HE JIPING v. WANG SHENPING AND ANOTHERS

HCA 200/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 200 OF 2005

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J U D G M E N T

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1.  This action was commenced in 2005. It concerns the ownership of the shares in Champion Fine Investment Ltd (“Champion Fine”). At the time of commencement of this action, the shareholding structure of Champion Fine was as follows :

Name of shareholder	No. of shares
plaintiff (“HE”)	6,900,000 (69%)
1st defendant (“Wang”)	2,600,000 (26%)
2nd defendant (“Luo”)	500,000 (5%)

2.  HE claims that the shares registered in the names of Wang and Luo are held on trust for him and asks for a declaration and an order for re-transfer of those shares. 

3.  HE has since settled the dispute with Luo, and the shares in Luo’s name had been transferred to HE in 2012.  The trial of this action is only concerned with the shares currently registered in Wang’s name (“Wang Shares”).

Background

4.  The following background facts are not in dispute.

5.  Champion Fine is a Hong Kong company incorporated in June 1992.  In July 1992, HE and his friend, Zhang Ya Ping (“Zhang”), became the first shareholders of Champion Fine each holding 1 share.  The first directors were 2 Hong Kong residents, including one Lam Yuet Kong who was a client of HE’s trading business.

6.  In August 1992, Champion Fine increased its authorised share capital from HK$10,000 to HK$1,000,000, following which 999,998 shares were allotted to HE, Zhang and another friend of HE, Liu Chao Qian (“Liu”).  As a result of the allotment, the registered shareholders of Champion Fine became :

Name of shareholder	No. of shares
HE	340,000 (34%)
Zhang	330,000 (33%)
Liu	330,000 (33%)

7.  Around the same time, HE injected HK$10 million odd into Champion Fine’s bank account.  With the increase in share capital, Champion Fine was used by HE, Zhang and Liu as a vehicle to invest in various property development projects in the Mainland, including projects in Zhonghua (從化) and Suzhou (蘇州).

8.  In or around mid-1992, HE, his business partner Leung Tat Po (“Leung”) and a few others wanted to jointly participate in a property development in Changchun City (長春市), which involved the construction of a commercial complex on a plot of land next to the Changchun train station (“Changchun Project”).

9.  Changchun International Property Development Ltd (“CIPD”), a wholly foreign-owned enterprise in the Mainland, was incorporated in September 1992 to carry out the Changchun Project.  It was decided by HE and Leung that instead of using Champion Fine which was already involved in the Zhonghua and Suzhou projects, Homess Properties Ltd (“Homess”), a Hong Kong company established by Cheng Yan Nam who was an acquaintance of another friend of HE, Huang Ying Jun (“Huang”), would be used to hold the interest in CIPD.

10.  HE became a director, the general manager and the legal representative of CIPD.  Wang was also made a director and the deputy general manager of that company.  Leung was the chairman of the board.

11.  Both Leung (through his company TP International Ltd) and HE (through Champion Fine and his company廣州天恆科技公司) injected money into CIPD for the Changchun Project.

12.  In July 1993, Zhang and Liu decided to withdraw from Champion Fine (and thus its investment projects in Zhonghua and Suzhou) and transferred their shareholding to HE and Huang. The new shareholding structure became as follows :

Name of shareholder	No. of shares
HE	670,000 (67%)
Huang	330,000 (33%)

13.  In about late 1993 or early 1994, Leung (the main investor) decided to withdraw from the Changchun Project.  For that purpose, part of his investments in the Project was treated as a loan in the sum of RMB 30,700,000 to be repaid by CIPD.  

14.  Around the same time (April 1994), the entire shareholding in CIPD was transferred from Homess to Champion Fine, and approval was granted by the Changchun government for the same in September 1994.

15.  With Champion Fine now holding the Changchun Project, HE wanted to further increase the share capital of Champion Fine from HK$1,000,000 to HK$10,000,000 and requested Huang to take up some of the new shares to be allotted. However, Huang declined the offer and subsequently HE entered into an oral agreement with Wang and Luo in relation to Champion Fine’s change of shareholding.  That oral agreement is the kernel of the dispute in this action. 

