As addressed in detail below, there is no record in the minutes of the Board, or of Executive Committee, of Akai for the vast majority of the alleged defalcations.

90.  The only minutes that have been identified are for those transactions discussed below[88], where payments were made in respect of alleged fictitious transactions contrived by Mr Ting to conceal his defalcations of Akai’s assets.  One such example is the Digiconic transaction, representing an alleged defalcation to Calculus of HK$100 million (US$12.9 million), which was purportedly approved at a meeting of Akai’s board, purportedly attended by only Mr Ting, Mr Tam and Ms Loh.[89]  I address these minutes in greater detail below[90].

91.  These minutes do not dissuade me from concluding that the Board of Directors of Akai, including the non-executive directors, provided no effective oversight over the activities of Mr Ting.  Mr Ting’s control over Akai was total and unfettered.

G.3 Persons Acting under the Control and Direction of Mr Ting

92.  The transactions in question were conducted either individually or through a number of individuals within Akai who, I find, were accustomed to act in accordance with Mr Ting’s directions.

G.3.1 Ms Loh and Mr Tam

93.  Ms Loh, was an executive director of Akai from 1990 to at least November 1999.  She was an executive director of three other Akai Group companies: Kong Wah from August 1995 to September 1999, Singer from August 1991 to December 1997 and Tomei from 15 May 1997 to 23 June 1999.[91]

94.  Mr Tam was based in the office of STC in Canada.  Mr Tam was at all relevant times an executive director of STC,  Akai and Akai Electric and was a director of Singer until 4 December 1997.[92]  He was also, at all relevant times, Executive Vice President and Chief Financial Officer of both STC and Akai and was Vice Chairman of Singer until 4 December 1997.[93]

95.  Consistent with their subordinate positions in Akai’s hierarchy,[94] Mr Ting agreed in his s.221 examination that Mr Tam and Ms Loh both reported to him.[95]

G.3.2 Ms Lee

96.  Ms Lee was a full time employee of Akai as Mr Ting’s personal secretary and assistant working in the Hong Kong office.[96] Ms Lee worked in the same room as Mr Ting[97] and played a substantial administrative role in Mr Ting’s business affairs.[98]   Mr Ting has acknowledged that Ms Lee “would not do anything without my instruction” and that she was “just an instrument, that is all” who controlled a number of companies as “the nominee person for [Akai]”.[99]

97.  By the order of Reyes J dated 30 September 2011,[100] which was made by consent following the settlement of the proceedings between Akai and Ms Lee,  Ms Lee has admitted allegations against her in Akai’s Amended Points of Claim, including that:[101]

(1) Ms Lee was at all material times accustomed to act in accordance with the wishes and instructions of Mr Ting; and

(2) Ms Lee controlled various Ting Recipient[102] companies whilst acting under the control and direction of Mr Ting.

Ms Lee is now bankrupt.  Her admissions constitute admissible hearsay evidence which I can rely upon in the present proceedings.  I find, as Mr Ting has himself acknowledged, that Ms Lee acted throughout under the control and direction of Mr Ting.

G.4 Other Individuals

98.  Two further junior employees of Akai, who acted as directors or bank account signatories of various Ting Recipients, were:

(1) Ms Tang, who was a full time employee of Akai who served as a personal secretary and assistant to Ms Loh from at least 1992 to November 1999;[103] and

(2) Ms Miranda Hung Woon Yin (“Ms Hung”),  who was an Akai accountant from 1 April 1996 to 15 December 1999, whose work included the preparation of the Receipt / Journal Vouchers and Payment Vouchers.[104]

I find that they also acted under the control and direction of Mr Ting.

G.5 Mr Ting’s Control of Akai was Unfettered

99.  Mr Ting was the dominant individual within Akai.  Corporate governance within Akai was non-existent.  Mr Ting regarded Akai as “his” company and the lack of oversight within Akai enabled Mr Ting do so.  Mr Ting had unrestricted and unfettered access to Akai’s cash and assets.  In every practical sense, his day to day ability to deal with Akai’s assets was absolute and unfettered.  Mr Ting’s extraordinary level of control over Akai and its assets placed Akai in a position of acute vulnerability to Mr Ting.  Mr Ting could do as he pleased with Akai’s assets.  The trust placed by Akai in Mr Ting was unfettered.

H. The Collapse and Winding Up of the Akai Group

100.  The collapse of Akai led to a mammoth investigation and a raft of legal proceedings.  In the Bundles appear 30 judgments from the courts of Hong Kong, Bermuda and England.  The winding-up of Akai commenced in Hong Kong on 13 January 2000 when winding-up petitions were issued by a syndicate of Akai’s bankers.  The applications to wind-up Akai were met with strenuous opposition and, on at least six occasions, proposals were made to adjourn in order to facilitate “rescue” or “restructuring” plans.[105]  These did not come to fruition and Akai was ordered to be wound up in Hong Kong on 23 August 2000.[106] Trading in Akai’s shares was suspended as from that date.  On 29 September 2000, Akai was ordered to be wound up in Bermuda under the provisions of the Companies Acts 1981 (Bermuda).[107]

101.  The Akai insolvency was described by Lord Millett NPJ  as “the largest corporate insolvency in Hong Kong’s history”.[108] Akai’s consolidated balance sheets as at 31 January 1999 and 31 January 2000 disclose that the value attributed to the total assets of Akai fell from approximately US$2.325 billion to only US$265 million within 12 months.

102.  The relevant financial information is found in Akai’s Annual Report for the year ended 31 January 1999 and two Information Memoranda prepared by Ernst & Young (Hong Kong) (“EYHK”), auditor of Akai and Akai Group during the Claim Period dated 31 January 2000 and 27 April 2000 respectively, which included Akai’s unaudited results for six months to 31 July 1999 and 12 months to 31 January 2000.[109] Mr Borrelli has summarised the information included in these reports as follows:[110]

Profit and Loss Results	Annual Report	January EY Report	April EY Report
	Year ended 31 January 1999 Audited (US$m)	6 months ended 31 July 1999 Unaudited (US$m)	Yearended 31 January 2000 Unaudited (US$m)
Turnover	832.7	238.5	312.4
Operating Profit/(Loss)	8.8	(21.4)	(150.2)
Exceptional Items	(100.5)	(21.7)	(1,751.2)
Other Items	(6.0)	(4.0)	(1.2)
Net Profit before Minority Interests	(97.7)	(47.1)	(1,902.6)

 

Consolidated Balance Sheet	Annual Report	January EY Report	April EY Report
	Year ended 31 January 1999 Audited (US$m)	6 months ended 31 July 1999 Unaudited (US$m)	Year ended 31 January 2000 Unaudited (US$m)
Total Assets	2,324.8	1,961.8	264.7
Total Liabilities	(1,044.5)	(722.5)	(897.0)
Deferred Income and Minority Interests	(230.5)	(213.4)	-
Net Assets	1,049.8	1,025.9	(632.3)

103.  By the time of the commencement of the winding-up in August 2000, Akai had a net asset deficiency exceeding US$1 billion with few, if any, assets in its control apart from potential causes of action.[111]

H.1 Appointment of and Investigation by the Liquidators

H.1.1 Appointment

104.  The process of appointing the Liquidators of Akai was drawn out by continual opposition from Mr Ting and companies under his control as well as Mr Ho and companies under his control, including Grande HK.  The opposition by Mr Ting is a fact that is recorded in the winding up proceedings.  Initially in Hong Kong, by the winding up order of 23 August 2000, Le Pichon J appointed the Official Receiver as Provisional Liquidator of Akai and Kong Wah.[112]  Provisional Liquidators were also appointed in Bermuda between 28 August and 29 September 2000, and a winding up order was made on the latter date.[113]  In opposing the winding up order, Mr Ting made an attempt to explain Akai’s unaudited losses of nearly US$2bn as:[114]

“mainly due to exceptional and non-recurring items resulting from provisions and write-downs made under the unstable and uncertain financial position of the Akai Group.”

105.  Between 25 and 27 October 2000, meetings of Akai’s creditors and contributories were called for the purpose of considering the appointment of the Provisional Liquidators, Mr Christensen, Mr Fan and Mr Hodgkinson, as the Liquidators of Akai in both Hong Kong and Bermuda.  However, due to opposition from Mr Ting, through Blossom Assets, and Mr Ho, through Grande HK, these meetings resulted in a deadlock.  Further meetings held in Hong Kong in February 2001 again failed to achieve the appointment of liquidators.[115]

106.  Following these meetings, the Official Receiver in Hong Kong and the Liquidators (as Provisional Liquidators) in Bermuda, made applications in Hong Kong and Bermuda respectively for the purpose of resolving the deadlock.  Again, these applications were opposed by Mr Ho, this time through Crescent Court Enterprises Limited (“Crescent Court”).

107.  As a result of the hearings, which were heard on 21 December 2000 and 7 February 2001 before the Supreme Court of Bermuda and on 9 and 10 May 2001 before the High Court of Hong Kong:

(1) on 16 March 2001, Chief Justice Ward of the Supreme Court of Bermuda delivered judgment appointing the Liquidators as liquidators of Akai;[116] and

(2) on 24 May 2001, Yuen J of the High Court of Hong Kong delivered judgment and made orders appointing the Liquidators as liquidators of Akai and Kong Wah in Hong Kong.[117]

108.  Mr Hill replaced Mr Hodgkinson as a Joint and Several Liquidator of Akai in Bermuda and Hong Kong by Orders of the Supreme Court of Bermuda and this Court dated 29 November 2001 and 7 February 2002 respectively.  Mr Borrelli replaced Mr Fan as a Joint and Several Liquidator of Akai by Orders of the High Court dated 31 May 2005 and Supreme Court of Bermuda dated 30 June 2005.  Ms Walsh then replaced Mr Hill and Mr Christensen as a Joint and Several Liquidator of Akai by Orders of the High Court dated 28 August 2008 and Supreme Court of Bermuda dated 16 October 2008.

H.1.2 Investigation

109.  I accept the evidence of Mr Borrelli in his two Witness Statements on the initial investigations of the Provisional Liquidators and the Liquidators in both Hong Kong and Bermuda showing that:[118]

(1) By the time of their appointment, Akai had no businesses, staff or premises;

(2) the only party acknowledging that it had any records of Akai was Grande HK, but these were limited and clearly did not comprise all the books and records of the Akai Group which had reported total assets of more than US$2.3 billion in its last audited accounts;

(3) key directors and employees of Akai, including Mr Ting, had left Hong Kong or resided overseas and would not make themselves available to the Liquidators; and

(4) Akai and Kong Wah had received claims from creditors in excess of US$1 billion but held few assets which could readily be realised for the benefit of creditors.

110.  The evidence that led Ground CJ in the Supreme Court of Bermuda to find that Mr Ting was “through a long process of evasion and prevarication, avoiding providing them with any meaningful information.”[119], as recorded in the winding up proceedings, is admissible hearsay evidence before me and leads me to also find that Mr Ting was obstructive and not co-operating with the Liquidators. That evidence is summarised by Ward JA in the Bermuda Court of Appeal:[120]

“[Mr Ting] had refused to render any assistance in the orderly winding-up of the company. He gave no explanation, as a director to the liquidators, of the disappearance of over US$2 billion in gross assets within twelve months, nor any explanation for the estimated net deficiency in early 2000 of over US$1 billion. The missing books and records relating to 3 years prior to the collapse of the company were unaccounted for. He refused to attend meetings of Akai’s creditors and adopted a “strategy of obstruction, obfuscation and delay.” In the end, he placed himself out of the reach of the Liquidators by relocating to China.”

111.  In addition, there were insufficient resources to fund the liquidation and the investigations required.  In September 2001, Mr Borrelli was asked by the then Liquidators to investigate and facilitate the restructuring of Akai’s listed status to secure the funds necessary for investigations.[121] In sanctioning a proposed scheme of arrangement in October 2002, Kwan J highlighted the difficulties faced by the Liquidators:[122]

“The identifiable assets, books and records of the Company [Akai] taken into the custody of the liquidators are limited. Although a number of potential claims against various parties have been identified, the liquidators are hampered by their restricted access to documents. Further, there are insufficient funds available to the liquidators to undertake the necessary investigations or to obtain legal advice. The liquidators are unable to predict with any certainty if any realisations may be available from the winding-up, other than the realisation from the listed status of the Company. The shareholders can expect to receive no return in the winding-up.”

112.  These difficulties have also been recognised by the Court of Final Appeal.  As noted by Lord Hoffmann NPJ on the question of privilege attaching to s.221 transcripts in the EYHK proceedings, the only significant source of assets left for the Liquidators to pursue were claims against Akai’s former management and former auditors:[123]

“When Akai Holdings Ltd (“the company”) was compulsorily wound up in 2000, the liquidators found little left to satisfy claims by creditors in excess of US$1 billion. The only significant source of assets appeared likely to be claims against the former management, who had made away with the company’s money, and the former auditors, who had not prevented them from doing so. But in practical terms such claims were not likely to be enforceable except through litigation.  That required the liquidators to investigate what had happened and consider (with legal advice) whether the company had causes of action.

In making these investigations, the liquidators were handicapped by the sparseness of the written records which came into their hands and the unwillingness of both the former management and the auditors to assist them.”

113.  The Liquidators accordingly set out to secure funds for the investigations through the restructuring of Akai’s listing status.

H.1.3 Sale of Akai’s Listing Status on the SEHK

114.  In late 2002, faced with insufficient funds in Akai to fund its liquidation, the Liquidators of Akai sought to realise the value of Akai’s listing status on the Stock Exchange of Hong Kong.[124] Akai’s listing status was the sole readily realisable asset of any value available to the Liquidators.  In order to realise that value a scheme of arrangement pursuant to s.99 of the Companies Act 1981 was proposed, whereby Akai’s shares, and hence its listing status, would be transferred to a third party, Hang Ten Group Holdings Limited (“Hang Ten”).  Pursuant to s.99 of the Companies Act 1981, the scheme required the approval of three quarters in value of Akai’s shareholders present and voting at a meeting convened for that purpose.

115.  Prior to the scheme meeting, the Liquidators were concerned that entities associated with Mr Ting might be motivated to vote against the scheme, in order to frustrate the Liquidators in their investigations into Akai.

116.  Accordingly, in advance of the scheme meeting on 22 November 2002, the Liquidators applied ex parte to the Supreme Court of Bermuda and obtained an order that the Chairman of the scheme meeting be permitted to mark votes cast by companies controlled by Mr Ting, namely, Blossom and Costner Holdings Limited (“Costner”) as “objected to”, with the validity of those votes to be subject to further hearing.

117.  At the scheme meeting on 25 November 2002, Blossom and Costner voted against the scheme via proxies, those proxies being Mr Ting’s solicitors, Mr Ng and Mr Liu. At first the Chairman of the meeting rejected the proxy forms as they were simply signed by Mr Ting without any evidence that he was duly authorized to do so.  Within minutes, Mr Ng produced resolutions of Blossom and Costner, purportedly signed by Mr Ting, appointing Mr Ng and Mr Liu “to attend, act and vote” at the meeting.  In later proceedings in Bermuda, it was found that the signatures on these resolutions were forgeries.[125]

118.  At the time of the scheme meeting the Liquidators were under a deadline, in that the agreement with Hang Ten provided that it could terminate the transaction if the scheme was not approved by 31 December 2002.  That date was unlikely to be extended, due to the involvement of outside investors in Hang Ten.  If the arrangement with Hang Ten failed the Hong Kong Stock Exchange would not permit some other buyer to be substituted, with the result that the value of Akai’s listing status would be lost.[126]

119.  On 2 December 2002, pursuant to the orders previously obtained on 22 November 2002, the Liquidators applied to the Supreme Court of Bermuda to disallow the votes of Blossom and Costner.  This application was made on the basis that:[127]

(1) Mr Ting’s signature appeared to have been forged on the resolutions that Blossom and Costner relied on as founding the entitlement of Mr Ng and Mr Liu to vote at the scheme meeting; and

(2) Blossom and Costner were motivated by an improper purpose in their voting, namely, to deny Akai the benefit of the sale of its listing, so that there would be no further investigation into Akai’s affairs.

120.  To facilitate an early hearing of the disallowance application, the Liquidators agreed to confine the issues to an alleged ulterior purpose.  However, the Liquidators’ attempt to have the matter heard expeditiously was frustrated by what has been described as “a bizarre series of Court listing hiccups”.[128]  The consent orders provided for a hearing commencing on 20 December 2002.  This hearing was to be held before Acting Justice Storr.  On 18 December 2002, Acting Justice Storr recused himself from the hearing, on the application of Mr Ting.  The hearing was then to be held before Mrs Justice Wade-Miller on 27 December 2002.  However, on 23 December 2002, the Liquidators were informed that Mrs Justice Wade-Miller had broken her arm and would be unable to hear the matter on 27 December 2002. The Liquidators then suggested the appointment of Mr Wendell Hollis as an acting Judge to hear the matter on 30 and 31 December 2002.  However, on 27 December 2002,  Mr Hollis also recused himself from hearing the matter, following another application by Mr Ting.  At this point, there was no judge in Bermuda available to hear the matter before 31 December 2002, the deadline after which Hang Ten could, and may well have, terminated the transaction to acquire Akai’s listing.

121.  Following the recusal of Mr Hollis, the Liquidators were placed in the invidious position whereby, unless they could reach an agreement with Mr Ting for Blossom and Costner to withdraw their opposition to the scheme, it would likely fail as it would not be sanctioned by the Court before the 31 December 2002 deadline set out in the Restructuring Agreement.  The sale of Akai’s listing would then be lost.

122.  Between 27 and 31 December 2002, Blossom, Costner and Mr Ting were able to take advantage of this substantial commercial pressure on the Liquidators and negotiate what it referred to as a “Settlement Agreement”. The Settlement Agreement provided for Blossom and Costner to withdraw their opposition to the scheme and contained a covenant in favour of Mr Ting in the following terms:[129]

“3. Akai, Kong Wah and the Liquidators shall irrevocably covenant not to sue or otherwise pursue any claims against Mr Ting, Blossom and Costner from any and all past, present and future rights, claims, demands, debts, causes of action and suits at law or in equity or any kind or nature whatsoever whether presently known or unknown howsoever or wheresoever (including any rights and claims in but not limited to Hong Kong, Bermuda, PRC and any other competent jurisdiction) arising out of and/or in connection with Akai and/or Kong Wah and/or their respective Liquidators [sic].

…

9. Akai, Kong Wah and the Liquidators shall immediately cease all further investigations with a view to or in connection with issuing legal proceedings and/or making claims against Mr Ting.”

123.  Mr Ting has repeatedly invoked the terms of this Settlement Agreement to prevent the Liquidators from bringing the present proceedings.  These attempts were finally ended by the Privy Council which, on 29 July 2010, held that Mr Ting was not entitled to rely on the Settlement Agreement due to his unconscionable conduct in obtaining it.[130]  Given its terms, the validity of the Settlement Agreement is an issue that is relevant in the proceedings before me and the finding of the Privy Council creates a binding issue estoppel[131].

H.1.4 Reconstruction of Akai’s Books and Records

124.  Following the securing of funds through the restructuring of Akai’s listing status, the Liquidators went on to undertake a process of reconstructing and examining Akai’s books and records.[132]  The Liquidators contacted over 150 banks and over 50 professional advisors who the Liquidators believed might hold records relevant to Akai, seeking the preservation and production of documents.  However, very few of those parties provided information or documents voluntarily.[133]  The Liquidators thus sought to make use of the provisions of the Companies Ordinance and, in particular, s.221 in order to obtain further information.  

H.1.5 Mr Ting’s Attempts to Avoid Examination

125.  On 10 October 2003, Mr Ting, Blossom and Costner commenced proceedings in the Supreme Court of Bermuda seeking an injunction that the Liquidators be restrained from issuing any proceedings or summons against Mr Ting in relation to the affairs of Akai and Kong Wah (“the 2003 Proceedings”).

126.  On 6 November 2003, the Liquidators applied in Hong Kong to examine Mr Ting and further sought the production of documents pursuant to s.221 of the Companies Ordinance. The 2003 Proceedings were subsequently served by Mr Ting and the application for his examination in Hong Kong was stayed pending their determination.

127.  The hearing of the 2003 Proceedings took place on 18 and 19 February 2004 before Kawaley J.  In a judgment delivered on 24 February 2004, Kawaley J held that the Settlement Agreement was “not breached by the section 221 Summonses or prior requests by the Liquidators for his assistance”.  Kawaley J also rejected Mr Ting’s claim that there was an oral agreement between the Liquidators and Mr Ting and held that the Liquidators had not made a promise to “leave Mr Ting alone”.[134]  In response to Mr Ting’s submission that to allow the Liquidators to continue would be unjust, Kawaley J stated:[135]

“Former top senior executives cannot legitimately walk away from corporate debts in excess of US$1 billion, fortuitously protected from potentially huge civil claims in respect of their directorship, expecting to bury forever vital information which may help to reduce the creditors’ losses.”

128.  Mr Ting appealed against the decision of Kawaley J by Notice of Appeal filed on 2 April 2004.  The appeal pursued only issues of the construction of the Settlement Agreement and costs, the “oral agreement” argument having been abandoned.  On 5 May 2004, Mr Ting amended his summons filed on 29 December 2003 seeking a stay of the s.221 examination application in Hong Kong pending the final determination of all appeals against the decision of Kawaley J, including his Notice of Appeal filed on 2 April 2004 and the delivery of verdicts in criminal proceedings against him in Hong Kong.  Mr Ting’s applications for stays and the Liquidators’ applications for the examination of Mr Ting pursuant to s.221 were heard before Kwan J on 5 May 2004 and judgment was reserved.

129.  Before any judgment was delivered by Kwan J, Mr Ting’s appeal in the 2003 Proceedings was heard in the Court of Appeal for Bermuda on 23 and 24 June 2004.  In a judgment delivered on 2 July 2004, the Court of Appeal dismissed the appeal, upheld Kawaley J’s decision and thereby confirmed the finding that the Settlement Agreement did not preclude the Liquidators from examining Mr Ting about the affairs of Akai.[136]

130.  On 7 September 2004, Kwan J’s judgment on Mr Ting’s stay application and the Liquidators’ application to examine Mr Ting was delivered.  Kwan J granted the Liquidators’ application for orders that Mr Ting attend court on a date to be fixed to be examined and dismissed Mr Ting’s summons to stay the examination proceedings.  Kwan J described Mr Ting as “the most important and crucial person to provide information to the Liquidators”.[137] Mr Ting appealed against Kwan J’s order for his examination.  On 13 April 2005, the Court of Appeal dismissed the appeal.[138]   Mr Ting was thereafter examined over the course of eight days in August 2005.

H.1.6 Discovery of Serious Fraud

131.  On 28 October 2004, the Liquidators made an application under s.221 to obtain from the Commercial Crime Bureau a list of the warrants issued by the Commercial Crime Bureau, the documents seized by the Commercial Crime Bureau, and individuals interviewed by the Commercial Crime Bureau in relation to the affairs of Akai.[139] On 11 November 2004, Kwan J made orders compelling the Commercial Crime Bureau to produce to the Liquidators the lists of documents sought. These lists were subsequently produced to the Liquidators.[140]  On 9 May 2005, the Liquidators made a further application under s.221 for the production of certain documents specified on the lists provided by the Commercial Crime Bureau.  Orders were made in relation to this application on 18 May 2005 and 9 June 2005.[141]

132.  In mid-June 2005, the Liquidators received from the Commercial Crime Bureau the documents sought by the second s.221 application in relation to the affairs of Akai, consisting of 150 box files of documents.[142] I accept the evidence of Mr Borrelli that these records, once analysed by the Liquidators, disclosed to the Liquidators for the first time what appeared to be a pattern of systematic and sustained fraudulent diversion of Akai’s funds to Mr Ting’s own interests between 1996 and 1999.  This had never been disclosed to the Liquidators at any prior time and had not been uncovered by the Liquidators in the course of their investigations to that time.[143]  A very substantial proportion of the evidence to be adduced by Akai in these proceedings was sourced from the documents produced by the Commercial Crime Bureau.

H.2   Mr Ting’s Criminal Trial

133.  In the meantime, Mr Ting’s criminal trial on two counts of false accounting commenced on 12 May 2005 and he was convicted by a jury on 29 June 2005 of both counts charged.  In 2001, the Liquidators had made a report to the Commercial Crime Bureau regarding an investment by Akai which did not appear to be supported by accounting documents.  This was a purported purchase by Akai, through a wholly owned subsidiary, of 50% of MicroMain Systems Limited (“MicroMain”).  As a result of the report by the Liquidators, on 2 June 2004,  Mr Ting was charged with two counts of false accounting under s.19(1)(a) of the Theft Ordinance, Cap. 210.  The first count related to the audited accounts of Akai published 26 June 1999.  Mr Ting was alleged to have dishonestly made the false or misleading assertion that Akai held a 50% share interest in MicroMain.  By the second count, Mr Ting was alleged to have dishonestly falsified a letter dated 26 June 1999, by stating that a subsidiary of Akai, Evora Limited (“Evora”), had purchased shares held by Winsoft Limited in MicroMain for HK$300 million.

134.  At the conclusion of a 38-day trial on 29 June 2005, a jury found Mr Ting guilty of both counts of false accounting.  Mr Ting was sentenced to six years imprisonment.

135.  On 2 September 2006, the Court of Appeal set aside Mr Ting’s conviction on the basis of “the wrong way that the prosecution had put part of its case”[144]  and resulting misdirections by the trial judge and ordered a retrial.  Mr Ting successfully appealed to the Court of Final Appeal against the decision to order a retrial.  Although the Court of Final Appeal found that Mr Ting was “properly found by a jury to have acted with dishonesty”,[145]  the disadvantages of a further trial including the time, expense, difficulty and length of imprisonment served by Mr Ting, outweighed the advantages of a retrial.  Accordingly the Court held that it was not in the interests of justice to order a retrial.[146] In a subsequent judgment regarding the costs of the trial, Li CJ noted that Mr Ting’s “convictions were only set aside because the Court of Appeal considered there had been a misdirection … which was not inconsistent with the finding of dishonestly”.[147]

136.  As the conviction was set aside, the evidence of the criminal proceedings form part of the background history to the current proceedings.  The fact of and the findings of the courts in the criminal proceedings do not constitute proof of any dishonesty or wrongdoing on the part of Mr Ting.

137.  The decision of the Court of Final Appeal was delivered on 5 November 2007.  Mr Ting’s passport was returned to him, he departed Hong Kong on that day, and he is not believed to have returned since.

H.3 Mr Ting’s Section 221 Examination

138.  In August 2005, during Mr Ting’s period of imprisonment, he was examined by the Liquidators pursuant to the orders under s.221 of the Companies Ordinance.  The examination was a formal procedure taking place over eight days before Master De Souza.  Mr Ting was represented by counsel and gave his evidence, under affirmation, in English.  At the conclusion of the examination, Mr Ting signed a copy of the examination transcript confirming that it was an accurate record of his evidence.[148]

139.  Although the examination transcript reveals that Mr Ting was generally uncooperative and did not assist the Liquidators[149], nevertheless, Mr Ting’s s.221 examination transcript is of particular importance in these proceedings as Mr Ting has elected not to give evidence.  Akai is entitled to rely on portions of Mr Ting’s s.221 examination transcript as evidence in these proceedings, in particular the following admissions or concessions made by Mr Ting in the course of the examination:

(1) That Akai’s Hong Kong Office was a “very small office” at which “just a few peoples” worked;[150]

(2) That Mr Tam, Ms Loh, Ms Lee and indeed, “everybody in the company” reported to him;[151]

(3) That Ms Lee worked in the same room as Mr Ting[152] and “would not do anything without [Mr Ting’s] instruction” and that she was “just an instrument, that is all” who controlled a number of companies as “the nominee person for [Akai]”.[153]

(4) That Mr Ting was a signatory for Akai’s bank accounts with power to sign cheques or authorise payments on behalf of Akai singly for an unlimited amount.[154]

(5) That Mr Ting regarded the “so-called, loosely gathered” Executive Committee as a “totally casual” group of people with “no legal status” and he routinely made decisions and executed documents without consulting the so-called Committee.[155]

(6) That Mr Ting controlled the Ting Recipients Evora, Conben Limited (“Conben”), Restex Investments Limited (“Restex”) and JT Capital Inc (“JT Capital”).[156]

H.4 Other Litigation Pursued by the Liquidators

140.  In addition to the present action, the Liquidators have brought three major actions on behalf of Akai.

H.4.1 Akai Holdings Ltd (in Liq) v Ernst & Young (a Hong Kong Firm) HCCL 29/2004

141.  In May 2004, the Liquidators issued a writ in an action against EYHK, alleging that EYHK had been negligent in their audits of Akai and of the Akai Group for each of the years ending 31 January 1997, 31 January 1998 and 31 January 1999 (“EYHK Proceedings”).  The matter was settled in the first week of trial in September 2009 on confidential terms for a substantial sum payable by EYHK to Akai.

142.  Essentially, Akai claimed that EYHK’s negligence allowed Mr Ting to commit of the same numerous and substantial defalcations of Akai’s assets over the same Claim Period as is alleged in this case, as well as cause losses to Akai in relation to transactions involving granting various guarantees to HSBC (US$41.3 million) and cause the loss suffered on the TFB transaction (US$50.8 million) referred to below.

H.4.2 Akai Holdings Ltd (in liq) v Thanakharn Kasikorn Thai Chamkat (Mahachon) HCCL 59/2004

143.  In December 2004, the Liquidators commenced an action against Thai Farmers Bank (“TFB”) in which they alleged that Mr Ting breached his fiduciary duties to Akai and TFB either knowingly assisted in that breach or was a knowing recipient of trust property (“TFB Proceedings”).

144.  The matter concerned a substitution, in early December 1998, of Akai as a borrower with TFB of US$30 million in place of Singer, a company which was in financial difficulty and in which Mr Ting had an interest through his very substantial interest in STC and his management responsibilities for both Singer and Akai.  By this transaction, referred to as the “Switch Transaction”, Akai incurred a substantial liability to TFB and received no corporate benefit.  TFB received security in the form of 56 million shares owned by Akai and Akai Electric.  Mr Ting, purporting to act on behalf of Akai, executed the relevant documents himself.[157]

145.  Although Stone J found that in causing Akai to enter into the Switch Transaction, Mr Ting had acted in breach of his fiduciary duties[158] , he went on to dismiss the claim on the basis that TFB was entitled to rely on the apparent authority of Mr Ting to enter into the transaction.[159]  The Court of Appeal overturned Stone J’s decision, and awarded Akai compensation in the sum of some US$22 million plus compound interest.[160] As to Mr Ting’s breach of fiduciary duty, Le Pichon JA stated that “Mr Ting could not have been acting honestly when he committed Akai to the transaction”, whilst Cheung JA observed that “the switch transaction was blatantly to the disadvantage of Akai.”[161]  The Court rejected the contention that Mr Ting had apparent authority to enter into the transaction.[162]

146.  The Court of Final Appeal dismissed TFB’s appeal.[163]  TFB argued before the Court of Final Appeal that Mr Ting’s apparent authority to enter into the Switch Transaction was reinforced by Mr Ting’s presentation of Executive Committee minutes. Lord Neuberger NPJ noted Stone J’s finding that “the Executive Committee minutes was a false document, which had been dishonestly prepared by Mr Ting, or at least on his instructions” and that “No meeting of Akai's Executive Committee was held on that day.”[164]  Lord Neuberger NPJ also noted the finding, at all levels, that Mr Ting had acted dishonestly in causing Akai to enter into the Switch Transaction when he had no authority to do so.[165]  However, Mr Ting was not a defendant to the TFB Proceedings and it has not been suggested that the findings there create issue estoppels against Mr Ting in these proceedings or that the defences he has raised in this action amount to a collateral attack on the judgments in the TFB proceedings.  The findings of the courts in these proceedings do not constitute proof of any dishonesty or wrongdoing on the part of Mr Ting in respect of the alleged defalcations, the subject of the claims in these proceedings.

H.4.3 Akai Holdings Ltd (in liq) v Ho Wing On, Christopher HCCL 34/2005, HCCL 40/2005

147.  In November 2005, the Liquidators on behalf of Akai and Kong Wah commenced an action against Mr Ho, Grande HK and a number of other parties (“Grande Proceedings”).  This action related to the Grande group’s covert takeover of the direction and control of Akai from about November 1999 and associated breaches of fiduciary and other duties. The proceedings were settled on confidential terms in late 2009 for a substantial sum.

148.  Essentially, Akai claimed that as a result of a covert agreement with Mr Ting in November 1999 (“Management Agreement”), Mr Ho, Grande HK and other defendants connected with Grande HK took control of Akai and its subsidiaries, and in so doing, became de facto and/or shadow directors of Akai and subject to the same fiduciary duties to Akai as owed by an ordinary de jure director.  Once in this position,  Mr Ho, Grande HK and the other de facto/shadow directors proceeded to act with disregard for the fiduciary duties that they had assumed towards Akai and the other Plaintiffs.  In particular, through a series of transactions, they caused Akai to be divested of all of its valuable assets, and Akai’s corporate opportunities to be redirected to Grande HK, resulting in a loss to Akai of hundreds of millions of US dollars.

