XIN HAN (HK) TRADING DEVELOPMENT CO. LTD. v. HO HUNG AND ANOTHER

HCA 10685/1997 & HCA 11189/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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HCA 11189/1999

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J U D G M E N T

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1. On 10 December 1999, Deputy Judge Woolley ordered the two actions, namely HCA A10685 of 1997 and HCA 11189 of 1999 to be consolidated and carried on as one action.

2. The plaintiff, Xin Nan (H.K.) Trading Development Co. Ltd. (the plaintiff) is a company incorporated under the Companies Ordinance. The second defendant, Georgia Technologies Ltd (D2) is a company incorporated in the British Virgin Islands (BVI).

3. At all material times, the first defendant, Ho Hung also known as Ho Hung Chelsea (D1) is the sole legal owner of all issued share capital of D2 as well as its Director. The 3rd Defendant, Cheng Wai King (D3), 4th Defendant, Louie Chan Yue (D4), 5th Defendant, Lee Wai Mo (D5) and 6th Defendant, Wong Sau Fong Angie (D6) were appointed by D1 as Directors of D2 on 12 September 1997.

4. In HCA 10685/1997, it is the plaintiff's case that a sum of $83,000,000 was advanced to D1 and D2 in December 1996 to enable them to acquire 770,469,230 shares ("the Seaunion Shares") in Seaunion Holdings Limited (Seaunion), a Hong Kong public listed company. By 7 September 1997, the principal and interest thereon owed by D1 and D2 to the plaintiff exceeded $100 million (the debt).

5. D1 and D2 were unable to repay the debt and by a document made on 7 September 1997 (the September Deed), D1 and D2 acknowledged that they were liable to the plaintiff for the debt and agreed to repay the same on 10 days' notice to be given by the plaintiff after 31 December 1997.

6. D1 agreed to pledge all her shares in D2 in favour of the plaintiff as security. She agreed to deliver the certificates of her shares in D2 and execute all instruments of transfer and other necessary documents to convey all benefits in D2 to the plaintiff. D1 also agreed to appoint Mr. Xiao Hui Rong (Xiao) and Mr. Chung Chak Wing (Chung) as Directors of D2 and to co-operate with them in the management of the assets and affairs of D2. She agreed to allow them control of the Seaunion shares until full repayment of the debt.

7. D1 had executed the instrument of transfer on 7 September 1997 in respect of all the issued shares of D2 in favour of the plaintiff but had failed and/or refused to deliver the share certificates in question. D1 also refused to allow the plaintiff control of the Seaunion shares.

8. Instead on 12 September 1997, D1 purported to appoint D3 to D6 as additional directors of D2 without the knowledge or consent of the plaintiff. On 17 September 1997, D1 and D2 even commenced proceedings in BVI in order to the annul the September Deed and the instruments of transfer on the basis of fraud, misrepresentation, duress and undue influence against Xiao and the plaintiff. D1 and D2 also seek a declaration to sever any relationship that Xiao and Chung might have with D2.

9. The plaintiff claims against D1 and D2 for specific performance of the September Deed and an injunction restraining them from dealing with the Seaunion shares until the repayment of the debt. The plaintiff also wants an order restraining D3 to D6 from acting as directors of D2.

10. In their defence in HCA A10685/1997, D1 and D2 agreed that the plaintiff had lent D2 $75,561,898.90 to enable D2 to acquire the Seaunion shares, which D2 did for over $100,000,000, and thereby become the largest shareholder of Seaunion. The suggestion was that the plaintiff was simply an unsecured creditor.

11. The defendants suggested that through Xiao, the plaintiff repeatedly requested D1 to execute an agreement to regulate the terms of the loan but D1 refused. Xiao then misrepresented to D1 that certain documents needed to be prepared for the internal records of the plaintiff and for him to report to his superior. Xiao even suggested that if D1 refused, he would face grave consequence of death.

12. D1 claimed that she was unaware of the contents of the September Deed and the instruments of transfer. She said they were executed as a result of misrepresentation and duress and are therefore null and void and of no effect. It was also the defendants' contention that D3 to D6 were properly appointed as directors of D2 to the exclusion of Xiao and Chung.

13. In HCA 11189/1999 commenced by the plaintiff probably as a result of the matters raised in the defence in HCA 10685/1997, the plaintiff claims for the return of $100,000,000. The suggestion is that D1 and D2 asked the plaintiff for a loan of $78,352,816.40 to finance their acquisition of the Seaunion shares. D1 and D2 agreed to bear the finance costs of the plaintiff of about $5,000,000 and to pay interest at 30% per annum on the principal and the finance costs.

14. Pursuant to the agreement between the parties, the plaintiff advanced the said sum of $78,352,816.40 in the following manners:

(1)	a cheque No. 027359 dated 24th December 1996 in the sum of $51,761,898.90 in favour of Pacific Challenge Securities Limited;
(2)	a cheque No. 027361 dated 24th December 1996 in the sum of $23,800,000 in favour of Boughton Peterson Yang Anderson;
(3)	a cheque No. 027362 dated 24th December 1996 in the sum of $167,300 in favour of Pacific Challenge Capital Limited;
(4)	a cheque No. 027363 dated 27th December 1996 in the sum of $2,400,000 in favour of D1; and
(5)	a cheque No. 027371 dated 30th December 1996 in the sum of $192,617.50 in favour of the Pacific Challenge Securities Limited.

15. As security for the repayment of the loan, the acquired Seaunion shares were deposited with Pacific Challenge Securities Ltd (Pacific Challenge) in an account in the name of D2 but operated on the mandate of any 2 signatures of D1, Xiao and Chung who was a joint venture partner of the plaintiff.

16. D1 and D2 refused to record the agreement in writing and reneged on the agreed interest rate of 30% per annum and after further negotiation, D1 agreed to repay the loan and the interest in the total sum of $100,000,000 within 14 days from the lifting of the suspension of the trading of the Seaunion shares and in return the plaintiff agreed to delete Xiao and Chung as signatories to the said account with Pacific Challenge.

17. The September Deed referred to in HCA 10685/1997 was executed to reflect the aforesaid agreement and to record the terms that D1 and D2 would repay the sum of $100,000,000 to the plaintiff on 10 days' notice after 31 December 1997. The figure of $83,000,000 represents the sum of $78,352,816.40 and the finance costs of $5,000,000.

18. The plaintiff again suggests that D1 and D2 tried to annul the September Deed by making allegation of fraud, misrepresentation, duress and undue influence through their solicitors and then commenced proceedings in the BVI.

19. The plaintiff demanded for the return of the $100 million on 12 January 1998 under the terms of the September Deed but the demand was ignored.

20. As D1 and D2 had admitted the loan in their defence in HCA10785 of 1997, the plaintiff, as an alternative claim asks for the return of the sum of $100 million.

21. In the defence and counterclaim in HCA 11189 of 1999, D1 and D2 put up a different case altogether. While admitting that the plaintiff had paid the sums totaling over $78 million, the suggestion is that it was not a loan, but the plaintiff's contribution to a joint adventure agreement.

22. The suggested joint adventure agreement arose in the following circumstances:

23. In August 1996, D1 as an agent for D2 negotiated with NTI Resources Limited (NTI) to acquire the Seaunion shares, which represented 25.78 % of the issued shares in Seaunion and subsequently reached a mutual understanding with NTI to acquire the Seaunion shares at the price of $0.13 to $0.14 per share.

24. When Xiao became aware of the matter in August 1996, he expressed interest and reached agreement with D1 whereby the plaintiff would pay for the entire acquisition costs of the Seaunion shares. It was further agreed that upon the payment by the plaintiff of the first installment, D1 would cause her shareholding in D2 to be transferred to the plaintiff and in return, D1 would receive 30% bonus shares and a monthly salary of $150,000 for working as the Managing Director of Seaunion.