16.  However, in mid-1995, Wang and Luo became registered shareholders of Champion Fine :

(i) By a board resolution dated 22 June 1995, Huang resigned as a director.  In his place, Wang and one Wong Wing Wing were appointed directors;

(ii) By the same board resolution, the proposed transfer of Huang’s 330,000 shares to Wang was approved;

(iii) On the same day, applications were made by HE, Wang and Luo for new shares to be allotted to them;

(iv) On 26 July 1995, Champion Fine resolved by a written resolution to increase the share capital from 1,000,000 to 10,000,000 of HK$1 each, and that the board be authorised to issue the 9,000,000 new shares;

(v) On the next day, Champion Fine made an allotment of 9,000,000 new shares to HE, Wang and Luo.  On 25 August 1995, 330,000 shares in Huang’s name were transferred to Wang.  These transactions resulted in the shareholding structure stated in paragraph 1 above.

17.  In 1996, CIPD formed a subsidiary (80% owned by it), Changchun National Commerce Department Store Ltd (長春國商百貨有限公司) (“CNCDS”), to operate a department store in the commercial complex under the Changchun Project.

18.  Both Wang and Luo had during certain period of time acted as the directors of CIPD and senior management staff of CNCDS.

19.  In 1999, disputes arose between the parties and there were allegations of misconduct on both sides.  Consequently, Wang and Luo were removed by HE from all positions in Champion Fine, CIPD and CNCDS between April and May 2000 (the propriety of such removal is disputed but it is not a matter which requires resolution in this action).

20.  On 14 October 2004, Wang and Luo presented a s 168A Petition under HCMP 2647/2004 against Champion Fine and HE alleging unfairly prejudicial conduct by the latter.  HE commenced the present action against Wang and Luo on 29 January 2005.  By an order dated 25 May 2005, HCMP 2647/2004 was stayed pending the determination of the present action.

21.  A 4-day trial of this action took place in January 2009.  Judgment was given in favour of HE after that trial.  However, it was subsequently set aside on appeal by Luo.  A re-trial was also ordered by the Court of Appeal (CACV58/2009).  Wang then lodged an appeal (CACV99/2011), which was allowed by consent.  Likewise, a re-trial was also ordered.  This is the re-trial. 

22.  On reaching settlement with Luo, HE discontinued the claim against him in September 2012.  As mentioned in para 3 above, Luo’s shares in Champion Fine had since been transferred to HE.  However, I should say at the outset that the settlement is not relevant for the determination of this action.

The issues

23.  Pursuant to the direction of this court, the parties have filed a Joint List of Issues on 26 May 2014.

24.  The main issues in this case are :

(i) whether the shareholding structure in Champion Fine in place since August 1995 was a result of the oral agreement contended for by HE (“HE’s Agreement”) or the oral agreement contended for by Wang (“Wang’s Agreement”);

(ii) whether HE had paid the sum of HK$2.6 million on behalf of Wang in the allotment or transfer of Wang Shares in July or August 1995; and if so, whether Wang had repaid HE the said sum of HK$2.6 million or any part thereof;

(iii) whether Wang had made any contribution towards the Changchun Project.

HE’s case

25.  HE’s case is that Wang Shares were paid for by him, and that he is the beneficial owner of the same, ie, Wang is holding those shares on trust for him.

26.  Champion Fine was originally a joint venture between HE, Zhang and Liu.  When Zhang and Liu withdrew from the company in July 1993 and transferred their shares to HE and Huang (see para 12 above), it was agreed that the consideration for the 330,000 shares transferred by Zhang to Huang would first be paid by HE, and that Huang would hold the shares on trust for him until the consideration was fully repaid.

27.  When Leung withdrew from Changchun Project in 1994 and CIPD was transferred from Homess to Champion Fine, HE and Huang were the only registered shareholders of the latter and HE became the sole beneficial owner of Champion Fine.