I. The Present Proceedings

I.1 Commencement

149.  By a writ of summons dated 8 December 2005, the Liquidators commenced the present proceedings to seek to recover the proceeds of Mr Ting’s alleged defalcations from Everwin, Ferbury Limited (“Ferbury”) and Ms Lee (the former first to third defendants respectively).  Mr Ting was added as a defendant to these proceedings on 14 March 2006.[166]

150.  The writ was served on Ms Lee and Ferbury, but it was never served on Everwin.  The proceedings against Everwin were subsequently discontinued upon the Liquidators of Akai becoming the Liquidators of Everwin.[167]  Judgment has already been entered by consent against Ms Lee[168] and against Ferbury,[169] leaving Mr Ting as the only remaining defendant.

I.2 The Bermuda Proceedings

151.  Mr Ting applied for a stay of these proceedings on the ground of :

(1) forum non conveniens;

(2) that the claims made in the proceedings fell within the scope of the Settlement Agreement containing the covenant not to sue; and

(3) that the Supreme Court of Bermuda had exclusive jurisdiction of the matter.[170]

152.  In addition, on 13 October 2006, Mr Ting, together with his companies Blossom and Costner, had commenced proceedings in Bermuda in Civil Jurisdiction Action No 312 of 2006 (“the Bermuda Proceedings”) seeking what was in effect an anti-suit injunction restraining Akai and the Liquidators from pursuing claims against Mr Ting in Hong Kong.

153.  On 4 April 2007, the present proceedings were stayed in Hong Kong by consent, pending the determination of the Bermuda Proceedings.[171]  The Bermuda Court ordered an expedited trial, which took place from 22 to 29 October 2007 before Ground CJ.

154.  Essentially, Mr Ting sought to rely on the covenant not to sue in his favour contained in the Settlement Agreement in order to restrain Akai from pursuing these proceedings against him.  By a judgment dated 5 December 2007, Ground CJ dismissed the claims of Mr Ting and his companies and granted the declaration sought by Akai that the Settlement Agreement was unenforceable.  By orders made in February 2008, Akai was awarded indemnity costs.  The orders also provided, in effect, that the Settlement Agreement did not apply to a claim by Akai for breach of fiduciary duty against Mr Ting which was neither disclosed by Mr Ting, prior to execution of the Settlement Agreement, nor known to the Liquidators.[172]

155.  Having lost in Bermuda at first instance, Mr Ting, by summons dated 18 December 2007,[173] sought a further stay of the current proceedings, pending his appeal in the Bermuda Proceedings to the Bermuda Court of Appeal (and if applicable, to the Privy Council).  On 20 December 2007, Stone J refused these applications and handed down his reasons for decision on 11 January 2008.[174]

156.  As a result, Mr Ting was required to file his Defence, which he eventually did on 11 February 2008.  Mr Ting also appealed against the decision of Stone J to the Court of Appeal, in CACV 15 of 2008.[175]  The hearing of the appeal in Hong Kong was fixed for 18 July 2008.  In the meantime, however, Mr Ting’s appeal in the Bermuda Proceedings was heard before the Court of Appeal of Bermuda from 17 to 19 June 2008.  Accordingly, the parties agreed to a stay of the appeal and a further stay of these proceedings pending determination of Mr Ting’s appeal to the Court of Appeal of Bermuda.[176]

157.  On 28 November 2008, the Bermuda Court of Appeal reversed the decision of Ground CJ and made orders restraining the Liquidators from pursuing these proceedings against Mr Ting.  Akai and its Liquidators appealed against this decision to the Privy Council.  On 12 January 2009, further consent orders were made in these proceedings staying the appeal to the Court of Appeal and the action against Mr Ting generally pending the determination of Akai’s appeal to the Privy Council.[177]

158.  The Liquidators’ appeal to the Privy Council was heard in May 2010.  On 29 July 2010, the Privy Council delivered its advice which allowed the Liquidators’ appeal and declared that Mr Ting was not entitled to rely upon the Settlement Agreement in order to defeat any claims advanced by the Liquidators or Akai.  Accepting Ground CJ’s findings of fact, the Privy Council held that Mr Ting had engaged in unconscionable conduct in procuring the Settlement Agreement and that it was, therefore, unenforceable as a matter of law.[178]

159.  Accordingly, the stay of the present proceedings lapsed and the Liquidators took steps to resume these proceedings.

I.3 Resumption of these Proceedings

I.3.1  Pleadings and Expert Evidence

160.  The Liquidators prepared amendments to the Points of Claim to include claims against Mr Ting for the substantial defalcations of Akai’s assets, which only came to light as a result of the Liquidators’ investigations that were concluded after the issuance of the writ in these proceedings.  On 22 June 2011, Akai took out a summons for leave to amend its Points of Claim.[179]  Mr Ting opposed the amendments on multiple grounds, including that the amendments introduced new claims such that if leave to amend was granted, Mr Ting would be deprived of an accrued limitation defence. On 24 June 2011, Reyes J granted Akai’s summons for leave to amend[180] and Akai filed its Amended Points of Claim.[181]  Mr Ting sought leave to appeal against that order,[182] which application was heard and dismissed by the Court of Appeal on 20 December 2011.[183]  Reasons for the decision were handed down on 22 March 2012.[184]   Barma J (with whom Hartmann JA agreed) found that the amendments did not deprive Mr Ting of an accrued limitation defence because the new claims introduced by the amendments were ones to which no limitation period applied, being based on fraud or fraudulent breach of trust within s.20(1) of the Limitation Ordinance.

161.  In the interim, Mr Ting filed his Amended Points of Defence on 19 September 2011 after an unless order was made against him.[185]

162.  At a case management hearing on 29 February 2012, Reyes J made directions for the exchange of discovery and the filing of witness statements, refusing to allow any expert evidence to be filed.  He also directed that the action be set down for trial.[186]  On 2 to 3 May 2012, the parties filed Lists of Documents.[187]

163.  On 7 June 2012, Mr Ting filed his Re-Amended Points of Defence pursuant to leave granted by Reyes J.[188]  Witness statements were exchanged on 28 June 2012[189] and Akai filed a 2^nd List of Documents the next day.[190]  On 12 July 2012, Akai filed its answers to Mr Ting’s Request for Further and Better Particulars.[191] On 29 October 2012, the Notice of Trial was issued with the trial listed for 20 days from 18 November 2013.[192]

164.  Between 8 February 2013 and 27 May 2013, Mr Ting issued three summonses in these proceedings, for leave to amend, specific discovery and expert evidence.[193]  By order dated 13 May 2013,  I allowed the amendments in the form of the Re-Re-Amended Points of Defence dated 13 May 2013[194] and granted leave for Akai to file a Re-Amended Reply,[195] which was filed on 10 June 2013.[196]

165.  On 12 July 2013, I granted leave for Mr Ting to adduce expert evidence and for Akai to adduce expert evidence in reply.  Further orders were made for Akai to disclose amounts received in settlement in respect of certain claims against other parties by way of a confidential affidavit of Mr Borrelli, which was provided to Mr Ting’s solicitors on 23 July 2013, and for Akai to provide the relevant further and better particulars served in those claims.[197]  Akai has since filed four further Lists of Documents, which included the further and better particulars ordered by the Court on 12 July 2013, and its pre-trial checklist.[198]

166.  On 9 August 2013, Mr Ting’s expert, Mr Bowyer of BDO, delivered his report in respect of Akai’s loss and damage (“Bowyer Report”).[199]  On 23 September 2013, Akai’s expert, Mr David Spence of Grant Thornton, delivered his responsive expert report on Akai’s loss and damage (“Spence Report”).[200]  At the CMC hearing on 30 September 2013, I directed the experts to confer and prepare a joint report setting out the areas of agreement and disagreement and the reasons why (“Joint Expert Report”).  On 28 October 2013, the Joint Expert Report was delivered.[201]  The Joint Expert Report also appended a supplement to the expert report ofMr Bowyer in which Mr Bowyer set out the amendments he had made to the loss and damage calculated in his first report dated 9 August 2013.[202]

I.3.2  Akai’s  Bankruptcy  Petition and Mr Ting’s First VCF Application

167.  In addition to resuming the prosecution of these proceedings in 2012, on 4 June 2012, Akai presented a bankruptcy petition (“Petition”) against Mr Ting in respect of the unpaid costs orders made in favour of Akai by the Bermuda Court and the Privy Council in the Bermuda Proceedings.  Mr Ting did not dispute the debt, which totalled US$1,067,495 and GBP319,787 (plus interest), but opposed the Petition on the basis that the Hong Kong courts lacked jurisdiction to make a bankruptcy order against him.  Akai has since pursued the Petition in parallel with these proceedings.

168.  On 8 March 2013, the trial of the Petition was fixed to be heard over two days on 27 and 28 August 2013.  On 7 May 2013, Akai issued a summons for orders that Mr Ting attend at the hearing of the Petition for cross-examination or no affidavit filed by him shall be used in evidence at the hearing of the Petition.  Ng J heard and made orders in terms of Akai’s cross-examination summons on 27 May 2013.  No further steps were taken by Mr Ting until 9 August 2013, when he issued a summons to give his evidence by video conferencing facilities (“VCF”) at the trial of the Petition, which, at that time, was less than three weeks away.  The summons was taken out on the basis that Mr Ting suffered from Adjustment Disorder with Depressed Mood and Post-Traumatic Stress Disorder which prevented him from coming to Hong Kong.

169.  Mr Ting’s VCF application was heard and dismissed by Ng J on 20 August 2013 on the grounds that the application was inexcusably late and that Mr Ting had failed to demonstrate that he was unable to come to Hong Kong to attend the trial of the Petition.  On 26 August 2013, Mr Ting issued a summons for leave to appeal against that decision.  On the morning of 27 August 2013, the first day of the trial of the Petition, Mr Ting’s counsel made an oral application to adjourn the Petition pending the outcome of Mr Ting’s application for leave to appeal.  Ng J granted the adjournment on the undertaking of Mr Ting’s counsel to prosecute the summons with due diligence and all dispatch.  The application for leave to appeal was dismissed by the Court of Appeal on 7 March 2014[203].

I.3.3  Mr Ting’s Second VCF Application and Supplemental Witness Statement

170.  Notwithstanding Mr Ting’s failure to obtain an order for VCF in the bankruptcy proceedings, on 10 October 2013 Mr Ting filed a summons seeking leave to give his evidence by VCF at the trial of these proceedings and to file a further witness statement.[204]  On 16 October 2013, I dismissed Mr Ting’s VCF application on the grounds that he had not demonstrated that he was unable to come to Hong Kong to attend court in person.[205]  I also rejected Mr Ting’s application for leave to appeal.  No application to the Court of Appeal for leave to appeal has been made.

171.  Although I was not persuaded by Mr Ting’s evidence in support of his VCF application, nevertheless, I sought to accommodate Mr Ting’s attendance at trial, including by:

(1) offering to take Mr Ting’s evidence outside of the Court room in a less formal setting;

(2) permitting Mr Ting to give his evidence in a language other than English even though Mr Ting speaks English fluently;

(3) reassuring Mr Ting that any risk of re-arrest was nil to extremely minimal; and

(4) assuring Mr Ting that any cross-examination would be conducted properly, that he would not be badgered and that at the first sign of distress beyond that normally exhibited by a witness, the Court would adjourn.

172.  On 29 October 2013, Mr Ting filed and served his proposed supplemental witness statement.  However, at the hearing on 30 October 2013, Mr Ting’s counsel was unable to tell me that he would attend for trial. Accordingly, I did not make a ruling on Mr Ting’s application for leave to file the supplemental witness statement and gave a direction for Mr Ting to confirm, by 8 November 2013, whether he would attend the trial to give evidence.  I also gave directions for the order in which witnesses were to give evidence at the trial (assuming Mr Ting’s attendance) as follows:  Mr Borrelli (factual), Mr Ting (factual), Mr Spence (expert) and Mr Bowyer (expert).[206]

I.3.4  Mr Ting’s Confirmation of Non-Attendance

173.  On Friday, 8 November 2013,  Mr Ting confirmed that he would not be attending trial. 

J. The Documentary Evidence

174.  Mr Borrelli has detailed how the books and records of Akai were reconstructed in §§87 to 96 of his first witness statement, explaining the reasons for the absence of books in §90, including their removal from Akai’s premises and the deliberate withholding of those books from the Liquidators.  It was only in 2005 when documents were received from CCB and carefully studied that evidence of defalcations emerged, as detailed in §§37 to 41 of his second witness statement. Notwithstanding these limitations, he is satisfied that he has obtained adequate documentary evidence of the defalcations.

175.  It is Akai’s case that the documents required to demonstrate that a payment has been made from the bank account of Akai and received in the account of a Recipient are relatively straightforward and include paid cheques, Akai bank statements and Recipient bank statements.  Where these documents were not available, Mr Borrelli has had regard to, among others, (i) instruction letters to banks; (ii) bank records of customer deposits; and (iii) bank internal documents.[207]Mr Ting’s accounting expert, Mr Bowyer, accepted that “the Plaintiff has, for the majority of the alleged defalcations, demonstrated that payments have been made”.[208]

176.  I address the sufficiency of the documentary evidence to prove the alleged defalcations below.  So far as the discovery made by Akai is concerned, I note that Mr Bowyer accepted that there was no basis to criticise the adequacy or appropriateness of Akai’s discovery in this action.[209]  In the course of discovery applications made by Mr Ting, I did not order Akai to disclose 6,000 lever arch files of documents to Mr Ting but directed the parties to adopt a co-operative and facilitative approach and I further directed Mr Ting’s solicitors to identify the documents or class of documents relating to specific transactions that they wished to inspect.  However, no request for further discovery by Mr Ting’s solicitors, whether of specific transactions or otherwise, was ever made.  The Liquidators had also extended an invitation to Mr Bowyer to request and inspect further categories of documents but he did not take up the invitation to so do as he had formed the view that the Liquidators did not have any further documents that could assist him.[210]

177.  At this point I deal with Mr Ting’s case that, in the particular circumstances of this case, Mr Ting is himself hampered as much if not more than the Liquidators by the absence of books and records, given that he had had no documents and has had no control over any documents of Akai since November 1999,including during the ‘Grande period’ which followed.  Mr Ting had long ago left Akai by the time the Liquidators recovered papers from Akai’s offices, or from Grande HK, let alone from the CCB in 2004/2005 and Mr Borrelli had duly conceded in cross-examination that (at November 2000) Mr Ting had no control over the records Grande HK had[211].  Taking Mr Ting’s departure from Akai in 1999 together with the absence of records generally, the evidence did not show and was not consistent with any deliberate attempt by Mr Ting to hide or destroy documentation establishing the transactions now impugned.

178.  I do not accept these submissions.  Mr Ting, as Chairman, CEO and director of Akai was obliged to ensure that Akai maintained proper books and records.  That obligation derived from applicable legislation in both Bermuda (Akai’s place of incorporation) and Hong Kong (where Akai was registered under Part XI of the Companies Ordinance).  In particular, under the Bermuda Companies Act 1981:

(1) Section 83 of the Bermuda Companies Act 1981 required Akai to keep proper books of account  (which is identical to s 121(1) of the Hong Kong Companies Ordinance) states:

(1) “Every company shall cause to be kept proper records of account with respect to:

(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place;

(b) all sales and purchases of goods by the company;

(c) the assets and liabilities of the company.”  

(2) Akai also had an obligation under s 81 of the Bermuda Companies Act to cause minutes of all proceedings at general meetings and at meetings of its directors to be entered in books kept for that purpose and for such minutes to be signed by the person presiding over the proceedings, and kept at Akai’s registered office as evidence of the proceedings.

(3) Mr Ting was under an obligation pursuant to s 97(2) of the Bermuda Companies Act to comply with the requirements of the Act.

179.  These obligations under Bermuda law are the same as provided by ss.119 (minutes) and 121 (accounts) of the Hong Kong Companies Ordinance.

180.  Further, s.274 of the Hong Kong Companies Ordinance (which is applicable in the winding up of Akai by virtue of ss.327(1) and 331) provides that where a company is being wound up, proper books and accounts are deemed not to have been kept if:

“there have not been kept such books or accounts as are necessary to exhibit and explain the transactions and financial position of the trade or business of the company, including books containing entries from day to day in sufficient detail of all cash received and cash paid, and, where the trade or business has involved dealings in goods, statements of the annual stocktakings and (except in the case of goods sold by way of ordinary retail trade) of all goods sold and purchased, showing the goods and the buyers and sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified.”

181.  In addition to maintaining proper books and records, upon Akai’s winding up, Mr Ting also had an obligation to deliver, convey, surrender or transfer to the liquidator any property, books or papers in his hands to which Akai was prima facie entitled if so ordered by the Court or the liquidator in his capacity as an officer of the Court (s 186 of the Bermuda Companies Act and s 211 of the Hong Kong Companies Ordinance).

182.  Mr Ting was not excused from these obligations on the ground that he handed over control of Akai to Mr Ho and Grande HK from November 1999.  Mr Ting remained a director until Akai was ordered to be wound up.  In the circumstances, Mr Ting cannot seek to undermine Akai’s case by praying in aid any alleged inadequacies in the available records that ought to have been kept by Akai whilst under the control and direction of Mr Ting.

183.  As was stated by Arden LJ in Re Mumtaz Properties Ltd [2012] 2 BCLC 109 (at §§16-17):

“The approach of the judge in this case was to seek to test the evidence by reference to both the contemporary documentary evidence and its absence. In my judgment, this was an approach that he was entitled to take. The evidence of the liquidator established a prima facie case and, given that the books and papers had been in the custody and control of the respondents to the proceedings, it was open to the judge to infer that the liquidator’s case would have been borne out by those books and papers.

Put another way, it was not open to the respondents to the proceedings in the circumstances of this case to escape liability by asserting that, if the books and papers or other evidence had been available, they would have shown that they were not liable in the amount claimed by the liquidator. Moreover, persons who have conducted the affairs of limited companies with a high degree of informality, as in this case, cannot seek to avoid liability or to be judged by some lower standard than that which applies to other directors, simply because the necessary documentation is not available.” (emphasis added)

In the same vein is the observation of Deputy High Court Judge Leslie Anderson QC in Re Idessa (UK) Ltd. (in liquidation) [2012] 2 BCLC 109 (at §§16-17) that the absence of books and records cannot be used by the respondents be as a smokescreen to avoid answering questions or as preventing them from fairly presenting their case. The fact that Mr Ting handed over control of Akai to Mr Ho and Grande HK from November 1999 cannot be used to distinguish the present case from the above cases when he remained throughout under a legal obligation to maintain proper books and records and to hand them up to the liquidators.

K. The Alleged Defalcations

184.  It is Akai’s case that between about February 1997 and July 1999, Mr Ting and various Akai Group employees under his direction engaged in substantial and numerous defalcations of the assets of Akai.[212] Akai claims equitable compensation for the quantum of defalcations between 1 February 1997 and 31 July 1999 of US$837,118,799.  The vast majority of the defalcations were made by cheque or bank instructions signed by Mr Ting himself (or others under his direction and control).

185.  The defalcations were concealed by Mr Ting through the creation and use of two fictitious deposit accounts in Akai’s General Ledger (the BT-Deposit General Ledger Account and the Temporary General Ledger Account) and by false transactions recorded in Akai’s general ledger.  These are considered further below.

186.  The quantum of defalcations claimed by Akai, as concealed through the BT-Deposit General Ledger Account, Temporary General Ledger Account and false journal entries in Akai’s general ledger is broken down as follows:[213]

BT-Deposit General Ledger Account Defalcations	US$463.5 million
Temporary General Ledger Account Defalcations	US$109.2 million
General Ledger defalcations	US$264.4 million
TOTAL	US$837.1 million

187.  The proceeds of Mr Ting’s defalcations were received by numerous persons or entities identified in Akai’s Amended Points of Claim as “the Recipients”,[214] which are discussed in further detail below.  In summary, the Recipients can be divided in into five categories, namely:[215]

(1) Mr Ting and his wife, Ms Tseng;

(2) The Ting Recipients, being 19 companies incorporated in the BVI, Liberia and one in the USA, which were controlled by Mr Ting;

(3) the “Share Capital Recipients,” being various directors and employees of Akai and their associated entities who purported to exercise options over Akai shares granted in May 1997, for which Akai did not receive the option proceeds;

(4) the “Kuo Recipients” being 2 companies associated with a Taiwanese businessman named Mr Kuo, with whom Mr Ting had a pre-existing relationship;

(5) Grande HK, a Cayman-incorporated company listed on the SEHK and controlled by Mr Ho, who has had a business and commercial relationship  with Mr Ting since the early 1990s, stemming from Mr Ho’s role as the former auditor of Akai from 1984 to at least 1989;[216]

188.  Annexure A of Akai’s Amended Points of Claim lists out particulars of every defalcation and of the 28 Recipients.  A summary of Akai’s claim against Mr Ting is set out in §§9 to 16 above and in the following table:

Recipient of Defalcation	Total (1 February 1997 – 31 July 1999)
	No.	US$
Mr Ting & his wife	1	30,862
Ting Recipients Calculus Conben CTS Capital Cyclonic Everwin Dynasty Evora Fiction Goaltop Golfland Higher International Investco Trading JT Capital Primewood Restex Rosalie Seline Starcode Tisco Worldwide International Sub-Total Ting Recipients[217]	1 5 1 2 18 14 1 49 8 2 13 2 2 2 3 0 1 16 8 148	12,936,611 16,285,371 3,846,154 700,000 80,444,958 111,266,062 1,785,897 93,152,772 81,721,203 13,937,128 29,143,163 10,035,235 140,333,333 1,600,000 13,379,740 0 181,113 140,280,195 23,366,046 774,394,981
Share Capital Recipients	6	22,588,923
Kuo Recipients Fu Tak International TriAsia Sub-Total Kuo Recipients	1 5 6	1,293,661 16,732,966 18,026,627
Grande HK	4	22,077,406
Total	165	837,118,799

189.  It is Akai’s case that:

(1) Mr Ting caused the payments out of Akai to be made;

(2) Mr Ting controlled or was associated with all of the Recipients of defalcations, as well as being a direct Recipient himself; and

(3) Mr Ting actively concealed the defalcations through the BT-Deposit and Temporary General Ledger Accounts as well as the GL Accounts.

190.  Mr Bowyer agrees that Recipients received assets of Akai amounting to at least US$407,872,263[218]. As identified in the table at §1.10 of the Joint Report,[219] the payments disputed by Mr Bowyer comprise:

Disputed Payments
Category	Borrelli’s Method 5 US$	Bowyer’s Revised Method US$
Defalcations calculated by Borrelli	837,118,799	837,118,799
Less:
Akai Electric bonds (Primewood)		(134,178,256)
Akai Electric bonds (Tisco)		(118,399,119)
Evidence of value received		(140,028,577)
Payments to Goaltop		(20,000,000)
Payments by Akai to BTM (TriAsia)		(16,640,584)
Defalcations (Adjusted by Bowyer)		407,872,263[220]

These disputed payments are addressed in detail below.

L. Payments made without Discernible Commercial Purpose

191.  The undisputed payments in the sum of US$408,123,278 are set out in §10 above.  The experts are agreed on the basis of the evidence available to them that Recipients “received assets of Akai amounting to at least [US$408,123,278[221]] during the Claim period”[222]. I am satisfied that the documents made available to the Liquidators were sufficient to prove, and I find as a fact, that Akai made payments to, and were deprived of the proceeds of the issue of shares from, the following Recipients in the total sum of US$408,123,278.

L.1 Group 1 Ting Recipients

192.  I find that Evora, Conben, JT Capital and Restex, received the 23 payments set out in §188 above in the total sum of US$139,186,668.  I also find, based on the admissions of Mr Ting[223], that these companies, identified as Group 1 Ting Recipients, were owned and controlled by Mr Ting at all material times.  I also find that Mr Ting’s signature appeared on cheques or payment instructions for US$115,621,178 in respect of these payments.

L.2 Group 2 Ting Recipients

193.  I find that CTS Capital, Everwin, Goaltop, Golfland, Higher International Limited (“Higher International”), Investco Trading, Starcode Limited (“Starcode”), Tisco and Worldwide International, identified as Group 2 Ting Recipients, received 93 individual payments in the total sum of US$200,832,662.  I also find that Mr Ting’s signature appeared on cheques or payment instructions for US$136,658,822 in respect of these payments.

L.3 Group 3 Ting Recipients

194.  I find that Calculus, Cyclonics Inc (“Cyclonics”), Fiction Corporation (“Fiction”), Primewood and Rosalie Limited (“Rosalie”), identified as Group 3 Ting Recipients, received 6 individual payments in the total sum of US$22,020,714.  I also find that Mr Ting’s signature appeared on cheques or payment instructions for US$15,865,637 in respect of these payments.

L.4 Ting Associates

195.  I find that Mr Ting’s wife, Ms Tseng, Grande HK, TriAsia and Fu Tak International, identified as Ting Associates, received 7 individual payments in the total sum of US$23,494,311.  I also find that Mr Ting’s signature appeared on cheques or payment instructions for US$22,072,995 in respect of these payments.

L.5 Proceeds from Exercise of Share Options

196.  I find that Akai was deprived of the proceeds of 9 amounts receivable by Akai from the exercise of share options between 4 March 1997 and 13 May 1997 in the total sum of US$22,588,923 as set out in the following table:

DLN	Date of Exercise 1997	Subscriber / (shares Issued to)	No. of Akai Shares	Option Price HK$	Option Amount HK$	Option Amount US$
97015	4 March	Ting (Blossom Assets)	6,000,000	8.832	52,992,000	6,793,846
97015	4 March	Ting (Blossom Assets)	3,000,000	10.096	30,288,000	3,883,077
97043	1 April	Loh (Bonny)	2,425,000	7.320	17,751,000	2,275,769
97044	3 April	Liao (Concott)	4,365,000	7.320	31,951,800	4,096,385
97045	8 April	Loh (Bonny)	500,000	10.096	5,048,000	647,179
97057	8 May	Ma (Concott)	3,230,000	10.096	32,610,080	4,180,769
97058	13 May	Ahmed (Ahmed)	300,000	10.096	3,028,800	388,308
97058	13 May	Ramanathan (Ramanathan)	150,000	10.096	1,514,400	194,154
97058	13 May	Woo (Woo)	100,000	10.096	1,009,600	129,436
	Total		20,070,000		176,193,680	22,588,923

L.6 The Relationship between Mr Ting and the Group 2 and 3 Recipients, Ting Associates and the Share Capital Recipients

197.  In his opening, Mr Ting accepted that the documents provided direct or circumstantial evidence sufficient to raise an inference of control of a number of individual Recipients, albeit mostly through Ms Lee; but that there was no evidence of Mr Ting’s control or any connection with Cyclonics, Primewood and Rosalie.  He repeated the latter submission in his closing and added that there was no evidence that Mr Ting controlled his fellow director Ms Loh, or the Share Capital Recipients (save for Blossom), Grande HK or Kuo Recipients. 

198.  Further, although overall control of Akai by Mr Ting was accepted, it was submitted that there was little evidence that fixed Mr Ting with day-to-day control of the finances of Akai or its accounts.  As regards, the latter submission, I have already found that Mr Ting was the controlling and dominant force in the management of Akai’s operations[224].  That control extended to control of Akai’s finances and accounts as so amply demonstrated by Mr Ting’s ability to issue cheques and payment instructions in the very substantial amounts set out in §§192-195 above.

L.6.1 The Relationship between Mr Ting and the Group 2 Recipients

199.  CTS Capital was incorporated in BVI on 20 November 1996 and was formerly known as Sonic Times Corporation.  CTS Capital was struck off on 3 May 1999 for non-payment of annual licence fees and was ordered to be wound up on 14 July 2006.[225]  The company had a correspondence address at 3001-3004 Two Exchange Square, 8 Connaught Place, Hong Kong, being the address of Akai’s Hong Kong Office.[226]

200.  I find that Mr Ting controlled CTS Capital through his executive assistant Ms Lee, who acted as bank account signatory for CTS Capital’s only known bank account, which was held with Bank of America.  That bank account was closed in March 1998.[227]  I also infer that Mr Ting controlled CTS Capital from the fact that a concealed payment was made by Akai to CTS Capital of US$3,846,154 during the Claim Period, which he concealed in the GL Account entitled “Kong Wah Holdings Limited”[228], which I deal with below.

201.  Everwin was incorporated in BVI on 28 January 1997 and was struck off and ordered to be wound up on 2 November 1999 and 14 June 2006 respectively.  Everwin’s correspondence address was GPO Box 6667, Hong Kong, which was an address shared with the Ting Recipients, Fiction and Primewood.[229]

202.  I find that Mr Ting controlled Everwin through Ms Lee who was the sole bank account signatory for Everwin’s only known bank account, which was held with Daiwa Bank.   Ms Lee acted as signatory for Rituals International Limited (“Rituals”), a BVI company which was the first director of Everwin.  Rituals was incorporated in the BVI on 2 January 1996 and was struck off and ordered to be wound up on 1 November 2004 and 14 July 2006 respectively.  Rituals was also a director of another Ting Recipient called Fiction.[230]

203.  I also infer that Mr Ting controlled Everwin from the fact that concealed payments were made during the Claim Period totalling US$80,444,958[231] from Akai to Everwin, comprising 18 payments which he concealed in the BT-Deposit General Ledger Account[232], which I refer to below.  Further evidence of Mr Ting’s control stems from the fact that the funds of one payment to Everwin flowed directly to Mr Ting. DLN 98002 showed that on 2 February 1998 Akai paid HK$40 million (US$5,174,644) to Everwin and on the same day this same amount was paid to Mr Ting’s HSBC bank account.[233]

204.  Goaltop was incorporated in BVI on 2 July 1997 and was ordered to be wound up on 14 June 2006.  Goaltop had a correspondence address at P.O. Box 25527 Harbour Building, Hong Kong, which was also the address of the Ting Recipients Calculus, Golfland, Higher International, Invesco and Tisco.[234]

205.  I find that Mr Ting controlled Goaltop through Ms Lee, who was the sole director of Goaltop and the sole bank account signatory for Goaltop’s only known bank account, which was held with Standard Chartered Bank (Hong Kong) Limited (“SCB”).[235]

206.  I also infer that Mr Ting controlled Goaltop from the fact that concealed payments were made to Goaltop during the Claim Period totalling US$93,152,772[236], comprising 30 payments concealed in the BT-Deposit General Ledger Account, 14 payments concealed in the Temporary General Ledger Account and 5 payments concealed in the GL Accounts[237], which I refer to below.  Two transactions involving Goaltop in respect of payments of US$6,000,000 and US$14,000,000 are the subject of dispute between the experts in this matter[238], which I refer to below.

207.  Golfland was incorporated in BVI on 1 August 1997 and was struck off and ordered to be wound up on 1 May 2000 and 14 June 2006 respectively.  Golfland had a correspondence address at P.O. Box 25527 Harbour Building, Hong Kong “c/o Ms Li” which was also the address of the Ting Recipients Calculus, Goaltop, Higher International, Investco and Tisco.[239]

208.  I find that Mr Ting controlled Golfland through Ms Lee, who was the sole director of Golfland and the sole bank account signatory for Golfland’s only known bank account, which was held with SCB.[240] 

209.  I also infer that Mr Ting controlled Golfland from the fact that concealed payments were made from Akai to Golfland during the Claim Period totalling US$81,721,203[241], comprising 8 payments which he concealed in the GL Accounts[242], which I refer to below.  Further evidence of Mr Ting’s control stems from the fact that the funds of one payment to Goaltop flowed directly to Mr Ting.  DLN 99006 showed that on 8 February 1999 Akai paid HK$6.5 million (US$839,089) to Goaltop and this amount was then paid to Mr Ting by Goaltop on the same day. 

210.  Higher International was incorporated in BVI on 18 March 1998 and was struck off and ordered to be wound up on 1 November 2001 and 14 June 2006 respectively. Higher International’s correspondence address was also P.O. Box 25527 Harbour Building, Hong Kong “c/o Ms Li”, which was also the address of Calculus, Goaltop, Golfland, Investco and Tisco.[243]

211.  I find that Mr Ting controlled Higher International through Ms Lee, who was the sole director of Higher International and the sole bank account signatory for Higher International’s only known bank account, which was held with SCB.[244] 

212.  I also infer that Mr Ting controlled Higher International from the fact that concealed payments were made from Akai to Higher International totalling US$13,937,128[245], comprising one payment concealed in the GL Accounts and one payment concealed in the Temporary General Ledger Account,[246] which I refer to below.

213.  Investco was incorporated in BVI on 2 September 1994 and was struck off on 1 May 2000 for non-payment of its annual licence fees.  Investco also had a correspondence address at P.O. Box 25527 Harbour Building, Hong Kong “c/o Ms Li”, which was also the address of Calculus, Goaltop, Golfland, Higher International and Tisco.[247]

214.  I find that Mr Ting controlled Investco through Ms Lee, who was the sole director of Investco and the sole bank account signatory for Investco’s only known bank account, which was held with Citic Ka Wah Bank Limited (“CKW”).[248]

215.  I also infer that Mr Ting controlled Investco from the fact that concealed payments were made from Akai to Investco during the Claim Period totalling US$29,143,163[249], comprising 10 payments concealed in the Temporary General Account and 3 payments concealed in the GL Accounts[250], which I refer to below.