25. The agreement was made partly orally and partly in writing in a note of agreement dated 20 August 1996 prepared in Chinese by Xiao. The note confirmed that upon the initial payment of $55,000,000 by the plaintiff, the shareholding in D2 would be transferred to the plaintiff.

26. It is the defendants' case that as there was a competing bid for the Seaunion shares, D1 offered to pay NTI $0.13 per share on 28 August 1996 without waiting for the completion of the formal documentations concerning the agreement reached with Xiao. The urgency of the matter also obliged D1 to pay out of her own fund $5,000,000 as deposit.

27. However there was a subsequent litigation with NTI over the Seaunion shares which litigation was only resolved in December 1996 under a Deed of Settlement with NTI.

28. The plaintiff paid the acquisition costs of the Seaunion shares in accordance with the terms of the Deed of Settlement with NTI but failed to reimburse D1 of her initial deposit of $5,000,000. The plaintiff also failed to pay the balance of the purchase price of the Seaunion shares of $20 million.

29. As the parties intended D2 to be an investment vehicle, the parties executed a shareholders agreement (the shareholders agreement) listing the holding of the 50,000 shares in D2 by D1, the plaintiff, Zhou, and Chung in the respective numbers of shares of 15,000, 20,000, 9,000 and 6,000.

30. The plaintiff was unable to reimburse D1 the $25 million, it was subsequently agreed that the 9,000 shares in D2 originally designated for Zhou would be transferred to D1. The 9,000 shares represented 18% of the shares in D2 and together with the 30% bonus shares that Xiao had promised; D1 would have 48% shareholding in D2.

31. It is the defence's case that the arrangement aforesaid was subject to certain fundamental change in April 1997. D1 was told that Xiao was an official of the Shanghai City Nan Shi District Government and that he had used public fund to invest in the Seaunion shares, contrary to the relevant regulations.

32. As the Seaunion shares were suspended from trading, Xiao was unable to account for the fund. It was suggested to D1 that if the plaintiff became a shareholder of D2, Xiao's misappropriation of the public fund might be exposed. Xiao and Zhou urged D1 to change the joint venture agreement they had reached so that the money paid for acquiring the Seaunion shares would be treated as a loan from the plaintiff to enable Xiao to account to his principals in Shanghai.

33. It was also represented to D1 that the plaintiff would only recoup the money from the proceeds of the sale of the Seaunion shares. D1 was urged to ensure a speedy resumption of the trading of the Seaunion shares.

34. D1 and D2 were unwilling to agree to the change. Xiao, however induced them by making oral representation and assurance to the effect that the plaintiff would only recover the $78 million odd from the sale proceeds of 52% of the Seaunion shares and that D1 and D2 would not be liable in any other way.

35. It was further agreed that if 52% of the Seaunion shares could be realized for more than $100,000,000, the plaintiff's entitlement would still be limited to $100 million.

36. The aforesaid changes form the basis of the defence and counterclaim of the defendants.

37. In May 1997, Xiao represented to D1 that his principals in Shanghai needed written agreement to show the whereabouts of the money paid for the acquisition of the Seaunion shares and he had already reported to them that the money had been lent to D1 and $100 million would be repaid by D1.

38. In June 1997, Xiao instructed Messrs. Simon Ng and Co. (Simon Ng) to prepare a draft agreement and backdated it to 1 September 1996 (the backdated agreement). The backdated agreement purported to show that the plaintiff had lent the sum of $80 million to D1 repayable within 3 years with interest at 8.75% per annum. Clause 3 of the backdated agreement stipulated that the loan was to be the personal loan of D1 only and could not be enforced against D2. It also prohibited the enforcement of the loan against the assets of D1 or D2.

39. Xiao asked D1 to sign the backdated agreement and suggested that he would abide by the terms of the joint venture agreement.

40. However, Xiao later said the terms of the backdated agreement was still not satisfactory to his principals and further amendments needed to be made.

41. In July 1997, the Security and Futures Commission (SFC) was concerned as to who was in control of D2 and after Xiao was made aware of SFC's concern, he agreed to remove his name and that of Chung as signatories to the Pacific Challenge account. He, however, insisted that a new agreement needed to be prepared to present to his principals in Shanghai to assure them that the $100 million could be recovered. Xiao expressly assured D1 that any new agreement would not affect what they had originally agreed.

42. Xiao then instructed Simon Ng to prepared a "Release Agreement" dated 23 July 1997 (the July Release) to the effect that the plaintiff advanced a loan of $75.5 million to D1 to enable her to acquire the Seaunion shares.

43. D1 suggested that Xiao had tried to persuade her to sign some agreement prepared by Messrs. Baker and McKenzie (B&M) and she initially refused. Eventually on 7 September 1997, as a result of fraud, misrepresentation, duress and/or undue influence, D1 signed the September Deed.

44. In so far as the September Deed purported to show that the total amount owed to the plaintiff was $83 million with $17 million interest, it was completely untrue and was so stated to pacify the principals of Xiao as he had indicated to them that a total of $100 million would be repaid.

45. It is the defendants' case that Xiao wrongfully seek to enforce the terms of the September Deed in BVI. He also tried to prevent the resumption of trading of the Seaunion shares.

46. D1 and D2 are adamant that the July Release and the September Deed are both void and have no effect and they are entitled to rescind from such agreements.

47. The defendants insist that the plaintiff is only entitled to the proceeds of 52% of the Seaunion shares or $100 million whichever is less.

48. The defendants counterclaim for a declaration that D1 and D2 are free from any liability towards the plaintiff other than the plaintiff's entitlement to the proceeds of 52% of the Seaunion shares or $100 million, whichever is less.

49. It is readily apparent that Xiao is an important witness to the case. However, Xiao had been sentenced to 15 years imprisonment by a court in Shanghai because of his dealings with D1. He was convicted of a charge of accepting an expensive watch worth RMB 86,000 from D1 and a charge of corruption. Apparently his convictions were based on statements by D1. Xiao suggested that D1 had reported on him on 25 September 1997.

50. Xiao is now serving his term in a Xinjiang jail and was unable to attend court within the jurisdiction to give evidence.

51. On the application by the plaintiff, the court on 19 October 2001 made an order for Xiao's evidence to be taken in Urumqi, the capital city of Xinjiang.

52. There was then an application by the defendants for security for costs against the plaintiff. On 1 February 2002, Master Rogers ordered the payment into court of $2 million by the plaintiff as security for the defendants' costs. The plaintiff appealed against the order.

53. In the meantime, after much negotiation and discussion between the parties, it was eventually decided that the examination of Xiao should take place from 18 March to 21 March 2002. Those dates were agreed to by the defendants to suit their counsel's dairies.

54. The plaintiff's appeal against the order for the security for costs was heard on 8 March 2002 and in that hearing, the defendants, represented by counsel still strenuously opposed to the appeal on the basis that substantial costs would need to be incurred for the examination of Xiao in Urumqi. The court allowed the plaintiff's appeal and reduced the amount of the security for costs to $1 million. The court took into consideration the likely costs to be incurred by the defendants in connection with the examination of Xiao in Urumqi.

55. Shortly thereafter on 13 March 2002, D1 and D2 filed notices to act in person. On 14 March 2002, D3 to D6 filed a notice of change of solicitors. D2 is a corporation and its purported notice to act in person was therefore invalid. The court called for an urgent direction hearing on 14 March 2002 to sort out the matters.

56. At the hearing, D1 did not appear. Messrs. Cheng Yeung, solicitors who had been acting for the defendants and Mr. Michael Liu instructed by the new solicitors for D3 to D6 Messrs. Desmond Wong, Angus Tse & Co., appeared.