28.  In light of Leung’s withdrawal of his investments from Changchun Project and CIPD, HE wanted to raise new capital for Champion Fine by allotting new shares.  Huang was unwilling to invest. However, Wang and Luo took up the opportunity.

29.  It was decided that Champion Fine would allot 9,000,000 new shares, and HE’s Agreement was made with Wang and Luo in the following terms :

(i) Wang would subscribe for 2,600,000 of Champion Fine’s shares at HK$2,600,000 (made up of 2,270,000 new shares and 330,000 shares from Huang) and Luo would subscribe for 500,000 shares at HK$500,000;

(ii) Such consideration would first be paid by HE, and Wang and Luo would hold the shares transferred to them on trust for HE until they repay the share price.

30.  HE contends that his Agreement was confirmed at a board meeting of Champion Fine held on 26 August 1994 and at an EGM of that company held on 15 September 1994 (both attended by HE and Huang as the only directors and shareholders), and recorded in the relevant minutes.  HE had informed Wang and Luo about the contents of the resolutions.

31.  The entire HK$9 million share price for the new allotments to HE, Wang and Luo in July 1995 was paid by setting it off against the shareholder’s loan owed to HE by Champion Fine.  In support of his case, HE relies upon the financial statements of Champion Fine for the year ended 31 March 1996.  Further, Wang did not pay for the 330,000 shares transferred to him from Huang.

32.  All the original share certificates have all along been kept by HE.  In the end, Wang did not invest any money into Champion Fine or CIPD, and has not paid any part of the share price for Wang Shares.

Wang’s case

33.  Wang’s pleaded case is that in early 1994 when Champion Fine was used to take over CIPD from Homess the parties (HE, Wong and Luo) entered into Wang’s Agreement, according to which his shareholding in Champion Fine represented his direct or indirect contributions to or investment in CIPD and/or its subsidiaries prior to early 1994, and that the parties’ shareholdings would be adjusted according to their future or subsequent contributions of capital investment (see Amended Defence of Wang, §7).

34.  In his opening, Mr Suen, who appeared for Wang with Mr Justin Lam, elaborated on his case as follows.  Wang’s case is that the 2,270,000 shares were allotted by Champion Fine and the 330,000 shares were transferred by Huang to him without any express oral agreement that they were to be held on trust for HE :

(i) Since the incorporation of CIPD, Wang contributed substantially to the development of Changchun Project, in terms of both financial investment and indispensable services to facilitate the Project through his strong local governmental links and personal ties, without which Changchun Project would not have succeeded;

(ii) As a result of the withdrawal of Leung, the investors’ interests in Changchun Project had to be redistributed.  Upon Champion Fine’s takeover of Homess’ shareholding in CIPD, HE, Wang and Luo agreed that, inter alia, they would hold 6,900,000 shares, 2,600,000 shares and 500,000 shares in Champion Fine respectively, in accordance with their contributions to or investment in CIPD and Changchun Project.

35.  Wang contends that there are contemporaneous documents before the court which demonstrate his entitlement to Wang Shares.

Witnesses

36.  Three witnesses have given evidence in this trial – HE, Huang and Wang.

Analysis

37.  The dispute here is primarily one of facts between HE and Wang.  The critical events are those which took place at the time when Leung withdrew from Changchun Project (about early 1994) until the allotment of new shares in July 1995.  There is no dispute that after the allotment the relationship between the parties had gradually worsened until it was completely broken down in 1999. 

38.  I start with the time when Leung withdrew from Changchun Project.  According to HE, Leung’s withdrawal had caused the withdrawal of all the other investors and he became the only one left. 

39.  It is uncontroversial that Changchun Project was in dire financial circumstances at the time, which prevailed until 2002 to 2003.  HE explained that the reason why Leung withdrew from Changchun Project was that he was advised by a “world famous company” that it was a bad investment which would not return a profit.  After Leung’s withdrawal, the situation was so bad that there were insufficient funds to continue with the construction work.  HE said that at the time the shares of Champion Fine and CIPD would not be taken up even if they were given away for free. 