216.  Further evidence of Mr Ting’s control stems from the fact the funds of one payment to Investco flowed directly to Ms Tseng, Mr Ting’s wife.  DLN 99097 showed that on 25 June 1999, Akai paid US$6,500,746 (HK$50,250,768) to Investco and HK$23,051,671 (US$2,982,105) of these funds were paid to Ms Tseng on the same day.[251]

217.  Starcode was incorporated in BVI on 18 March 1997 and was struck off and ordered to be wound up on 3 November 1998 and 14 July 2006 respectively.  Starcode had a correspondence address at Omar Hodge Building, Vickhams Cays I,  P.O. Box 362, Road Town, Tortola, BVI “c/o Monita Inc.”[252]

218.  I find that Mr Ting controlled Starcode through Ms Lee, who acted as the bank account signatory for Starcode’s only known bank account, which was held with TISCO Securities (Hong Kong) Limited (“TISCO HK”).  Ms Lee acted as signatory on behalf of Monita Inc (“Monita”), which was a director of Starcode.  Monita was incorporated in BVI on 15 May 1997 and was struck off on 3 November 1998 for non-payment of annual licence fees.[253]

219.  I also infer that Mr Ting controlled Starcode from the fact that a concealed payment was made from Akai to Starcode during the Claim Period of US$181,113[254] which he concealed in the BT-Deposit General Ledger Account,[255] which I refer to below.  On 7 October 1998 Akai paid HK$1,400,000 (US$181,113) to TISCO HK by cheque.[256]  A handwritten note to Mr Ting on an execution notice addressed to Starcode from TISCO HK indicated that this was payable to TISCO HK to settle amounts due for securities purchased by TISCO HK for the account of Starcode.[257]  The corresponding journal entry, dated 7 October 1998, amounted to a payment by Akai for the benefit of Starcode without any commercial purpose or value to Akai.

220.  Tisco was incorporated in BVI on 10 November 1989 and was struck off and ordered to be wound up on 3 May 1999 and 14 July 2006 respectively.  It was formerly known as Almeida Morano Limited.  Tisco had a correspondence address at P.O. Box 25527 Harbour Building Post Office, Hong Kong which was also the address of Calculus, Goaltop, Golfland, Higher International and Investco.[258]

221.  I find that Mr Ting controlled Tisco through Ms Lee, who was the sole bank account signatory for Tisco’s only known bank account, which was held with Daiwa Bank.  Ms Lee acted as signatory on behalf of Larkspur Company Limited (“Larkspur”), which was the sole director of Tisco.  Ms Lee was Larkspur’s only authorised signatory.  Larkspur was incorporated in BVI on 9 August 1990 and struck off on 1 May 1998 for non-payment of annual licence fees.[259]

222.  I also infer that Mr Ting controlled Tisco from the fact that concealed payments were made from Akai to Tisco during the Claim Period totalling US$140,280,195, comprising 4 payments concealed in the BT-Deposit General Ledger Account and 12 payments concealed in the GL Accounts[260], which I refer to below.  11 of the 16[261] payments from Akai to Tisco form part of the Primewood transaction which I refer to below.

223.  Worldwide International was incorporated in BVI on 14 October 1993 and was struck off and ordered to be wound up on 1 May 1998 and 14 July 2006 respectively.  Worldwide International had a correspondence address at 3001-3004 Two Exchange Square, 8 Connaught Place, Hong Kong, being the address of Akai’s Hong Kong Office.[262]

224.  I find that Mr Ting controlled Worldwide International through Ms Lee, who was the sole director of Worldwide International and the sole bank account signatory for Worldwide International’s only known bank account, which was held with SCB.[263]

225.  I also infer that Mr Ting controlled Worldwide International from the fact that concealed payments were made from Akai to Worldwide International totalling US$23,366,046[264], comprising 7 payments concealed in the BT-Deposit General Ledger Account and 1 payment concealed in the GL Accounts called “Kilter Ltd” and “The Singer Co N.V”[265], which I refer to below.

L.6.2 The Relationship between Mr Ting and the Group 3 Recipients

226.  Calculus was incorporated in the BVI on 3 January 1997 and was ordered to be wound up on 14 July 2006.  Calculus’ correspondence address was Harbour Building, P.O. Box 25527, Hong Kong, which was the same address as for Goaltop, Golfland, Higher International, Investco Trading and Tisco.[266]

227.  I find that Mr Ting controlled Calculus through Ms Tang, who was a full time employee of Akai who served as a personal secretary and assistant to Ms Loh.  Ms Tang was the sole bank account signatory for Calculus’ only known bank account, which was held with Bank of America.  As signatory, Ms Tang acted on behalf of Seebach Consultants Limited (“Seebach”), a BVI company which was Calculus’ sole director.  Seebach was incorporated on 20 December 1990 and struck off for non-payment of annual license fees on 1 May 2001.  Ms Tang was also the authorised signatory of Nishi Associates Limited (“Nishi”), which was Seebach’s sole director. Nishi was incorporated on 18 January 1991 and struck off on 1 November 2001 for non-payment of annual license fees.[267]

228.  I also infer that Mr Ting controlled Calculus from the fact that he made a concealed payment from Akai to Calculus during the Claim Period by a cheque which he signed of HK$100,000,000, equivalent to US$12,936,611, which he concealed in the GL Account entitled “Famous Products Limited”, which I refer to below.  The corresponding journal entry, dated 11 January 1999, represented a payment by Akai to Calculus, allegedly without any commercial purpose or value to Akai.[268]

229.  Fiction was incorporated in BVI on 20 November 1996 and was struck off and ordered to be wound up on 1 May 1999 and 20 March 2008 respectively.  Fiction had a correspondence address at GPO Box 6667, Hong Kong “c/o Mr Wong”, which was an address shared with Everwin and Primewood.  The Liquidators have been unable to identify Mr Wong.[269]

230.  I find that Mr Ting controlled Fiction through Ms Hung and Ms Lee.  Ms Hung was an Akai accountant from 1 April 1996 to 15 December 1999, whose work included the preparation of the Receipt / Journal Vouchers and Payment Vouchers.[270]  Ms Hung was the sole bank account signatory for Fiction’s only known bank account, which was held with Daiwa Bank.  Ms Hung acted as signatory on behalf of Rituals, which was the first director of Fiction.  Rituals was also a director of Everwin.[271]

231.  I also infer that Mr Ting controlled Fiction from the fact that he made a concealed payment from Akai to Fiction[272] during the Claim Period of US$1,785,897[273], which he concealed in the GL Account entitled “Account Payable”.[274]

232.  Primewood was incorporated in BVI on 12 May 1997 and struck off and ordered to be wound up on 1 November 1998 and 20 March 2008 respectively.[275]  Primewood’s only known correspondence address was GPO Box 6667, Hong Kong, which was the same address used by the Ting Recipients Fiction and Everwin Dynasty.[276]

233.  The only known account held by Primewood was a securities trading account with TISCO HK.  The sole account signatory for Primewood was a BVI company called Moira Inc (“Moira”), which was incorporated in 22 May 1997 and was struck off on 1 November 2000.  Moira was also a director of Primewood.[277]

234.  It is Akai’s case that, during the Claim Period,  Mr Ting engaged in two defalcations of Akai’s assets totalling US$140,333,333 to Primewood, both being concealed in the BT-Deposit General Ledger Account, and that the corresponding journal entries, dated 4 July 1997 and 31 January 1998, amount to sale proceeds not received by Akai.[278]  These transactions form part of the “Primewood Defalcations” and are discussed below.  Akai submitted that Mr Ting’s control over Primewood could be inferred from Primewood’s sharing of a correspondence address with Fiction and Everwin and its involvement in the Primewood defalcations.[279] I shall return to the issue of Mr Ting’s control of Primewood after I have dealt with the dispute regarding the Primewood transactions. 

235.  Rosalie was incorporated in BVI on 22 May 1997 and was struck off on 3 November 1998 for non-payment of fees.[280]

236.  It is Akai’s case that, during the Claim Period, Mr Ting engaged in three defalcations of Akai’s assets totalling US$13,379,740 to Rosalie, all payments being concealed in the BT-Deposit General Ledger Account,[281] and that the corresponding journal entries, all dated 4 August 1997, amounted to payments by Akai on behalf of Rosalie for no legitimate commercial purpose. These transactions form part of the Primewood Defalcations and are discussed below. Akai submitted that Mr Ting’s control of Rosalie could be inferred from its involvement in the Primewood Defalcations.[282]  I shall return to the issue of Mr Ting’s control of Rosalie after I have dealt with the dispute regarding the Primewood transactions. 

237.  Finally, I refer to Cyclonics which was incorporated in California and based at 39111 Paseo Parkway, Suite 203, Fremont, California 94538, USA.[283]

238.  During the Claim Period, Akai made two payments totalling US$700,000 to Cyclonics, both payments being concealed in the GL Accounts named “Kilter Ltd” and “Turnesa Ltd”.  The corresponding journal entries, dated 16 March 1999 and 30 April 1999, amount to payments by Akai to Cyclonics without any commercial purpose or value to Akai.[284]

239.  It is Akai’s case that Mr Ting’s control over Cyclonics can be inferred from the receipt by Cyclonics of the proceeds of these two concealed payments for no apparent commercial purpose or value to Akai.[285]  I shall return to the issue of Mr Ting’s control of Cyclonics after I have dealt with the dispute regarding the Primewood transactions. 

L.6.3 The Relationship between Mr Ting and the Ting Associates

240.  Ms Tseng was Mr Ting’s wife. Although he made substantial  payments to entities he controlled or was associated with, Mr Ting also made a single payment to his wife of US$30,862 on 8 April 1999, which was concealed by a debit entry in Akai’s Temporary General Ledger Account made on 8 April 1999.[286]

241.  I find that Mr Ting made payments of Akai’s assets totalling US$18,026,627 during the Claim Period to Fu Tak International and TriAsia,  two companies that were incorporated in the Bahamas and Bermuda respectively[287].  They are referred to as the “Kuo Recipients” as they were both associated with Mr Kuo, a Taiwanese businessman, who was also a director of Kong Wah from 23 August 1995 to 2 December 1996 and a director of Semi-Tech (Europe) Limited until at least 12 December 1996.[288]

242.  I find, based on the documents reviewed by the Liquidators, that Mr Ting had a pre-existing relationship with Mr Kuo,  who himself received unexplained payments from Akai prior to the Claim Period.  The pre-existing relationship included that:[289]

(1) in May 1990, Akai entered into an acquisition agreement with First Taiwan (a company controlled and owned by Mr Kuo) pursuant to which Akai transferred 55% of the shares in Singer Taiwan to First Taiwan for approximately US$46 million. The acquisition agreement was signed by Mr Ting on behalf of Akai and Mr Kuo on behalf First Taiwan;

(2) in June 1990, press reports indicated that Mr Kuo had agreed to buy approximately 4.6% of the outstanding issued shares of Akai for US$24 million;

(3) on 29 September 1993, Mr Kuo received two payments from Akai of US$50,000 and US$70,000 in respect of which the Liquidators have been unable to identify any reason or explanation; and

(4) on 6 January 1997, TriAsia entered into a Securities Lending Agreement with Akai pursuant to which TriAsia borrowed Sansui shares from Akai subsidiaries.  

243.  Further, Mr Kuo received payments of HK$75,000 from Evora on 3 September 1999 and HK$180,375 from Mr Ting directly on 15 March 1999.[290]

244.  Mr Kuo was the sole director of Fu Tak International, which was incorporated in the Bahamas on 8 July 1996 but struck off on 31 January 2001 for non-payment of statutory fees.[291]

245.  I find that Mr Ting made payment of Akai’s assets of US$1,293,661 to Fu Tak International, which he concealed through the BT- Deposit General Ledger Account.[292]

246.  I find that Mr Ting controlled Fu Tak International through Mr Kuo and/or Ms Lee.  Upon opening a bank account with SCB in September 1996, Fu Tak International provided SCB with a certified copy of its Memorandum and Articles of Association as well as a board minute authorising the opening of the account. These documents as well as other banking records of Fu Tak International obtained by the Liquidators from SCB reveal that:[293]

(1) Ms Lee was the sole signatory for the account with SCB;

(2) Ms Lee signed the account opening form;

(3) Ms Lee certified as true copies Fu Tak International’s board minute authorising the opening of this account and its Memorandum and Articles of Association; and

(4) The mailing address provided to SCB was Akai’s Hong Kong Office at 3001-3004 Two Exchange Square, 8 Connaught Place, Hong Kong.

247.  TriAsia was incorporated in Bermuda on 15 August 1994 and struck off on 3 November 2000.  Mr Kuo was a director of TriAsia from at least 17 January 1995.  As at 6 January 1997, Mr Kuo and Ms Su Hsung were directors of TriAsia.[294]

248.  I find that Mr Ting, or employees under his direction, made five payments of Akai’s assets totalling US$16,732,966 to TriAsia, which he concealed through the BT-Deposit General Ledger Account[295].  Four of the payments are disputed and will be dealt with later but Mr Bowyer conceded that he could not identify any evidence of commercial purpose or value to Akai of a payment of US$92,383 made to TriAsia on 28 December 1998.

249.  Grande HK was incorporated in the Cayman Islands on 5 September 1990 and was redomiciled to Bermuda on 15 July 1997.  Grande HK was and is a company listed on the SEHK, although trading in its shares has been suspended since 30 May 2011.  Provisional liquidators were appointed to Grande HK on 31 May 2011 as a result of a winding up petition presented against it.[296]

250.  The chairman and controlling shareholder of Grande HK was Mr Ho[297] who has had a business and commercial relationship with Mr Ting since the early 1990s.  This included:[298]

(1) from 1984 to at least 1989, prior to establishing Grande HK, Mr Ho was a partner at EYHK’s predecessor and was responsible for the audit of Akai;

(2) Mr Ting was an executive director of Grande HK from 25 November 1990 to 17 November 1992;

(3) entry into a Deed of Undertaking dated 11 October 1989 between Standard Chartered Asia Limited as agent for certain banks and financial institutions and STC and the Ho Family Trust. Mr Ho signed the Deed of Undertaking for the Ho Family Trust pursuant to which the Ho Family Trust agreed to provide a loan, or procure the making of a loan, of not less than US$44.6 million to SSMC (an Akai subsidiary) if the promissory note referred to in the Deed of Undertaking was not paid in full when due;

(4) in March 1991,  Akai and Grande HK together took control of Emerson Radio Corporation, a New York listed company in a US$30 million transaction, with Mr Ting becoming Chairman and CEO of Emerson Radio Corporation;

(5) in September 1991, Grande HK and Akai together acquired 32% of Sansui with an option to acquire a further 19% interest;

(6) in June 1992, Grande HK transferred its shareholding of 45.1 million shares in Sansui to Akai.  Grande HK also acquired Sansui’s Capetronic group of companies at this time for US$102 million; and

(7) entry into an agreement on 18 September 1997 between Akai, Singer and The Ho Family Trust signed by Mr Ho on behalf of The Ho Family Trust.

251.  I find that Mr Ting made four payments of Akai’s assets totalling US$22,077,406 during the Claim Period to Grande HK, which he concealed in the BT-Deposit General Ledger Account.[299]

L.6.4 The Relationship between Mr Ting and the Share Capital Recipients

252.  I find that shares were issued by Akai to the Share Capital Recipients detailed below worth US$22,588,923 but that Akai did not receive any payment for them. Mr Bowyer has conceded that he could not identify any evidence of payment being received by Akai pursuant to the exercise of share options.

253.  I find that, between 1995 and 1996, Akai issued Mr Ting share options over a total of 9 million Akai shares, which Mr Ting exercised in 1997 without paying any consideration to Akai and which were subsequently concealed via debit entries to the BT-Deposit General Ledger Account.

254.  First, on 7 June 1995,  Mr Ting was granted share options entitling him to purchase 3 million Akai shares at the option price of HK$10.096 per share.  I accept Mr Borrelli’s evidence that he has been unable to find any evidence of an offer being made by Akai to Mr Ting in respect of these options, but that the subsequent exercise of the options indicated that such an offer was made.[300]  Next, on 2 August 1996,  Mr Ting was offered an option to purchase 6 million Akai shares at an option price of HK$8.832 per share within 3 years from date of the grant.  On 23 August 1996, Mr Ting accepted the offer in respect of the 6 million shares and instructed Akai to issue the option certificate to Blossom.[301]  I find that Blossom was a BVI company controlled by Mr Ting, through which Mr Ting held approximately 4.6% of the issued capital in Akai.[302]

255.  I find that, on 4 March 1997, Mr Ting exercised his options to subscribe for all 9 million shares available to him and that the new ordinary shares were issued to Blossom.  Pursuant to the exercise of the options, Mr Ting was obliged to pay Akai a total of HK$83,280,000 (US$10,676,923).[303]

256.  Mr Ting prepared two cheques dated 4 March 1997 for HK$52,992,000 and HK$30,288,000 respectively payable to Akai and these were purportedly enclosed with Mr Ting’s notices to exercise his options.  However, I find that these sums were never received into Akai’s bank accounts and there was no evidence from Mr Ting’s or his wife, Ms Tseng’s, bank records to indicate that any such payments were made.[304]

257.  Rather than paying Akai the exercise price for the options, a debit entry of HK$83,280,000 was made to Akai’s BT-Deposit General Ledger Account, giving the appearance that funds had been received by Akai in consideration for the exercise of the options and thereby concealing the non-payment.[305]  The result of these transactions was that Mr Ting, through Blossom Assets, received the benefit of 9 million Akai shares without paying any consideration.

258.  Ms Loh was a director of Akai from 1990 to at least November 1999 and was based in Akai’s Hong Kong Office.[306]  Ms Loh reported to Mr Ting[307] and has been described as Mr Ting’s “underling”.[308]

259.  I find that, after Akai granted Ms Loh a total of 2,925,000 share options in Akai, no demand was made for payment from Ms Loh for the subsequent exercise of those options.  Further, the non-payment was concealed by entries in the BT-Deposit General Ledger Account.  On 7 June 1995, Ms Loh was first granted an option to purchase 500,000 Akai shares at an option price of HK$10.096 per share within 3 years from the date of grant.  Although the Liquidators were unable to find any contemporaneous evidence of this option being granted, there is evidence of its subsequent exercise.[309]  On 1 March 1997, Akai offered Ms Loh a further option to purchase 2,425,000 shares at an option price of HK$7.32 within 3 years from the date of grant.[310]  On 1 April 1997, Ms Loh accepted the offer and instructed Akai to issue the option certificate to a Granec Limited.[311]

260.  On 1 April 1997 and 8 April 1997, Ms Loh exercised her options to subscribe for 2,425,000 shares and 500,000 shares respectively.[312]  On 8 April 1997, Ms Loh on behalf of Granec Limited sent two memoranda to Akai and requested that the shares in respect of the two share options be issued to Bonny Limited (“Bonny”), a company incorporated in the BVI on the same day, 8 April 1997.[313]  Pursuant to the exercise of the options, Ms Loh was obliged to pay Akai HK$17,751,000 for the 2,425,000 ordinary shares and HK$5,048,000 for the 500,000 ordinary shares, all of which were issued to Bonny.[314]

261.  Ms Loh prepared two cheques for HK$17,751,000 and HK$5,048,000 made payable to Akai and dated 1 April 1997 and 8 April 1997 respectively.[315]  These were purportedly enclosed with Ms Loh’s notices of exercise.  However, I find that Akai never received any payment for the shares issued to Bonny.[316]

262.  Rather than demanding payment from Ms Loh or Bonny, debit entries were recorded in Akai’s BT-Deposit General Ledger Account for HK$17,751,000 (US$2,275,769) and HK$5,048,000 (US$647,179),  giving the appearance that funds had been received by Akai in consideration for the exercise of the options and thereby concealing the non-payment.[317]

263.  Mr Liao You Ming (“Mr Liao”) was a PRC technical consultant for the Akai group between October 1996 and October 1999 with an annual retainer of HK$1,000,000.  He has also been described as an Akai “Executive” from 1 August 1997 to 31 March 1998.[318]

264.  I find that, following the grant of 4,365,000 Akai share options to Mr Liao, no demand was made for payment from Mr Liao for the subsequent exercise of those options and that the non-payment was concealed by entries in the BT-Deposit General Ledger Account.

265.  Akai made the relevant offer to Mr Liao on 1 March 1997 at an option price of HK$7.32 within 3 years from the date of grant.  On 17 March 1997, Liao accepted the offer and instructed Akai to issue the option certificate to “Concott Limited” (“Concott”).  Concott was incorporated in the BVI on 3 January 1997 and was struck off on 3 November 1998 for non-payment of licence fees.[319]  On 3 April 1997, Liao sent a notice of exercise to Akai exercising the 4,365,000 share options in the name of Concott.  The shares were accordingly issued to Concott.[320]

266.  Pursuant to the exercise of the options, Mr Liao was obliged to pay HK$31,951,800 to Akai for the 4,365,000 ordinary shares under the share option scheme.[321] Although the notice of exercise indicated that a cheque for HK$31,951,800, being the subscription money due in respect of the share options was enclosed with the notice, the Liquidators have found no evidence of such a cheque.[322]  In any event, the Liquidators have not found any evidence of any such payment being made by Mr Liao to Akai and Akai’s bank records do not record any corresponding receipt of funds during the Claim Period.[323]  I find that Akai never received payment for these shares issued to Concott.

267.  Rather than demanding payment from Mr Liao or Concott, a debit entry was recorded in Akai’s BT-Deposit General Ledger Account for HK$31,951,800 (US$4,096,385), giving the appearance that funds had been received by Akai in consideration for the exercise of the options and thereby concealing the non-payment.[324]

268.  Mr Ma was a director of Akai from 27 June 1994 to 16 May 1995 and a director of Pfaff (China) Limited (“Pfaff China”) from 29 June 1995 to 23 February 1998.  Pfaff China was a subsidiary of Akai from 13 October 1997.[325]

269.  I find that, following the grant of 3,230,000 Akai share options to Mr Ma, no demand was made for payment from Mr Ma for the subsequent exercise of those options and that the non-payment was concealed by entries in the BT-Deposit General Ledger Account.

270.  Akai granted Mr Ma the option to purchase those shares on 7 June 1995, at an option price of HK$10.096 per share.[326]  On 8 May 1997, Mr Ma exercised the same share option for 3,230,000 shares at an option price of HK$10.096 per share and instructed Akai to issue the share certificate associated with the option to Concott.[327]  The shares were accordingly issued to Concott.[328]

271.  Pursuant to the exercise of the options, Mr Mawas obliged to pay HK$32,610,080 to Akai for the 3,230,000 ordinary shares under the share option scheme. Although the notice of exercise indicated that a cheque for HK$32,610,080, being the subscription money due in respect of the share options was enclosed with the notice, the Liquidators have found no evidence of such a cheque.[329] In any event, the Liquidators have not found any evidence of any such payment being made by Mr Ma to Akai and Akai’s bank records do not record any corresponding receipt of funds during the Claim Period.[330]  I find that Akai never received payment for these shares issued to Concott.

272.  Rather than demanding payment from Mr Ma or Concott, a debit entry was in Akai’s BT-Deposit General Ledger Account for HK$32,610,080 (US$4,180,769), giving the appearance that funds had been received by Akai in consideration for the exercise of the options and thereby concealing the non-payment.[331]

273.  Mr Ahmed and Mr Ramanathan were directors of Akai until 24 October 1997, but worked out of Singer’s Hong Kong office.[332]  Mr Ahmed was the President and Chief Operating Officer of Singer from August 1991 to December 1997 and a director of Singer from August 1991 to at least 27 July 1999.  Mr Ramanathan was Vice President and Controller of Singer from August 1991 to at least 3 January 1998 and a director of Singer from March 1998 to at least 12 September 1999. Both held concurrent directorships in other Akai Group companies at various times.[333]

274.  Mr Woo Heng Choon (“Mr Woo”) is a Malaysian citizen and was a long term employee of Singer, having joined the company in 1957.  From June 1993 until at least 3 January 1998 he was Vice President, Marketing for Singer.[334]

275.  I find that, following the grant of a combined total of 550,000 Akai share options to Mr Ahmed, Mr Ramanathan and Mr Woo, no demand was made for payment from any of them for the subsequent exercise of those options and that the non-payment was concealed by entries in the BT-Deposit General Ledger Account.

276.  On 7 June 1995, Mr Ahmed, Mr Ramanathan and Mr Woo were granted share options entitling them to purchase 300,000, 150,000 and 100,000 Akai shares respectively at an option price of HK$10.096.[335] On 13 May 1997, Mr Ahmed, Mr Ramanathan and Mr Woo exercised their options to subscribe for those shares.[336]

277.  Pursuant to the exercise of the options, Mr Ahmed, Mr Ramanathan and Mr Woo were obliged to pay HK$3,028,800, HK$1,514,400 and HK$1,009,600 respectively to Akai for the exercise of their options, in the total amount of HK$5,002,800. Although the three notices of exercise indicated that cheques for HK$3,028,800, HK$1,514,400 and HK$1,009,600, being the subscription money due in respect of the share options, were enclosed with the notice, the Liquidators have found no evidence of such cheques.[337]  In any event, the Liquidators have not found any evidence of any such payments being made by Mr Ahmed, Mr Ramanathan or Mr Woo to Akai and Akai’s bank records do not record any corresponding receipt of funds during the Claim Period.[338]  I find that Akai never received payment for these issued shares.

278.  Rather than demanding payment from Mr Ahmed, Mr Ramanathan or Mr Woo, a debit entry was recorded in Akai’s BT-Deposit General Ledger Account for HK$5,002,800 (US$711,898), giving the appearance that funds had been received by Akai in consideration for the exercise of the options and thereby concealing the non-payment.[339]

279.  The matters raised in Mr Ting’s Closing Submissions at pages 56 to 57 do not dissuade me from making the above findings. It must follow from my findings that statements in Akai’s Annual Report or Reports that payment had been received for these shares must be false.  The shares were issued and Akai did not receive payment for them resulting in a loss to Akai of the amount due to Akai.  I reject the submission of Mr Ting that Akai suffered no loss and that, at worst, it was an overstatement of its share capital.  It is a fact that these shares were issued and that Akai never received payment for the issued shares which it was entitled to.  It noteworthy that Mr Ting did not adduce any evidence from any of the Share Capital Recipients to refute the allegations of the Liquidators.

M. Concealment of Payments and the “free” issue of Shares

280.  I find that Mr Ting concealed the payments made by Akai and the non-payment for the issued shares through the use of false journal entries recorded in the BT-Deposit General Ledger Account, and the Temporary General Ledger Account within Akai’s general ledger.

281.  Mr Borrelli has provided a helpful summary of the operation of Akai’s double entry accounting system and the inclusion of the BT-Deposit and Temporary General Ledger Accounts in Akai’s general ledger at §§98-112 of his Witness Statement.[340]  Mr Borrelli has also explained in detail how an ordinary transaction would be recorded in Akai’s general ledger by reference to three examples set out at §§113-171.[341]

M.1   The BT-Deposit and Temporary General Ledger Accounts

282.  In the Executive Summary of his Report, Mr Borrelli summarised the nature of the BT-Deposit and Temporary General Ledger Accounts and how they were used by Mr Ting to conceal the payments.  He stated (at §51):

“51.1 the BT-Deposit and Temporary General Ledger Accounts were included in the General Ledger during the Claim Period. The BT-Deposit General Ledger Account was located amongst General Ledger accounts relating to bank accounts and deposits and the Temporary General Ledger Account was located amongst General Ledger accounts related to loans and overdrafts;

51.2 the BT-Deposit General Ledger Account concealed Defalcations of Akai’s assets from at least 1 February 1997 to 31 January 1999. From 1 February 1999 to 31 July 1999, Defalcations were concealed in the Temporary General Ledger Account;

51.3 the entries recorded in the BT-Deposit and Temporary General Ledger Accounts did not reflect transactions recorded in a bank account with Bankers Trust or any other financial institution and I have not found any evidence that such a bank account existed. Further, the nature of the transactions recorded in the BT-Deposit and Temporary General Ledger Accounts are such that they confirm that such a bank account did not exist;

51.4 the BT-Deposit General Ledger Account was, by its name, described as a “Deposit” account. Such an account would typically hold funds and earn interest and would not include or permit loans or overdrafts. A “Deposit” type account will typically have a debit balance[342]. From 1 February 1997 to 31 January 1998, the BT-Deposit General Ledger Account had a credit balance on 15 occasions including a credit balance of HK$655.2 million (US$84.0 million) on 27 January 1998. A credit balance would indicate that the “account” was overdrawn. Between 1 February 1999 and 31 July 1999, the Temporary General Ledger Account had a credit balance on 56 occasions and had its largest credit balance of US$25.5 million (HK$197.2 million) on 17 June 1999. No interest was recorded as having been received or receivable in respect of the BT-Deposit or Temporary General Ledger Accounts;

51.5 the Payment Vouchers and Receipt / Journal Vouchers prepared to record transactions in the BT-Deposit General Ledger Account contained narrations and descriptions which wrongly indicated or gave the impression that the transactions recorded therein were undertaken through a bank account maintained by Akai with Bankers Trust. The transactions recorded in the Temporary General Ledger Account had similar characteristics; and

51.6 in the years ended 31 January 1988 and 1999, the BT-Deposit General Ledger Account recorded the 6th and the 8th highest number of transactions respectively of all the General Ledger accounts and recorded the transactions with the highest value of all the General Ledger accounts;

51.7 in the 6 month period ended 31 July 1999, the Temporary General Ledger Account also had high levels of activity and recorded the 6th highest number of transactions of all the General Ledger accounts for that 6 month period and recorded the 2nd highest value of transactions of all the General Ledger accounts for that 6 month period; and

51.8 64%[343], by value, of all debit entries in the BT-Deposit and Temporary General Ledger Accounts during the Claim Period were Defalcations.”

283.  Mr Borrelli provided the following example of the payment recorded in DLN 97022 to demonstrate how the BT-Deposit General Ledger Account and the Temporary General Ledger Account (which worked in the same way) were used by Mr Ting to conceal the payments made by Akai:[344]

177. The accounting entries set out in Receipt / Journal Voucher No. J3017 recorded a reduction in the balance of Akai’s HSBC fixed deposit account of HK$5.6 million and a corresponding debit entry to the BT-Deposit General Ledger Account of the same amount.  The reduction in the balance of Akai’s HSBC fixed deposit was in fact as a result of the theft of Akai’s assets (that is, a BT Defalcation) and the corresponding debit entry to the BT-Deposit General Ledger Account did not represent the receipt of HK$5.6 million by Akai. The HK$5.6 million was actually paid to a Recipient, Worldwide International.

178. The Extract below from the General Ledger shows the HK$5.6 million (US$717,949) “Deposit” debit entry in the BT Deposit General Ledger Account.

284.  Mr Borrelli described the actual cash flow in relation to this payment at §§387- 390 as follows:[345]

387. This example of a BT Defalcation arises from the payment by Akai to Worldwide International of US$717,949 on 17 March 1997 for which I have not identified any legitimate commercial purpose.  Worldwide International was a Ting Recipient.  The supporting documents for this transaction are located at Tab 22.

388. As set out in the area designated with   , Receipt / Journal Voucher J3017 dated 17 March 1997 recorded a payment of HK$5.6 million (US$717,949) from Akai’s HSBC HK$ Fixed Deposit account (General Ledger account code 1128).  This was recorded in the General Ledger as a debit to (or deposit into) the BT-Deposit General Ledger Account with a corresponding credit to (or transfer from) the HSBC – HK$ Fixed Deposit – Central General Ledger account.

389. However, the information obtained from SCB (and enclosed with Tab 22) recorded that HK$5.6 million was in fact transferred from Akai’s HSBC – HK$ Fixed Deposit – Central Account (on 17 March 1997) to the SCB account of Worldwide International and not any Bankers Trust related account.  The transfer was recorded in Worldwide International’s bank statement for the month ended 31 March 1997 as a receipt from Akai on 17 March 1997.

390. The documents enclosed at Tab 22 do not indicate and I have not identified any legitimate commercial purpose for this payment to Worldwide International nor have I been able to identify any reason for recording this transaction in the BT-Deposit General Ledger Account.  The BT Defalcation Listing records this transaction as a BT Defalcation to Worldwide International.”

285.  Mr Borrelli noted that on several occasions that entries in the BT-Deposit and Temporary General Ledger Account lacked any supporting documentation that would usually be attached to the journal voucher to support or explain the entries.[346]

286.  Further, the BT-Deposit and Temporary General Ledger Accounts lacked the characteristics of true suspense or temporary accounts as generally understood by accountants, in that:[347]

(1) They were not used as General Ledger accounts for accounting entries that were later moved to other General Ledger accounts;

(2) transactions recorded in them were not reversed or corrected within a short period of time or at month end;

(3) transactions recorded in them did not identify original accounting entries being reversed or corrected; and

(4) transactions recorded in them did not correspond to amounts previously recorded in the Accounts.

