MENNO LEENDERT VOS v. GLOBAL FAIR INDUSTRIAL LTD AND OTHERS

CACV 281/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 281 OF 2009

(ON APPEAL FROM HCA NO. 4200 OF 1995)

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AND BETWEEN

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Hon Yuen JA:

1.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

Introduction

2.  On 1 December 2009, Deputy High Court Judge To (as he then was) handed down a judgment of 226 pages (“the Judgment”) after a 25-day trial which took place on various dates in November and December 2008, March and April 2009.  The action, which took 14 years to come to trial, was for breach of fiduciary duty against Yung Ka Po (“Yung”; the 2^nd defendant herein), a director and shareholder of two companies, Goldmark Agents Limited (“Goldmark”) and World Champ Limited (“World Champ”) (collectively “the Companies”) and for dishonest assistance in the breach of duty and knowing receipt of the Companies’ properties against the other six defendants.  The action was commenced by the Official Receiver in May 1995 as the provisional liquidator of the Companies. Subsequently the rights and interests of the Companies in the action were assigned by the Official Receiver to Menno Leendert Vos (“Vos”), the only other shareholder and director of the Companies, and Vos was substituted as the plaintiff in October 2006.

3.  The action was primarily against Yung for breach of fiduciary duty owed to the Companies as director in disposing of two properties at an undervalue in an auction in July 1993, being units 1A and 1D of Thomson Commercial Building in Wanchai, Hong Kong (“Unit 1A” and “Unit 1D” respectively; collectively “the Units”), and against Madam Cheung Wai Yin (“Cheung”; the 6^th defendant herein) for dishonest assistance in the breach of fiduciary duty and knowing receipt of the Units disposed of by Yung in breach of trust. Global Fair Industrial Limited (“Global Fair”; the 1^st defendant herein) and Start Win Limited (“Start Win”; the 3^rd defendant herein) were corporate vehicles used by Cheung for acquiring or holding the Units.  Global Fair purchased the Units from the Companies in July 1993.  In a fictitious transaction in November 1993, Global Fair sold Unit 1A to Start Win and Start Win then mortgaged Unit 1A to Dao Heng Bank as security for an instalment loan of $2 million.

4.  Madam Leung Tsui Yu (“Mrs Yung”), the 7^th defendant herein, was married to Yung.  The plaintiff obtained judgment on liability against her by default in April 2001.  The outstanding issue against her at the trial was the assessment of damages.  She did not appear at the trial.

5.  Au Ka Fai (“Au”; the 4^th defendant herein), is the brother of the common law husband of Iris Leung, the sister of Mrs Yung.  He was appointed director of Global Fair and Start Win at various times.  He executed a number of company documents, resolutions and bank documents.

6.  New Champion Trading Limited (“New Champion”; the 5^th defendant herein) was a company under the control of Yung.  In November 1993, Global Fair mortgaged Unit 1D to HSBC to secure overdraft facilities of $2.5 million in favour of New Champion.

7.  The defendants who appeared at the trial acted in person.  Yung, Au and Cheung all gave evidence.  The judge found Yung “not a witness of truth” and was one “capable of turning himself into wolf in sheep’s clothing”[1].  He found Au did a lot of “extraordinary acts which had the effect of concealing Cheung’s and Yung’s identity” and was satisfied that Au was “a dummy”[2].  As for Cheung, who is a medical practitioner, the judge found her an “extremely intelligent woman as demonstrated by her professional achievement and by the very competent way she presented the legal arguments on behalf of herself and Yung”.  Indeed, the judge agreed with most of the legal principles she advanced, though not “the distorted way she applied them to the distorted facts she advocated”[3].  The judge formed a “very unfavourable view of her credibility” and rejected her evidence[4].

8.  The judge found in favour of the plaintiff in respect of all the heads of claim advanced against the defendants.  Among other things, he held that the sale of the Units to Global Fair in July 1993 involved breach of fiduciary duty on the part of Yung as a director of the Companies in that they were sold at an undervalue as part of Yung’s attempt to strip the Companies of assets after disputes had arisen between Yung and Vos.  This was referred to in the Judgment as “the Sale of the Units Claim”, in respect of which Yung was liable to pay equitable compensation to the Companies of $2.55 million[5].