40.  HE’s evidence is that Changchun Project required a total investment of RMB 360 million and at the time of Leung’s withdrawal, the investment made was about RMB 50 million.  He explained the impetus for the capital expansion of Champion Fine.  He had spoken to some international financial institutes in Hong Kong about the situation.  He was told that the registered capital of Champion Fine was low and was advised to raise it to HK$10 million in order to facilitate the intended fund raising for Changchun Project. 

41.  It is indisputable that the issuing of 9 million new shares by Champion Fine did not result in the receipt of any new funds by it.

42.  HE was at pains to point out that he did not seek assistance from Wang and Luo for the purpose of injecting funds into Changchun Project.  Instead, he was looking for other shareholders to share the burden of making a success of it.  HE said that Wang was a local person and his family had influence in Changchun.  If he was willing, he could give a lot of help to Champion Fine, which was the reason for giving him an opportunity to invest in 26% of the company.  In respect of Luo, HE said that he had a very good relationship with him and there was a good deal of trust between them. 

43.  HE’s evidence is that 20 years ago he had no idea at all about the legal system in Hong Kong or how to do business here.  He was heavily reliant upon the advice of accountants and lawyers. 

44.  The above constitute the important factual matrix against which the factual disputes here should be examined. 

45.  Both Mr Suen and Mr Chan, who appeared for HE with Mr Keith Lam, have urged this court to place great weight on the contemporaneous documents in light of the extraordinary lapse of time between the events and the evidence of witnesses.  I was referred to the Court of Appeal authority of Esquire (Electronics) Ltd v HSBC Ltd [2007] 3 HKLRD 439 at §135.  I agree.

46.  With the benefit of the contemporaneous documents, the important factual matrix and sound common sense, the dispute here is not too difficult to resolve.

47.  Let me say at the outset that the weight of the contemporaneous documents is firmly against HE’s case.  The documents, some of them under his own authorship, are quite inconsistent with the suggestion that Wang was a mere trustee of his in respect of Wang Shares.  Further, when HE was taxed in cross-examination (“XX”) about those documents, not only did he fail to provide any credible explanation, his demeanour under pressure suggests that he is not a truthful witness.

Contemporaneous documents 

48.  I start with 2 documents which are heavily relied upon by Mr Chan – the minutes of a board meeting of Champion Fine held on 26 August 1994 and the minutes of an EGM of that company which took place on 15 September 1994 (see para 30 above).  The contents of these documents are almost identical. They referred to raising HK$9 million for CIPD by way of issuing 9 million new shares.  The funds would be immediately injected into CIPD to meet the payment requirement for construction work.  Para 4 of those minutes are important but very difficult to understand and I shall set it out[1] :

“4. 通過鑑於要馬上注入長春國際物業發展有限公司所需工程款，在公司成功配售新股集資前，先由何季平先生墊付，但各認購人其名下登記股權，屬何季平先生之信託股權性質，將可隨時無條件收回並處理，直至各認購人繳付認購股本後，公司即按例由董事長向各認購人蓋章簽發新股票時，正式擁有公司之實際股東權益。期內各認購人與何季平先生墊支款所牽涉利息，乃股東間交易，與本公司無關。”

49.  In that paragraph, there was a reference to a trust arrangement (信託股權) and hence the heavy reliance by HE.  However, on very careful reading of the entire paragraph, it appears that the “payment to be made by HE on behalf of others” (先由何季平先生墊付) was a reference to the money urgently needed for the construction work.  It is important to note that the preceding sentence referred to the timing – “before the company succeeded in raising funds with the issuing of new shares” (在公司成功配售新股集資前).  Further, this understanding tally with the reference to the issuing of share certificate after the subscription price had been paid.  The references to “shareholding rights” (股權) and that such rights would be held on trust for HE are likely to be the result of an anticipated time gap between the payment of construction cost by HE and the actual issuing of new shares (there was an EGM to be held in about 3 weeks – see para 7 of the board minutes).