M.2   The GL Accounts 

287.  Throughout the Claim Period, payments were also concealed through false entries in Akai’s general ledger as set out at Tab 33 of the Borrelli Statement.[348]

288.  Mr Borrelli explained two examples of general ledger entries covering up the payments.[349]  By way of illustration, the first example he explained is set out below:

547. This example of a GL Defalcation arises from the payment by Akai to Golfland of HK$206 million (US$26,410,256) on 17 December 1997 for no legitimate commercial purpose.

548. Receipt / Journal Voucher J12019 dated 17 December 1997 recorded a payment of HK$207,347,760 (US$26,583,046) from Akai’s Citigroup US$ Deposit account (General Ledger account code 1023) on behalf of Starfame (General Ledger account code 1361).  This was recorded in the General Ledger as a debit to or loan to Starfame by Akai with a corresponding credit to or transfer from the Citigroup US$ Deposit General Ledger account. These accounting entries increased the balance owing by Starfame to Akai recorded in the Starfame General Ledger account and reduced the balance of the Akai Schroders Asia US$ General Ledger account.

549. However, the books and records received by me, including an advice from Citigroup dated 16 December 1997, recorded Akai exchanging HK$206 million for US$26,583,046 and then a payment by Akai to Golfland’s bank account at SCB.  SCB’s inward payment records establish that HK$206 million was transferred from Akai (on 17 December 1997) to Golfland’s account with SCB.  The transfer was recorded in Golfland’s SCB bank statement for the month ended 31 December 1997 as a receipt on 17 December 1997.

550. The payment was apparently made under an agreement dated 11 November 1997 between Golfland and Starfame (a wholly owned subsidiary of Akai); however the payment was in fact made by Akai to Golfland, a Ting Recipient.”

M.3   Unusual features of the BT-Deposit General Ledger Account

289.  In his Witness Statement, Mr Borrelli identified the following unusual features of the BT-Deposit General Ledger Account and the Temporary General Ledger Account:

(1) Large numbers of transactions for very large sums

(a) The BT-Deposit and Temporary General Ledger Accounts recorded a high number of transactions for very large sums relative to other accounts in the General Ledger during the Claim Period.

(b) During the financial year ended 31 January 1998, the BT-Deposit General Ledger Account was the sixth most used of Akai’s general ledger accounts in terms of numbers of transactions and recorded the highest value of transactions of all the general ledger accounts.[350];

(c) During the financial year ended 31 January 1999, the BT-Deposit General Ledger Account was the eighth most used of Akai’s general ledger accounts in terms of numbers of transactions and recorded the highest value of transactions of all the general ledger accounts.[351]

(d) During the six month period ended 31 July 1999 the Temporary General Ledger Account was the sixth most used of Akai’s general ledger accounts in terms of the numbers of transactions and recorded the second highest value of transactions of all the general ledger accounts.[352]

(2) Concealment

(a) The following matters are indicative of attempts to   disguise the BT-Deposit General Ledger Account as a general ledger account recording entries in a real bank account or deposit account held by Akai with its bankers:[353]

(b) the location of the BT-Deposit General Ledger Account in the General Ledger[354];

(c) the use of the word “deposit” to record debit entries to the BT-Deposit General Ledger Account;

(d) the use of the word “transfer” to record credit entries to the BT-Deposit General Ledger Account; and

(e) the labelling of the Account as “BT-Deposit”.

(3) “Overdrawn” deposit account and no interest payments

(a) A deposit account would typically hold funds (i.e. have a “debit” balance) and earn interest and would not include or permit loans or overdrafts.  Notwithstanding the fact that BT-Deposit General Ledger Account was by its name described as a “deposit” account:[355]

(i) between 1 February 1997 and 31 January 1998 the BT-Deposit General Ledger Account had a credit balance on 15 occasions, which would indicate that the “account” was overdrawn;

(ii) between 1 February 1999 and 31 July 1999 the Temporary General Ledger Account also had a credit balance on 56 occasions; and

(iii)  no interest was recorded as ever having been received or receivable in respect of the BT-Deposit and Temporary General Ledger Accounts.

(4) Nil opening and closing balances

(a) In each of the years ended 31 January 1998 and 1999 and in the six month period ended 31 July 1999, the BT-Deposit General Ledger Account and Temporary General Ledger Account both had opening and closing balance of nil.[356]

(b) During the early months for each of the financial years ended 31 January 1998 and 1999 and for the six month period ended 31 July 1999 there were relatively more debit entries than credit entries recorded in the BT-Deposit and Temporary General Ledger Accounts.

(c) For each of the months of November, December and January for the financial years ended 31 January 1998 and 1999 and for the six month period ended 31 July 1999 there were relatively more credit entries than debit entries recorded in the BT-Deposit and Temporary General Ledger Accounts.[357]

(d) The effect of those credit entries in the latter months was to eliminate the substantial debit balances recorded in the earlier months of the financial years ended 1998 and 1999 and to result in nil balances as at 31 January 1998, 31 January 1999 and 31 July 1999.[358]

(e) Whilst as at 31 January 1998, 31 January 1999 and 31 July 1999 the BT-Deposit and Temporary General Ledger Accounts had nil balances, this did not mean that all cash outflows recorded in the BT-Deposit and Temporary General Ledger Accounts were reduced by cash flows because substantial credit entries to the BT-Deposit and Temporary General Ledger Accounts did not in fact represent cash inflows to Akai.[359]

(5) Accounting entries at year end

(a) In each of the financial years ended 31 January 1998 and 1999 and the six month period ended 31 July 1999 credit entries of substantial sums were recorded in the BT-Deposit and Temporary General Ledger Accounts in the last few days of that period which reduced the balance of those accounts to exactly nil at the end of the period.[360]

(6) Recycling cash assets

(a) On a number of occasions during the financial years ended 31 January 1998 and 1999, Akai’s general ledger recorded a number of transactions between Akai and certain other parties which resulted in equal or similar sums being paid by Akai to such other parties and being paid by such other parties to Akai.  These transactions involved a recycling of cash assets.[361]

(b) No legitimate commercial purpose for the transfers of funds involved in the recycling of cash assets was identified.

(7) Financial year end cashflows

(a) Moreover, Akai’s general ledger recorded that towards its financial year ends (i.e. 31 January), Akai entered into a number of transactions which had the effect of (temporarily) increasing its cash balance as at 31 January.  These transactions resulted in increased cashflows through Akai immediately before and after its financial year end.[362]

(b) No legitimate commercial purpose has been identified for the transfers of funds involved in the increased cashflows at the financial year end.

M.4   My findings on the nature and use of the BT-Deposit and Temporary General Ledger Accounts

290.  Mr Borrelli and the experts are agreed that the BT-Deposit and Temporary General Ledger Accounts did not correspond to actual bank accounts of Akai.[363]  I find that the debit entries in these ledger accounts did not represent the receipt of cash by Akai into any bank account.  I also find that the BT-Deposit account was held out as a bank account to conceal the payments made by Akai and the non-payment of the shares issued by Akai.[364]

291.  A significant number of the actual cash payments constituting the alleged defalcations were recorded in the BT-Deposit and Temporary General Ledger Accounts in Akai’s general ledger.  I find that Mr Ting’s use of those general ledger accounts was an artificial device for concealing those cash payments in that:

(1) The general ledger account was labelled as “BT-Deposit”;[365]

(2) The BT-Deposit General Ledger Account in Akai’s general ledger was located among the other Akai bank accounts;[366]

(3) The BT-Deposit General Ledger Account did not represent a bank account held by Akai with Bankers Trust; nor did the BT-Deposit General Ledger Account represent an account held with any other bank or entity;[367]

(4) The payment vouchers and receipt / journal vouchers prepared to record transactions in the BT-Deposit and Temporary General Ledger Accounts contained narrations and descriptions which falsely indicated or created the misleading impression that the transactions recorded therein were undertaken through a bank account maintained by Akai with Bankers Trust;

(5) In particular, the word “Deposit” was used to record debit entries to the BT-Deposit General Ledger Account and the word “Transfer” was used to record credit entries to the BT-Deposit General Ledger Account.[368]

292.  I accept Mr Borrelli’s evidence that these matters were strong indicia of attempts to disguise the fictitious BT-Deposit General Ledger Account as a general ledger account recording entries in a real bank or deposit account held by Akai with Bankers Trust and to disguise the payments made to Ting Recipients as deposits into an Akai bank account.[369]

293.  I also find that the transactions constituting the alleged defalcations of Akai’s assets were misleadingly and improperly recorded in the accounting records of Akai:

(1) Many substantial debit entries or “Deposits” (as described on the vouchers and in the general ledger narration) to the BT-Deposit and Temporary General Ledger Accounts were in fact cash payments by Akai from Akai bank accounts to Recipients;[370]

(2) The payments constituting the defalcations that were recorded as debit entries in the BT-Deposit and Temporary General Ledger Accounts did not reflect transactions recorded in a bank account with Bankers Trust or any other financial institution.[371]

294.  A further aspect of the concealment of the alleged defalcations was that the balance of the BT-Deposit and Temporary General Ledger Accounts was brought to US$ nil at each financial year end (31 January) and as at 31 July 1999 in order to avoid scrutiny, including by Akai’s auditors, EYHK.   In the course of trial, there were exchanges between bar and bench as to whether or not EYHK ought to have performed audit procedures in respect of the BT-Deposit General Ledger Account.  It is a fact that the BT-Deposit General Ledger Account was successfully concealed by Mr Ting from EYHK, in that EYHK (i) regarded the BT-Deposit General Ledger Account as a deposit account of Akai with a bank; (ii) did not consider it necessary to conduct audit procedures on the basis the BT-Deposit General Ledger Account had a US$ nil balance at year end and (iii) did not conduct any audit procedures in respect of the BT-Deposit General Ledger Account.[372]  The failures of EYHK in this respect have been the subject of proceedings brought by the Liquidators, with the result that EYHK have paid a substantial sum by way of compensation for which credit is being given by the Liquidators so as to ensure no double recovery by Akai.

295.  As a consequence of recording Akai’s payments as debit entries in the BT-Deposit General Ledger Account, there was a significant accumulation of debit balances in that account. In the period of nine months up to 31 October 1997, the total debit balance was US$164,412,795; and in the period of nine months up to 31 October 1998, the debit balance was US$132,296,567 (having been as high as US$165,860,609 at 31 May 1998).[373]  As a result of these significant total debit balances Mr Ting took steps to reduce the balances to US$ nil at each financial year end (occurring on 31 January), thereby concealing the payments constituting the defalcations, in two ways:

(1) Transactions occurred that were intended to inappropriately improve the appearance of the financial statements (which Mr Spence appropriately referred to as “window dressing”), [374] namely:

(i) Payments between Grande HK, Mr Ting, Goaltop and Higher International (both Group 2 Ting Recipients) and Akai occurring on both sides of the 31 January 1999 year end.

(ii) Payments between Akai, Goaltop and Higher International (both Group 2 Ting Recipients) occurring on both sides of the 31 January 1999 year end.

(2) Transactions transferring the debit balances to other general ledger accounts shortly before the year end,[375] namely:

(i) The cash recycled between Akai and Tisco (a Group 2 Ting Recipient) in January 1998.

(ii) Payments between Akai, Goaltop, Golfland and Higher International (all Group 2 Ting Recipients) in December 1998. 

296.  Mr Bowyer agreed that a fraudster would be expected to conceal his fraud in an account in which there were legitimate transactions.[376] In this respect, Mr Borrelli identified debit entries recorded in the BT-Deposit and Temporary General Ledger Accounts during the Claim Period totalling US$320,851,618 as "Non Defalcations", being transactions which appeared to have taken place in the ordinary course of Akai’s business, or payments for which Mr Borrelli has been unable to identify any payee and/or purpose.[377]  

297.  Mr Bowyer did not say very much about the BT-Deposit and Temporary General Ledger Accounts[378].  Indeed, there was little he could say except to try to characterise them as “suspense” accounts to park transactions temporarily until the bookkeeper had sufficient information to allocate the transaction to the appropriate general ledger account.  However, notwithstanding the matters set out above, Mr Bowyer did not accept that the BT-Deposit General Ledger Account was held out as corresponding to an Akai bank or bank deposit account,[379] but preferred to characterise it as a “suspense” account, on the basis that the balance was brought to US$ nil at each financial year end.[380]  However:

(1) Mr Bowyer had never come across a suspense account that was called a deposit account;[381]

(2) The BT-Deposit General Ledger Account recorded no specific reversals of the transactions which constituted the alleged defalcations as would be expected for a suspense account.[382] Mr Bowyer agreed that the characteristic of reversals or correcting entries for the same amount as for the original value is “on the whole absent for those transactions identified as defalcations.”[383]

(3) Mr Bowyer accepted that:

(i) a suspense account was an ideal vehicle for a fraudster;[384] 

(ii) suspense accounts were often linked to frauds; [385]

(iii) unreconciled suspense accounts were a financial red flag that could highlight fraud;[386]  and

(iv) reviewing suspense accounts was an action that could be enough to stop fraud.[387]

298.  Even if the BT-Deposit and Temporary General Ledger Accounts could be described as “suspense accounts”,  I find that they were used as suspense accounts to conceal Akai’s payments to the Ting Recipients and Associates and the “free’ issue of shares to the Share Capital Recipients.[388]

299.  I find, based on Mr Ting’s controlling and dominant role in the management of Akai’s operations, finances and accounts that Mr Ting knowingly concealed the payments made by Akai and the non-payment for the issued shares through the use of false journal entries recorded in the BT-Deposit General Ledger Account and the Temporary General Ledger Account within Akai’s general ledger.

300.  I have sufficient evidence before me to enable me to find that Mr Ting knowingly concealed the payments made by Akai and the non-payment for the issued shares through the use of false journal entries recorded in the BT-Deposit General Ledger Account, and the Temporary General Ledger Account within Akai’s general ledger.  If I am wrong to reach this conclusion on the evidence before me,  I would proceed on the basis that my findings that Mr Ting was the controlling and dominant force in the management of Akai’s operations, finances and accounts, and my findings that the BT-Deposit General Ledger Account and the Temporary General Ledger Account within Akai’s general ledger were used to conceal Akai’s payments to the Ting Recipients and Associates and the “free” issue of shares to the Share Capital Recipients, were sufficient to raise a prima facie case that Mr Ting knowingly concealed the payments made by Akai and the non-payment for the issued shares through the use of false journal entries recorded in these ledgers such that the evidential burden shifted to Mr Ting to rebut the prima facie case.  However, no evidence whatsoever has been adduced in this regard by Mr Ting or on his behalf.  I conclude that Mr Ting has entirely failed to discharge the evidential burden that has shifted to him on this issue and that is sufficient for me to conclude that Mr Ting knowingly concealed the payments made by Akai and the non-payment for the issued shares through the use of false journal entries recorded in these ledgers.

N. The Undisputed Payments and the “free” issue of Shares were not made for a Commercial Purpose

301.  I have already found that Akai made payments to, and were deprived of the proceeds of the issue of shares from, the Ting Recipients, the Ting Associates and the Share Capital Recipients in the total sum of US$408,123,278.  I find that there was no commercial purpose for these transactions and that Akai did not receive any value for these transactions.

302.  I find that Mr Borrelli has thoroughly investigated whether there was any legitimate commercial purpose for the payments debited to the BT-Deposit and Temporary General Ledger Accounts and that he has not identified any legitimate commercial purpose for any of the alleged payments to the Ting Recipients:

(1) No evidence has been identified, and Mr Ting has not produced any, to suggest any of the Ting Recipients maintained any commercial relationship with Akai or the Akai Group and no evidence has been identified as to any legitimate commercial purpose for the payments constituting defalcations to the Ting Recipients identified in the general ledger or other accounting records of Akai.[389]

(2) Mr Borrelli’s review of the books and records of Akai including the general ledger and other accounting records indicated that during the Claim Period,  Akai did not maintain any current account or other loan or investment account with any of the Ting Recipients, nor has any evidence been identified from which it could be suggested that there could be any type of legitimate dealings between Akai and the Recipients.[390]

(3) Mr Bowyer agreed that there were no Akai general ledger accounts with the Ting Recipients.[391]

303.  Mr Spence has confirmed that Mr Borrelli’s view, that he has not identified any legitimate commercial purpose for any of the alleged defalcations, was reasonable in the light of the supporting documents exhibited in Tabs 22, 23, 24, 25, 26 and 35 of the Borrelli Statement.[392] 

304.  I refer to Mr Ting’s Opening Submission on pages 15 to 18 on the absence of documentary evidence.  Both Mr Borrelli and Mr Spence have fairly noted the limitations of the documentary evidence and the absence of supporting documents and work papers that would normally have been expected. Mr Bowyer has qualified his opinion that he could not discern any commercial purpose for the undisputed payments from the available documents with the rider that there may have been documents showing a commercial purpose which were no longer available.  The limitations of the documentary evidence do not dissuade me from concluding that there was no commercial purpose for these transactions and that Akai did not receive any value for these transactions.  I ask, rhetorically, why there was a need to conceal the payments to the Ting Recipients and Associates, and the absence of payments for the issue of the shares to the Share Capital Recipients, if they had been made for commercial purposes. 

305.  I do not think it is necessary for me to do so in order to reach this conclusion but, if it were necessary, I would apply the principle in Re Mumtaz Properties Ltd. to conclude that it was not open to Mr Ting, in the circumstances of this case, to escape liability by asserting that, if other documents and papers or other evidence had been available, they would have shown that there was a  commercial purpose to support these transactions or that they would have shown that Akai had received value for these payments and the issue of the shares. On the same basis, if it were necessary for me to do so, I would draw adverse inferences against Mr Ting to support my conclusion, that there was no commercial purpose for these transactions and that Akai did not receive any value for these transactions, from my findings that he not only failed to cooperate with the Liquidators of Akai but also persistently and wrongfully obstructed them, particularly by his unconscionable conduct in procuring the Settlement Agreement and his wrongful conduct in relying on the Settlement Agreement which was unenforceable[393].

O. The Undisputed Payments and the “free” issue of Shares were made by Mr Ting 

306.  I find that Mr Ting caused Akai to make payments to the Ting Recipients and the Ting Associates and that Mr Ting caused Akai to be deprived of the proceeds of the shares issued to the Share Capital Recipients[394].  I do so by reason of the following matters:

(a) Mr Ting was the controlling and dominant force in the management of Akai’s operations and that control extended to control of Akai’s finances and accounts;

(b) Over 70% of these transactions totalling US$408,123,278 were personally signed for by Mr Ting;

(c) The payments were made by Akai to offshore companies directly or indirectly owned and controlled by Mr Ting, or otherwise connected with him or connected with other companies controlled by longstanding business associates of Mr Ting;

(d) Mr Ting prepared two cheques dated 4 March 1997 for HK$52,992,000 and HK$30,288,000 respectively payable to Akai for the payment of shares issued by Akai but these sums were never received into any of Akai’s accounts;

(e) The shares were issued to offshore companies owned and controlled by Mr Ting, or otherwise connected with him or connected with other companies controlled by longstanding business associates of Mr Ting;

(f) The payments made by Akai and the non-payments for the issue of shares were concealed through false accounting in Akai’s general ledger, in particular through a fictitious general ledger account titled “BT-Deposit”;

(g) None of these payments and non-payments for the issue of shares were disputed by Mr Ting.

307.  I have sufficient evidence before me to enable me to find that Mr Ting caused Akai to make payments to the Ting Recipients and the Ting Associates and that he caused Akai to be deprived of the proceeds of shares issued to the Share Capital Recipients.  If I am wrong to reach this conclusion on the evidence before me, I would proceed on the basis that my findings that the payments were made and my findings on the “free” issue of shares were sufficient to raise a prima facie case that the payments and the “free issue of shares were made by him such that the evidential burden shifted to Mr Ting to rebut the prima facie case. However, no evidence whatsoever has been adduced in this regard by Mr Ting or on his behalf.  I conclude that Mr Ting has entirely failed to discharge the evidential burden that has shifted to him on this issue and that is sufficient for me to conclude that Mr Ting caused Akai to make payments to the Ting Recipients and the Ting Associates and that he caused Akai to be deprived of the proceeds of shares issued to the Share Capital Recipients.

308.  The above findings are sufficient for me to conclude that Mr Ting breached the duties highlighted in §53 above that he owed to Akai.  Accordingly, even without any finding of fraud on the part of Mr Ting, he is liable to restore the misapplied assets of Akai (or their cash value plus interest) in specie to Akai[395].

P. The Undisputed Payments and the “free” issue of Shares were Defalcations

309.  Having concluded that Mr Ting caused Akai to make payments to the Ting Recipients and the Ting Associates and that he caused Akai to be deprived of the proceeds of shares issued to the Share Capital Recipients, I proceed to consider whether there is sufficient evidence for me to find that he did so fraudulently in the sense that he deliberately misappropriated Akai’s assets and did so dishonestly.  The word “defalcation” has many meanings: I use the word in this judgment to mean a fraudulent misappropriation of company assets.

310.  I remind myself of the burden of proof and the injunction against a finding of wrongdoing unless the evidence of wrongdoing was clear and unless the inference of such wrongdoing was compelling.[396]  I find, based on the totality of the admissible evidence on the issue and the following compelling facts, that Mr Ting deliberately misappropriated Akai’s assets, namely, the undisputed payments  and the deprivation of the proceeds of shares issued to the Share Capital Recipients, and did so dishonestly:

(1) Mr Ting was the controlling and dominant force in the management of Akai’s operations and that control extended to control of Akai’s finances and accounts;

(2) Over 70% of these transactions totalling US$408,123,278 were personally signed for by Mr Ting;

(3) The payments were made by Akai to offshore companies directly or indirectly owned and controlled by Mr Ting, or otherwise connected with him or connected with other companies controlled by longstanding business associates of Mr Ting;

(4) Mr Ting prepared two cheques dated 4 March 1997 for HK$52,992,000 and HK$30,288,000 respectively payable to Akai for the payment of shares issued by Akai but these sums were never received into any of Akai’s accounts;

(5) The shares were issued to offshore companies owned and controlled by Mr Ting, or otherwise connected with him or connected with other companies controlled by longstanding business associates of Mr Ting;

(6) None of these transactions were disputed by Mr Ting and Mr Ting has proffered no explanation whatsoever for these transactions;

(7) There was no apparent commercial purpose or actual or potential value to Akai from these transactions;

(8) These transactions were not disclosed by Mr Ting to Akai’s board, auditors, public shareholders or the Hong Kong Stock Exchange, despite having been made to connected persons and entities;

(9) On the contrary, their existence was concealed through false accounting in Akai’s general ledger, in particular through a fictitious general ledger account titled “BT-Deposit” which was brought to a nil balance at each financial year-end.

311.  I have sufficient evidence before me to enable me to find that Mr Ting misappropriated Akai’s assets dishonestly.  However, if I am wrong to reach this conclusion on the evidence before me, I would proceed on the basis that my findings that the payments and the “free” issue of shares were not made for a commercial purpose were sufficient for the evidential burden to shift to Mr Ting to justify the propriety of the transactions: see, in particular, Bishopsgate v Maxwell at 265e-f; Re Idessa at 91d-92f §§24-28, especially §28; Re GHLM Trading at 401d-403h §§143-149, especially §149; and Mortimore on Company Directors p.226 at §10.19.  No evidence whatsoever has been adduced in this regard by Mr Ting or on his behalf.  For the reasons advanced above, I have already dismissed Mr Bowyer’s hypothesis that there may have been documents demonstrating commercial purpose which are no longer available.  Mr Ting has entirely failed to discharge the evidential burden that has shifted to him and that is sufficient for me to conclude that Mr Ting caused Akai to make payments to the Ting Recipients and the Ting Associates and that he caused Akai to be deprived of the proceeds of shares issued to the Share Capital Recipients and that he did so fraudulently.

312.  I am able to reach this conclusion without the need to draw adverse inferences against Mr Ting from his election not to give evidence in this case.

313.  As I have found that Mr Ting acted fraudulently, he is strictly liable as a defaulting trustee and is required to restore the lost trust assets in specie, in this case by accounting to the beneficiary Akai by way of equitable compensation, the purpose of which is restitutionary or restorative.

Q. The Disputed Payments

314.  The disputed payments comprise US$428,995,521 (US$837,118,799 less undisputed payments of US$408,123,278).  This sum can be in turn broken down into:

(1) Disputed defalcations to Group 2 companies, comprising 23 payments totaling US$265,240,070 being Everwin (US$38,461,538); CTS Capital (US$3,846,154); Golfland (US$68,784,592); Goaltop (US$20,000,000); Investco (US$1,475,762); Worldwide International (US$14,272,905) and Tisco (US$118,399,119).

The payments to the first three of these Group 2 companies, namely to Everwin, CTS Capital and Golfland,  represent transactions where it is alleged by Akai that Mr Ting created a contrivance to conceal his defalcation.  The remaining disputed transactions, namely, payments to Goaltop, Investco and Worldwide International are defalcations, according to Akai, of Akai’s assets on the basis of their objective facts, the matters raised in that connection by Mr Bowyer being disputed by Akai. The defalcations to Tisco are addressed in conjunction with the “Primewood Defalcations”.

(2) Disputed defalcation to Group 3 companies, comprising three misappropriations totalling US$147,114,867, being Calculus/Digiconic (US$12,936,611) and Primewood (US$134,178,256).

(3) Disputed payments to Ting Associates, comprising the four disputed payments to TriAsia in the total sum of US$16,640,584.

315.  Akai submitted that the burden rests on Mr Ting to demonstrate the propriety of the transactions, namely, by establishing that the payments were bona fide in the best interests of Akai, and were made for proper purposes, and that they were disclosed to and authorized by Akai’s board;  and that, in the absence of any explanation from Mr Ting, the Court ought not speculate as to the rationale for the payment. 

Q.1 Everwin –The Fu Tak Transactions[397]

316.  This transaction[398] represented an alleged defalcation of Akai’s assets of HK$300 million (US$38.46 million) paid to Everwin, a Group 2 Ting Recipient, on 18 November 1997.

317.  It is Mr Ting’s case that there is evidence which indicates that this transaction was a genuine investment in Fu Tak International shares made by Kong Wah and that there was value provided to Kong Wah in return for the money Akai advanced through Everwin. In particular, Mr Ting submitted that:

(1) Firstly, the accounting employed was conventionally that of a suspense payment.  The 1st payment debited was to the BT Deposit account by voucher 1017 on 18  November 1997.  The vouchers record a transfer, on 30 November 1997 of that debit to the Fu Tak shares and note account, code 1331[399]. Consistent with the board minute[400], there was no ‘concealment’ in Akai’s accounts of the purpose of the payment out or of its subject matter.

(2) Secondly, there was a copy of the Fu Tak International Senior Note, in the Liquidators’ possession which pointed strongly to the reality of the transaction.  The discovered copy showed the auditors’ record that they had sighted the original at Akai kept in a safe[401].  That was clear evidence of its value. Mr Borrelli’s decision not to pursue E&D Enterprises Limited, at the address in Beijing in the agreement, for the debt guaranteed to Kong Wah on the face of this Note[402] was his own choice.  It does not prove that the Note had no value.

(3) Thirdly, there was nothing in Mr Borrelli’s argument that the money paid to Everwin could be accounted for as going to Thai Farmers’ Bank, to purchase an apartment for D3 Ms Lee and to Evora[403].  It was inconsistent with the handwritten note on the account statements that this payment was for this very purpose[404]. It also ignored the accepted fact that, as Mr Bowyer pointed out, money was passed around between Recipients (as seen in the examples in Mr Bowyer’s Annex to his Appendix) and that it could not be assumed that Everwin had not already paid Fu Tak International[405]. 

(4) Lastly,  EYHK defended Akai’s claims in respect of this transaction on the basis that it was reasonable for them to conclude that there was such an asset[406]. On the evidence produced, in particular the contemporaneous documents in divider F/68, (and despite the inability of Mr Borrelli’s staff 8 years later to tie the Tianjin factory to Akai or Fu Tak International or Fu Tak Tianjin) this Court could reasonably and logically draw the same conclusion.

318.  It is Akai’s case that Mr Ting caused HK$300 million to be paid to Everwin, a company under his control.[407]  Mr Ting then sought to conceal this defalcation by recording it initially as a “deposit” to the BT-Deposit General Ledger Account, and thereafter as a fictitious advance by Akai to Kong Wah of HK$300 million, that was purportedly used for Kong Wah’s investment in a company incorporated in the Bahamas called Fu Tak International.  The payment of HK$300 million by Mr Ting was a defalcation.  The funds were paid to Everwin and thereafter disbursed by Mr Ting.  There is no evidence from Mr Ting of any commercial purpose for the transaction or that Akai received any commercial benefit from this payment.  There is no evidence that any part of the funds was used to acquire a television factory in Tianjin or that such a factory ever existed. The purported investment in Fu Tak International was a contrivance by Mr Ting to conceal the defalcation.

319.  Mr Bowyer has accepted that whether or not the transaction was a contrivance is a question of fact for the Court’s determination.[408] 

320.  Of the 18 payments by Akai to Everwin, 17 were undisputed. This transaction accordingly represented the only disputed Everwin payment.  Mr Bowyer acknowledged that it was necessary to consider a single payment in the wider context of the other undisputed payments made by Akai to the same Recipient and the wider context of all of the payments constituting the defalcations.[409]  I have already found that the 17 undisputed payments were defalcations.  I agree with Akai’s submissions that there is a strong inference that this payment to Everwin, that was disputed by Mr Bowyer, was of the same character as the other payments.

321.  I find the following facts proved to my satisfaction:

(1) On or about 17 November 1997, Mr Ting signed an Akai cheque for HK$300 million drawn on Akai’s account at Banco Santander Central Hispanoamericano SA (“BCH”) in favour of Everwin, which was encashed on 18 November 1997.[410]

(2) The payment of HK$300 million to Everwin by Akai was not disclosed to the SEHK and was not disclosed in Akai’s financial statements.

(3) Akai’s journal voucher in respect of this payment did not record the actual cash flow and was false and misleading.  Rather, Akai’s general ledger recorded a debit entry for a purported “Deposit” of HK$300 million to the BT-Deposit general ledger account, and a corresponding credit entry to Akai’s BCH current account.  The debit balance in the BT-Deposit General Ledger Account was reduced by HK$300 million by a subsequent credit entry, with a corresponding debit entry for HK$300 million to the Kong Wah intercompany loan account, for a purported investment in Fu Tak International.[411]

(4) As admitted by Mr Ting, of the HK$300 million paid to Everwin, which was placed on deposit at Everwin’s Daiwa bank account, Daiwa Bank was instructed by letter dated 19 December 1997 to:[412]

(a) transfer US$30,184,166.67 to TFB;

(b) issue a cashier order of HK$12,061,845 in favour of Yam & Company (a solicitor’s firm);[413] and

(c) issue a cashier order of the balance of approximately HK$55 million to Evora, a Group 1 Ting Recipient. 

322.  The documents put forward as showing a commercial purpose comprised:

(1) A 5-page subscription agreement dated 17 November 1997, pursuant to which Fu Tak International’s sole shareholder, E&D Enterprises Limited, agreed to cause Fu Tak International to issue to Kong Wah on the closing date:

(i) 200 million convertible preferred shares of HK$1 each in the capital of Fu Tak International; and

(ii) a senior note in respect of HK$100 million.[414]

(2) A Senior Note also dated 17 November 1997 purportedly issued by Fu Tak International in favour of Kong Wah, for a principal amount of HK$100 million. The note recorded that it was guaranteed by E&D Enterprises Limited and secured by a pledge of 100% of the outstanding shares of Fu Tak International and 75% interest in Fu Tak Tianjin.[415]

323.  In relation to the subscription agreement dated 17 November 1997[416] I find that:

(1) The agreement was not signed by all parties.  In particular, there is no evidence of Kong Wah signing the agreement.[417]

(2) Fu Tak Tianjin was a signatory to the agreement on 17 November 1997 notwithstanding that it did not exist at the time.  I find on the documentary evidence that the application for the establishment of Fu Tak Tianjin was only made in February 1998 and was granted official approval on 30 March 1998.  Its related PRC business licence was only effective from 8 May 1998.[418] 

(3) Fu Tak International was stipulated as being the beneficial owner of a 75% interest in the then non-existent Fu Tak Tianjin.  However, there was no evidence of such ownership.  On the contrary, the subsequent documentary evidence suggested that the 75% shareholder of Fu Tak Tianjin was a company incorporated in the BVI (and not the Bahamas) called Fu Tak Industrial Investment Co Ltd, (“Fu Tak Industrial”).[419]  It has not been proved to my satisfaction that Fu Tak International was at any time the beneficial owner of a 75% interest in Fu Tak Tianjin.

(4) Payment pursuant to the agreement was purportedly made on 18 November 1997, one day after execution of the agreement on 17 November 1997.  I find this to be highly unusual because:

(i) there were numerous conditions to be fulfilled before closing, including obtaining requisite government approvals and documentation (clause 6);

(ii) the parties had provided that the agreement could have been terminated if the conditions were not fulfilled prior to 30 September 1998, thereby having anticipated that it could take up to 10 months for the conditions to be fulfilled (clause 7).