57. The court indicated to the parties that the examination of Xiao would take place as scheduled. Mr. Liu then indicated that D3 to D6 had no wish to put any question to Xiao at the examination and asked to be excused. It was pointed out to Mr. Yeung of Messrs Cheng Yeung that the purported notice to act in person by D2 was invalid and on the court record, his firm was still the solicitors acting for D2.

58. Mr. Yeung indicated that D2 might not have any question to put to Xiao and might not want to take part in his examination. Mr. Yeung however said he needed to take instruction from D2. He also undertook to inform D1 of the court's decision.

59. Presumably, having taken instruction from D2, Messrs. Cheng Yeung informed the court that D2 had no question to put to Xiao and did not want to take part in the examination.

60. On 15 March 2002, a notice of application for legal aid by D1 was submitted to the court. D1 also submitted a written request to have Xiao's examination adjourned so that her application for legal aid could be considered first.

61. In view of the background and the history of the case, the court did not consider it appropriate to adjourn Xiao's examination. The court so informed D1 and she was also told if she choose not to be present at the examination of Xiao, she did so at her own peril. The court also lifted the stay of the proceeding arising out of the legal aid application by D1.

62. Xiao's examination proceeded as scheduled in the absence of the defendants. The examination took 3 days from 18 to 20 March 2002.

63. Xiao was adamant that he met D1 for the first time in mid-October 1996 on the introduction of Mr. Zhou Yu Ling (Zhou) who was a business partner of the plaintiff's mother company from Singapore. He said he was able to remember the date of the meeting as it took place after the suspension of the trading of the Seaunion shares. He found out that the trading was in fact suspended on 10 October 1996.

64. At the meeting D1 said she had already paid a deposit of $5 million to acquire the Seaunion shares from NTI. However NTI wanted to renege as the price of the Seaunion shares was much higher than the price agreed to by D1.

65. At suspension the shares in Seaunion was trading at 22.7 cents per share compared with the price of 13 cents agreed between D1 and NTI. Its highest price in the month prior to suspension was 27.8 cents.

66. D1 also told Xiao that Seaunion was a promising company and she wanted Xiao to help her to compete the purchase of the Seaunion shares. She said NTI asked for more money and was engaged in litigation with D1 and D2 over the purchase of the Seaunion shares. D1 said she needed a document to demonstrate that she and D2 were financially capable of completing the purchase of the Seaunion shares from NTI.

67. D1 managed to persuade Xiao to assist her by lending between $55 million to $95 million to D1 to enable her to acquire the Seaunion shares. It was further agreed that the loan would carry an interest of 30% per annum and would be repayable together with the finance costs in 3 months' to at most 6 months' time and that the Seaunion shares would be used as security for the loan.

68. D1 made it clear to Xiao that once the trading of the Seaunion shares resumed, she would be able to dispose of them at substantial profit and the loan would be repaid to the plaintiff.

69. Xiao said the Chinese document dated 20 August 1996 was in fact prepared in mid-October 1996 because D1 said she needed a document to prove her financial ability to complete the transaction with NTI otherwise NTI would withdraw from it. It was not a document to show his sincerity and commitment to acquire the Seaunion shares and it was not meant to be a record to show the plaintiff's undertaking to pay for the full purchase price of the Seaunion shares.

70. Xiao was referred to what purported to be a board resolution of the plaintiff's mother company, Shanghai Xinnan Trading Development Co. Ltd. (the resolution) to the effect that it authorized the plaintiff to acquire the Seaunion shares at the total price of over $100 million.

71. The resolution also purported to authorize D1 to complete the transaction in the name of a BVI company and that she would be the only shareholder of the BVI company. Xiao said he had no idea about such document and did not see it until the litigation with the defendants started.

72. Xiao was referred to a letter that he wrote to the solicitor Mr. Paul Tan on 28 November 1996. Mr. Tan was then working in B&M, solicitors for NTI. He said Mr. Tan was well known to him. D1 thought B&M was not diligent enough in handling the dispute between D1 and NTI, she therefore asked Xiao to write the letter to ask them to hurry up the matter.

73. The settlement agreement between D2 and NTI was executed on 20 December 1996. Xiao said he was not consulted on the settlement.

74. As far as the undated shareholders' agreement was concerned, it was prepared by Ms. Brenda Lui to serve a technical purpose. On the one hand, as the plaintiff had paid $78 million and it wanted security. On the other hand, if the Seaunion shares were to be used as security, it would contradict what D1 said in her affirmation in the litigation with NTI when she stated that she was the only shareholder of D2. Such contradiction would delay the resumption of the trading of the Seaunion shares.

75. As the plaintiff and D1 had paid the respective sums of $78 million and $25 million, the pro-rata share holding of 70% and 30 % would be about right. Such arrangement provided security for the plaintiff as the control of D2 would in turn be the control of the Seaunion shares.

76. At the same time, it also provided an option for D1 to buy back all the Seaunion shares at the stipulated price. The parties therefore agreed to the execution of the shareholders' agreement. But after the plaintiff's side put their signatures on the document, D1 just took it without signing it. The shareholders' agreement was in fact never carried out.

77. After the plaintiff made the payment, D1 simply said the shareholders' agreement was just a formality and it did not truly reflect the parties' agreement.

78. Xiao also confirmed the execution of the account documents with Pacific Challenge. He thought such arrangement gave the plaintiff protection as the plaintiff was in control of two of the three authorized signatories.

79. Xiao admitted it was difficult to put down the parties' agreement in writing. On the one hand, the plaintiff needed protection. On the other hand, if the true agreement between the parties were revealed, it would affect the litigation that D1 had with NTI and it might affect the resumption of the trading of the Seaunion shares as D1 had to demonstrate that she was the sole shareholder of D2 and had the right to control the Seaunion shares.

80. Xiao was adamant that Simon Ng was carrying out the instructions of D1 in dealing with the plaintiff as well as responding to the enquiries by SFC. Replies to SFC purportedly made on behalf of Xiao were made without properly consulting him and he was just told to sign various documents some of which were in English.

81. Xiao also said the backdated agreement was prepared by Simon Ng in response to the enquiries by SFC in May 1997. He said when he received a copy of the document in May/June 1997; he disagreed with it, as it was completely different from the agreement reached between the parties.

82. Throughout that period, Xiao was anxious to ensure the trading of the Seaunion shares could resume, as that was the only way in which the loan to D1 could be recovered. He disagreed with the allegations by D1against him. He said they were lies to suit her purposes.

83. Xiao's suggested that Simon Ng was trying to create a loan document in order to satisfy the queries raised by SFC as SFC suspected that he was acting in concert with D1. The backdated agreement did not include terms that he considered important, such as what would happen in case the loan was not repaid and that D2 was not a party to the loan.

84. Xiao refused to sign it despite the plea by D1 and Simon Ng that there must be consistence between the loan agreement and their replies to SFC. Xiao said Simon Ng did not consult him on most of the replies he gave SFC. He insisted that Simon Ng was not his lawyer but that of D1 and D2 and he was throughout acting in their interests.

85. As SFC kept asking for a copy of the loan agreement and it was represented to Xiao that if he and Chung remained the authorized signatories of D2's account with Pacific Challenge, it would be difficult to have the trading of shares in Seaunion to resume. After much negotiation, Simon Ng then prepared the July Releaser when Xiao and D1 reached agreement on the terms.

86. Xiao agreed to remove his name and that of Chung as authorized signatories to the Pacific Challenge account and D1 agreed to repay $100 million within 14 days after the trading of shares in Seaunion resumed on or about 28 July 1997.

87. D1 kept suggesting that the trading of the Seaunion shares could resume on 28 July 1997 and hence Xiao expected to get back the money in early August 1997. Xiao kept repeating that he wanted adequate security to cover the loan that had been advanced to D1. As Xiao and Chung ceased to be signatories of the Pacific Challenge account, it meant the plaintiff was no longer in control of the Seaunion shares.