50.  If this understanding is correct (and I believe it is), the 2 set of minutes do not support HE’s case. The arrangement encapsulated in those documents was that HE would make an urgent payment of HK$9 million for the construction work.  Meanwhile, those people who wanted to subscribe for the new shares (according to para 3 of the board minutes, they would be the existing shareholders or members of the board) would hold their rights to subscribe on behalf of HE until such time when they became fully entitled as shareholders after having paid for their shares and received their share certificates.  This is not consistent with HE’s case and there is no evidence that such an arrangement was implemented.  I should add that neither Wang nor Luo was at the material time a shareholder or a director of Champion Fine. 

51.  Unfortunately, this reading of the documents was not put to HE in XX.  However, there can be no unfairness to HE because there are a number of other documents which shed light on the veracity of his story.

52.  Before turning to the other documents, I shall deal with Huang’s evidence on the 2 set of minutes.  He said that they were prepared by him on HE’s instructions and that he had received advice from an accountant via a friend before doing so.  Further, he was told by HE that Wang and Luo would be the new subscribers. 

53.  I do not find Huang to be a reliable witness. He clearly has a good deal of difficulty recalling events which took place 20 years ago.  His demeanour was that of a reluctant witness having been dragged to court against his wish.  Most importantly, when he was asked whether HE had paid him RMB 1.5 million to buy his interest in Changchun Project (this is a point of some significance because HE maintains that only those investors who had injected funds into the Project had a share in the same and Huang did not make any such injection), his answer was that he did not know.  Given the amount of money involved and the importance of the subject matter, I cannot accept that this is an answer from a reliable witness. 

54.  The next document is a memorandum on the shareholding of CIPD (關於長春國際物業發展有限公司股權情況的備忘) dated 8 March 1996 (“1996 Memorandum”) written by HE.  A reasonable reading of that document will leave the reader with no doubt that Wang was a shareholder of Champion Fine.  The following are worth quoting :

(a) At pg 1 of the 1996 Memorandum, HE wrote in relation to the original investment in CIPD: “當時由梁達波及何季平代表有關各股東達成了投資及股權分配的方案如下: … 在這一投資方案下，物業公司股權分配情況如下: 梁達波佔60%，何季平佔23%，王振平佔5.5%，張亞平佔3%，薄傳學佔3%，劉超前佔60%，黃穎軍佔2.5%”;

(b) At pg 2, HE wrote in relation to the acquisition and purchase of shareholdings from various other shareholders (not including Wang) and the resultant changes in shareholdings: “何季平分別與黃穎軍、張亞平、薄傳學達成收購其股權的 安排 … 此時物業公司股權分配如下: 梁達波佔60%，何季平佔26.5%，王振平佔5.5% ...”;

(c) At pg 3, HE referred to the time after the withdrawal of Leung: “故目前物業公司股權分配情況如下：何季平佔66%，王振平佔26%，羅科勤佔8%，以上物業公司的股權分配情況，亦同時爲香港駿豐公司之股權分配情況”.

55.  There are 2 points which should be mentioned at this juncture.  Firstly, HE was at pains to suggest that what he meant in the 1996 Memorandum, and indeed other contemporaneous documents, when he described various people as having shares in CIPD or Champion Fine was that they had a “right to acquire” such shares.  Such right would only materialise when investment was made by them.  I have no doubt that this is a concoction by HE to try to explain away the clear wordings of his own documents.  Although his education was interrupted by the Cultural Revolution, I have no doubt that HE is a person of some sophistication as well as a careful person.  He would not have repeatedly say something that was wrong or inaccurate.

56.  Further, his lie is demonstrated by the fact that he had, according to pg 2 of the 1996 Memorandum, purchased the shareholding rights (股權) in CIPD from Huang, Zhang and Bao when 2 of them (Huang and Bao) had made no investment in CIPD.  I do not accept HE’s explanation that he was merely being inaccurate in writing this part of the memorandum.  If Wang Shares were held on trust for him, he would have spelled that out in the documents. 