(5) Notwithstanding that the closing date was purportedly 18 November 1997, such that this was the date for the issuance and delivery of the Preferred Shares and Senior Note, there was a resolution of Fu Tak International some four months later, dated 30 March 1998, which purported to resolve that 200 million convertible preferred shares be issued to Kong Wah.[420]  There was no evidence to enable me to find that any share certificates for the Preferred Shares were ever issued to Akai or Kong Wah, whether on 18 November 1997 (as would have been required under the agreement) or at any time thereafter.

(6) There was no documentation of any due diligence on the part of Akai / Kong Wah to assess the purported investment in Fu Tak International prior to payment.  In this regard:

(i) Fu Tak International was incorporated in the Bahamas on 8 July 1996 with a share capital of only US$1.[421] There was no evidence of any financial statements of Fu Tak International.  Nevertheless, Akai / Kong Wah’s purported investment in Fu Tak International amounted to HK$300 million.

(ii) There was no evidence of any financial statements of E&D Enterprises Limited, which would have been required to assess the adequacy of its guarantee of the Senior Note to Kong Wah.

(iii) There was no evidence of any financial statements of the then non-existent Fu Tak Tianjin.

(7) There was no evidence of any draft version of this agreement having been prepared or negotiated upon, nor of any review of the agreement by external legal advisors.

324.  In respect of the Senior Note[422], I make the following findings:

(1) The note was on plain paper, without letterhead.

(2) The note was stated to be guaranteed by E&D Enterprises Limited and secured by a pledge of 100% of the outstanding shares of Fu Tak International and the 75% interest in Fu Tak Tianjin. The Liquidators’ investigations have not identified any evidence of any guarantee nor of any share pledge agreement.

(3) Notwithstanding that the subscription agreement provided that the Senior Note would be issued on the closing date, purportedly 19 November 1997, the Senior Note was issued on 18 November 1997, prior to Akai / Kong Wah’s purported payment.

325.  No explanation has been advanced why the payment of HK$300 million had to be made to an entity controlled by Ting.  No explanation has been provided why the transaction was not disclosed to the SEHK and was not disclosed in Akai’s financial statements.  No evidence has been adduced by Mr Ting or on his behalf to explain the numerous unusual features of this transaction.

326.  I accept the clear evidence of Mr Borrelli that the factory could not be located. The appraisal reports in respect of the factory only suggested that the valuers were possibly shown a television factory in Tianjin, which was not evidence of ownership of the factory, much less evidence that the HK$300 million paid to Everwin was applied towards the factory for Akai’s benefit.

327.  I am satisfied, from the inconsistencies in the documentary evidence and from the Liquidators’ investigations, that Akai did not receive any value for the payment of HK$300 million to Everwin.  I find that Mr Ting caused HK$300 million to be paid to Everwin, a company under his control.[423]  I find that the payment was a defalcation and that he concealed the defalcation by recording it initially as a “deposit” to the BT-Deposit General Ledger Account, and thereafter as a fictitious advance by Akai to Kong Wah of HK$300 million, that was purportedly used for Kong Wah’s investment in a company incorporated in the Bahamas called Fu Tak International.  I find that the funds paid to Everwin were disbursed by Mr Ting.  I am satisfied that the purported investment in Fu Tak International was a contrivance by Mr Ting to conceal the defalcation.  There is no evidence of any payment from Everwin to Kong Wah or Fu Tak International, whether for preference shares and a series of notes or otherwise.  I adopt the analysis contained in §§309-312 above to this payment and conclude that the undisclosed payment to Everwin was a defalcation by Mr Ting.

Q.2 CTS Capital[424]

328.  The CTS Capital transaction[425] represented an alleged  defalcation by Mr Ting of Akai’s assets of HK$30 million (US$3.85 million) paid to CTS Capital, a Group 2 Ting Recipient. 

329.  It is Mr Ting’s case that Akai managed to conclude a very substantial sale of non-circulating B shares of Konka Group Company Limited (“Konka”) for Kong Wah, at a time of ‘panic conditions’[426]. On 23 January 1998, 3 days before the deal announcement and 1 week before this payment, Akai recorded a non-cash transaction of a ‘fee’ from Kong Wah of $30m ‘on disposal of Konka Shares’.  This suggested that Kong Wah was remunerating Akai on its intercompany account for arranging that sale.[427]  The Court ought to conclude from all the circumstances that this was indeed a fee paid out by Akai; and that such a fee might reasonably have been paid in connection with what was clearly a transaction of enormous value to Kong Wah and Akai at a time of panic in the Asian markets.  Mr Ting submitted that Mr Borrelli’s retort that he knew of no reason to pay any fee other than brokerage on such a sale[428]was not credible.

330.  It was Akai’s case that Mr Ting caused HK$30 million to be paid to CTS Capital, an entity whose name appears to have been designed to be a misleading acronym for “China Travel Service” but which, in fact, was a company under Mr Ting’s control.[429]  Mr Ting then sought to conceal this defalcation by recording the payment as though it was for a fee to the legitimate China Travel Service for the disposal of shares held by Kong Wah in Konka, a television manufacturer listed on the Shenzhen Stock Exchange.

331.  The following facts are proved to my satisfaction:

(1) On 23 January 1998, Mr Ting signed a letter of instruction to SCB to uplift HK$30 million from Akai’s SCB account and transfer the same to CTS Capital.[430]  There was no dispute that CTS Capital received this amount.

(2) The payment of HK$30 million was not disclosed to the SEHK and was not disclosed in Akai’s financial statements.

(3) Akai’s journal voucher in respect of this payment did not record the actual cash flow and was false and misleading.  The general ledger recorded a debit entry to the Kong Wah intercompany loan account, with the narrative “Fee on Disposal of Konka Shares – CTS”, and a credit to Akai’s SCB account.[431] 

332.  Mr Bowyer initially disputed this payment because he thought that “CTS Capital may be an acronym for, and an entity connected to, China Travel Service”.[432] In his revised opinion, Mr Bowyer conceded that there was no connection between CTS Capital and China Travel Service.[433]  However, Mr Bowyer suggested that “it appears that the payment to CTS Capital was made at the request of Kong Wah” and hence should be excluded from the defalcations.[434]  In cross-examination, however, Mr Bowyer accepted that if the Court took the view that CTS Capital was controlled by Mr Ting, it would be “surprising” that Akai was paying an entity controlled by Mr Ting on behalf of Kong Wah.[435]  Mr Bowyer also accepted that his belief that Akai had received value was premised on Kong Wah having a legitimate reason to pay CTS Capital, for which he has seen no evidence other than journal narrations.[436]

333.  There is no credible evidence before me, nor any documentary evidence on which I can place any weight that can satisfy me that this payment was related to China Travel Services or to Kong Wah’s sale of its shares in Konka.  I find that Akai has not received any value for this payment, either at the time of payment or subsequently.[437] I find that the payment of HK$30 million by Mr Ting to the company controlled by him was a defalcation, which he concealed through the guise of creating a company under his control that appeared to be connected to China Travel Services, with whom Akai was conducting legitimate business.  I adopt the analysis contained in §§309-312 above to this payment and conclude that the undisclosed payment to CTS Capital was a defalcation by Mr Ting.

Q.3 Golfland – The Merrywide Transactions[438]

334.  According to Akai, the Merrywide transactions[439] represented a series of contrivances by Mr Ting to conceal seven defalcations of Akai’s assets in the total sum of HK$535 million (US$68.78 million) paid to Golfland, a Group 2 Ting Recipient.

335.  According to Mr Ting, the documentary evidence[440] demonstrated the reality of the transaction for which the Golfland payments were made, and by which Starfame, an Akai subsidiary, was to acquire shares in Shenzhen Kaifa Technology Limited (“Shenzhen Kaifa”).  It differed significantly from that relating to Everwin or Calculus and showed that, by March 1998 and at the latest by November 1999, Golfland and Merrywide Limited (“Merrywide”) had put Starfame in a position to take control of Merrywide and compel it to transfer the Shenzhen Kaifa shares to Akai subsidiaries in accordance with the agreement between Golfland and Starfame[441] and the Akai Executive Committee Minute. This was the commercial purpose of the agreement, and evidence of value given for the payments at issue.

336.  Mr Ting submitted that the fact that Akai had paid for the shares in 1997 but had been unable to register or take ownership of them by the time of its liquidation in August 2000 might have been bad business but the documentary evidence showed efforts to enforce their acquisition in accordance with the Golfland agreement, by acquiring shares in Merrywide, and that this evidence was directly disprobative of fraud.

337.  Mr Ting relied on Mr Borrelli’s evidence[442] that, in 2001 and 2002, he had himself sought to enforce the security provided by these Merrywide share transfers.  However, Merrywide’s other shareholders disputed those shareholdings.  As the Liquidators were then unable to prove that Akai had paid for the Merryside shares, they abandoned the claim.  That only showed that the Liquidators had run into problems of proof of their own. 

338.  It is Akai’s case that, over a series of seven transactions, Mr Ting caused HK$535 million to be paid to Golfland, a company under his control,[443] which he then sought to conceal by creating fictitious advances to Akai’s subsidiaries, Starfame and Kong Wah, that were purportedly used to acquire from Merrywide, a company incorporated in Hong Kong, shares in a Shenzhen listed company named Shenzhen Kaifa.  The purported acquisitions of shares in Shenzhen Kaifa were a contrivance by Mr Ting to conceal the defalcations of Akai’s assets totalling HK$535 million.

339.  I find the following facts proved to my satisfaction:

(1) In December 1997, and from November and December 1998, Mr Ting caused seven payments totalling HK$535 million to be made to Golfland’s SCB account from various of Akai’s bank accounts.  In particular:

(i) On 1 December 1997, Akai paid HK$100 million from its account with Bankers Trust to Golfland’s SCB account, pursuant to an instruction letter signed by Mr Ting on 26 November 1997 and by Mr Ko on 27 November 1997.[444]

(ii) On 17 December 1997, Akai paid HK$206 million from its account with Schroders to Golfland’s SCB account.[445]

(iii) On 5 November 1998, a sum of HK$18 million was paid to Golfland’s SCB account from a deposit account of Akai held with BOA, pursuant to an instruction letter of the same date to BOA signed by Mr Ting.[446]

(iv) On 9 November 1998, a sum of HK$14 million was paid to Golfland’s SCB account from a deposit account of Akai held with SCB.[447]

(v) On 24 November 1998, a sum of HK$46 million was paid to Golfland’s SCB account from an account of Akai held with Daiwa Bank, pursuant to an instruction letter of the same date to Daiwa Bank signed by Mr Ting.[448]

(vi) On 30 November 1998, a sum of HK$77,451,049 was paid to Golfland’s SCB account from a deposit account of Akai held with Schroders, pursuant to an instruction letter of the same date to Schroders signed by Mr Ting.[449]

(vii) On 4 December 1998, a sum of HK$73 million was paid to Golfland’s SCB account from an account of Akai held with Daiwa Bank, pursuant to an instruction letter of 3 December 1998 to Daiwa Bank signed by Mr Ting.[450]

(2) In breach of the Listing Rules, these payments of HK$535 million to Golfland by Akai were not disclosed to the SEHK and were not disclosed in Akai’s financial statements.

(3) Akai’s journal vouchers in respect of these payments did not record the actual cash flows and were false and misleading.  In particular, Akai debited its intercompany account with both Starfame and Kong Wah recording an “investment” or a reference to “Kaifa”, with corresponding credit entries to the general ledger account for Akai’s relevant bank accounts from which payments were made to Golfland.[451]

(4) The “investment” and “Kaifa” referred to purported acquisitions from Merrywide of shares in Shenzhen Kaifa by Starfame, Match Top (a wholly owned subsidiary of Tomei) and Cherryhill (a wholly owned subsidiary of Kong Wah).

340.  I find that agreements supporting these transactions did not achieve their purpose. These included five share purchase agreements (dated 11 November 1997,[452]9 December 1997,[453]  16 April 1998,[454] 24 July 1998[455]  and 4 August 1998[456]), each in similar terms.  These agreements were all signed by Mr Ting save for the agreement dated 9 December 1997.  The deficiencies in them can be identified by reference to the first agreement dated 11 November 1997 entered into between Golfland as “Seller” and Starfame as the “Purchaser”:

(1) The agreement was entered into by Golfland as the Seller, as the purported “beneficial owner” of two ordinary shares in Merrywide (amounting to 50% of the issued share capital of Merrywide). Merrywide, the legal and registered owner of the shares in Shenzhen Kaifa, which were the subject of the purported acquisition, was not a party or signatory to the share purchase agreement.  Golfland was purporting to sell shares that it did not own.

(2) As Merrywide was not a party, it had no obligations to Akai or its subsidiaries to transfer the “beneficial title” and/or “registered and legal ownership” of its shares in Shenzhen Kaifa.  Rather, the obligation was on Golfland “to cause Merrywide to sell and transfer the Acquired Shares to the Purchaser” (clause 1).

341.  I find that it was highly unusual and commercially implausible for Starfame to purchase from Golfland securities of which the legal, beneficial and registered owner was Merrywide.  Golfland did not own the shares and only purported to have a 50% “beneficial” ownership in Merrywide.

342.  As security for the due performance of the transfer of the registered ownership of the Shenzhen Kaifa shares to Starfame, Golfland was required to effect a share transfer of its two ordinary shares in Merrywide to an agent designated by Starfame (clause 2).  However, the two shares purportedly assigned by Golfland to Starfame as purchaser under the 11 November 1997 agreement were exactly the same two shares which Golfland purported to assign, on the same date, to Match Top as purchaser under the 9 December 1997 agreement.[457] This causes me further doubt on the efficacy of these transactions.

343.  There was no evidence that Akai, Starfame, Match Top or Cherryhill ever acquired any shares in Shenzhen Kaifa from Merrywide. There was also no evidence that any of the HK$535 million paid to Golfland was ever applied in the acquisition of Shenzhen Kaifa shares.  The evidence from Mr Borrelli, which I accept, is that after detailed investigations and correspondence with Merrywide, its directors and solicitors, it was clear that neither Akai nor its subsidiaries had ever acquired any shares in Shenzhen Kaifa.[458]  Consequently, the only evidence before me is that neither Akai nor any entity in the Akai Group became the registered owner of the Shenzhen Kaifa shares purportedly acquired from Golfland / Merrywide.

344.  I find, based on the inefficacy of the contractual documentation and the Liquidators’ investigations, that Akai did not receive any value for the payments of HK$535 million to Golfland.  My finding that Akai received no value for these payments to Mr Ting’s company is sufficient for the evidential burden to shift to Mr Ting to justify the propriety of the transactions.  No evidence has been adduced by Mr Ting or on his behalf to discharge that evidential burden, other than the documents in Bundle F70, in particular, at pages 82 to 104, which I have analysed above.  I do not go so far as to find these documents to be a contrivance but I conclude, from my misgivings about them, that Mr Ting has failed to rebut the prima facie case that has been established that Akai received no value for these payments. 

345.  I adopt the analysis contained in §§309 – 312 above to these payments, and conclude that the undisclosed payments to Golfland were defalcations by Mr Ting.

Q.4 Goaltop[459]

346.  It is Akai’s case that, by DLN 98151 and DLN 98153, Mr Ting caused Akai to pledge a deposit of HK$180,000,000 (US$23,285,899) with BCH for the improper purpose of funding a payment of US$20,000,000 to Goaltop, a Group 2 Ting Recipient, which payment in turn caused Akai to lose its pledged deposit.

347.  It was Mr Ting’s submission that the alleged defalcation to Goaltop did not involve any movement of funds from Akai to the Recipient. The diagram at Annex 2 of Akai’s Opening showed that the funds were passed to Goaltop by Good No. 1, a subsidiary of Akai, through a bank loan. According to the Liquidators’ method of looking at Akai’s fund flows only, and not payments from Akai’s subsidiaries to Recipients, this amount should not be included as a defalcation.  Mr Spence accepted that[460]:

“The reality is that when you look at this, those assets of Akai have been used to fund the payment that was ultimately made by Good No. 1.” (emphasis added)

348.  Akai submitted that, on the objective facts, the Goaltop transactions plainly involved the misappropriation of Akai’s assets by Mr Ting.  In causing Akai’s assets to be used for the improper purpose of funding a payment to Goaltop, Mr Ting acted in blatant breach of his fiduciary duties to Akai.  Further, Mr Ting controlled Goaltop as a Group 2 Ting Recipient and thus the transactions amount to impermissible and undisclosed self-dealing by Mr Ting.  As a matter of law, Mr Ting was required to repay the US$20,000,000 sum misapplied to the benefit of Goaltop, unless he could demonstrate that those assets had in fact been restored to Akai.[461] 

349.  Of the 49 alleged defalcations paid by Akai to Goaltop, 47 are undisputed.  These two transactions accordingly represent the only disputed Goaltop payments.  As I have done in §320 above, I accept Akai’s submissions that there must be a strong inference that these payments to Goaltop, identified by Mr Bowyer, were of the same character as the other payments, which were undisputed and which I have found to be defalcations.

350.  I find the following facts to be proved to my satisfaction:

(1) On 21 December 1998, Akai pledged an amount of HK$180,000,000 (US$23,285,899) in favour of BCH to secure banking facilities available to Space Mountain (a wholly owned subsidiary of Akai).[462]

(2) On 22 December 1998, Space Mountain drew on the funds available pursuant to Akai’s pledge to pay US$6,400,000 to Good No. 1[463] and US$15,600,000 to another wholly owned Akai subsidiary called Semi-Tech Europe.[464]  Mr Ting signed the request for drawdown and amendment to payment details in relation to these payments.[465]

(3) On 23 December 1998, by a bank instruction signed by Mr Ting, Semi Tech Europe paid the US$13,600,000 it received from Space Mountain to Good No. 1.[466]

(4) Between 22 and 24 December 1998, Good No. 1 used the funds paid to it by Space Mountain and Semi-Tech Europe to make deposits of US$13,600,000 and US$6,400,000 with CKW and entered into banking facilities with CKW by deeds of charge over those deposits, signed by Mr Ting.[467]

(5) In the same period between 22 and 24 December 1998, by requests signed by Mr Ting, Good No. 1 drew on its banking facilities with CKW in the amounts of US$6,000,000 and US$14,000,000 and instructed the bank to pay the money (in Hong Kong dollars) to Goaltop.[468]

(6) As was accepted by Mr Bowyer, “assets of Akai [had] been used to fund the payment that was ultimately made by Good No. 1 [to Goaltop]”.[469]

(7) On 25 February 1999, Space Mountain repaid its loan of US$22,000,000 from BCH by allowing BCH to offset Akai’s pledged deposit of HK$180,000,000 (US$23,285,899) against the balance due on its loan. As a result, Akai lost its deposit with BCH.[470]

351.  I accept Akai’s submissions that Mr Bowyer’s assertion that these transactions involved payments between an Akai subsidiary and a Recipient was misguided.  Mr Bowyer overlooked the fact that :

(1) the payments to Goaltop were funded by Akai’s pledged deposit, with Mr Ting’s signature in every step of the transaction;[471] and

(2) the loss of Akai’s pledged deposit was a transaction between Akai and a bank.[472]

352.  I agree with Akai’s submissions that the purported recognition of an amount due from Good No. 1 in Akai’s general ledger did not change the fact that Akai’s assets were used for the improper purpose of funding a payment to Goaltop.  I find that Mr Borrelli properly treated these entries as disregarded credits to the BT-Deposit General Ledger Account.[473]

353.  While certain entries in Akai’s general ledger gave the impression that Good No. 1 repaid the loan from CKW, in light of contradictory contemporaneous evidence, Mr Bowyer did not maintain his suggestion in his initial Report that the loans were in fact repaid in January 1999.[474]

354.  I agree with Akai’s submissions that Mr Ting was required to repay to Akai the US$20,000,000 sum misapplied to the benefit of Goaltop, unless he could demonstrate that those assets had in fact been restored to Akai.[475]  As it was agreed by the experts that Akai’s deposit with BCH was lost upon Space Mountain using that sum to repay its loan with BCH, Mr Ting could not show any restoration of the misapplied funds.  I find Mr Ting liable for breach of fiduciary duty for misapplying Akai’s assets for the benefit of Goaltop.  I adopt the analysis contained in §§309 – 312 above to this transaction and conclude that the misapplication of Akai’s assets was a defalcation by Mr Ting.

Q.5 Investco[476]

355.  The Investco transaction[477] represented an alleged defalcation by Mr Ting of Akai’s assets of HK$11,407,641 (US$1,475,762) paid to Investco, a Group 2 Ting Recipient.

356.  It is Mr Ting’s case that Mr Bowyer was able to identify from the accounting documents a payment made by Space Mountain to Akai seven days earlier.  His proposition was that Space Mountain made a loan to Akai and seven days later, Akai repaid the loan by paying Investco on behalf of Space Mountain[478].  The accounting evidence and the evidence of numerous significant transactions in this case showed that Akai and its subsidiaries were often making payments or receiving money on each other’s behalf[479].  The obvious example was the Primewood transaction which was relied on by the Liquidators as a defalcation[480].  If the court accepted that this was the practice, then there was nothing surprising about Mr Bowyer’s proposition.  There need not be a commercial relationship between Space Mountain and Akai and Investco beyond this practice.  While Mr Bowyer accepted that this was speculation[481], whether or not in fact the practice was in operation here was a matter for the Court. The coincidence of the time and amount contradicted the idea that this was mere speculation.

357.  Of the 13 defalcations paid by Akai to Investco, 12 are undisputed.  As I have done in §§320 and 348 above, I accept Akai’s submissions there must be a strong inference that this payments to Investco, identified by Mr Bowyer, were of the same character as the other payments, which were undisputed and which I have found to be defalcations.

358.  I find the following facts proved to my satisfaction:

(1) On or around 14 July 1999, Mr Ting signed an Akai cheque for HK$11,407,641 to Investco.[482]  There is no dispute that Investco received these funds from Akai.

(2) In breach of the Listing Rules, the transaction was not disclosed to the SEHK and was not disclosed in Akai’s financial statements.

(3) Akai’s journal voucher in respect of this payment did not record the actual cash flow and was false and misleading.  The transaction was recorded as a payment from Akai’s BCH bank account and a debit entry to Akai’s loan account with Space Mountain.[483]

359.  Mr Bowyer contended that there is a connection between this payment, and an earlier payment made to Akai on 7 July 1999 from Space Mountain for US$1,465,000, the majority of which was immediately transferred by Akai to TFB, in the amount of US$1,461,197.92.[484]In particular, Mr Bowyer’s proposition, as accepted in cross-examination, was that:[485]

“Space Mountain made a loan to Akai, so that Akai could pay Thai Farmers Bank and seven days later, Akai paid back that loan by paying Investco on behalf of Space Mountain.”

360.  The evidence, however, as conceded by Mr Bowyer, was that:[486]

(1) Mr Bowyer’s proposition assumed that there was a legitimate commercial relationship between Investco and Space Mountain and a legitimate commercial transaction between them for which Akai could pay on behalf of Space Mountain.

(2) There was no evidence of either a legitimate commercial relationship or a legitimate commercial transaction between Investco and Space Mountain.

(3) The proposition was accordingly based on speculation.

361.  I agree with Akai’s submissions that, in the absence of evidence from or on behalf of Mr Ting, I ought not speculate as to whether or not there was any commercial relationship between Investco and Space Mountain. Even if the evidence showed numerous significant transactions of Akai and its subsidiaries making payments or receiving money on each other’s behalf, I cannot presume that those transactions were carried out for legitimate commercial purposes, particularly given my findings thus far of substantial defalcations by Mr Ting of Akai’s assets.  I find that there was no evidence of any legitimate commercial purpose for the payment by Akai of HK$11,407,641 to Investco, and that there was no evidence that Akai received value for this payment. 

362.  I adopt the analysis contained in §§309 – 312 above to these payments, and conclude that the undisclosed payment to Investco was a defalcation by Mr Ting.

Q.6 Worldwide[487]

363.  The Worldwide transaction[488] refers to an alleged defalcation of Akai’s assets by Mr Ting of US$14,272,905 (HK$111,328,656) paid from Akai to Worldwide International, a Group 2 Ting Recipient, on 27 February 1997.[489]  On the same date, Worldwide International’s SCB bank statement recorded a payment of HK$111,626,733 to Kilter,[490] a subsidiary of Akai Electric.[491]

364.  It was Mr Ting’s submission that, on any view of the evidence, this was a payment by Akai to Worldwide International which then funded Kilter. Mr Borrelli gave his reasons for classifying this payment as a defalcation of Akai’s assets in §172 of his second statement[492]:

“I have not taken into account any defalcations by Mr Ting of the assets of Akai’s subsidiaries to Ting Recipients. In the same manner, I have not given credit for any receipt of funds by Akai’s subsidiaries from the Ting Recipients. Accordingly, the fact that Kilter received a payment from Worldwide International cannot offset against the loss and damage suffered by Akai as a result of the defalcation.”

Mr Ting submitted that this was a payment by Akai to a subsidiary, which went through an alleged Ting Recipient. Although it had been submitted by Akai that a false entry was made because the books did not reflect the payment to Worldwide International[493], the entries reflected the payment to Kilter, which was what actually occurred, albeit via Worldwide International.  Mr Bowyer accepted that the payment was made to Worldwide International but opined that “the substance of this transaction was a payment made by Akai to an Akai Electric subsidiary, Kilter”, relying on accounting entries in Akai’s general ledger indicating a cash payment and an amount owing from Kilter.[494]  It did not matter that there was no reason for the cash to go through Worldwide International, because the fact remained that the money was passed to Kilter, as recorded in the books. Mr Borrelli accepted that the cash to Worldwide International provided cash to Kilter[495].  For these reasons, having regard to the source and destination of the funds, this payment was not a defalcation.

365.  Of the eight defalcations paid by Akai to Worldwide International, seven are undisputed.  This transaction accordingly represents the only disputed Worldwide payment.  As with the other transactions referred to above[496], I agree with Akai’s submissions that there is a strong inference that this payment to Worldwide International, isolated by Mr Bowyer, is of the same character as the other payments, which are undisputed and which I have found to be defalcations.

366.  Akai also submitted that:

(1) Mr Bowyer’s approach ignored the initial defalcation of Akai’s assets to Worldwide International.  As with the seven undisputed defalcations to Worldwide International,  by this transaction, Mr Ting caused Akai to make a payment of cash to a third party for no legitimate commercial purpose, in plain breach of his fiduciary duties to Akai.  On this basis alone, there was a defalcation of Akai’s assets.[497]

(2) Mr Ting controlled Worldwide as a Group 2 Ting Recipient. Accordingly, in addition to the lack of commercial purpose, the payment of US$14,272,905 to Worldwide International by Akai constituted impermissible self-dealing by Mr Ting.  In breach of the Listing Rules, the transaction was not disclosed to the SEHK and was not disclosed in Akai’s financial statements.

(3) As a matter of law, Mr Ting is required to repay the US$14,272,905 misapplied by the payment to Worldwide International, unless he can demonstrate that those assets have been restored to Akai.[498]  Mr Bowyer’s analysis did not show any restoration of funds to Akai.  Rather, it indicates that HK$111,626,733.31, being HK$298,077 more than the amount paid by Akai to Worldwide[499] was paid from Worldwide International to Kilter.  Kilter was a subsidiary of Akai Electric and a separate legal entity.  There was no evidence as to the purpose of Worldwide International’s subsequent payment to Kilter,[500] or any instruction from Akai for Worldwide International to pay money to Kilter.[501]

(4) Further, the false accounting entries entered into Akai’s books cannot cure the fact that DLN GL9703 was a defalcation to Worldwide International.  The entries concealed Mr Ting’s defalcation of Akai’s assets in that they did not reflect the payment to Worldwide and gave the impression that funds were paid directly to Kilter.[502]  Notwithstanding the appearance of Akai recording a debt due from Kilter, the mere recording of Mr Ting’s theft as a loan to Kilter cannot create an asset of Akai.[503] Indeed, Mr Bowyer accepted that money stolen from Akai could not legitimately be used to fund Akai’s subsidiaries.[504]  To treat DLN GL9703 as a payment to Kilter for which Akai received value would thus give effect to the false accounting entries and ignore the actual flow of funds to Worldwide.

367.  I accept Akai’s submissions that Mr Ting was in breach of his fiduciary duties, identified in §§53 to 61 above, by making the payment to Worldwide, a company he controlled.  The transaction constituted impermissible self dealing and, in breach of the Listing Rules, the transaction was not disclosed to the SEHK and was not disclosed in Akai’s financial statements.  By reason of the said breaches of fiduciary duties, Mr Ting is required to repay the US$14,272,905 misapplied by the payment to Worldwide, unless he can demonstrate that those assets have been restored to Akai.  I find that the creation of a loan from Kilter to Akai did not constitute a restoration of the misappropriated asset to Akai.

368.  However, in the absence of improper use of the funds by Kilter, I am unable to find, or infer, that this transaction was a defalcation or that Mr Ting was guilty of a fraudulent breach of duty.  US$14,272,905 (HK$111,328,656) was paid by Akai to Worldwide International on 27 February 1997.  On the same date, Worldwide International’s SCB bank statement recorded a payment of HK$111,626,733 to Akai’s subsidiary, Kilter.  Mr Borrelli accepted that the cash to Worldwide International provided cash to Kilter.  The payment received by Kilter was recorded as a debt due from Kilter to Akai.  The use of Worldwide as a conduit to make payment to Kilter was improper and in breach of fiduciary duty.  However, absent evidence of improper use of the funds by Kilter, I am unable to infer dishonesty on the part of Mr Ting for this transaction.

Q.7 Calculus – The Digiconic Transaction[505]

369.  It is Akai’s case that this transaction[506] was contrived by Mr Ting to conceal the defalcation of Akai’s assets of HK$100 million (US$12.94 million) paid to Calculus, a Group 3 Ting Recipient.

370.  Mr Ting’s case in respect of the Calculus -Digiconic transaction is that the return of US$6.5m to Akai[507] was inexplicable other than being in accordance with the agreement in the documentation and its apparent proper purpose.  Mr Borrelli’s zeal to establish that the Digiconic transaction was false led him to add a new and material claim of fact when in the witness box.  Whether or not Top Rewards Inc (“TRI”),  the counterparty to the transaction, had ever dealt with Akai or Mr Ting was obviously important when the bona fides of the transaction were at issue.  However, Mr Borrelli had said nothing in his 2 witness statements of any enquiry made of TRI or of any reply which would tend to disprove this transaction[508].  Yet on Day 5,  Mr Borrelli volunteered that one of his colleagues had spoken to TRI, who had never heard of Mr Ting or Akai.  This revelation also did not sit easily with his oral and written evidence that once they had the agreement and the letter covering the return of US$6.5m, the Liquidators did not contact TRI in 2005 in order to pursue the shares[509].

371.  Mr Borrelli went on to seek corroboration for his conclusion that these were ‘fake’ transactions by reference to the lack of operational records or correspondence.  To do so, he drew an entirely inappropriate comparison between the few documents seen for Digiconic Inc and the sales reports (by country) and travel expenses returned from Akai Electric, Kong Wah and Tomei.  Digiconic Inc was expressly a ‘seed money’ or start up venture[510].  Akai Electric, Kong Wah and Tomei were the large and well-established subsidiaries of Akai engaged in research & development and production and sales[511].  Mr Borrelli would not accept, fairly or realistically, that no useful comparison could be made between the reporting to be seen from major subsidiaries under Akai’s control and what could be expected by Kong Wah and Akai as holders of a minority-interest in Digiconic, Fu Tak International and Shenzhen Kaifa[512].

372.  It was Akai’s submission that the evidence established that Mr Ting, for no commercial purpose, caused HK$100 million to be paid to Calculus, a company under his control, and then sought to conceal the defalcation by creating a fictitious advance to a subsidiary of Akai, Famous Product Limited (“FPL”), that was purportedly used to invest in a company incorporated in California called Digiconic Inc. The evidence established that the HK$100 million was paid to Calculus.  There was no evidence of any payment from Calculus to TRI or Digiconic or otherwise for the benefit of Akai.  Having caused the payment to be made in breach of his fiduciary duties to Akai, it was for Mr Ting to explain and account for the misappropriation.  In the absence of evidence from Mr Ting, the Court ought not speculate as to the use of the funds.

373.  Akai also submitted that the evidence was overwhelming that Akai’s purported “investment” was a contrivance and that no value was received by Akai or FPL. Rather, the supposed “investment”, namely, the purported acquisition by FPL of a 40% interest in Digiconic, a company incorporated in California, USA on 14 December 1998, was a contrivance by Mr Ting.

374.  Mr Bowyer has accepted that whether or not the transaction was a contrivance is a question of fact for the Court’s determination.[513] 

375.  I find the following facts proved to my satisfaction:

(1) On or about 11 January 1999, Mr Ting signed an Akai cheque for HK$100 million drawn on Akai’s Daiwa bank current account in favour of Calculus.[514]  There is no dispute that Calculus received these funds from Akai.