88. As D1 kept assuring him that the loan could be repaid soon, he was prepared to compromise. He said the figure of $100 million was already a concession as taking into consideration the agreed interest rate of 30%; the total loan repayable to the plaintiff by August 1997 exceeded $100 million. He was also persuaded by D1 not to include D2 as a party to the July Release as he was assured that the loan could be repaid in early August 1997.

89. He disagreed with any suggested agreement with D1 that the loan would only be repaid from the proceeds of the Seaunion shares and that the July Release did not record such agreement because it was price sensitive information and needed to be disclosed.

90. Xiao described in details the circumstances in which the July Release was prepared. He said it was not a perfect agreement and did not include terms that should be included and that some of the terms were in fact incorrect. But he was prepared to sign it anyway to ensure that the trading of the Seaunion shares could resume so that he could get back the money.

91. Despite the effort, the trading of the Seaunion shares could not resume on 28 July 1997 as promised by D1. It then occurred to Xiao that a more proper agreement needed to be prepared and for that purpose and for the first time, he engaged Mr. Paul Tan of B&M to carry out the task.

92. He again described in details how the September Deed was prepared. There had been two drafts as D1 was not happy with some of the terms originally suggested. He had identified those matters that D1 wanted alternation. Amendments were made to reflect the wish of D1 and eventually the final draft was signed on 7 September 1997 after repeated and detailed discussion about the terms.

93. In particular, D1 had agreed to all the terms in the morning of 6 September 1997 and in the afternoon he prepared copies of the final draft at the office of B&M as he had arranged to meet D1 in the evening at the Excelsior Hotel to sign the September Deed.

94. Throughout the preparation of the September Deed, Simon Ng was taking care of D1 and D2's interest. Some of the terms, such as the repayment date was to be after 31 December 1997 with 10 days' notice were included on the insistence of D1.

95. Xiao also said the terms of the September Deed were again less favourable to the plaintiff as the payment date was postponed and despite such delay, the amount repayable remained $100 million.

96. In the circumstances, there was no question of D1 signing the September Deed under duress, misrepresentation or the like.

97. Xiao admitted frankly that when they met in the evening at the Excelsior Hotel, D1 initially still had reservation about signing the September Deed. At one stage, she sent her chauffer to take a copy of the September Deed to Simon Ng for his advise and when the copy returned, there were scrabbles on the document indicating that certain changes were required. Those changes related only to enquiries by SFC and the replies.

98. Xiao admitted that when D1 again showed reluctance to sign the September Deed, he became angry, as she had earlier agreed to it. After it was pointed out to her that she had earlier agreed to all the terms and that the plaintiff had already made a lot of concession, D1 agreed to sign.

99. It was emphasized that the plaintiff must be provided with suitable security, having lent out such a large sum of money. D1 then signed the September Deed. Before she did that, she was in constant touch with Simon Ng over the telephone.

100. D1 subsequently contacted Xiao again and asked him to cancel the September Deed or put off its effective date so as not to jeopardize the resumption of the trading of the shares of Seaunion. Xiao said he refused the request as he was advised that the matter had to be reported to SFC.

101. Apparently, the trading of the shares in Seaunion did not resume until mid-February 1997. In the meantime, D1 purported to appoint D3 to D6 as directors of D2 and the plaintiff and D2 both commenced proceedings in BVI in connection with the September Deed.

102. The plaintiff rested its case entirely on the evidence of Xiao.

103. As for the defence's case, it was agreed between the parties that the statements of D1 and Simon Ng could stand as evidence in chief. Nevertheless, D1 gave detailed evidence on certain important aspects of the defence case.

104. D1 was adamant that she first met Xiao in mid-August 1996 through the introduction of Zhou. At the meeting, there was already agreement that the plaintiff would put up the entire purchase money for the acquisition of the Seaunion shares. It was also agreed that D1 would be given 30% of the Seaunion shares as bonus and that she would be paid a monthly salary of $150,000 as the Managing Director.

105. D1 reiterated that the document dated 20 August 1996 was prepared in the first meeting in mid-August 1996. At that time, it was understood that the document was not meant to be a full and complete agreement as Xiao would be going to Hong Kong and proper documentations would be prepared to reflect the full agreement reached by the parties.

106. D1 said the resolution of Shanghai Xinnan Trading Development Co. Ltd. was given to her shortly after the first meeting. She said she asked Zhou if Xiao could make the decision on his own. Zhou then related the matter to Xiao and there was a directors' meeting, which resulted in the resolution.

107. The offer to NTI was made on 28 August 1996 after the agreement with Xiao was reached. D1 said she paid the initial deposit of $5 million, as NTI needed money to repay 10% of a loan of $55 million. She said the payment of $5 million was already within the contemplation of the parties. Xiao suggested that he needed 1-2 months to raise the fund and that D1 should make any payment that needed to be paid within a short time.

108. Under the agreement with NTI, $55 million had to be paid on or about 28 October 1996. D1 said she would not have made the offer if Xiao had not promised to raise the fund. She also said if she only met Xiao in mid-October 1996, she would not have agreed to the agreement either as it would only give her less than 2 weeks to raise $55 million.

109. D1 agreed that there was litigation with NTI when it tried to renege from the agreement and that in the course of such litigation; D2 was required to prove it had the financial ability to pay for the Seaunion shares.

110. The undated shareholders' agreement, according to D1 reflected the agreement she had with Xiao.

111. D1 said under the agreement with NTI, the plaintiff paid the sum of $70 odd million and she paid $25 million. She was however never reimbursed for the payment made by her.

112. As for the account document with Pacific Challenge prepared by Brenda Lui, D1 said Xiao insisted to have Chung as one of the signatories. Eventually it was agreed that the authorized signatories would be D1 plus either Xiao or Chung. It was however put down that two out of the three could operate the account. She said it was a mistake.

113. D1 said it was always her intention to invite Xiao as a long-term partner in the acquisition of the Seaunion shares.

114. D1 referred to the settlement with NTI on 20 December 1996 under which further sums of $51 million and $23.8 million had to be paid on completion and that $20 million had to be paid on or before 7 February 1997 on top of the deposit of $5 million.

115. There is no dispute that the sums of $51 million and $23.8 million were paid by the plaintiff whereas D1 paid the deposit of $5 million. D1 claimed to have paid a further sum of $20 million. Xiao was not in a position to challenge it and had in fact acted on the basis that D1 had paid the $20 million. But such payment was not accepted.

116. After the completion of the transaction with NTI, the Seaunion shares were deposited with Pacific Challenge. D1 said it was agreed that she and Xiao or Chung could operate the account. However, Brenda Lui mistakenly prepared the document to the effect that any two of them could operate the account.

117. D1 said the shareholders' agreement was prepared towards the end of January 1997. They then had disagreement as Xiao refused to repay her the $5 million deposit. He also said he did not have the $20 million. When D1 indicated that she wanted to cancel the arrangement she had with Xiao, Xiao then suggested that the Seaunion shares had to be calculated on the basis of 23 cents per share.

118. D1 referred to a cheque payment of $2.2 million by Chung to her. She said it was meant to cover the interest for the $20 million for one year. D1 said the backdated agreement was prepared at the instigation of Xiao who said a document was needed to show his superior that a loan was made to D1. She just signed the document without paying attention to the figures.

119. According to D1, the authorized signatories to the Pacific Challenge account caused concern to SFC. SFC wanted to know who was in control of D2 and the Seaunion shares.

120. D1 then asked Xiao to delete Xiao and Chung as the authorized signatories. Xiao said he would agree if it would help the resumption of the trading of the Seaunion shares. Xiao however insisted that D1 had to execute another document to show that she owed him $100,000,000. As a result Simon Ng prepared the July Release on the instruction of Xiao.