57.  Secondly, there is an obvious falsity in HE’s evidence concerning Luo’s investment in CIPD.  The 1996 Memorandum recorded such investment at over RMB 2.58 million.  HE insisted that it was an investment at the Suzhou project instead.  However, attachment 4 to that document, again written by HE, stated as follows :

“羅科勤投入長春國際物業資金

…

合計：2,589,755.-”

58.  The next document is a letter written by HE to Wang and Luo dated 15 April 1997.  It was sent due to some conflict arising out of the cooperation on Changchun Project amongst the three of them.  The theme of the letter was to urge Wang and Luo to continue to work for the Project and to put their differences behind.

59.  In this letter, HE clearly recognised Wang and Luo as shareholders in Champion Fine and CIPD and acknowledged that they could do as they pleased with their shareholding :

(a) “關於羅科勤擔任總經理之提議，鴻圖公司[2]不同意因屬我

 方股東” (pg 2);

(b) “而國商[3]這一事業在客觀上、在利益上已把我們長期聯繫

 在了一起” (pg 3);

(c) “難道不是股東就談不上事業了？更何況還是股東” (pg 8);

(d) “而且自己的股份最好由自己去處置，出售套現也行。我本

人無意見。… 如果自己去套現所得多則皆大歡喜，少了也別埋怨誰” (pg 8);

(e) “但這種話都説出來了如何再合作下去？當然是早日套現

 了以圖自己更大的發展爲好” (pg 9);

(f) “今年可能達到的營業額約1.5億，除去鴻圖的固定分紅，

 我們約可得1100萬” (pg 10).

[emphasis added]

60.  Next, there is a set of resolutions of a meeting of the shareholders and directors of CIPD dated 2 December 1998.  It was drafted by Wang and signed by him as well as HE and Luo.  Like the previous documents, the resolutions acknowledged that Wang and Luo were the shareholders of Champion Fine and CIPD and they were required to shoulder various responsibilities :

(a) “出現問題造成損失的，由股東當事人承擔所有責任” (para 1);

(b) “各股東所承擔的各項工作…王振平承擔…羅科勤承擔…” (para 2);

(c) “清理賬目工作由羅科勤負責…如各股東在自己所承擔的工作期間內造成虧損，處理的原則是調整股份” (para 3).

[emphasis added]

61.  Most importantly, para 4 of the resolutions stated that: “爲保證王振平在國商的股份[4]所得，何季平承包王振平在國商的股份所得，即九九年王振平在國商的股份所得不低於二百萬元 (RMB 2,000,000) 人民幣，支付時間自九九年一月一日開始，60天内支付完畢”.  It is inconceivable that such a resolution would have been passed if Wang was holding his shares in Champion Fine or CIPD as a trustee for HE.

62.  HE tries to disclaim responsibility for this document by saying that it was drafted by Wang and that he signed the document without reading through it during a mah-jong session.  This is clearly a lie because there was an earlier draft of that document, and HE admitted that he had made amendments to it.  In particular, the payment terms set out in para 4 of the resolutions had been amended. 

63.  Finally, there is another set of resolutions of the board of CIPD dated 31 January 1999.  It was drafted by Luo and signed by him, HE and Wang.  Again, the document acknowledged the interest of Wang and Luo in CIPD and Champion Fine :

“鑒於公司自成立以來，股東變更頻繁，投資關係複雜…三位股東兼董事經友好協商，作出決議如下：

一、 股份分配比例及投資關係

1. 股份比例

何季平 49%，王振平 25.5%，羅科勤 25.5% …”

64.  Further, it was provided in para 1(2) of that document that the investment of HE, Wang and Luo in CIPD should be converted into loans to CIPD, bearing an interest of 1% per month, and that dividends should not be distributed before repayment of the loans.