(2) The payment of HK$100 million to Calculus by Akai constituted impermissible self-dealing by Mr Ting.  In breach of the Listing Rules, the transaction was not disclosed to the SEHK and was not disclosed in Akai’s financial statements.

(3) Akai’s journal voucher in respect of this payment did not record the actual cash flow and was false and misleading.  In order to conceal the payment to Calculus, the general ledger recorded a debit entry for a purported “Investment” in FPL, and a credit entry to the general ledger account for Akai’s Daiwa HKD Deposit account.[515]

(4) The “Investment” referred to a purported “deposit” by FPL of HK$100 million to TRI,  a BVI corporation which purportedly owned 100% of Digiconic, in order to secure FPL’s acquisition of a 40% interest in Digiconic.

376.  The documents relied on to support the investment included:

(1) A 4-page agreement dated 11 December 1998 between FPL and TRI, a BVI corporation which purportedly owned 100% of Digiconic;[516]  and

(2) A confirmation letter purportedly from TRI to Akai dated 23 June 1999.[517]

377.  I note the following unusual features of the agreement:[518]

(1) TRI warranted on 11 December 1998 that Digiconic is “duly established and existing”.  In fact, Digiconic was only incorporated on 14 December 1998.[519]

(2) The agreement is internally inconsistent as to the ownership of the then non-existent Digiconic:

(i) The recitals of the agreement recorded, on the one hand, that TRI “owns 100% of equity shares of Digiconic” (Recital A).

(ii) On the other hand, the recitals stated that TRI wished to contribute Project MPEG2 to Digiconic “in exchange” for 100% equity participation in Digiconic (Recital B).

(iii) Clause 1 the agreement stated that, upon Akai’s purchase of 40% equity in Digiconic, the balance 60% was to be held by TRI “in trust” for the key employees involved in Project MPEG2.

There was no evidence of TRI’s ownership of Digiconic nor any details of the purported trust arrangement in respect of 60% of Digiconic’s shares.

(3) The purchase price for the purported acquisition of Digiconic was never determined.  The consideration for FPL’s purchase of 40% equity in Digiconic was to be determined by “a valuation to be made on the Valuation Date by an independent international appraiser”.  (clause 2).  The Valuation Date was to “not be later than 12 months” from the date of the agreement (clause 4).  Payment was to be made not later than one month after the delivery of the valuation report (clause 5). There is no evidence of any valuation having been carried out.

(4) Pursuant to clause 3, Akai was to procure a “deposit” of HK$100 million, accruing interest at 5%, as security for its obligation to procure FPL to purchase 40% of Digiconic.  There was an unusually long period of time permitted in the agreement between advancing the deposit to TRI and the valuation of Project MPEG2 (12 months). Moreover, Akai also agreed in clause 3 that TRI could apply to Akai for use of up to HK$30 million “provided the proceeds are to be on-lent to Digiconic to fund ongoing development costs and expenses and supporting documentary evidence satisfactory to [Akai] are provided”.  This arrangement is inconsistent with that described in the purported confirmation letter from TRI dated 23 June 1999.

(5) There was no documentation of any due diligence on the part of Akai to value the purported investment in Digiconic and assess its commercial viability prior to Akai’s “deposit”.

(6) Akai was not named as a party or signatory to the agreement, notwithstanding that the agreement purported to record obligations on the part of Akai (see clause 1 and 3 of the agreement).

(7) There was no evidence of any draft version of this agreement having been prepared or negotiated upon, nor of any review of the agreement by external legal advisors.

378.  I also note that there were also a number of unusual features in relation to the confirmation letter, addressed to Akai from TRI.  The letter stated:[520]

“We hereby confirm that an amount of HK$100,000,000 has been received from you. Up to May 31 1999, we have advanced US$2,647,623 to Digiconic to fund on-going development costs and expenses in accordance with the Agreement. As our progress is better than anticipated, we are a little ahead of our expenditure budget and we expect to require another US$3,500,000 during the next two quarters. We therefore would like seek your approval to on-lend the US$3,500,000 to Digiconic. As for the balance of about US$6,500,000, we have made arrangement to remit them back to you.

The aforesaid information has been requested for audit purposes and shall not be used or reproduced without our prior written consent.”

The unusual features of the letter were:

(1) The letter was on plain paper, without letterhead and without any company logo or chop.

(2) The letter did not state the address of any party nor did it give the name and role or capacity of the individual who signed the letter on behalf of TRI.

(3) Although the letter bore a fax notation with the words “From Digiconic”, it appears to have been sent without any international dialling code, suggesting that the fax was sent from Hong Kong and not from California where Digiconic is purportedly based.

(4) The letter also stated that TRI had transferred US$2,647,623 to Digiconic purportedly in accordance with the agreement.  However, there was no evidence that TRI had applied to Akai to transfer that amount to Digiconic as would have been required under clause 3.5 of the agreement.

(5) The letter sought approval to on lend an additional US$3,500,000 to Digiconic.  Accordingly, combined with the US$2,647,623 in the preceding paragraph, the total purportedly advanced to Digiconic would be over US$6.1 million (over HK$47 million), and over the HK$30 million threshold advance permitted under clause 3 of the agreement.  There is no evidence that the agreement was varied to permit such additional lending to Digiconic.

(6) The confirmation letter further stated TRI would remit approximately US$6.5 million of the HK$100 million deposit back to Akai.  This was inconsistent with the terms of the agreement.  Under the agreement, TRI was only obliged to refund the deposit to Akai (i) in full, if the agreement was terminated; or (ii) if the valuation of Digiconic was less than HK$100 million.  Accordingly, the return of US$6.5 million by TRI in the absence of these circumstances was highly unusual.

379.  There was no evidence that TRI or Digiconic ever refunded the US$6.5 million to Akai or any of its subsidiaries.  The evidence showed that, on 22 June 1999,  Mr Ting signed a letter of instruction on behalf of Space Mountain instructing BCH to transfer US$6.5 million from Space Mountain’s bank account to an account of Akai.[521] The transfer from Space Mountain was stated to be “By order of: Digiconic Inc”.  Notwithstanding that the payment was from Space Mountain to Akai, Akai’s general ledger recorded a credit entry of US$6.5 million on 24 June 1999 with the reference “Deposit from Digiconic”.[522]

380.  It is notable that Digiconic was dissolved on 14 June 2000,  less than one year after it had purportedly received an advance of US$3.5 million according to the confirmation letter dated 23 June 1999.[523]

381.  I do not accept the criticism made of Mr Borrelli’s evidence.  I accept Mr Borrelli’s evidence, including his evidence of the Liquidators’ inability to identify or locate any investment of Akai or FPL in either TRI or Digiconic.  I have carefully considered the evidence of Mr Borrelli in connection with this transaction on Day 5[524]. He said that, at the same time as they were conducting their investigations on Merrywide, they tried to but could not find Digiconic.  It was not at the California premises.  When pressed whether TRI existed, Mr Borrelli countered that TRI had never heard of Mr Ting or Akai, and that this fact had been recounted to him by one of his colleagues who had contacted TRI.  The fact that this ancillary matter was not contained in his witness statements[525] does not cause me to doubt the veracity of his evidence.  Further, it was entirely right for him to point to the absence of any activity between Akai and Digiconic.  Although it was only a start-up, Digiconic had allegedly received over US$2.5 million, according to the confirmation letter from TRI.

382.  I do not accept Mr Ting’s submissions.  The patent inconsistencies in the documentary evidence, the Liquidators’ investigations and the absence of evidence from Mr Ting or on his behalf is sufficient for me to conclude that the purported investment in Digiconic was a contrivance and that Akai did not receive any value for the payment of HK$100 million (US$12.94 million) to Calculus. I find that Mr Ting caused the confirmation letter dated 23 June 1999 to be created, and then falsely recorded in Akai’s accounts that the US$6.5 million transferred from Space Mountain to Akai had in fact come from Digiconic in order to maintain the charade that Akai had a legitimate investment in Digiconic.  The proposition put to Mr Borrelli in cross-examination that this payment was somehow procured by Calculus, TRI or Digiconic was speculative and was not supported by evidence.[526] I adopt the analysis contained in §§309-312 above to this payment, and conclude that the undisclosed payment to Calculus was a defalcationby Mr Ting.

Q.8 Primewood (Akai Electric Bonds)[527]

383.  The Primewood, Rosalie and Tisco alleged defalcations comprise:[528]

(1) a disputed defalcation of US$140,333,333 to the benefit of Primewood, a Group 3 Ting Recipient, whereby Mr Ting or employees under his direction caused Akai Electric 2000 bonds (paid for by Akai) to be sold to Primewood. The proceeds of sale were allegedly “stolen” from Akai in that the amount recorded by Akai as having been received by Akai for the Akai Electric bonds were never paid, and that the non-payment concealed in Akai’s BT-Deposit General Ledger Account;

(2) an undisputed payment, which Akai alleges was a defalcation,  of US$13,379,740 to the benefit of Rosalie (a Group 3 Ting Recipient),  whereby Akai paid US$13,379,740 for the issue of Akai Electric 2001 bonds to Rosalie for no legitimate commercial purpose; and

(3) 11 disputed defalcations totalling US$118,399,119 to the benefit of Tisco, a Group 2 Ting Recipient, which involved the alleged recycling of cash assets for the improper purpose of reducing the balance of the BT-Deposit General Ledger Account to zero by the end of Akai’s financial year.

Q.8.1 Factual Backgroud: Primewood, Rosalie and Tisco Transactions

384.  The following factual background to the Primewood, Rosalie and Tisco transactions is not in dispute:

Q.8.1.1 Primewood

385.  On 4 July 1996, an Akai announcement was made by order of Mr Ting on behalf of the Board stated that Akai Electric 2000 bonds in the amount of JPY20,000,000,000 (US$184,615,385) were to be issued to “overseas institutional investors not connected with the Directors, Chief Executive or substantial shareholder of the Company or its subsidiaries, or any of their respective associates”.[529]

386.  Contrary to the announcement, on 19 July 1996 Akai Electric issued 400 Akai Electric 2000 bonds for JPY20,000,000,000 (US$184,615,385) to a wholly owned subsidiary of Akai called Brinlow Investments Limited (“Brinlow”).  Akai paid for these bonds on 3 July 1996.[530]

387.  Notwithstanding that this was a connected and therefore disclosable transaction under the Stock Exchange Listing Rules, no disclosure was made by Akai that the bonds had in fact been issued to a subsidiary of Akai.[531]

388.  In January 1997, Brinlow sold 172 of the bonds to Matchpoint Incorporated (“Matchpoint”),  a subsidiary of Kong Wah, for HK$509,600,000.[532]  There is no evidence of any payment being made by Matchpoint to Brinlow in respect of the bonds.[533]  In June 1997 Brinlow and Matchpoint sold 360 bonds to Primewood, a Group 3 Ting Recipient, for a combined amount of HK$1,094,600,000 (US$140,333,333).[534]  Matchpoint sold 172 bonds to Primewood for HK$509,600,000 (US$65,333,333)[535]  and Brinlow sold 188 bonds to Primewood for HK$585,000,000 (US$75,000,000).[536]

389.  On 4 July 1997 and 31 January 1998, sums equivalent to the proceeds of the sale of the 360 Akai Electric bonds to Primewood by Matchpoint (HK$509,600,000) and Brinlow (HK$585,000,000) were recorded as debit entries in Akai’s BT-Deposit General Ledger Account.[537]  Despite Akai having paid for the bonds received by Primewood, Akai did not receive any funds corresponding to these journal entries.[538]

390.  Akai has alleged that the total amount of the unpaid sale proceeds, US$140,333,333, were defalcations of Akai’s assets by Mr Ting.

391.  On 23 July 1997, Primewood sold all 400 Akai Electric 2000 bonds back to Akai Electric for JPY18,400,000,000 (US$157,555,897) and Akai Electric then cancelled these bonds.[539]  The amount due to Primewood (US$157,555,897) for the sale of 400 Akai Electric 2000 bonds was used by Primewood to fund the purchase of 2001 Akai Electric bonds by Rosalie.

Q.8.1.2   Rosalie

392.  On 18 July 1997, by order of Mr Ting on behalf of the Board, Akai announced that Akai Electric would issue Akai Electric 2001 bonds valued at JPY20,000,000,000 (US$170,935,637).  The announcement falsely stated that:[540]

(1) the purchase price for the 2000 bonds “was reached after arm’s length negotiations between the holders of the Existing Bonds and Bankers Trust (BT) Asia Limited (“BT Asia”) on behalf of [Akai Electric]”;

(2) “the Existing Bonds were issued by [Akai Electric] in 1996 … to overseas institutional investors not connected with the Directors, chief executive or substantial shareholders of [Akai] or its subsidiaries, or any of their respective associates”

(3) “the New Bonds will be privately placed by the Underwriter to overseas institutional investors not connected with the Directors, chief executive or substantial shareholders of [Akai] or its subsidiaries, or any of their respective associates”

(4) “[Akai] and its subsidiaries do not presently intend to purchase any of the New Bonds after the New Issue.  The Directors, Chief Executive or substantial shareholders of [Akai] or its subsidiaries, or any of their respective associates  have confirmed that  they will not subscribe any New Bonds in the New Issue and undertake to notify SEHK all their dealing in the New Bonds subsequent to the New Issue.”

393.  In fact, on 8 August 1997 Akai Electric issued all 400 Akai Electric 2001 bonds for JPY20,000,000,000 (US$170,935,637) to Rosalie, a Group 3 Ting Recipient.[541]

394.  Primewood paid JPY18,400,000,000 (US$157,555,897) of the subscription amount for the Akai Electric 2001 bonds out of the sale proceeds of the 400 Akai Electric 2000 bonds.[542]

395.  Akai paid the other JPY1,600,000,000 (US$13,379,740) on behalf of Rosalie in cash on 4 August 1997.[543]  Akai’s payments on behalf of Rosalie were recorded as debit entries in Akai’s BT-Deposit General Ledger Account.[544] Akai has alleged that these payments of US$13,379,740 were a defalcation of Akai’s assets by Mr Ting.  The payments on behalf to Rosalie are not disputed. Mr Bowyer has made no adjustment to the claimed defalcations in relation to this amount.[545]

396.  In January 1998, Rosalie sold 368 bonds back to Akai Electric for JPY17,296,000,000 (US$136,219,633).[546] 

Q.8.1.3   Tisco

397.  In January 1998 Akai made 11 payments to Tisco totalling US$118,399,119.[547]

398.  These 11 payments to Tisco were debited to the “Akai corp” account in Akai’s general ledger, with the narration “bond redemption”.[548]

399.  In relation to DLN GL9710 to GL9714 and DLN GL9720 to GL9721, instructions from Tisco signed by Ms Lee directed Tisco’s bank to remit the amounts expected to be received from Akai directly back to Akai itself upon receipt of the funds.[549]

400.  During January 1998 there were nine receipts by Akai from Tisco totalling US$116,357,743, representing the return of the funds paid to Tisco by Akai.[550]

401.  These nine receipts by Akai from Tisco were recorded as credit entries in the BT-Deposit General Ledger Account.  The effect of the Tisco receipts was that the balance of the BT-Deposit General Ledger Account was reduced by US$116,357,743 between 15 and 27 January 1998, in the lead up to the end of Akai’s financial year on 31 January 1998.[551] 

402.  Tables indicating the flow of funds pursuant to these payments are set out on pages 56 and 57 under Part E.6.1.3 of Akai’s Opening[552]. 

Q.8.2 Mr Ting’s Case

Q.8.2.1 Commercial Purpose

403.  There was a genuine commercial purpose for the Akai Electric Bonds and accordingly, the transactions relating to them do not amount to defalcations. None of the Primewood and Rosalie transactions, nor the Tisco payments, should be included as a defalcation.

404.  Mr Spence positively identified a commercial purpose for the bond issues. He said in his report that the bonds enabled the group to recognise an exceptional gain[553].  Mr Borrelli accepted that the bonds were raised for financing purposes[554]. It was clear from the documents that BT Asia was involved in the issue and prepared some of the documents. There can be no suggestion that BT Asia was involved in a sham transaction.  The fact that the bonds were not issued to institutional investors, as was intended according to the announcements of the issues, does not render all the documentation false, or the bonds other than valuable securities.

Q.8.2.2   No Loss to be Compensated

405.  When looked at as a whole, the Akai Electric bonds did not cause any loss to Akai, and certainly not a loss equivalent to that claimed as the Primewood ‘defalcation’. At the start when the 2000 Bonds were issued to Brinlow, Akai paid Akai Electric US$184.6 million[555] for the whole issue and created a debt due to it from Brinlow[556].  Both payment and the creation of the debt were outside the Claim Period. In any event, that could not have been a defalcation as defined in the claim as no Recipient was involved at all.

406.  When the bonds were sold by Brinlow and Matchpoint to Primewood, no cash changed hands[557]. When the bonds were redeemed and the 2001 Bonds were issued to Rosalie, save for the Rosalie transaction[558], again no cash left Akai.  In any event, this transaction did not involve Akai. No adjustment is made for the Rosalie transaction. (Some of the 2000 issue was sold to other third parties[559].)

407.  When the 2001 bonds were redeemed, Akai did not pay for the redemption (and apparently neither did Akai Electric[560]). The redemption was effected by way of the Tisco recycling payments which resulted in a net loss to Akai of only US$2 million (US$118 million - US$116 million). However, the payments of US$118 million (together with the book entry 9) created a loan of US$136 million due from Akai Electric[561]. This was summarised by Mr Bowyer:

“However, if you look at the transactions in respect of the Akai Electric bonds at the beginning of the claim period, we have a transaction which is recorded in the BT-Deposit as a debit balance, which is either an amount owed to Akai or -- I don't accept this -- there is a suggestion that it was a payment received, because it was not a payment received. So it is an amount owed to Akai, ostensibly by Primewood, which is matched by another entry which shows that money to -- two entries, actually, money is owed to both Kong Wah and Akai and at the time these transactions all unravel, the amount in the BT-Deposit account is effectively cancelled and we are left with an amount owed by Akai Electric. So that is the result of the transactions.”[562]

408.  This effect of the Akai Electric bonds transactions was accepted by Mr Spence[563].  It was proven on the evidence and the Court has the evidence of both experts in agreement.  Mr Spence also acknowledged that the bonds issues also enabled Akai to recognise an exceptional gain in its consolidated accounts[564]. This proves an incontrovertible and proven commercial purpose and benefit in the 2000 bond repurchase, the 2001 bond issue and the redemption in January 1998.

Q.8.2.3   Subsidiaries Not Akai

409.  Even if the Court did not accept the proven commercial purpose or that there was no loss, according to the Liquidators’ own principles for assessing any loss of Akai[565], the Primewood transaction should be disregarded. It was a transaction between subsidiaries of Akai and Primewood. Mr Spence agreed that including the Primewood claim could only be permitted by an exception to the Liquidators’ method[566].

410.  The bonds were issued to, owned by and registered in the names of Brinlow and Matchpoint, both subsidiaries of Akai. This was Mr Spence’s understanding of the evidence, set out in his report[567], which he confirmed on oath. This was also what Mr Borrelli said in his first witness statement (§§413-416), which he also confirmed on oath.  Until Mr Borrelli gave oral evidence[568], there was no suggestion that the bonds were held by Brinlow and Matchpoint in any other way, and no mention of them being nominees.

411.  Given that this was a transaction between a third party and subsidiaries, one would not normally expect it to be recorded in Akai’s books. The only reason according to the documentation for the entries in Akai’s books was the credit note[569], which apparently indicated that the proceeds for the sale to Primewood was received by Akai on Matchpoint’s behalf. This too was consistent with Matchpoint being the owner of the bonds.

412.  The receiving of money on behalf of a subsidiary is the reverse of the receiving of money by a subsidiary on Akai’s behalf, such as the US$93.6 million disregarded non-cash credits, which were in fact payments by Recipients to subsidiaries but recorded in Akai’s books.  If the Primewood transaction was to be found to be a ‘defalcation’ causing loss to Akai then, by the same token, the US$93.6 million (net the payments from subsidiaries of US$25.4 million) should be found to provide a benefit to Akai and allowed as a deduction from Akai’s claimed ‘loss’.

Q.8.2.4   Tisco

413.  The payments were undoubtedly linked to the redemption of the 2001 bonds[570]. The first 5 payments matched exactly the payments received by TISCO HK, the broker, and the 12 entries in the general ledger identified by Mr Bowyer matched the bond redemption amount down to JPY10,000 (§§6.14-6.15 Bowyer Appendix).  It was put to Mr Bowyer that this was a contrivance so as to balance the books, but if so, one would expect them to have matched exactly without a balancing non-cash entry or a Yen 10,000 difference[571].

414.  Mr Bowyer also explained that the money flow from Tisco to TISCO HK and back to Akai did not matter: “Underlying this is the fact that Rosalie is having its 9 bonds redeemed. So in some way or another, Rosalie needs to get value.  One way it can get value, bearing in mind it owes Primewood money, at least I assume that is the case, is to have Primewood's debt settled. That would satisfy it.”[572]

415.  On the basis that there was no loss to Akai, the actual movement of funds of the Tisco payments of US$118 million did not impact the calculation of loss.  Payments up to US$116 million were in any event returned.  The Tisco payments were claimed as ‘defalcations’ in its own right. In any event, the US$118 million were merely a cumulative total of several payments out of Akai of between US$20 million and US$25 million.  US$118 million was never at risk.  There could be no basis on which to hold Mr Ting liable to pay compensation of US$118 million to Akai in respect of these payments, as the Liquidators seek to do in their principal ‘Method 1’ claim.

Q.8.3 Akai’s response

Q.8.3.1   Mr Ting’s Speculative Theories

416.  If there was a legitimate explanation for the transactions involving Primewood, Rosalie and Tisco,  Mr Ting would be able to provide it.  The fact that Mr Ting had chosen not to offer any explanation whatsoever, was a strong indicator that there was no such legitimate explanation.  The result is that Mr Ting’s team was placed in the invidious position of having to pursue speculative alternative theories, none of which were supported by any evidence from Mr Ting himself, and which were in fact contradicted by the objective evidence before the Court.

417.  Moreover, the speculative theories put on behalf of Mr Ting were premised on the assumption that the transactions were legitimate arm’s length commercial transactions. In circumstances, where there was clear evidence of false documentation from the outset, in addition to the usual indications of Mr Ting’s modus operandi of concealment and deception, such an assumption was plainly unfounded and inappropriate.

Q.8.3.2   “Akai Group” theory

418.  Mr Bowyer conceded in cross-examination that his initial report considered Akai and Akai Electric on a group basis.[573]  Effectively, Mr Bowyer argued that “no value ever left the Akai Group” because on Mr Bowyer’s theory the loss sustained from Primewood never paying for the 2000 bonds was offset by Akai Electric redeeming the 2001 bonds for nil consideration.[574]  For reasons set out in Part E.6.1.4 of Akai’s Opening, such an approach was inappropriate and ignored the separate legal identities of Akai and its subsidiaries.

Q.8.3.3   “Payment on Behalf” Theory

419.  By the “payment on behalf” theory, Mr Bowyer made two assumptions:

(1) the 11 Tisco payments debited to the “Akai corp” account (US$118,399,119), plus a 12^th non cash entry of US$17,820,513, related to the settlement of an amount owed by Akai Electric to Rosalie for the redemption of the Akai Electric 2001 bonds;[575]

(2) the nine cash receipts by Akai from Tisco of US$116,357,743, plus a non-cash entry of US$17,820,513 “represented the settlement of US$134,178,256 of Primewood’s debt to Akai”.[576]

420.  The “payment on behalf” theory was mutually exclusive from the “Akai Group” theory also put forward on behalf of Mr Ting.  The “Akai Group” theory assumed that there was no payment for the redemption of the Akai Electric 2001 bonds.  The “payment on behalf” theory was premised on these bonds being repaid by Akai itself on behalf of Akai Electric and received by Tisco on behalf of Rosalie (which in turn received payment on behalf of Primewood).

421.  As to the first of Mr Bowyer’s assumptions, Mr Bowyer initially speculated that “a possible explanation for the payments was that Akai, on behalf of Akai Electric, was redeeming the 2001 bonds using Tisco as an agent to settle with Rosalie”[577]  Mr Bowyer included figure 8 at §5.56 of his Report showing an assumed flow of funds from Tisco to Rosalie, indicating that (emphasis added):

“the payments from Tisco to Rosalie are assumed on the basis that the Akai general ledger narrative describes the transactions as “Bond Redemptions” and that Akai Electric would have owed Rosalie for the redemption of the 2001 bonds (I have seen no other evidence that Rosalie was paid for the 2001 Bond redemption).”

422.  Alternatively, Mr Bowyer suggested that Akai’s payments could have been received by Tisco on behalf of Rosalie without the need for any actual cash flow from Tisco to Rosalie.[578]

423.  While Mr Bowyer’s conviction appeared to have strengthened in §6.16 of the Bowyer Appendix,[579] under cross examination,  Mr Bowyer conceded that his first assumption was based solely on two factors:[580]

(1) the words “bond redemption” appearing in the journal vouchers; and

(2) the similarity of the total amount debited to the “Akai corp” account and the amount owed by Akai Electric to Rosalie in respect of the redemption of the Akai Electric 2001 bonds.[581]

424.  Any superficial resemblance between the payments to Tisco and the amount due from Akai Electric to Rosalie merely evidenced Mr Ting seeking to conceal his defalcations of Akai’s assets to Tisco.

425.  The second assumption forming the basis of Mr Bowyer’s theory was that Akai received funds from Tisco which were in fact payments made by Tisco on behalf of Rosalie, which in turn was making a payment to Akai on behalf of Primewood.[582]  This is shown in figure 9 at §5.56 of his Report, where Mr Bowyer noted “[t]he payments from Rosalie to Tisco are assumed on the basis that Rosalie had a debt to Akai and that this would have been settled by a payment from Rosalie to Akai routed through Tisco.”  Alternatively, Mr Bowyer suggested that Tisco’s payment could have been made on behalf of Rosalie without the need for any actual cash flow from Rosalie to Tisco.[583]

426.  Again, Mr Bowyer’s assumption was inconsistent with the objective evidence.  Mr Bowyer’s assumptions amounted to pure speculation unsupported by contemporaneous documentary evidence or any explanation from Mr Ting himself.

Q.8.3.4   “Payments to TISCO HK” Theory

427.  During the course of cross examination of Mr Borrelli and Mr Spence, counsel for Mr Ting suggested that amounts paid by Akai to Tisco matched amounts on a TISCO HK statement to the Hong Kong branch of Akai Electric dated 31 January 1998 and a subsequent letter from TISCO HK dated 13 February 1998.[584]  This was plainly wrong.

428.  Mr Bowyer confirmed in cross examination that his initial report made no mention of TISCO HK and that he did not rely on any superficial similarity between amounts paid to Tisco and any redemption of bonds with the genuine TISCO HK, merely stating that it “may be relevant”.[585]

429.  On the objective facts, arising from the available documents, the proposition put forward by Mr Ting’s counsel as to the “matching” of the TISCO HK statement with the defalcations to Tisco was demonstrably wrong.

Q.8.3.5   “Brinlow Repayment” Theory

430.  In the course of cross examination, Mr Bowyer accepted that on his theory, Akai spent money both to buy and to redeem the Akai Electric 2000 and 2001 bonds.  When asked why this did not result in a depletion of Akai’s assets by US$280 million, Mr Bowyer speculated that “Brinlow may have paid entirely for what Akai lent it … other things might have happened … I just don’t know”.[586]  Akai contended that this answer was indicative of Mr Bowyer’s general approach to his role as an expert witness, which extended well beyond the conclusions to be drawn from the objective evidence.

Q.8.3.6   Akai’s Concluding Submissions

431.  In circumstances, where Mr Ting has been shown to have dishonestly deprived Akai of its assets, the burden fell squarely on Mr Ting to demonstrate that such funds had been restored to Akai.

432.  Rather than giving evidence to explain the transactions, Mr Ting left his expert and counsel with the impossible task of attempting to unravel his web of fraud and deception.  At best, the exercise undertaken by Mr Bowyer amounted to a speculative guess at what might have happened between various parties, without reference to any contemporaneous supporting documentation, wholly disregarding the actual cash flows between Akai and Tisco, the fact that Primewood, Rosalie and Tisco were controlled by Mr Ting as well as the obvious evidence of impropriety on Mr Ting’s part, and treating the transactions as if they were legitimate commercial dealings.

433.  In such circumstances and in light of contradictory objective evidence, Akai submitted that the Court should not make any assumption in favour of Mr Ting as to the intention underlying the transactions or the hypothesised return of Akai’s funds. The transactions were defalcations of Akai’s assets which Mr Ting was strictly liable to repay.

Q.8.4 Analysis and Findings

434.  I believe we have reached a realm which is surreal.  Akai paid out US$184,615,385 on 3 July 1996 and US$13,379,740 on 4 August 1997, and never received any of these sums back[587]; but, it is submitted that, somehow, Akai has not suffered any loss from these transactions.

Q.8.4.1   Transactions between Akai Subsidiaries and Primewood 

435.  As I understand Mr Ting’s case, although taken originally, the point that the Akai Group did not suffer any loss from these transactions was not maintained; but the point was taken that transactions between Akai subsidiaries (Brinlow and Matchpoint) and Primewood ought not to be taken into account.  I accept Akai’s submissions that a Group approach was not appropriate as it ignored the separate legal identities of Akai and its subsidiaries.

436.  On 3 July 1996, Akai paid JPY20,000,000,000 (US$184,615,385) for 400 Akai Electric 2000 bonds that were issued by Akai Electric on 19 July 1996 to Brinlow, a wholly owned subsidiary of Akai.  I find that no payment was made by Brinlow to Akai in respect of the bonds.  In the absence of contrary evidence from or on behalf of Mr Ting, I infer, from these facts, an agreement on the part of Brinlow to pay to Akai the amount Akai had paid Akai Electric for the issue of the bonds to Brinlow.

437.  In January 1997, Brinlow sold 172 of the bonds to Matchpoint, a subsidiary of Kong Wah, for HK$509,600,000.  I find that no payment was made by Matchpoint to Brinlow in respect of the bonds.  In the absence of contrary evidence from or on behalf of Mr Ting, I infer, from these facts, an agreement on the part of Matchpoint to pay to Brinlow the amount of HK$509,600,000.

438.  In June 1997, Brinlow and Matchpoint sold 360 bonds to Primewood, a Group 3 Ting Recipient, for a combined amount of HK$1,094,600,000 (US$140,333,333).  Matchpoint sold 172 bonds to Primewood for HK$509,600,000 (US$65,333,333) and Brinlow sold 188 bonds to Primewood for HK$585,000,000 (US$75,000,000).  On 4 July 1997 and 31 January 1998, sums equivalent to the proceeds of the sale of the 360 Akai Electric bonds to Primewood by Matchpoint (HK$509,600,000) and Brinlow (HK$585,000,000) were recorded as debit entries in Akai’s BT-Deposit General Ledger Account.  In the absence of contrary evidence from or on behalf of Mr Ting,  I infer, from these facts, an agreement on the part of Primewood to pay for the bonds it bought from Matchpoint by discharging Brinlow’s liability to pay Akai for them and, thereby, discharging Matchpoint’s liability to pay Brinlow for them.  In the absence of contrary evidence from or on behalf of Mr Ting, I also infer, from these facts, an agreement on the part of Primewood to pay for the bonds it bought from Brinlow by discharging Brinlow’s liability to pay Akai for them.

439.  I find that the debit entries in Akai’s BT-Deposit General Ledger Account were false and that Akai never received these amounts.  Akai, therefore, suffered a loss on 4 July 1997 and 31 January 1998, when the sums, equivalent to the proceeds of the sale of the 360 Akai Electric bonds to Primewood by Matchpoint (HK$509,600,000) and Brinlow (HK$585,000,000) that were recorded as debit entries in Akai’s BT-Deposit General Ledger Account, ought to have been paid to Akai.  The result was that Primewood received, for no consideration, the benefit of the Akai Electric 2000 bonds, with a value of US$140,333,333 that had been paid for by Akai.  The false BT-Deposit General Ledger Account masked the failure on the part of Primewood to pay for these bonds and further masked the non-receipt by Akai of the amount it had paid for these bonds. 

440.  For these reasons, I find that the transaction between Akai’s subsidiaries and Primewood caused loss to Akai.

441.  If I am wrong in my analysis and findings, then I would find that Akai suffered this particular loss of US$140,333,333 on 3 July 1996, as this sum was part of the US$184,615,385 payment Akai had made to Akai Electric on 3 July 1996; and, further, I would permit Akai to pursue the claim for US$140,333,333 even though that payment had been made before the Claim Period from February 1997 to July 1999.  All relevant matters and documents pertaining to the claim have been brought to my attention and fully ventilated before me.  I accept Mr Spence’s opinion that Primewood was an exception and a special situation on its own that required special treatment.[588]

Q.8.4.2   Rosalie

442.  From the undisputed facts recited in §§384-403 above, I find that Rosalie received, for no consideration, the benefit of US$13,379,740 paid by Akai on 4 August 1997 for the Akai Electric 2001 bonds.