121. D1 said she insisted that Xiao could not chase her personally for the repayment of the money and that he could only get back the money from the proceeds of the Seaunion shares.

122. After the execution of the July Release, D2 then resolved to delete Xiao and Chung as authorized signatories to the Pacific Challenge account.

123. According to D1, The July Release recorded the transaction as a loan from Xiao. In order to protect her, D1 insisted that she would not be personally liable under the July Release and that the Seaunion shares would still be kept in Pacific Challenge. She said she had given clear instructions to Simon Ng to such effect.

124. D1 then described in details the circumstances in which the September Deed came to be prepared. She said she was asked to meet Xiao on 30 August 1997 in Shanghai. At the meeting, Xiao explained that he was in difficulty as he was unable to get back the money after so long.

125. Xiao said he needed a document to show that D1 had borrowed $100 million or else both he and his District Officer would be in trouble. He said the July Release was not good enough for the purpose as his boss was not satisfied with it. Xiao then produced a Chinese document, which appeared to have been prepared by B&M. D1 said she became angry and returned to Hong Kong without signing any document. She thought Xiao should not be dealing with her with the assistance of lawyers.

126. On 2 September 1997, she was persuaded to go see Mr. Paul Tan of B&M to see how she could help Xiao. Again Xiao asked her to sign documents that had already been prepared. Xiao said Paul Tan was a friend and he was just trying to help. D1 again refused.

127. There were repeated discussions in the following days. Xiao kept asking D1 to sign the documents to help him. D1 said she did not want to get into trouble and Xiao assured her that the sole purpose of the documents was to pacify his boss.

128. D1 mentioned a lunch meeting at the Grand Hyatt on 6 September 1997 when Xiao again asked her to sign documents to help him. Xiao said the documents would not be legally binding and their sole purpose was to pacify his boss. D1 said she was not happy that the documents were prepared by B&M. Xiao then said he would amend the documents in the office of Xin Nan.

129. They then had a meeting at the Excelsior in the evening. Xiao showed D1 the documents and said he had amended clause 10 so that D1 would not be personally liable. He said he made the amendments himself.

130. D1 said Xiao was begging her. He was sometimes angry and sometimes in tears. He said unless D1 help him, he would be jailed or even executed. A friend, Mr. Yeung who was accompanying D1 agreed that Xiao faced serious consequences.

131. D1 then consulted Simon Ng and Simon Ng suggested that she should send the documents for him to study. As Xiao would not allow D1 to leave, D1 just asked her driver to take the documents to Simon Ng. The driver subsequently returned with the documents which had been amended by Simon Ng. Xiao then became very fierce and accused D1 of being heartless.

132. Xiao promised that the documents would not be shown to anyone else other than his boss and that D1 would be protected from personal liability. D1 said she had no alternative, but to sign the September Deed. She said she was also asked to sign other papers without knowing their nature. Those other documents turned out to be documents of transfer of shares in D2 and resolution appointing Xiao and Chung as directors of D2.

133. The next day, SFC informed her that the trading of the Seaunion shares could resume. She tried to contact Xiao, but his manner was cold. Xiao even told her not to contact him, but Paul Tan and refused to answer D1's call. There were then the various sets of legal proceedings both in BVI and Hong Kong.

134. D1 said she learnt of the conviction and sentence on Xiao of certain bribery and corruption offences in China. She insisted that she did not report on him. She said she was approached by ICAC and through ICAC, the Shanghai police asked her to co-operate. She was asked if she had given various items to Xiao. D1 said she only gave him a watch and she was then asked the full circumstances. She said she was unaware of the allegations that Xiao had spent the director's fees from Seaunion to buy gifts for his girlfriend.

135. D1 was adamant that she did not give any gift to Xiao in order to obtain the loan from him. She admitted that she had given a statement about Xiao but the arrest of Xiao had nothing to do with her, as she did not report him to the Chinese Authority.

136. When she was asked if her gift of a watch to Xiao had any corrupt motive, her reply was that she did not know Chinese Law.

137. D1 said at the first meeting, Xiao had already agreed to give her 30% bonus shares worth $30 million because Xiao was glad that she was able to acquire a public listed company at such a low price and it was understood that she would obtain some benefit from the transaction. She also said there was in fact competing bid from one of her friends in Beijing.

138. She was asked why the agreement dated 20 August 1996 did not reflect Xiao's generosity, she said as long as they had agreed, that was it. In any event, Xiao also said he would come to Hong Kong to have the documentations properly done. She said it did not occur to her to record the other terms of the agreement, including the term that she would be engaged as the Managing Director of Seaunion at a monthly salary of $150,000. She said she was not so "money-minded".

139. D1 was asked why the deposit of $5 million was not mentioned in the agreement, she said it was their understanding that a deposit might have to be paid within a short time and as Xiao needed time to do the preparation, she would just pay the deposit herself if the need arose.

140. D1 tried to explain her position in HCA 10685 of 1997 that the money from Xiao was just an unsecured loan. Her explanation was that there might have been mistakes, as she did not explain clearly to her lawyers. She said the relevant documents were prepared in a hurry and that the trading of Seaunion shares was about to resume. She also said her lawyer advised her that the case was just about the September Deed.

141. D1 was questioned as to why in her affirmations, she repeatedly said the money from Xiao was a loan and there was neither mention of the 30% bonus shares nor the monthly salary of $150,000. She said when she stated those matter in her affirmations; she was going along with Xiao suggestion to change the nature of their co-operation in order to pacify his boss and to enable the trading in the Seaunion shares to resume.

142. D1 insisted that the agreement she had with Xiao meant that her shareholding in D2 was just 48%. She denied that she was trying to retain control of D2. She said she had asked Xiao to execute the shareholders agreement. But then Xiao wanted to change the nature of the arrangement.

143. D1 was asked why she tried to obtain an injunction in the BVI proceedings in order to retain control of D2 when the plaintiff should be the majority shareholder of 52%. She said she was trying to get back the $25 million.

144. D1 was led through the litigation and subsequent settlement with NTI. She said she was aware that NTI tried to set aside the agreement to sell the Seaunion shares to D2 on the basis that one of NTI directors, Wong Chin Yong was her boyfriend and he had compromised his position in agreeing to sell the Seaunion shares to D2.

145. D1 was referred to various correspondences between SFC and Simon Ng acting on her behalf. In those correspondences, D1 made it clear that the money from Xiao was a loan. She said it was an error on the part of Simon Ng.

146. D1 was questioned on the payment of the $20 million. It appeared that SFC was concern about the source of the fund and did ask D1 for banking records and other documents to prove the payment. In fact there was no document to show the payment of the $20 million.

147. It was D1's evidence that towards the end of December 1996, she arranged to have $20 million converted from Reminbi in Shenzhen and the money was then brought down to Hong Kong via some vehicle that was exempted from border inspection. The $20 million cash was then paid to Wong Chin Yong. She disagreed with the suggestion that her story about the $20 million was a myth.

148. D1 was asked why despite the agreement with Xiao, she still represented in public documents that she was the sole beneficiary owner of all the shares in D2. She said as long as the shares had not been legally transferred, she remain the sole beneficiary owner. She also tried to resist attempts by Xiao to gain control of D2 because Xiao had not repaid her the $25 million.

149. D1 agreed that the purpose of creating the mandate to the Pacific Challenge account was to grant protection to both side. She was asked why she stated in one of her affirmation that the only purpose of the mandate document was to give Xiao some comfort. She said that was Xiao's wish in order to tally with the explanation given to SFC.

150. Indeed, it was D1's evidence that she treated Xiao as her boss and whenever there were any inquiries from SFC, she would relate them to Xiao and would respond to the inquiries according to the instructions of Xiao. Xiao either related the information to Simon Ng direct or D1 would take instructions from Xiao and then related those instructions to Simon Ng.