65.  In respect of the 0.5% decrease of his shareholding, Wang has explained that there were at the time a lot of conflict between HE and Luo concerning the latter’s shareholding in CIPD.  Eventually it was agreed between the 2 of them that Luo’s shareholding be increased to 25.5%, and Wang was content to have his shareholding reduced by 0.5% to abide by the consensus.

66.  There is 1 more point that I should deal with before leaving this document.  The character “Wang” was inserted to para 1(2) of that document.  Much has been said by HE as to the propriety of the insertion.  However, at the highest, the point may go to support the proposition that the document made no mention of any investment by Wang.  It does not change the fact that his shareholding in CIPD or Champion Fine was clearly acknowledged in this document. 

67.  In light of the contemporaneous documents and the lack of any credible explanation from HE to rebut the natural meaning of the same, I have no hesitation to reject his case. 

68.  Given that Wang Shares are registered under Wang’s name, I agree with Mr Suen that the burden must be on HE to demonstrate that they do not belong to Wang beneficially.  HE has failed to do so.

An objective appraisal 

69.  Putting aside the contemporaneous documents, I believe that an objective appraisal of the factual matrix does not support HE’s case either.

70.  First of all, the shares in Champion Fine and CIPD were worthless (see para 39 above).  Secondly, HE (the sole remaining investor) must have been be very keen, if not desperate, to have someone to share the burden in continuing with Changchun Project.  Why would HE demand for payment in return for the shares in Champion Fine in those circumstances?  HE’s answer was as follows :

“I have a choice whether to buy [the shares]. Anybody can have different things in mind. To invest is like gambling. If one chose to take part in gambling, one should be ready to take the loss. Can’t just take the winnings but not pay for the losses (輸打贏要). (HE then went on to suggest that Wang had his eyes on the lucrative post of the general manager of CNCDS).”

71.  HE was visibly uncomfortable when asked this question and he was struggling to provide an answer.  The answer he provided is plainly unsatisfactory.

72.  Further, why would the shares be issued to Wang before they were paid for by him (if payment was needed)?  The shares could have issued to HE and/or his nominee(s) pending payment by Wang.  Why was there no time frame agreed for the payment?  HE was unable to prove any satisfactory answer to these questions.

73.  Furthermore, there is no written request to Wang or Luo for payment of their shares or delivery up of the same prior to the commencement of this action.  This action is clearly a response to the s 168A proceedings of Wang and Luo in 2004 (see para 20 above). 

74.  In respect of the alleged set-off against the allotment price (see para 31 above).  I am inclined to agree with Mr Suen that, more likely than not, it was an afterthought. 

75.  Firstly, it is common ground that the allotment papers suggest that the new shares were all paid for in cash.  The same applies to the transfer of Huang’s 330,000 shares – the sale documents recorded that cash consideration had been paid.  It appears to me that most probably, out of ignorance or otherwise, HE (and the others) had paid no regard to the niceties of the company law and simply treated Champion Fine as a tool to be used to further his/their purposes. 

76.  Secondly, it is also common ground that the financial statements in which the set-off may be inferred were only prepared in 1999 in conjunction with the statements for other years.  It is reasonably clear that, for whatever reason, it was thought in 1999 that the financial statements for those years ought to be done.  The reasonable inference is that the preparation of those statements led to questions being asked by the accountants as to the whereabouts of the allotment funds and it was then decided to treat those as having been set-off. 

77.  HE’s evidence about the set-off is very ambiguous in terms of whose idea it was and who told him about the completion of the transaction which, according to him, took place within one of the registration of increase in share capital. 

78.  For his story to hold water, HE must have had the advice about the set-off at the outset.  Such proposition is flatly contradicted by the documents which show that the shares were all paid for in cash (supposedly).  The fragility of HE’s story is further exposed by the time gaps between HE’s Agreement (August 1994), the share allotment (July 1995) and the alleged set-off (by 31 March 1996). 

79.  I have little doubt that it was never intended that anyone, including HE, would have to pay for the shares in Champion Fine. The 3 of them simply decided to continue the Changchun Project under Champion Fine and have the shares of that company allocated in accordance with their shares in that Project. 