Q.8.4.3   Tisco

443.  From the undisputed facts recited in §§384-403 above,  I find that Tisco, a Group 2 Ting Recipient, received 11 separate payments totalling US$118,399,119 directly from Akai, which were immediately repaid by Tisco to Akai in 9 separate payments totalling US$116,357,743.

444.  I do not accept Mr Bowyer’s evidence that the 11 Tisco payments debited to the “Akai corp” account (US$118,399,119), plus a 12^th non cash entry of US$17,820,513, related to the settlement of an amount owed by Akai Electric to Rosalie for the redemption of the Akai Electric 2001 bonds.[589] He conceded that this assumption was based on the words “bond redemption” appearing in the journal vouchers and the similarity of the total amount debited to the “Akai corp” account and the amount owed by Akai Electric to Rosalie in respect of the redemption of the Akai Electric 2001 bonds.[590]  Mr Bowyer gave evidence that since his involvement in the case, which commenced in November 2012, he had never met or spoken to Mr Ting;[591] and, further, that he knew that he would not be meeting or speaking with Mr Ting.[592]  He agreed that the best way to explain transactions would be to speak to the person that was involved in them, in order to understand their commercial rationale[593] and he conceded that his opinion was severely restricted by having no access to anyone who was involved at the time.[594]  Absent evidence adduced by or on behalf of Mr Ting, I cannot find Mr Bowyer’s assumptions to be fact, particularly given that:

(1) The cash amount paid to Tisco of US$118,399,119 was not enough to amount to a complete settlement of the amount owed by Akai Electric to Rosalie of US$136,219,633;[595]

(2) The balance was made up by a non-cash transaction of US$17,820,513.[596]  There is no explanation why there was this non-cash entry;

(3) There was no evidence as to how the bond redemption proceeds were settled with Rosalie[597] and there was no documentation to indicate that funds received by Tisco were being received on behalf of Rosalie;[598] on the contrary, the only evidence as to the way in which Tisco dealt with the payments from Akai were the bank instructions which directed Daiwa Bank to remit the amounts to Akai, not to Rosalie;[599]

(4) The funds paid to Tisco originated from Akai, rather than Akai Electric;[600]

(5) There was no documentation to justify Akai paying on behalf of Akai Electric for the redemption of the 2001 bonds;[601] and

(6) There was no documentation to justify an assumption that Akai was entitled to pay Tisco in respect of the settlement of a debt owed by Akai Electric to Rosalie.[602]

445.  The second assumption made by Mr Bowyer was that the nine cash receipts by Akai from Tisco of US$116,357,743, plus a non-cash entry of US$17,820,513 “represented the settlement of US$134,178,256 of Primewood’s debt to Akai”, namely, that Akai received funds from Tisco which were in fact payments made by Tisco on behalf of Rosalie, which in turn was making a payment to Akai on behalf of Primewood.[603]  Absent evidence adduced by or on behalf of Mr Ting, I cannot find Mr Bowyer’s assumptions to be fact, particularly given that:

(1) One of the “payments” in supposed settlement of the Primewood debt was in fact a non cash transaction of US$17,820,513 entered into Akai’s “Akai corp” account;[604]

(2) Even including the non-cash transaction, the amount paid to Akai was still US$6,155,077 short of the amount owed by Primewood to Akai;[605]

(3) There was no evidence or documentation which would justify an assumption that Tisco’s payments to Akai were made by Tisco on behalf of Rosalie;[606] and

(4) There is no evidence or documentation which would justify the further assumption that the payments made by Tisco were made on behalf of Rosalie and represented the partial settlement of amounts not paid by Primewood for the acquisition of the Akai Electric 2000 bonds.[607]

Q.8.4.4   TISCO HK

446.  I accept Akai’s submissions that, contrary to the suggestion of Mr Ting’s counsel in cross examination, the amounts included on the TISCO HK statement did not match with the amounts paid by Akai to Tisco in that:

(1) In relation to DLN GL9710 to GL9714 and DLN GL9720 to GL9721, there existed instructions from Tisco to remit the amounts received from Akai directly back to Akai itself, which erased any possibility that Tisco could have passed the funds on to TISCO HK.[608]  The relevant bank instructions were:

DLNs GL9710 and GL9711: US$24,212,121 paid on 14 January 1998[609]

“Please be informed that we [Tisco] expected to receive approximately US$24 million. Upon receipt of funds, please place on overnight deposit and on the next value date uplift our deposit and remit [US$24,000,000 in favour of Akai, by order of Akai]”

DLN GL9712: US$21,885,496 paid on 16 January 1998[610]

“Please be informed that we [Tisco] expected to receive approximately US$21.9 million today. Upon receipt of funds, please place on call deposit and value 19 January 1998 uplift our deposit and remit as follow: [US$4,000,000 and US$18,000,000 in favour of Akai, by order of Akai]”

DLNs GL9713 and GL9714: JPY494,788,000 and JPY2,100,116,915 paid on 20 and 22 January 1998[611]

“We [Tisco] refer to our inward remittance of approximately JPY2.1 billion and JPY494 million respectively and our letter dated 20 Jan 98. Please place on savings account and value 23 January 1998 remit the total principal, net of charges, as follow: [JPY2,594,900,000 in favour of Akai, by order of Akai]”

DLNs GL9720 and GL9721: HK$22,900,000 and HK$102,800,000 paid on 27 January 1998[612]

“We expected to receive HK$125,700,000 into our account with yourselves. Upon receipt of funds, please transfer the entire amount as follows:

Beneficiary: [Akai]

Account with yourselves”

(2) Further, by 22 January 1998, the TISCO HK statement indicated that JPY15,839,000,000 had been paid in respect of bond redemptions, whereas, on Mr Bowyer’s calculations, the defalcations to Tisco as at 22 January 1998 totalled only JPY8,657,904,915.[613]  Hence the Tisco Defalcations could not have funded the payments evidenced by the TISCO HK statement.

447.  I find that Mr Ting changed the name of Almeida Morano Limited to Tisco to mislead third parties into thinking that Tisco was TISCO HK.

Q.8.4.5 Commercial Purpose

448.  I agree that Mr Spence identified a commercial purpose for the bond issues when he said in his report that the repurchase of the bonds by Akai Electric at a discount enabled the group to recognise an exceptional gain[614].  However, he went on to say, in the same paragraph, that if these bonds had been held by any of Akai’s subsidiaries when they were repurchased by Akai Electric, it would not have been possible for Akai to recognise the gain on their repurchase.  I find that the means of obtaining this exceptional gain was illegitimate, in that it required transfer of bonds to Primewood and Rosalie.  The recognition of the exceptional gain was itself an example of false accounting, where any gain recorded in Akai’s consolidated financial statements was entirely artificial and created by:

(1) moving the Akai Electric bonds off balance sheet to the Ting Recipients; and

(2) recording the bond redemptions to Ting Recipients at a discount.^[615]

Q.8.4.6   Primewood, Rosalie and Tisco Transactions were Defalcations

449.  The Primewood transactions, the payment to Rosalie and the Tisco payments were defalcations.  Primewood received a benefit of US$140,333,333.  The amount recorded by Akai as having been received by Akai for the Akai Electric bonds was never paid, and that non-payment was concealed in Akai’s BT-Deposit General Ledger Account.  The payment of US$13,379,740 to the benefit of Rosalie for the issue of Akai Electric 2001 bonds to Rosalie, was made for no legitimate commercial purpose and was a defalcation.  The 11 payments totalling US$118,399,119 to the benefit of Tisco, a Group 2 Ting Recipient, were defalcations.  The recycling of cash assets was made for the improper purpose of reducing the balance of the BT-Deposit General Ledger Account to zero by the end of Akai’s financial year.

450.  I also find that the recycled Tisco payments were also made to try to match the amount debited to the “Akai corp” account and the amount owed by Akai Electric to Rosalie of US$136,219,633 for the redemption of the Akai Electric 2001 bonds.  However, the recycled payments only amounted to US$118,399,119, which was not enough to amount to a complete settlement of the amount owed by Akai Electric to Rosalie.[616]  I accept the evidence of Mr Borrelli and find that the balance was made up by the unexplained non-cash transaction of US$17,820,513[617] as a contrivance to achieve similarity between the amount debited to the “Akai corp” account and an amount due from Akai Electric to Rosalie for redemption of the Akai Electric 2001 bonds.[618] The difference of 10,000 yen, between the Tisco payments and the non-cash transaction that were recorded in US dollars, and the amount owing in Japanese yen for the Akai Electric bonds, might have been the result of a mistake regarding the prevailing exchange rate.

451.  I adopt the analysis in §§309-312 above to these payments and conclude that they were defalcations by Mr Ting.  The repayment of the Tisco payments is dealt with below when I consider the method to employ to assess equitable compensation.

Q.9 The TriAsia Transactions[619]

452.  It is alleged that, during the Claim Period, Akai made 5 payments for the benefit of TriAsia, a Ting Associate, for no legitimate commercial purpose.[620] These payments were made by Akai to Bank of Tokyo-Mitsubishi (“BTM”) “by order of TriAsia” and were made for the improper purpose of reducing TriAsia’s loan account.

453.  Mr Bowyer disputed that four of these payments totalling US$16,640,584 were defalcations on the basis that he “is unable to determine that TriAsia was the Recipient of the four payments”.[621]  Mr Ting’s case is that the statement in the letters concerned that the payment was made “by order of TriAsia” was insufficient to prove that TriAsia was the beneficiary of the payment.

454.  Mr Bowyer did accept that there was no evidence to justify Akai paying money to BTM or booking that payment into its BT-Deposit General Ledger Account. They were, on their face, “unexplained transactions”.[622]

455.  I agree with Akai’s submissions that the lack of any commercial purpose for Akai’s payments to BTM and their concealment in the BT-Deposit General Ledger Account was of itself sufficient for me to find that they were defalcations of Akai’s assets by Mr Ting.  However, there is documentary evidence in this case, in the form of third party banking documents identified by Mr Spence at §11.6 of his Report, from which I find that Akai was making repayments of TriAsia’s bank loan with BTM.[623]  In particular:

(1) All bank instructions included the reference “2804603” and directed the relevant bank to “uplift [Akai’s] deposit” and to pay BTM “by order of TriAsia”;[624]

(2) One instruction to Bank of America stated that the payment is “for repayment and interest for term loan: borrower 2804603”,[625]  indicating that the reference number “2804603” referred to a borrowing client of BTM; and

(3) Two instructions to SCB included the reference “2804603 – TriAsia Ltd”, indicating that this reference number was associated with the BTM account of TriAsia.[626]

456.  I am able to find, from these documents, combined with the banking documents showing the equivalent funds either paid by Akai or received by BTM, that Akai was making payments to BTM on behalf of TriAsia in order to reduce TriAsia’s loan.  Such payments served no legitimate commercial purpose and were defalcations of Akai’s assets by Mr Ting.  I adopt the analysis contained in §§309-312 above to these payments and conclude that they were defalcations by Mr Ting.

Q.10  Primewood, Rosalie and Cyclonics were Group 3 Ting Recipients

457.  I refer to §§232-234 above.  Absent any evidence from or on behalf of Mr Ting, I infer from Primewood’s sharing of the correspondence address with Fiction and Everwin and its involvement with the Primewood defalcations that Primewood was a Group 3 Ting Recipient.

458.  I refer to §§235-236 above.  Absent any evidence from or on behalf of Mr Ting,  I infer from Rosalie’s involvement with the Primewood defalcations that Rosalie was a Group 3 Ting Recipient.

459.  I refer to §§237-239 above.  In the circumstances of the present case where hundreds of millions of US dollars were contemporaneously paid out by Akai for no apparent commercial purpose or value to Akai to other companies with which Mr Ting had an express connection and which were concealed in similar manner, I am prepared to infer, absent any evidence from or on behalf of Mr Ting, that Cyclonics was yet another company controlled by Mr Ting.

Q.11  The Disputed Payments were Defalcations

460.  I have found, with the exception of the Worldwide transaction, that the disputed payments were defalcations.  I have done so after reminding myself of the burden of proof and the injunction against a finding of wrongdoing unless the evidence of wrongdoing was clear and unless the inference of such wrongdoing was compelling. My findings, that Mr Ting deliberately misappropriated Akai’s assets, namely, the disputed payments, and that he did so dishonestly, have been based on the totality of the admissible evidence on the issue and the following compelling facts:

(1) Mr Ting was the controlling and dominant force in the management of Akai’s operations and that control extended to control of Akai’s finances and accounts;

(2) After deducting the Worldwide transaction, these transactions totalled US$414,722,616[627]. Over 46% of these transactions totalling US$414,722,616 were personally signed for by Mr Ting[628];

(3) The payments were made by Akai to offshore companies directly or indirectly owned and controlled by Mr Ting, or otherwise connected with him or connected with other companies controlled by longstanding business associates of Mr Ting;

(4) Mr Ting has proffered no explanation whatsoever for these transactions;

(5) There was no apparent commercial purpose or actual or potential value to Akai from these transactions;

(6) These transactions were not disclosed by Mr Ting to Akai’s board, auditors, public shareholders or the Hong Kong Stock Exchange, despite having been made to connected persons and entities;

(7) On the contrary, their existence was concealed through false accounting in Akai’s general ledger, in particular through a fictitious general ledger account titled “BT-Deposit” which was brought to a nil balance at each financial year-end.

461.  I have sufficient evidence before me to enable me to find that Mr Ting deliberately misappropriated Akai’s assets, namely, the disputed payments totalling US$414,722,616, and that he did so dishonestly.  However, if I am wrong to reach this conclusion on the evidence before me, I would proceed on the basis that my finding, that the disputed payments were not made for a commercial purpose, was sufficient for the evidential burden to shift to Mr Ting to justify the propriety of the transactions.  I have already set out my reasons why I am unable to accept Mr Bowyer’s evidence that there was commercial purpose to the disputed payments. No evidence whatsoever has been adduced in this regard by or on behalf of Mr Ting.  He has entirely failed to discharge the evidential burden that has shifted to him and that is sufficient for me to conclude that Mr Ting caused Akai to made disputed payments to the Ting Recipients, and that he did so fraudulently.

462.  I am able to reach this conclusion without the need to draw adverse inferences against Mr Ting from his election not to give evidence in this case.

463.  As I have found that Mr Ting acted fraudulently in respect of the disputed payments, he is strictly liable as a defaulting trustee and is required to restore the lost trust assets in specie, in this case by accounting to the beneficiary Akai by way of equitable compensation, the purpose of which is restitutionary or restorative.

R. Equitable Compensation

464.  The issues that arise on the quantification of compensation payable to Akai are:

(1) the extent, if any, to which Mr Ting is to be given credit by virtue of the sums paid to Akai by the Recipients during the Claim Period;

(2) the extent of any credit for double recovery; and

(3) the appropriate method of calculation of interest.

The substantial area of dispute between the parties concerned the credit to be given for sums paid to Akai by Recipients.

465.  The relevant principles that apply where a trustee or other fiduciary has misapplied trust property are summarised in Snell’sEquity (33^rd ed, 2014) at §20-034 to §20-036 as follows:

““In other circumstances compensation or equitable compensation is calculated as an equivalent to an asset which, if it were available, the defendant would be obliged to deal with in a particular way. Substitutive compensation is measured by the asset’s objective value or the objective value of some deterioration or diminution. The effect of the award is to compel the defendant to perform his duty in respect of the asset substitutively, by paying an equivalent amount of money instead.

For instance, where a custodial fiduciary has misplaced assets, on the taking of their account they may be charged with the value of the asset. Their personal liability to pay this amount, conventionally labelled compensation, involves an obligation to perform their duties in respect of the asset substitutively. The same concept applies where upon the specific performance of a contract, a vendor is obliged to pay compensation for defects in the asset, and also where upon rescission a party cannot return an asset in specie or cannot return it in the same condition.

In cases such as these, the only relevant “loss” is the literal loss or partial loss of the asset that occurred when it passed out of the defendant’s hands or deteriorated in some way. Causation, remoteness and mitigation of loss are not apposite concepts. The term “loss” is better avoided altogether in this connection.”

[Emphasis added].

466.  The legal principles set out below have been addressed and confirmed in the unanimous decision of the Court of Final Appeal in Libertarian Investments Limited v Thomas Alexej Hall (2013) 16 HKCFAR 681 in which the Court of Final Appeal undertook a detailed review of the applicable equitable principles.

467.  The starting point is that the relationship between a director and company is fiduciary in nature (at §53).

468.  Secondly, there is a fundamental distinction between fiduciary obligations and obligations under the tort of negligence and contract, as explained by Ribeiro PJ (at §72) citing McLachlin J in her “dissenting but influential judgment” in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at §61:

“The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges herself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged. The freedom of the fiduciary is diminished by the nature of the obligation he or she has undertaken – an obligation which ‘betokens loyalty, good faith and avoidance of a conflict of duty and self-interest’: Canadian Aero Service Ltd v O’Malley, [1974] S.C.R. 592 at 606, 40 DLR (3d) 371, 11 CPR (2d) 206. In short, equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart.” (emphasis added)

469.  Thirdly, the “basic obligation” of a fiduciary is to act in the interests of another (per Riberio PJ at §74):

“74. … [and] may find expression in various ways, depending on the circumstances: He may be said to be under a duty to act in good faith; not to make a profit out of his trust; not to place himself in a position where his duty and his interest may conflict; or not to act for his own benefit or the benefit of a third person without the informed consent of his principal.”

470.  Fourthly, adopting the analysis of Tipping J in BNZ v NZ Guardian Trust Co Ltd [1999] 1 NZLR 664 ,  there are three categories of breaches of fiduciary duties and strict rules on causation apply in respect of the first two categories of breaches, mirroring those developed in relation to traditional trusts, such that the common law rules as to foreseeability and remoteness are inapplicable. The current case, involving misapplied assets, falls into the first category. As Ribeiro PJ stated at §§75 – 79:

“75. Where a fiduciary has committed a breach of some such fiduciary duty, it may be important to ascertain what impact that breach has had on any relevant trust property. As Tipping J pointed out, it is possible to distinguish three categories of breach with particular reference to their impact on the trust estate:

“Breaches of duty by trustees and other fiduciaries may broadly be of three different kinds. First, there are breaches leading directly to damage to or loss of the trust property; second, there are breaches involving an element of infidelity or disloyalty which engage the conscience of the fiduciary; third, there are breaches involving a lack of appropriate skill or care. It is implicit in this analysis that breaches of the second kind do not involve loss or damage to the trust property, and breaches of the third kind involve neither loss to the trust property, nor infidelity or disloyalty.”

76. It is of course true that in every case, there must be shown to be “some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz the fact that the loss would not have occurred but for the breach...” However, the authorities show that the rules on causation are of varying strictness depending on the type of duty and breach in question.

77. Tipping J’s third category of breaches involving a lack of appropriate skill or care is not relevant on the facts of the present case. However, it may be noted that the fiduciary relationship in such cases merely provides a setting for a duty which is indistinguishable from a common law duty of care. Albeit arising in a fiduciary context, the common law rules as to causation, foreseeability and remoteness generally apply to such claims.

78. On the other hand, in cases within Tipping J’s first category, involving loss caused by the fiduciary to trust property, strict rules on causation apply. These are rules borrowed from those developed in relation to traditional trusts, requiring the trustee to restore to the trust fund what he has caused it to lose as a result of his breach of trust. In Target Holdings Ltd v Redferns, Lord Browne-Wilkinson explained the traditional rule as follows:

“In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. ... If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed. ... Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred ...Thus the common law rules of remoteness of damage and causation do not apply.”

79. Tipping J held that a breach of fiduciary duty in his first category is to be equated with such a breach of trust and treated with equal strictness. Causation is established on a “but for” basis without the constraints of the common law causation rules on remoteness and foreseeability:

“In the first kind of case the allegation is that a breach of duty by a trustee has directly caused loss of or damage to the trust property. The relief sought by the beneficiary is usually in such circumstances of a restitutionary kind. The trustee is asked to restore the trust estate, either in specie or by value. The policy of the law in these circumstances is generally to hold the trustee responsible if, but for the breach, the loss or damage would not have occurred. This approach is designed to encourage trustees to observe to the full their duties in relation to the trust property by imposing upon them a stringent concept of causation. Questions of foreseeability and remoteness do not come into such an assessment.”

471.  The Court of Final Appeal also set out in detail the principles relating to the remedy of equitable compensation and a fiduciary’s entitlement to an account.  Moreover, Lord Millett NPJ carefully explained in his short but cogent judgment why it is incorrect to assert that account and equitable compensation are alternative remedies:

“167. It is often said that the primary remedy for breach of trust or fiduciary duty is an order for an account, but this is an abbreviated and potentially misleading statement of the true position. In the first place an account is not a remedy for wrong. Trustees and most fiduciaries are accounting parties, and their beneficiaries or principals do not have to prove that there has been a breach of trust or fiduciary duty in order to obtain an order for account. Once the trust or fiduciary relationship is established or conceded the beneficiary or principal is entitled to an account as of right. Although like all equitable remedies an order for an account is discretionary, in making the order the court is not granting a remedy for wrong but enforcing performance of an obligation.

168. In the second place an order for an account does not in itself provide the plaintiff with a remedy; it is merely the first step in a process which enables him to identify and quantify any deficit in the trust fund and seek the appropriate means by which it may be made good. Once the plaintiff has been provided with an account he can falsify and surcharge it. If the account discloses an unauthorised disbursement the plaintiff may falsify it, that is to say ask for the disbursement to be disallowed. This will produce a deficit which the defendant must make good, either in specie or in money. Where the defendant is ordered to make good the deficit by the payment of money, the award is sometimes described as the payment of equitable compensation; but it is not compensation for loss but restitutionary or restorative. The amount of the award is measured by the objective value of the property lost determined at the date when the account is taken and with the full benefit of hindsight.

169. But the plaintiff is not bound to ask for the disbursement to be disallowed. He is entitled to ask for an inquiry to discover what the defendant did with the trust money which he misappropriated and whether he dissipated it or invested it, and if he invested it whether he did so at a profit or a loss. If he dissipated it or invested it at a loss, the plaintiff will naturally have the disbursement disallowed and disclaim any interest in the property in which it was invested by treating it as bought with the defendant’s own money. If, however, the defendant invested the money at a profit, the plaintiff is not bound to ask for the disbursement to be disallowed. He can treat it as an authorised disbursement, treat the property in which it has been invested as acquired with trust money, and follow or trace the property and demand that it or its traceable proceeds be restored to the trust in specie.

170. If on the other hand the account is shown to be defective because it does not include property which the defendant in breach of his duty failed to obtain for the benefit of the trust, the plaintiff can surcharge the account by asking for it to be taken on the basis of “wilful default”, that is to say on the basis that the property should be treated as if the defendant had performed his duty and obtained it for the benefit of the trust. Since ex hypothesi the property has not been acquired, the defendant will be ordered to make good the deficiency by the payment of money, and in this case the payment of “equitable compensation” is akin to the payment of damages as compensation for loss.

171. In an appropriate case the defendant will be charged, not merely with the value of the property at the date when it ought to have been acquired or at the date when the account is taken, but at its highest intermediate value. This is on the footing either that the defendant was a trustee with power to sell the property or that he was a fiduciary who ought to have kept his principal informed and sought his instructions.

172. At every stage the plaintiff can elect whether or not to seek a further account or inquiry. The amount of any unauthorised disbursement is often established by evidence at the trial, so that the plaintiff does not need an account but can ask for an award of the appropriate amount of compensation. Or he may be content with a monetary award rather than attempt to follow or trace the money, in which case he will not ask for an inquiry as to what has become of the trust property. In short, he may elect not to call for an account or further inquiry if it is unnecessary or unlikely to be fruitful, though the court will always have the last word.”

472.  The following principles are of particular relevance to the present case:

(1) The underlying premise of equitable compensation is that a fiduciary who has misappropriated assets has a duty to restore the lost property (per Ribeiro PJ at §87:)

“87. Equitable compensation rests on the premise that the basic duty of a trustee or fiduciary who has misappropriated assets or otherwise caused loss or damage to the trust estate in breach of his duty is to restore the lost property to the trust (together with an account of profits if applicable). Where restoration in specie is not possible, the Court may order equitable compensation in place of restoration.” (footnotes omitted)

Accordingly, equitable compensation “is not compensation for loss but restitutionary or restorative” (per Lord Millett NPJ at §168).

(2) The effect of the inapplicability of common law rules of foreseeability and remoteness is that equitable compensation is assessed at the time of judgment with the full benefit of hindsight, see per Ribeiro PJ at §§90-91:

“90.   As we have seen, in pursuing the restorative objective of equitable compensation, the common law rules requiring the loss to be foreseeable and not too remote do not apply.  The Court is therefore entitled to assess compensation “with the full benefit of hindsight”.

91. Consequently, the loss is assessed at the time of judgment and the Court is entitled to take into account any post-breach changes affecting the value of the lost trust property. McLachlin J, following Wilson J, cited with approval the following passage from the judgment of Street J in Re Dawson: Union Fidelity Trustee Co v Perpetual Trustee Co:

     “… in a claim against a defaulting trustee … his obligation has always been regarded as tantamount to an obligation to effect restitution in specie; such an obligation must necessarily be measured in the light of market fluctuations since the breach of trust; and in my view it must also necessarily be affected, where relevant, by currency fluctuations since the breach.”” (emphasis added, footnotes omitted)

(3) The burden is on a defaulting fiduciary to disprove the apparent causal connection between the breach of duty and the loss arising therefrom. As Ribeiro PJ held (at §§93-95):

“93. Where the plaintiff provides evidence of loss flowing from the relevant breach of duty, the onus lies on a defaulting fiduciary to disprove the apparent causal connection between the breach of duty and the loss (or particular aspects of the loss) apparently flowing therefrom.

94. Tipping J so held in BNZ v NZ Guardian Trust Co Ltd. Similarly, when in Maruha Corporation and Muruha (NZ) Ltd v Amaltal Corporation Ltd, a defaulting fiduciary sought an offset against the compensation payable for its default, the Court required it to show that the proposed offset “was an incontrovertible benefit to the person to whom the fiduciary duty was owed” emphasising “that it is for the defaulting fiduciary to establish that such a benefit has been gained.”

95. Another instance is found in the judgment of Mason J in Hospital Products, when dealing with a defaulting fiduciary who has “so mixed an indeterminate profit with his own property as to render the identification of the gain impossible”. In such a situation, “... the whole will be treated as trust property, except so far as he may be able to distinguish what is his own”. His Honour also suggested that in a case where a fraudulent fiduciary acquired a profit through a combination of trust property and his own property or efforts, “It may well be that equity in such circumstances will not seek to apportion the gain”.” (emphasis added, footnotes omitted)

473.  The Supreme Court of New Zealand (Elias CJ, Blanchard, Tipping, McGrath and Anderson JJ) in Maruha Corporation and Muruha (NZ) Ltd v Amaltal Corporation Ltd [2007] NZSC 40 cited, by Ribeiro PJ (at §94), confirmed that a defaulting fiduciary is not entitled to any deduction or offset against the quantum of compensation for which it is liable unless the offset is in respect of a clear and manifest benefit conferred by the fiduciary. Moreover, the onus is on the errant fiduciary to establish any such benefit. As Blanchard J stated (at §§29 – 30):

“We accept the submissions of [Counsel for the plaintiff appellants] that where a defaulting fiduciary seeks an offset against the compensation payable for its default, it must show that what is to be offset was an incontrovertible benefit to the person to whom the fiduciary duty was owed; and that it is for the defaulting fiduciary to establish that such a benefit has been gained. Counsel derived the first of these propositions from the law of restitution. Mr Miles cited to us from the judgment of McLachlin J for the Supreme Court of Canada in Peel (Regional Municipality) v Canada:

An “incontrovertible benefit” is an unquestionable benefit, a benefit which is demonstrably apparent and not subject to debate and conjecture. Where the benefit is not clear and manifest, it would be wrong to make the defendant pay, since he or she might well have preferred to decline the benefit if given the choice.

In a context like the present it would be wrong to make the party which has suffered from a fiduciary breach allow the errant fiduciary a deduction unless it is for a clear and manifest benefit conferred by the fiduciary. And when the fiduciary alleges that it has conferred such a countervailing benefit, it should be for the fiduciary to establish that this is so. The correct approach is that suggested in Bank of New Zealand v New Zealand Guardian Trust Co Ltd. Tipping J said in his concurring judgment that where a trustee or fiduciary has committed a breach of duty which involves an element of infidelity or disloyalty engaging the fiduciary’s conscience:

[O]nce the plaintiff has shown a loss arising out of a transaction to which the breach was material, the plaintiff is entitled to recover unless the defendant fiduciary, upon whom is the onus, shows that the loss or damage would have occurred in any event, ie without any breach on the fiduciary’s part. … Policy dictates that fiduciaries be allowed only a narrow escape route from liability based on proof that the loss or damage would have occurred even if there had been no breach.

[The defendant] has not discharged this onus. It needed to show that in 1991, in order to take its share of the quota, [the plaintiff] must have paid the tax if [the defendant] had not itself done so (out of the overpayments). It called no evidence to support its assertion. Such evidence as exists is in fact to the contrary. [The defendant] has therefore failed to show that [the plaintiff] received an incontrovertible benefit of $1.2 million. It is not entitled to a deduction in that amount.” (emphasis added)

474.  The principles relating to equitable compensation are well summarised by McLachlin J in Canson at 556, as cited by Ribeiro PJ at §96:

“In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, i.e., the plaintiff's lost opportunity. The plaintiff’s actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach. The plaintiff will not be required to mitigate, as the term is used in law, but losses resulting from clearly unreasonable behaviour on the part of the plaintiff will be adjudged to flow from that behaviour, and not from the breach. Where the trustee's breach permits the wrongful or negligent acts of third parties, thus establishing a direct link between the breach and the loss, the resulting loss will be recoverable. Where there is no such link, the loss must be recovered from the third parties.” (footnotes omitted)

475.  A robust approach is to be adopted. In measuring the amount of equitable compensation, the Court’s approach “reflects the stern view taken of defaulting fiduciaries”.  In this regard, “a fiduciary is precluded from setting up a case inconsistent with the obligations of his fiduciary position” (per Ribeiro PJ at §123).  Both Ribeiro PJ and Lord Millett NPJ emphasized that where uncertainties existed due to a lack of documentary evidence, as a consequence of the fiduciary’s wrongdoing, the uncertainty would be construed against the defaulting fiduciary. In particular:

(1) Ribiero PJ stated (at §138):

“The evidential difficulties now faced by the Court form part of the consequences flowing from the defendant’s original wrongdoing as a defaulting fiduciary. In such circumstances, the Court adopts a robust approach. This was explained by Handley JA in the New South Wales Court of Appeal in Houghton v Immer, where equitable compensation was awarded in a case involving equitable fraud (but not a breach of fiduciary duty), as follows:

“The defendants are entitled to a set-off for the actual cost of the improvements, but there was no evidence of this cost. The accounting issue would normally be referred to a Master but the trial was not conducted on this basis. The defendants would have great difficulty in such an enquiry, since no attempt appears to have been made to keep separate records of the cost of constructing the improvements on the common property. …

At this stage the Court should only remit the matter to a Master as a last resort, if no other course is fairly open. The defendants, having improved common property without lawful authority, and attempted to effect a fraud on the minority, are wrongdoers, and their failure to keep and produce proper accounts of their actual expenditure on the common property has made it difficult to assess the compensation due to the plaintiff. Compare Armory v Delamirie (1722) 1 Stra 505. … In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party ‘whose actions have made an accurate determination so problematic’. See WP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508.” (emphasis added, footnotes omitted)

(2) Lord Millett NPJ stated at (§174):

“Where the absence of evidence is the consequence of the fiduciary’s own breach of duty the court is not without resource, for it can have resort to three principles. First, it may be able to take the fiduciary at his own word and use his falsehoods to establish the facts as if they were true even though they are known to be untrue. Secondly the court is entitled to make every assumption against the party whose conduct has deprived it of necessary evidence. And thirdly the court is entitled to be robust and do rough and ready justice without having to justify the amount of its award with any degree of precision.” (emphasis added)

476.  I find that, in causing the defalcations of Akai’s assets, Mr Ting acted in flagrant breach of his fiduciary duties to Akai and that Mr Ting’s breaches of his fiduciary duties fell within the first category classified by Tipping J in BNZ such that strict rules on causation apply. Accordingly, in measuring loss to Akai, questions of foreseeability, remoteness and mitigation are irrelevant.  This case concerns a misappropriation of Akai’s assets, it is not a wilful default case.  Applying the above principles, I accept that the starting point for the determination of the quantum of equitable compensation payable by Mr Ting to Akai is the total amount of defalcations[629]. 

477.  In the absence of evidence from Mr Ting, there can be no basis for speculation in Mr Ting’s favour.  As a fiduciary, Mr Ting is strictly accountable to Akai.  Holding Mr Ting to account requires that I must be satisfied, on evidence and not speculation, that sums paid to Akai were a restoration of a prior defalcation, before Mr Ting can be given any credit. 