151. D1 was referred to a certificate under the Hong Kong Codes on Takeovers and Mergers and Share Repurchases, which D1 filed in her capacity as the managing director of Seaunion.

152. In the certificate, D1 confirmed that she had read the submissions of Seaunion to SFC by Simon Ng on 23rd May 1997, 24th June 1997, 8th July 1997 and 12th July 1997 comprehensively and that the contents of those submissions were true, accurate and complete. In fact, D1 conceded that there were substantial omissions.

153. D1 however suggested that Simon Ng did not advise her that she had to be truthful in her submissions to SFC. Simon Ng only said it was important to pay attention to the inquiries of SFC and that she had to be consistent. She insisted that she consulted Xiao before responding to SFC and that it was Xiao who decided what to say. She further said mostly it was Xiao who directly gave instruction to Simon Ng.

154. D1 mentioned a meeting with SFC on 23 July 1997 when SFC pointed out the mandate of the Pacific Challenge account suggested that the plaintiff in fact had the control of the account. There was a strong signal by SFC that if the issue was resolved; the trading of the Seaunion shares could resume. D1 then immediately informed Xiao and it was decided that the July Release was to be prepared by Simon Ng.

155. D1 was adamant that she had given clear instructions that there would not be any personal liability on her part under the July Release. She said the contents of the July Release were all decided upon by Xiao and Simon Ng.

156. D1 also said the backdated agreement was produced by Simon Ng on the suggestion of Xiao as he wanted to have a sample loan agreement for consideration. He also needed it to respond to the inquiries by SFC and to demonstrate to his boss that the amount in question was intended to be a loan and not used for investment.

157. D1 was referred to a reply to inquiries by SFC prepared by Simon Ng on 24 June 1997 which reply appeared to be based on the backdated agreement. D1 said she did not instructed Simon Ng to prepare it but Xiao did.

158. D1 was repeatedly questioned why her position in all previous litigations, both in BVI and in Hong Kong was that the money from Xiao was a loan and that Xiao had no interest in the Seaunion shares nor D2. Her only explanation was that they were acting in a hurry and that her only concern then was to resist Xiao's claim based on the September Deed. She said she did not explain clearly to her lawyers and that she was mixed up.

159. D1 also suggested that she always claimed to have full interest in the Seaunion shares and D2 because Xiao had not repaid her the $25 million. She said she did not tell the truth to SFC for fear that it would affect the resumption of the trading of the Seaunion shares.

160. D1 said she was prepared to repay the money to Xiao, but Xiao had tried to cheat her in order to get "everything". She said if she had to choose between the July Release and the September Deed, she would have preferred the July Release although both documents were meant to be sham arrangements. She said she did not know if the July Release was binding or not. She said she couldn't even tell the difference between binding and not binding.

161. D1 was adamant that she signed the September Deed as a result of persuasion and trick on the part of Xiao. She said it was never meant to be binding. She only signed it because she had no choice when Xiao would not even allow her to leave to take the draft to Simon Ng. She denied the suggestion that she eventually agreed to sign because she had earlier agreed with Xiao on the terms.

162. D1 agreed that in 1997, the market was very bullish and it was expected that Seaunion shares could be realized for much more than the price they paid for them. She denied that she had deliberately tried to dilute the % of the shareholding in Seaunion represented by the Seaunion shares although it was reduced from 25.8% to just more than 10%. She said it was just the result of normal re-structuring of the capital.

163. The only other witness was Simon Ng. Simon Ng insisted that at all material time, he was the lawyer for Seaunion and not for either D1 or Xiao. His main task was to try to lift the suspension of the trading in the Seaunion shares.

164. He said he mainly took instruction from Xiao although very often from D1 as well. He said the backdated agreement was prepared on the instruction of Xiao to record agreement he had reached with D1. He said the agreement was not enforceable as the consideration was past consideration.

165. As there was already an existing loan agreement, the July Release had to be termed a release. He said Xiao insisted that if the amount were not paid by D1, the Seaunion shares would remain in the account of Pacific Challenge.

166. Simon Ng said when D1 sent her a draft of the September Deed, it was not intended that he should give her any advice. He was only concerned that the contents of the document would not be inconsistent with the submission made to SFC. The amendment he made to the draft was just to ensure there was no inconsistency.

167. His sole concern was the interest of Seaunion as he was the lawyer for the company. He also told D1 that she should seek advise from her own lawyer and that she should not sign the document without first obtaining such advise.

168. Simon Ng said he had advised D1 that she must be truthful with SFC. He said D1 never told him of any partnership or joint venture agreement with Xiao. The various documents were prepared in order to demonstrate to SFC that the plaintiff was just a lender and was acting in concert with D1 and D2 in the acquisition of the Seaunion shares.

169. Simon Ng did not say that D1 had instructed him to ensure that she would have no personal liability under the July Release. He said after Xiao and Chung were deleted as signatories to the Pacific Challenge account, Xiao and D1 bargained before coming up with the terms of the July Release. He also said it was indicated by SFC after the meeting on 23 July 1997 that the suspension of trade could be lifted shortly.

170. Simon Ng was referred to a letter in which D1 was described as his client. He said his assistant made a mistake.

171. I have taken the rather unusual step of setting out the evidence, particularly those of D1 and Xiao in details.

172. This is a case mainly of Xiao's words against D1's and both of them relied on similar documents to support their respective cases.

173. Simon Ng was a neutral witness although I think he had perhaps slightly understated his position with regard to D1 when he said he received instruction mostly from Xiao in the attempt to lift the suspension of the trading of the Seaunion shares.

174. On the background of the case, it is clear that Simon Ng very much had the interests of D1 and D2 in mind. It is not disputed that D1 consulted him in her dealings with Xiao and she was described, as his client in one of the letter although he said it was a mistake.

175. At all material times, D1 was the Managing Director of Seaunion and she resided in Hong Kong while Xiao was most of the time in Shanghai. Simon Ng was in constant contact with D1.

176. It is also clear to me that both D1 and Xiao are shrewd business people. At the material time, probably because of the bullish market, they were confident that the Seaunion shares could be realized for a significant profit and their primary concern was to have the suspension lifted.

177. Xiao had paid out over $80 million and clearly he was concerned that there would be security in favour of the plaintiff.

178. In order to lift the suspension, it was necessary to respond to the inquiries by SFC satisfactorily. They were clearly caught in a dilemma. If adequate protection was to be provided to the plaintiff as Xiao wished and the true position revealed to SFC, the lifting of the suspension would be jeopardized.

179. On the other hand, D1 was mindful that whatever document was prepared; her position would not be unnecessarily and adversely affected

180. All these explain the preparation of the various documents, including the backdated agreement, the July Release and the September Deed.

181. When evaluating the evidence, it is important to bear these in mind.

182. I also take into consideration the fact that the evidence of Xiao had not be tested by cross-examination although such absence of cross-examination was the result of a considered decision on the part of the defendants, in particularD1 and D2.

183. D1 is an experienced and matured businesswoman. She had been concluding large deals both in Hong Kong and Canada worth millions of dollars. She was the director and shareholder of a BVI company and a public list company in Hong Kong. D1 is clearly a well-educated and strong-willed person capable of independent thought. I find it impossible to accept that Xiao could manipulate her in the way she suggested.

184. D1 claims that the backdated agreement was prepared at the instigation of Xiao. The contents of the document do not support her assertion. The terms of the backdated agreement were clearly favourable to D1. There was a repayment period of 3 years. D1 could ask the loan to be granted to D2 and yet only D1 was liable. Indeed it was stipulated that the plaintiff could never enforced the loan against D2.

185. It is, in my view most unlikely that Xiao would have instigated such terms if he were in full control of the situation.

186. At the material times, the most valuable assets were the Seaunion shares kept in the Pacific Challenge Account. The authorized signatories were two out of three, namely those of D1, Xiao and Chung.