80.  I agree with Mr Suen that if Wang has any outstanding liability over the allotment price for Wang Shares, it is a matter between him and Champion Fine.  I cannot see how that can assist HE’s case.  

81.  Before I turn to the topic of Wang’s contribution to Changchun Project, I should, firstly, say a few words about the 330,000 shares transferred by Huang to him.  Whilst there is no dispute over the evidence that Huang had not paid for those shares, I have doubt over the claim that those shares were held on trust for HE.  It might have been the case that Huang simply owed a debt to HE for the purchase price of such shares. 

82.  Huang’s evidence in this regard is quite ambiguous.  He said that he had to repay HE for the shares and at the time he intended to do so by using the profit to be generated from the Zhonghua project or when he had sufficient cash flow.  Huang said that he was entitled to the profit from that project proportional to his shareholding in Champion Fine.  Moreover, if he had sold his shares in Champion Fine at a profit, he would have been entitled to keep the profit after paying off what he owed to HE.  Such evidence is not consistent with a trust arrangement. 

83.  Even if Huang’s shares were held on trust for HE, I believe that HE was perfectly happy to have Wang taking over the shares for no payment.  However, I do not accept that Wang had given no consideration for the shares.  I have no doubt that Wang Shares were distributed to him (a) in return for his continuous contribution to Changchun Project and (b) to reflect his shareholding in CIPD.  Further, one must not overlook the fact that those shares had, according to HE, no value (the Zhonghua and Suzhou projects were to be severed from Champion Fine). 

84.  Secondly, the parties have spent a fair amount of energy arguing about resulting trust.  I do not belief that such argument arises for consideration in light of the findings in the case.

Wang’s contributions to CIPD and Champion Fine

85.  First and foremost, there is substance to Mr Chan’s criticisms of Wang’s case both in terms of lacking in clarity and an apparent change of stance by adding an element of “intangible contribution”. 

86.  However, I have no doubt Wang did make valuable intangible contribution to the Changchun Project.  Indeed, the importance of Wang has been acknowledged in HE’s evidence (see para 42 above).  For a number of years, Wang was the only investor stationed in Changchun (save for a short period of time when Bao was also there ).  Undoubtedly, he was working for Changchun Project.  He would not have been given 5.5% share in the same by HE and the other investors if he had made no contribution. 

87.  I find Wang to be a credible witness.  He was straightforward and spontaneous in the witness box.  There is no material inconsistency in his evidence except that he did not mention about his intangible contribution from the beginning.   

88.  For completeness, I reject HE’s evidence that Wang was paid when he acted as the deputy general manager of CIPD.  I prefer Wang’s contrary evidence.  Further, it is unlikely that CIPD was paying Wang a salary when the Changchun Project was in such a financial struggle. 

89.  There is a great deal of dispute concerning Wang’s financial contribution to Changchun Project.  I accept Wang’s evidence that he did make such contribution, which is supported by the 4^th Capital Verification Report of CIPD.  As regards the lack of clarity about the quantum of Wang’s financial contributions, his evidence is that the issue has not been settled with HE.  There is some support for this proposition in the 1996 Memorandum.  Page 3 of that document referred to the settlement of accounts in respect of the post December 1994 investments by HE and Wang in CIPD (以及九四年十二月份後何季平、王振平對物業公司的投資，尚待物業公司財務作出決算).

90.  Finally, the point that Wang does not have the original of the certificate for Wang Shares is not, in my view, an important one.  Wang’s unchallenged evidence is that he was given a copy of the certificate.  Clearly, what is important is that he is the registered owner of those shares : see Million Honour Trading Ltd v Mak Lai Hing Daisy & Ors, HCA 1852/2009, 8 May 2014, §§53-59 and 61.

Conclusions

91.  In the premises, I dismiss this action and make an order nisi that the costs of this action be paid by HE in favour of Wang, with a certificate for 2 counsel. 

92.  Last but not least, I am indebted to counsel on both sides for their assistance.