478.  Mr Ting is only entitled to a deduction from this sum if I accept that payments to Akai were restorations of prior defalcations.  Unlike Maruha Corporation and Muruha (NZ) Ltd v Amaltal Corporation Ltd, the present case is not a case where Mr Ting can claim an offset from Akai or where Mr Ting can claim that Akai received an incontrovertible benefit.  I do not derive assistance from the authorities on unjust enrichment and the principle that the claimant must make a counter-restitution of the benefit he has received. The return of Akai’s own money is not a benefit conferred[630] but it restores a loss that occurred at the time of the defalcation.  If Akai has received proceeds of defalcations by Mr Ting from Akai’s subsidiaries then such proceeds are not the return of Akai’s own money and Mr Ting cannot get credit for them.  However, if Akai has received back its own money it cannot be said to be a constructive trustee of the money for the remitter of the funds. 

S. Methods 1 to 5, Tomei Receipts and Disregarded Credits

479.  During the Claim Period, the Recipients of the defalcations also made various payments to Akai.  The greater dispute between the parties centred on the extent to which these payments to Akai might reduce the compensation payable by Mr Ting to Akai.  It was Akai’s case that no credit should be given for these payments in accordance with the well-established principles of director fiduciary accountability for misapplied company assets.  Alternatively, if credit was to be given, then it should only be given if and to the extent that the receipt can be demonstrated by Mr Ting to be directly linked to a prior defalcation by Mr Ting to the same Recipient.

480.  Mr Borrelli identified four alternative Methods of calculating the compensation payable by Mr Ting for his Defalcations (“Methods 2 to 5”).  Each of Methods 2 to 5 relied on an assumption as to the connection between the defalcations of Akai’s assets by Mr Ting and the receipts from Recipients.  The strength of the objective factors to establish such a connection grew weaker from Methods 2 to 5. It was Akai’s case that of these alternatives, only Method 2 involved any objective factors approaching those which might be sufficient to reduce Mr Ting’s liability: that is, the requirement of identity and traceability between defalcations and subsequent receipts.

481.  The selection of the appropriate method of calculation is a legal issue and not one for expert accounting evidence, as was recognised by Mr Borrelli and Mr Spence.[631]  The relevant receipts included in the calculations under each of Methods 1 to 5 are set out at §1.8 of the Joint Expert Report and reproduced below:

482.  The quantum of the receipts from Recipients was largely agreed.  There was a dispute between the experts, which related to receipts which had been disregarded by the Liquidators on the basis that they originated from Tomei, a non-Recipient (“Tomei Receipts”).  A further dispute related to two categories of credits: cash received from subsidiaries and cash received by subsidiaries that were booked into Akai’s books[632].

S.1 Method 2

483.  Under the alternative Method 2, Akai claims the sum of US$634,051,305 being the total amount of the defalcations (US$837,118,799) less those receipts from Recipients of amounts identical or similar to prior defalcations paid to the same Recipient within close temporal proximity (US$203,067,494).  It is Akai’s case that, unlike Methods 3 to 5,  Method 2 gives at least partial effect to the principles of Mr Ting’s accountability and  the requirements for any reduction of Mr Ting’s liability for misappropriations, in that:

(1) There is at least partial identity between the relevant Receipt and a prior defalcation (although Akai’s primary case is that Mr Ting must prove precise identity, rather than “similarity”); and

(2) The Receipt is somewhat traceable to a prior defalcation to the same Recipient, as may be demonstrated by the close temporal proximity of the payments (although Akai’s primary case is that mere temporal proximity is alone insufficient to demonstrate traceability).

Adopting Method 2 would thus allow credit for amounts on the assumption that these payments by third parties are traceable to a prior defalcation, notwithstanding the legal difficulties faced by Mr Ting in making out such a case.

S.2 Method 3

484.  Under the alternative Method 3,  Akai claims the sum of US$479,764,828, being the total amount of the defalcations (US$837,118,799) less those receipts from Recipients (excluding the Starcode Receipts and Tomei Receipts) where the payee is a notional debtor of Akai by virtue of the receipt of prior defalcations (US$357,353,971).

485.  Akai claims that the difficulty with this Method is that although the Recipients are treated as notional debtors of Akai, there is no requirement of any objective identity or traceability between payments to indicate that they were given in order to offset specific prior defalcations. Therefore, unlike Method 2, there are no objective factors upon which to base an assumption that these payments by third parties operate to reduce Mr Ting’s liability to account for his misappropriations.  Further, even assuming that receipts from the third party Recipients were directed at reducing Mr Ting’s liability generally, this is precisely the kind of payment “given in respect of [Mr Ting’s] liability for cash in hand generally”, for which credit was disallowed in British American Elevator Co v Bank of British North America [1919] AC 658 (see at 665 per Haldane LC).  Accordingly, Akai submitted that Method 3 was inappropriate as a means of calculating the equitable compensation payable to Akai.

S.3 Method 4

486.  Under the alternative Method 4, Akai claims the sum of US$447,369,541, being the total amount of the defalcations (US$837,118,799) less those receipts from Recipients (excluding the Starcode Receipts and Tomei Receipts) calculated by reference to a running account maintained for all receipts from and payments to a Recipient in the Claim Period (US$389,749,258).

487.  In addition to the lack of objective identity or traceability as identified in relation to Method 3, under Method 4, a prior receipt could be offset against a later defalcation.  Allowing such credit was to treat the relationship between Akai and the Recipient as if it were a legitimate debtor/creditor relationship in the ordinary course of business, which clearly was not the case.  Further, as a matter of logic, Mr Ting’s liability to account for a misappropriation could not be reduced before it has arisen due to a defalcation.  For these reasons, Akai submitted that Method 4 was inappropriate as a means of calculating the equitable compensation payable to Akai.

S.4 Method 5

488.  Under the alternative Method 5, Akai claims the sum of US$406,115,559, being the total amount of defalcations (US$837,118,799) less all receipts from Recipients other than the Starcode Receipts and Tomei Receipts (US$431,003,240).

489.  Under this Method, in addition to the lack of objective identity or traceability and the problem of timing associated with Method 4, receipts from one Recipient could be used to offset a defalcation made to an entirely different Recipient.  This assumed that the Recipients not only made payments on behalf of Mr Ting in order to reduce his liability, but also that they made such payments to Akai without necessarily having received defalcations to that extent themselves.  In other words, notwithstanding Mr Ting’s failure to provide any evidence whatsoever on the issue, there was an assumption that the Recipients acted with one another in some kind of joint enterprise for the purpose of reducing Mr Ting’s liability.  Method 5 therefore disregarded the fundamental principle of separate legal personality.  For these reasons, Akai submitted that Method 5 was inappropriate as a means of calculating the equitable compensation payable to Akai.

S.5 Methods 4 and 5 are Rejected

490.  I reject Methods 4 and 5 as being inappropriate to assess equitable compensation in this case.  Method 4 operates as a running account between Akai and the various Recipients.  The effect of this is that, in addition to the credit provided under Method 3, Mr Ting would also be given credit for amounts paid to Akai by a Recipient in advance of receiving defalcations – in other words, the payment to Akai would be treated as a loan that was repaid by a subsequent defalcation.  This method was plainly inappropriate.  A payment out was in breach of fiduciary duty even though it might have been a “repayment” of a sum that had been paid to Akai by the Recipient in a prior concealed and fraudulent self dealing transaction.  If a defalcation occurred on a certain date, a payment to Akai before that date cannot be a “restoration” of that later breach of fiduciary duty.

491.  Method 5 takes matters even further and provides Mr Ting with credit for all sums paid to Akai by Recipients during the Claim Period.  In addition to the problems with 4, this Method impermissibly pierces the corporate veil of each of the Ting Recipients in Mr Ting’s favour, as all of the Recipients are treated as one legal entity and then equated with Mr Ting for the purpose of reducing Mr Ting’s liability.  Piercing the corporate veil only occurs in exceptional circumstances to give a plaintiff a remedy against a wrongdoer who has sought to evade liability by interposing a company under his control.  It is not available to a defendant: Prest v Petrodel Resources Limited [2013] 3 WLR 1 at §35 (Lord Sumption JSC).  To the extent that Mr Bowyer’s evidence sought to employ accounting principles as to offsetting in support of Method 5 or some further method, this was shown to be incorrect by reference to the applicable accounting standards.[633]

S.6 Method 2

492.  I refer to §§397 to 402 above.  I accept Mr Borrelli’s evidence in §§23 to 240 and §§432-436 of his witness statement in connection with the Tisco recycling transactions.  I am satisfied from the identity between the receipt and the prior defalcation and from the close temporal proximity of the payments that the receipts were a restoration of the Tisco defalcations.  I am also satisfied from the identity between the receipt and the prior defalcation and from the close temporal proximity of the payments that the receipts were a restoration of the Worldwide International, Evora, Golfland, Higher International, Goaltop and Conben defalcations identified in the exhibit to Mr Spence’s report.[634]  Accordingly, the amount of equitable compensation, in the sum of US$837,118,799, should be reduced by the amount of the restored loss in the sum of US$203,067,494.

S.7 Method 3

493.  The acceptance or rejection of Method 3 is the most difficult decision I have to make in this case.  I have received very eloquent and able submissions on behalf of Akai to the effect that the court must adopt a robust approach and not make speculative assumptions in favour of a person who is guilty of egregious breaches of fiduciary duties.  I accept Akai’s submissions that Maruha Corporation and Muruha (NZ) Ltd v Amaltal Corporation Ltd is an example of the very strict application of this principle.  In that case although it appeared to be the case that tax would have been payable, the court was not prepared to make the assumption that the victim might not have been able to avoid the tax.  I accept that British American Elevator Co. v. Bank of British North America [1919] AC 658 is another example of the strict application of this principle.  In that case, the Privy Council rightly pointed out that the Court of Appeal of Manitoba “should have treated the claim as one for replacement of trust funds and not for damages”[635] and that “the respondents did not make good the contention put forward in argument, that this cheque for $1000 was given to make good the amount of a previous draft for the same amount which had been misapplied … his cheque was given in respect of his liability for cash in hand generally [that he had received for his principals]”.[636]

494.  I was also referred to Snell’s Equity (33^rd ed.) p.186 where the editors stated:

“Similarly, a fiduciary who has acted in breach of fiduciary duty, and against whom an account of profits is ordered, may nevertheless be given an allowance for skill and effort employed in obtaining the profit which he has to disgorge, where:

‘it would be inequitable now for the beneficiaries to step in and take the profit without paying for the skill and labour which has produced it.’

The power is exercise sparingly, out of concern not to encourage fiduciaries to act in breach of fiduciary duty.  It will not likely be used where the fiduciary has been involved in surreptitious dealing or has acted dishonestly or in bad faith.  However, allowances are not ruled out simply because the fiduciary can be criticised in the circumstances, and there are instances of them being made even where the fiduciary has acted surreptitiously and deceitfully.”  [emphasis added]

Akai submitted that to speculate in Mr Ting’s favour leads inexorably to a greater level of encouragement to the breaching of fiduciary duties.

495.  I agree with Akai’s submission that it would be wrong to infer that Mr Ting was cheque kiting and creating a circularity of funds so as to increase the turnover of Akai in order to give the appearance of increased value of the company.  The funds were off the balance sheet and concealed in the BT Deposit and Temporary General Ledger Accounts; therefore, the circularity of funds did not confer any benefit to Akai.  The Liquidators had spent years trying to understand why he did what he did and could not come up with an answer, except for the Tisco recycling transactions which were done to try to bring the BT Deposit account down to zero so that it would escape the attention of the auditors.  If the Liquidators could not come up with an answer the Court should not speculate in Mr Ting’s favour.

496.  I accept that Method 3 is further removed from Method 2 as it does not have the coincidence of timing and coincidence of amount present in Method 2.  The schedules for Method 3 showing the receipts from Recipients are in Bundle E26 at Tab 38 for the BT Deposit account and at Tab 58 for the Temporary General Ledger Account.

497.  However, notwithstanding Akai’s cogent submissions, I cannot get away from the fact that the defalcations in the total sum of US$837,118,799, over the Claim Period of 2.5 years from February 1997 to July 1999, amounted to 58% of the turnover of the year ended 31 January 1998 and 75% of the capital and reserves of that year[637] of the Akai Group on a consolidated basis; and amounted to 100.5% of the turnover of the year ended 31 January 1999 and 80% of the capital and reserves of that year[638] of the Akai Group on a consolidated basis.  I cannot see how Mr Ting could have committed defalcations in these extraordinary amounts[639] unless some of the proceeds of prior defalcations were restored to Akai by Recipients.  I cannot see where Akai had the cash assets to enable Mr Ting to commit these defalcations in these extraordinary amounts[640] unless some of the proceeds of prior defalcations were restored to Akai by Recipients.  In the course of closing oral submissions, it was rightly submitted on behalf of Akai that, for the year ended 31 January 1998, the payments to Recipients amounted to approximately 31% of the total turnover of the Akai Group on a consolidated basis and that this was a huge indicator that the whole thing was fraudulent[641]. 

498.  The payments made to Recipients were made for no commercial purpose.  The payments made by Recipients to Akai were also made for no commercial purpose.  Although I do so with great reluctance, as I have no desire to favour a fraudster of this calibre committing frauds of this magnitude, possibly the largest corporate fraudster in Hong Kong’s entire history, the sheer amount of the defalcations, when compared with the turnover and assets of the entire Akai Group on a consolidated basis, compels me to draw the irresistible inference that defalcations of this magnitude could not have been committed by Mr Ting unless some of the proceeds of prior defalcations were restored to Akai by Recipients as shown in the schedules on Method 3.

499.  Accordingly, the amount of equitable compensation, in the sum of US$837,118,799, should be reduced by the amount of the restored loss in the sum of US$357,353,971, which is inclusive of the restored loss of US$203,067,494 under Method 2.

S.8 The Disregarded Receipts, including the Tomei Receipts

500.  Mr Borrelli has recognised as, Disregarded Credits, a number of transactions which, according to Akai’s case, was irrelevant to the assessment of equitable compensation payable by Mr Ting.  These disregarded credits included cash received by Akai from subsidiaries, cash received by subsidiaries but booked into Akai’s books, and receipts from Ting Recipients that were funded by Tomei, an affiliate of Akai[642].

S.8.1  Cash Received by Akai from Subsidiaries

S.8.1.1   Mr Ting’s Case

501.  Out of the US$48.1 million within this category, Mr Bowyer[643] found evidence to show that about US$20 million paid by subsidiaries (Space Mountain, KWEE and KWIC) to Akai were in fact funded by Recipients.  However, these payments had been disregarded by the Liquidators. Mr Ting submitted that these payments were made by Recipients to Akai, albeit via subsidiaries, and should be taken into account in reducing Akai’s loss for that is what they did.

S.8.1.2   Akai’s Case

502.  Akai submitted that, as a matter of law, the disregarded credits received by Akai from its subsidiaries of US$20,051,218 were irrelevant.  In any event, the disregarded credits could only be relevant to Method 5 because:

(1) The payments by Akai’s subsidiaries were said to be sourced from multiple Recipients and thus, to take them into account, requires a “consolidation” of all Recipients into one.  There was no factual or legal basis for such “consolidation”.

(2) There had been no attempt by Mr Ting’s legal advisers or his expert to link any of these payments to a prior defalcation of Akai’s assets either to that Recipient or indeed to any Recipient.[644]

503.  Further, Mr Bowyer did not make any deduction for receipts from Akai’s subsidiaries.  Mr Ting’s position was inconsistent with the expert evidence including the Joint Expert Report.[645]

S.8.2 Cash Received by Subsidiaries but booked into Akai’s Books

S.8.2.1   Mr Ting’s Case

504.  Subsidiaries of Akai received payments of US$93.6 million from Recipients[646].  These payments were booked in Akai’s books as loans due from the subsidiaries and credited to the BT Deposit and Temporary General Ledgers.  They were excluded from the calculation of loss because they were not cash received by Akai itself.  Mr Spence could not see the reason why a cash transaction between a Recipient and a subsidiary was recorded in Akai’s books[647] and that it was the cash and not the accounting that was relevant.[648]

505.  Mr Ting submitted that the accounting was relevant.  If the Liquidators were correct to treat the Primewood transaction as one amounting to a defalcation, even though the subsidiary and not Akai was entitled to the money paid, then these receipts must also be taken into account.

506.  Akai had suggested that it was not open to Mr Ting to challenge the way these credits had been categorised because Mr Bowyer had agreed in the Joint Report to make no adjustments for them[649].  That was wrong, both on the evidence and as a matter of law.  On the evidence, Mr Bowyer specifically referred to the US$93.6 million at §3.2(ii) of the Joint Report as a category which may be taken into account and, at §4.11, gave the reason for their inclusion.  He also explained why he then disregarded the transactions between Akai and its subsidiaries (Space Mountain, KWEE and KWIC) of US$20 million at §4.14(d) and 4.17 of the Joint Report.  It was to be consistent with the Liquidators’ approach, which he had adopted in the Joint Report solely for reasons of practicality.  Mr Bowyer had not conceded that these payments should be disregarded.

507.  Mr Ting submitted that it was for the Court to decide the issue.  These were payments by the Recipients to the subsidiaries at the holding company’s order (Mr Bowyer[650]).  The fact that the transactions were credited to the BT Deposit or Temporary General Ledgers reinforced the position that the payments were intended to reduce, and accepted by Akai, as reducing the payments out Akai made through those same ledgers.  Akai not only received a benefit in respect of these payments (either of cash or an asset in the form of a loan from a subsidiary), but these benefits were received from payments made by Recipients.  In respect of the following Recipients, Higher International, JT Capital, Fu Tak International, Restex and Seline, Mr Borrelli acknowledged that they had paid more to Akai than they had received from it.  He accepted that he had made no attempts to return the money to them[651]. Equity required that this benefit from Recipients be taken into account.

S.8.2.2   Akai’s Case

508.  Akai submitted that the US$93.6 million received by Akai’s subsidiaries from Recipients was one step further removed from being a restoration of misapplied assets, in that these amounts were not even received by Akai, let alone connected with specific prior defalcations.  There was no evidence whatsoever that such sums were received by subsidiaries “at the holding company’s order” or “on behalf of Akai”.[652] Mr Ting’s submission was based on a mirage of a group of third party companies negotiating some complex form of financing amongst themselves, but leaving no trace of what it was about, why it was needed, or how it worked.  The false accounting in Akai’s BT-Deposit General Ledger Account could not create value where none existed.[653]

509.  Mr Ting’s submission that Mr Bowyer somehow allowed for an adjustment in this amount is directly contradicted by his evidence.  Specifically, Mr Bowyer stated “I don’t take any point in respect of the 93 million”.[654]  Again, Mr Bowyer excluded this amount from his adjustments in his first report and the Joint Expert Report.[655]

510.  The suggestion that Mr Borrelli should have returned payments to certain Ting Recipients, was unreal.  Akai was in insolvent liquidation and the liquidator could not simply “return” funds to any party outside the proof of debt procedure.

511.  More generally, Mr Ting suggested that “the principal objectionable effect of this methodology is that it excludes payments back to subsidiaries which have been received by Akai or simply paid on and booked into the accounts of Akai.”[656]  No reason was given why such an effect is objectionable.  As a matter of law, it would only be objectionable if such payments were shown to be restorations of Akai’s misappropriated assets.  Mr Ting had not attempted to show such restoration.

S.8.3  Tomei Receipts

S.8.3.1   Mr Ting’s Case

512.  Mr Ting submitted that these receipts were received by Akai from Ting Recipients.  The evidence showed that the Recipients had been funded by Tomei, a subsidiary, which had itself been funded previously by Recipients.  Mr Spence’s analysis found that all but US$2.8 million of the US$51.88 million claimed by Akai was funded by Recipients as Mr Borrelli (reluctantly) accepted in cross examination[657].  Applying the same principle to these receipts as before, the Court should have regard to the source of funding. Akai’s loss was to be reduced by US$49 million.

513.  In any event, applying the Liquidators’ own methodology, the full amount of these receipts, US$51.88 million, should be taken into account because the payments were made by Ting Recipients to Akai.  It was accepted by Mr Spence that to disallow these receipts was inconsistent with the Liquidators’ methodology.  The departure, he said, was to reflect the particular circumstances of Tomei[658].  Mr Borrelli acknowledged that the Liquidators’ method was primarily to confine only payments to and from Akai with Recipients, but here he wanted to go behind that[659].

514.  The reason the Liquidators had originally given for excluding these receipts was because (they said) there was no evidence that the funds came from prior defalcations and that, on the contrary, there was evidence that the Recipients had received money from Tomei which was a separate publicly listed entity[660].  There was no logical or legal basis for the requirement that the funds should come from prior defalcations.  So long as funds go back to Akai from Recipients, it did not matter how the Recipients obtained them.

515.  Further, if these receipts were not to be taken into account, it would produce a windfall for Akai[661], and impermissible as a matter of law.

S.8.3.2   Akai’s Case

516.  Akai submitted that under either Method 1 or Method 2 the Tomei Receipts were of little consequence.  In particular, on Method 1, the Tomei Receipts were irrelevant (as no credit was given for any receipts by Akai).  On Method 2, the Tomei Receipts make a difference of only US$2,328,590[662], which was relatively immaterial.  The Tomei Receipts only made a substantial difference if the Court were to adopt one of Method 3, 4, 5 or some other method.[663]

517.  The underlying cash flows and core facts regarding the Tomei Receipts were not in dispute:

(1) As set out in the table at page 12 of Part F of Akai’s Opening, of the amounts paid to Akai by Recipients, US$51.88m was paid by Ting Recipients (Tisco and Goaltop) using funds that been sourced from Tomei.

(2) Tomei had also received payments from Recipients, however, there was not a direct matching between the payments to Tomei by Recipients and the amounts paid by Tomei to Recipients that were subsequently paid to Akai.[664]

(3) Tomei was an independent listed company with public shareholders, which Akai controlled through a series of partially owned subsidiaries. Mr Ting was a director of Tomei.

518.  There was no evidence explaining why sums were taken from Tomei, paid to Recipients, and then paid on to Akai.  There was evidence that Mr Ting personally signed for one of the payments[665] and it could be readily be inferred that he was responsible for the balance.  In the absence of any evidence from Mr Ting,  the only reasonable inference was that the sums paid from Tomei to Recipients were defalcations of Tomei’s cash by Mr Ting.

519.  It is an extraordinary proposition for Mr Ting to contend that he ought be permitted a credit as against his defalcations from Akai, as a result of causing Akai to receive cash misappropriated from Tomei (a separate listed company with public shareholders of its own),  merely because it passed through the Ting Recipients.  The Court could not ignore the fact that Akai was paid with misappropriated funds.

520.  The short point therefore was that, if the Court were to adopt Method 3, 4 or 5, one of either Akai (the victim) or Mr Ting (the defaulting fiduciary) stood to benefit from the fact that sums were improperly taken from Tomei, paid to certain Recipients, and then paid on to Akai.  Viewed in that light, if there was to be a benefit from the fact that Mr Ting misappropriated money from Tomei that found its way to Akai, it was not a benefit that ought to be enjoyed by Mr Ting.  To allow Mr Ting the credit would permit him to gain from his wrongdoing, as he would retain the proceeds of his defalcations by virtue of having improperly taken money from Tomei.

S.8.4 Analysis and Findings

S.8.4.1   Cash Received by Akai from Subsidiaries

521.  As I have already ruled out Methods 4 and 5 as a permissible means of assessing equitable compensation in this case, I am unable to conclude that the amount of US$20,051,218 received by Akai from its subsidiaries amounted to a partial restoration of Akai’s loss.  There was no evidence to show that the specific payments were funded by specific Recipients who had been the beneficiary of a defalcation and, more importantly, there was no evidence to show that the specific payments had been funded by specific Recipients who had been the beneficiary of a prior defalcation.

S.8.4.2   Cash Received by Subsidiaries but booked into Akai’s Books

522.  Without any receipt of cash or assets by Akai from a Recipient, it is not possible to conclude that there has been a restoration of the loss suffered by Akai by a prior defalcation committed by Mr Ting.  That is sufficient to dispose of this point.  However, even assuming that Mr Ting could make this submission, notwithstanding the disavowal of Mr Bowyer who would not take any point in respect of the US$93 million, no evidence has been adduced by Mr Ting, or on his behalf, that these sums were received by subsidiaries “on Akai’s order” or “on behalf of Akai”.  Entries in the BT Deposit account, which contained so many false accounting entries, have no evidential value and cannot prove that Akai received any value by the payments made to subsidiaries by Recipients.

S.8.4.3   Tomei Receipts

523.  Even though the source of funds used to pay Akai flowed from Tomei, I am able to conclude that the payment to Akai by a specific Recipient would restore the loss suffered by Akai, as a result of a prior defalcation in favour of that Recipient, without the need to show that the proceeds of that prior defalcation had flowed to Tomei.

524.  However, the problem that arises here is that there is some evidence to support the case that the payments by Tomei to the Recipients were defalcations committed by Mr Ting. There was no commercial purpose for the payments from Tomei.  One of the payments was personally signed by Mr Ting[666].  If the Recipients received payments from Tomei which they were not entitled to, and those payments were used to pay Akai then such payments could not restore the loss suffered by Akai by Mr Ting’s prior defalcations.  The Recipients concerned, Tisco, Goaltop and Golfland, who were Group 2 Ting Recipients, would be affixed with Mr Ting’s knowledge of the defalcations and would be constructive trustees of those sums, such that Tomei could trace the moneys to Akai.

525.  On the other hand, there is evidence that Tomei had also received payments from Recipients totalling US$54,194,840 during the Claim Period, albeit from different Recipients, for different amounts, and on different dates than Tomei’s payments to Recipients[667].  Even so, Tomei used US$2,786,916 of its own funds to pay Recipients.[668]  I agree with the adjustments made by Mr Spence to reduce the credit under Methods 4 and 5 to US$49,093,320[669] and the credit under Method 3 to US$9,839,447[670].  In the absence of evidence from or on behalf of Mr Ting that the Recipients were entitled to the sum of US$2,786,916 received from Tomei which they used to pay Akai,  I find that such payments did not restore the loss to Akai from the prior defalcations in favour of the Recipients.

526.  However, insofar as the funds used by the Recipients to pay Akai came from Tomei and Tomei, in turn, received the same funds from the Recipients, then I find that those payments restored the loss suffered by Akai as a result of its prior defalcations in favour of the Recipients.

527.  For these reasons, I am able to conclude that the amount of equitable compensation, under Method 3, ought to be reduced by the further amount of the payment to Akai from Recipients in the sum of US$9,839,447.  Accordingly, the amount of equitable compensation, in the sum of US$837,118,799, should be reduced by the amount of the restored loss in the sum of US$367,193,418 (US$357,353,971 + US$9,839,447).

T. Limitations

528.  I refer to the written and oral submissions I received from the parties on the issue of limitations.  Section 20(1) of the Limitation Ordinance, Cap 347 states:

“(1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action-

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.”

529.  It must follow from my findings in this case that every defalcation claimed by Akai in these proceedings against Mr Ting falls within section 20(1)(a) of the Limitation Ordinance, save for the Worldwide International transaction[671]. “Fraud” in this context means “dishonesty”. Mr Ting engaged in concealed misappropriation, undisclosed self-dealing and transactions for fraudulent and improper purposes.  Such conduct was dishonest.  In addition, Mr Ting’s payments to himself, his wife and the Ting Recipients fall within section 20(1)(b) of the Limitation Ordinance, which applies where “a trustee uses trust money to confer a benefit on a company which he controls or a director of a company helps himself to property belonging to the company.”^[672]

530.  The limitation defence raised by Mr Ting fails against all the claims brought by the Liquidators, except that it succeeds against the claim brought for US$14,272,905 in respect of the Worldwide International transaction.[673]  My review of the schedules for Method 3 showing the receipts from Recipients in Bundle E26 at Tab 38 for the BT Deposit account and at Tab 58 for the Temporary General Ledger Account leads me to conclude that the successful limitation defence raised against the claim for US$14,272,905 does not result in a reduction of credit given under method 3.

U. My Award of Equitable Compensation

531.  For these reasons, I award equitable compensation to Akai against Mr Ting in the amount of US$455,652,476 (US$837,118,799 - US$367,193,418 - US$14,272,905).

V. Deductions in Respect of Recoveries from Other Parties

532.  This is no longer controversial. Akai has recovered some of its losses from third parties on terms that the amounts recovered are to be kept confidential.  The agreed amounts must be deducted from my award.

533.  I accept Akai’s submissions that the Grande HK proceedings related to entirely different heads of loss, and to damages suffered by Akai in a different time period, after the Claim Period in this action.  It was also clear from the Prayer for Relief in the Amended Points of Claim filed by Akai against Grande that there was no claim against Grande HK or any other defendant to that action in respect of the defalcations which were the subject matter of these proceedings.  However, even if the defalcations identified as DLN98139[674] and DLN98158[675] formed part of Akai’s claim against Grande HK, no part of the settlement received from Grande HK should be applied in reduction of the claim against Mr Ting in these proceedings in respect of these defalcations.  Akai had quantified claims against Grande HK totalling US$184,204,993 which did not include claims in respect of DLN98139 and DLN98158; and the quantum of these non-overlapping claims (US$184,204,993) accordingly substantially exceeded the settlement proceeds paid to Akai.  Akai had the right to allocate the settlement sums it received from Grande HK towards reducing the non-overlapping claims.  For that reason, no part of the settlement received from Grande HK ought to be applied to reduce the claim against Mr Ting in these proceedings, in the total sum of US$16,877,014 in respect of DLN98139 and DLN98158.

534.  I direct the parties’ solicitors to agree and submit, within 14 days, recalculations of the final award I should make after deducting the agreed amounts from my award.

W. Compound Interest

535.  I refer to the written and oral submissions I received from the parties on the issue of compound interest.  Ribeiro PJ stated in the Libertarian case at §142 that compound interest may be appropriate in a case involving misappropriated funds as the Court will assume that the defaulting party has used the misapplied funds to earn profits and, instead of ordering an account of profits, will order him to pay compound interest.  I am guided by the principles enunciated in the Libertarian case to conclude that I ought to award compound interest on my award of equitable compensation at the rate of 1% over USD prime with 6-monthly rests as from the years ended 31 January 1998[676], 31 January 1999 and 31 January 2000 up to the dates of partial recovery from third parties, and continuing at the same rate with 6-monthly rests on the balance amount, after deduction of the recovered amounts, until 17 December 2014, being a year after the date I reserved judgment and being the date when I ought to have handed down a judgment of such complexity.  The fact I was not able to do so is the result of the substantial quantity of work that I, in common with all High Court judges and High Court deputy judges, have to manage.

536.  The choice of monthly, quarterly, 6-monthly, or yearly rests is entirely within the discretion of the court[677]. The court may sometimes be guided by evidence on the appropriate rest to impose but I do not accede to Mr Ting’s application to adjourn this issue and to receive factual and expert evidence on the appropriate rates and rests to impose in this case.

537.  It may be appropriate to order monthly rests on the basis that the fraudster undertaking legitimate business with borrowed money, rather than the misappropriated funds, would have had to pay interest with monthly rests on the borrowed amounts.  However, I note the observation of Silke NPJ in China Everbright v Ch’ng Poh[678] that a legitimate businessman in the normal course of his business is likely to reduce the loan or to pay it off as soon as possible such that he was reluctant to award compound interest with monthly rests extending over a long period of time.  In the present case, that period exceeds 15 years. Guided by this observation, I impose 6-monthly rests on the basis that the notional loan would be reduced, if not entirely paid off, in the latter part of this 15 year period such that a calculation based on 6-monthly rests over the entire period of 15 years is likely to be the best approximation of the compound interest payable on the notional legitimate loan.

538.  Another approach may be to consider how the misappropriated funds may have been utilised if they had remained in Akai[679].  At the relevant time, Akai was a listed holding company of one of the top 10 consumer electronics manufacturing groups in the world.  Assuming that the misappropriated funds would have been utilised in the various businesses of Akai and the Akai Group or invested in different classes of assets, the profits and capital gains from those funds would have been the subject matter of Akai’s 6-monthly reports to its shareholders and some of those profits and gains could have been paid out as dividends or re-invested in other businesses or to acquire other assets.  And what might that profit and gain have been?  Returns from corporate businesses at any particular period of time are usually higher than the cost of borrowing over the same period of time, such that it is appropriate to select the rate of prime plus 1% as a very conservative value of such returns.  In the circumstances of the present case, the award of compound interest at the rate of USD prime plus 1% with 6-monthly rests best matches the business profile of a public listed company like Akai.

539.  For the period from 18 December 2014 to the date of this judgment, I award simple interest on the judgment sum at the rate of 1% over USD prime for this period of time.

540.  I direct the parties’ solicitors to agree and submit, within 14 days, recalculations of the final award I should make, inclusive of compound and simple interest, based on my decision herein.

X. Costs

541.  I make a costs order nisi that Mr Ting pays Akai’s costs of the action to be taxed, if not agreed.  Given the magnitude of the frauds committed by Mr Ting, I have no hesitation whatsoever in ordering such costs to be taxed on an indemnity basis with Certificate for 2 Counsel.  I sincerely hope that Hong Kong will never again see the likes of such a rogue and scoundrel as Mr Ting.

542.  I cannot conclude this judgment without expressing my gratitude to counsel for the assistance they have rendered to me.