187. D1 said it was a mistake. Again such assertion is difficult to accept. She simply would not have allowed such mistake to take place as it gave full control of the Seaunion shares to the plaintiff.

188. The July Release only obliged D1 to repay the loan 14 days after the lifting of the suspension of the trading in the Seaunion shares, which clearly must be included at the insistence of D1. She was confident that once the trading in the Seaunion shares resumed, she stood a good chance of making huge profits.

189. In any event, even if she were unable to repay the loan, there would be no other consequences than the continued keeping of the Seaunion shares in Pacific Challenge. Again the July Release could not be what Xiao had insisted upon as suggested by D1.

190. D1 also said she had given express instruction to Simon Ng that she would have no personal liability under the July Release. Neither the evidence of Simon Ng nor the contents of the July Agreement supported her.

191. The document dated 20 August 1996 was clearly a very important document from the viewpoint of D1. It purported to be the first document executed between the parties. Yet the very terms that D1 would be given 30% bonus shares and a monthly salary of $150,000 were omitted.

192. Despite the term that the plaintiff was supposed to provide the acquisition costs, there was no logically explanation as to why D1 provide the sum of $25 million as she claimed. There was no indication that D1 had at any time asked the plaintiff for the repayment of the $25 million.

193. The absence of demand for the repayment of the $25 million is significant as if demand was made, Xiao would no doubt have asked for evidence of payment by D1 in view of the relationship between D1 and the alleged recipient, namely Wong Chin Yong. D1's suggestion that Xiao had agreed to pay for the entire purchase price of the Seaunion shares could not be true.

194. Xiao had not challenged the payment by D1 of the $25 million and appeared not to be concerned about it. The only reason was because the advancement of $75 million was a loan and it therefore did not matter to him if D1 had in fact made the payment of $25 million. This also explained why Xiao was prepared to execute the shareholders' agreement, which as represented by D1 was just a formality.

195. If Xiao had agreed to be responsible for the $25 million, Xiao and D1 would not have behaved in the manner as they did. D1 would certainly be eager that Xiao should repay it and Xiao would be concerned if D1 had in fact paid an amount.

196. Having said this, I must say the evidence from D1 of the circumstances in which $20 million was paid were highly suspicious. Her suggestion that the amount was paid in cash was not convincing.

197. Not that it is very important, but I find D1's denial that she informed to the Chinese Authority on Xiao unconvincing. If she did not take the initiative, it would not be possible for the Chinese Authority to know about her gift of a watch to Xiao.

198. The documents present to the court do not support D1's case at all. The only exception is the resolution dated 26 August 1996. The resolution purported to authorize D1 in the name of D2 to acquire the Seaunion shares. It allowed D1 to remain the sole shareholder of D2, thus giving no protection whatsoever to the huge sum that was paid out by the plaintiff.

199. There could be no logical explanation for Xiao to have agreed to such course. Clearly Xiao was prudent and careful to protect the interest of the plaintiff in his dealings with D1. Why would the plaintiff allow D1 to acquire the Seaunion shares in a company under her sole control when the money all came from the plaintiff?

200. The resolution was meant to be a resolution of the mother company in Shanghai. Yet there was no indication who was present at the meeting, where it was held and the like. There was no signature on the document at all. This resolution was a "joker" in a pack of documents. I am not persuaded that it was a genuine document at all.

201. D1 insisted that she first met Xiao in August 1996. Such assertion was contradicted by what she said in her affirmation dated 9th January 1998 when in paragraph 6 thereof, the following was mentioned:

"Around mid-October 1996, I visited Shanghai on the way to Beijing to raise finance to enable the Second Defendant to purchase the Shares. My friend, Zhou Yu Ning ("Zhou"), who was in Shanghai at the time, suggested to me that Mr. Xiao might be a possible source of funding. Zhou attended an initial meeting with Mr. Xiao on his own and apparently discussed this matter with Mr. Xiao..."

202. D1 seek to explain the contradiction by suggesting that she was following the error of Xiao. Such explanation, in my view was far-fetched and unconvincing.

203. It is not disputed that the plaintiff executed a loan agreement with Chinese Mercantile Bank on 28th October 1996 whereby the plaintiff arranged remittance of funds to Hong Kong. This is consistent with Xiao's evidence that he only met D1 for the first time in October 1996.

204. The evidence suggested that D1 had in the name of D2 offered to purchase the Seaunion shares in late August 1996 and had out of her own fund paid a deposit of $5 million. Such evidence was also inconsistent with the suggestion that Xiao by then had already agreed to bear the full costs of the purchase.

205. D1 suggested that the September Deed was executed as a result of misrepresentation, duress and undue influence. In considering such assertion, it was necessary to bear in mind that from its inception and its final execution on 7th September 1997, the September Deed had undergone several amendments.

206. In the original draft made by B&M, the amount of the debt was stated to be HK$100,000,000 and the repayment of the Debt would take place upon Xin Nam serving thirty (30) days written notice to either D1 or D2. Under clause 4, D1 also undertook to cause Xiao and Chung to be appointed directors of D2.

207. Clearly D1 found those terms objectionable and in two letters both dated 3rd September 1997, Simon Ng expressed objections to those terms. In the first letter, Simon Ng observed:

"(1) The agreement record a loan of HK$100,000,000 from Xin Nan (H.K.) Trading Development Company Limited. According to our instructions, the loan was merely in the sum of HK$75,561,898.90 advanced by way of interest bearing loan....

(4) Our client does not accept the appointment of Mr. Xiao or Mr. Chung to the board of GLT (D2)..."

In the second letter, Simon Ng again observed:

"We are instructed that our client will not accept any repayment proposal except for repayment within 14 days after the resumption of trading of shares in Seaunion. As it is a crucial point, please take not accordingly."

208. There were amendments to the September Deed. The debt was then described as an advance of HK$83,000,000 and the agreed accrued interest of HK$17,000,000 making a total of HK$100,000,000. The repayment of the debt would 'take place upon Xin Nan on a date after 31 December 1997 serving ten (10) days written notice to either Ms. Ho or GTL.'

209. In its third draft, the September Deed allow D1 the right to replace D2's shares as security and the option to purchase D2's shares in the event of the plaintiff exercising the right to sell on or before 30th June 1998.

210. The September Deed might not have been amended to the entire satisfaction of D1, but such amendments did not support D1's assertion as to the circumstances in which the document came into existence. Indeed, D1 agreed that before the signed on the document in the evening on 6 September 1997, she was still seeking advice from Simon Ng.

211. If the parties did not intend the September Deed to be legally binding, there was no need for the various amendments at all.

212. Mr. Tang, on behalf of D1 and D2 attacks certain trivial aspects of Xiao's evidence. Those matters were of course not put to Xiao as the defendants chose to be absent at the examination of Xiao. It will not be fair to attach much weight to such trivial matters.

213. If I were to point out each and every contradiction, inconsistency, mistake and discrepancy in the evidence of D1, this judgment will be much more tedious than it already is. I do not find it either necessary or desirable to do so.

214. Suffice it to say that on the pleadings, on the affirmations previously filed in connection with various proceeding, on the responses made to enquiries by SFC and on her evidence generally, D1 was clearly prepared to lie through her teeth to explain what was clearly inexplicable.

215. She tried to put the blame even on Simon Ng when there could not be any logical explanation to some of the things she said and did.

216. She was not a truthful witness at all and I have no hesitation in rejecting every word she said.

217. On the other hand, Xiao gave a consistent and logical account of his dealings with D1. He gave detailed evidence on the circumstances in which the various documents came into existence. His evidenced was clear and convincing. The evidence of D1 pertaining to the board resolution again was consistent with Xiao's assertion that he knew nothing about it until the litigation with the defendants started.

218. The July Agreement could not have been prepared at the instigation of Xiao as it contained terms unfavourable the plaintiff. Xiao's evidence that he was nevertheless prepared to sign it in order to ensure that the resumption of the trading of the Seaunion shares so that the plaintiff could recoup the money was convincing.

219. Xiao was honest in admitting that D1 still had reservation before she signed the September Deed although she had agreed to all the terms many of which had been amended to accommodate her wish. It was pointed out that D1 had agreed to the terms and that the plaintiff had already made a lot of concession. It was also emphasized that the plaintiff must be provided with adequate security. Before D1 signed the September Deed, she was in constant contact with Simon Ng to get advise from him.

220. It was suggested on behalf of the defendants that as D2 had to pay $55 million on or before 28th October 1996, it was inconceivable that D1 only tried to obtain finance two weeks before the due date for payment.

221. D1 had already paid a deposit in late August 1996. Whether D1 had since tried to obtain finance for the acquisition of the Seaunion shares from other source was a matter within her own knowledge. It was of course entirely possible that before approaching Xiao, D1 had already exhausted other possible sources of finance. There was no indication at all that D1 had ever tried to chase the plaintiff for payment of money to cover the deposit.

222. Xiao was of course concerned about the litigation with NTI and the resumption of the trading of the Seaunion shares as it was anticipated that the realization of the Seaunion shares could result in a significant profit and the only way to get back the loan was by disposing the Seaunion shares after its trading resumed.

223. It was also not surprising at all that Xiao wanted to have control of the Seaunion shares with Pacific Challenge. After all the plaintiff had paid over $78 million for the Seaunion shares. The execution of the shareholder's agreement was also consistent with Xiao's evidence.

224. The plaintiff had paid $78 million and wanted security for such payment. If the Seaunion shares were to be used as security, it would contradict D1's case in the NTI litigation that she was the only shareholder of D2 and such contradiction would delay the resumption of the trade.

225. On the other hand as it was understood that the plaintiff and D1 had paid the respective sums of $78 million and $25 million, the pro-rata share holding of 70% and 30% under the shareholder's agreement was about right.

226. I do not agree with the suggestion that Simon Ng was just the company lawyer of Seaunion and was disinterested in the conflict between D1 and Xiao. The evidence clearly demonstrates that Simon Ng was advising D1 in her dealing with the plaintiff. The July Release was clearly drafted with the interest of D1 in mind.

227. In my view, the attack on Xiao's evidence was totally unjustified. I am satisfied that Xiao had given a true and frank account of his dealings with D1. Xiao was a truthful witness and I accept his evidence.

228. Simon Ng drafted the July Release after serious negotiation between D1 and Xiao. Xiao agreed to remove his name and that of Chung as authorized signatories to the Pacific Challenge account in order to facility the resumption of the trading of the Seaunion shares. In return, D1 agreed to repay $100 million within 14 days after the trading of the shares in Seaunion resumed.

229. D1 had relied on the July Release to argue that the plaintiff never had any proprietary interest in D2 and was a mere creditor. She then suggested that it was not binding and seek to put the blame on her solicitors. Such attempt was pathetic. Cleary the July Release was a valid and binding agreement.

230. On the evidence of Xiao which I accept, there is no question of any misrepresentation, undue influence, duress or the like affecting the validity of the September Deed.

231. D1 would rather not have to sign the September Deed, but facing the reality of the situation and the promises that she had made to Xiao, she found herself unable to refuse. May be she was then confident that when the trading of Seaunion shares resumed, she could immediately dispose of them at substantial profits to enable her to meet her obligations under the September Deed.

232. In any event, it was after much negotiation that D1 finally agreed to the terms of the September Deed before she signed it. Simon Ng was also advising her over those terms at the material times.

233. D1 also claims to be ignorant of the nature of all the documents that she had appended her signatures. Again such assertion is incapable of being believed. The backgrounds of the case clearly suggest that D1 is a shrewd and capable businesswoman who knows how to protect her interest. She would not have signed any document without fully appraised herself of its nature and content.

234. A defence of non-est factum imposes a very heavy burden of proof on the person pleading it and there are authorities to the effect that a plea of non-est factum could not be argued unless it could be shown that the signatory to the document in dispute thought that he was signing something substantially different in nature or in kind. A party raising the plea of non-est factum must also prove that he had acted reasonably and with due care.

235. On the evidence as found by the court, there is no basis upon which D1 could rely on such a plea.

236. In his final address, Mr. Tsang suggests that the September Deed was not supported by consideration. Such "defence" had not been pleaded and was not raised in the course of the hearing. In any event I do not agree with Mr. Tsang's submission.

237. When D1 first asked Xiao for the loan, she promised to repay it with interest at 30% p.a. within 3 to 6 months. She did not keep her promise. When the July Release was executed, she again promised Xiao that the loan with interest totaling $100 million could be repaid in early August 1997. When Xiao agreed to those terms, he was already making concession as the loan and interest by August 1997 had already exceeded $100 million.

238. The effect of the September Deed was to again put off the repayment of the loan and interest until after 31 December 1998 on 10 days' notice with no additional interest. Such further concession must be good consideration for the September Deed.

239. In my view, the September Deed is valid and binding and must be given effect to.

240. When D1 appointed D3 to D6 as additional directors of D2 without the consent of the plaintiff, she was clearly trying to defeat the just and equitable right of the plaintiff. On the evidence, D3 to D6 were just nominees of D1.

241. The appointments of D3 to D6 as directors of D2 were made in breach of the express agreement with the plaintiff and were thus void and have no effect.

242. The plaintiff's claim against the defendants succeeds and I propose to make the following orders:

(1)	Judgment for the plaintiff against D1 and D2 in the sum of HK$100 million with interest thereon at the rate of 6% p.a. from 1st January 1998;
(2)	An order against D1 to deliver all the share certificates of D2 to the Plaintiff;
(3)	An order against D1 and D2 to co-operate with the plaintiff and do all such acts and sign all necessary documents to place the control of the Seaunion Shares in the hands of the plaintiff, failing which the Registrar of this Court is authorized and directed to do all necessary acts and sign all necessary documents for such purposes;
(4)	An injunction restraining D1 to D6, whether by themselves, their directors, officers, servants or agents or otherwise howsoever until the repayment of the said sum of HK$100 million with interest to the plaintiff from selling, charging, pledging, mortgaging or otherwise disposing of or creating any encumbrances of whatever nature over the Seaunion Shares deposited by D2 with Pacific Challenge;
(5)	An injunction restraining D1, whether by herself, her servants oragents or otherwise howsoever until the repayment of the said sumof HK$100 million with interest to the plaintiff from selling, charging, pledging, mortgaging or otherwise disposing of or creating any encumbrances of whatever nature over all the shares in D2;
(6)	A declaration that the plaintiff has an equitable charge to secure the repayment of the said sum of HK$100 million with interest in respect of the Seaunion Shares deposited by D2 with Pacific Challenge;
(7)	A declaration that the purported appointments of D3 to D6 as directors of D2 on 12 September 1997 were invalid and of no legal effect; and
(8)	An injunction restraining D3 to D6 from acting or purporting to act as directors of D2 or from taking any part in the business of D2 or dealing in the affairs or assets of D2, including but not limited to the Seaunion Shares deposited by D2 with Pacific Challenge.

243. In the light of the complexity of the matter and in case a party may wish to make further submissions on the aforesaid reliefs in the light of my judgment, the aforesaid orders are orders nisi to be made absolute 14 days after the handing down of this judgment.

244. There is a further order against D1 and D2 in respect of the plaintiff's costs of the actions to be taxed if not agreed. As between the plaintiff and D3 to D6, there is no order as to costs. The aforesaid cost orders are also orders nisi to be made absolute 14 days after the handing down of this judgment.