9.  The judge further held that Cheung had assisted in Yung’s breach of fiduciary duty with dishonest intention and was liable jointly with Yung to make good the losses suffered by the Companies[6].  As Global Fair was the corporate vehicle which assisted in Yung’s breach of fiduciary duty and was in receipt of the Units sold to it and Cheung’s knowledge was imputed to Global Fair as she was a director and its controlling mind, Global Fair was liable jointly with Yung and Cheung for the losses suffered by the Companies[7].  Start Win was liable for knowing receipt as a voluntary recipient of Unit 1A in the fictitious sale from Global Fair in November 1993 and was liable jointly with Yung, Cheung and Global Fair for the loss suffered by World Champ as a result of the sale of Unit 1A[8].

10.  In respect of the Sale of the Units Claim, judgment was entered against Yung, Cheung, Global Fair, Start Win and Mrs Yung that they do jointly pay the plaintiff damages of $2.55 million with interest at judgment rate with effect from 28 July 1993[9], save that the liability of Start Win for damages be limited to $1.3 million with interest on that amount.  These defendants were ordered to pay the plaintiff’s costs of this action, including all costs reserved, on an indemnity basis, unless otherwise covered by previous court orders, save that the liability of Mrs Yung for costs be limited to costs incurred on or before 17 April 2001 and the costs of the assessment of the damages only.

11.  A notice of appeal was filed by Cheung, Global Fair and Start Win on 28 December 2009 of some 62 pages to set aside the judgment entered in respect of the Sale of the Units Claim.  All three were acting in person at the time.  In July 2013, they retained solicitors to act for them in this appeal.  However, it was only on 26 August 2014 that a supplemental notice of appeal was filed stating that they would rely on the five grounds in the supplemental notice in place of those set out in the notice of appeal.  This is the only extant appeal against the Judgment[10].

This appeal

12.  In view of the near wholesale abandonment of the original grounds of appeal by the supplemental notice, the scope of the grounds of appeal has now been considerably narrowed.  It is no longer necessary for the plaintiff to pursue the arguments in the respondent’s notice.  There is no appeal against the findings of liability in respect of Yung.  Nor is there any challenge of the legal principles concerning dishonest assistance and knowing receipt, including the requisite states of knowledge necessary to found liability under these two heads of claim, set out in §§326 to 333 of the Judgment.

13.  The points taken by Mr Bernard Man for these defendants on appeal may be broadly stated as follows.

14.  Firstly, it was contended that the judge was wrong in making findings on unpleaded theories that Units 1A and 1D were owned by Cheung and Yung respectively, or that the Units were owned by them jointly.  This was said to be a major departure from the plaintiff’s pleadings.

15.  Secondly, the alternative unpleaded theories as found by the judge were flawed and in any event were not supported by the evidence.

16.  Thirdly, these findings of fact of the judge should be disturbed: he was wrong to reject Cheung’s case of repayment of loan; he was wrong to reject Cheung’s case she was the purchaser of the Units in that she had paid a substantial part of the purchase price from her own sources; he was wrong to emphasise on New Champion being the borrower in the HSBC mortgage; he was wrong to hold that Yung had control over the corporate structure; he was wrong to hold that Cheung had attempted to conceal her involvement in the purchase of the Units; he was wrong to assume that Cheung had knowledge of the short period for submitting a tender in the auction of the Units; he was wrong to find that Cheung had knowledge that her bidding price was at an undervalue.  The bases for disturbing these findings were that major findings were grounded on factual premises never put to Cheung, that the judge had overlooked crucial evidence or that the findings were based on no evidence, or that they were internally inconsistent.

17.  Fourthly, the judge erred in awarding interest on damages at the judgment rate for the period before judgment.

18.  Mr Douglas Lam, who appeared for the plaintiff in this appeal[11] and below, conceded that the judge should not have awarded interest on damages at the judgment rate for the period before judgment, in view of what Ribeiro PJ said in Man Ping Nam v Man Fong Hang (No 2) (2007) 10 HKCFAR 140 at §23, that judgment rate is charged at a significantly higher rate than commercial borrowings to give the judgment debtor an incentive promptly to satisfy the judgment debt.  In Man Ping Nam, interest was awarded at the rate of 1% over the HSBC best lending rate for the period preceding judgment.  Mr Lam accepted that for the period from 28 July 1993 to the date of judgment, interest should be awarded at 1% over the HSBC best lending rate.  An order will be made by this court setting aside that part of the judgment and awarding interest at the aforesaid rate for the period before judgment.

19.  As for the main arguments advanced by Mr Man, Mr Lam submitted that the argument regarding unpleaded theories was misconceived and based on a misapprehension of the Judgment and that the attacks on the findings of fact amounted to little more than an exercise of trawling through the Judgment to pick holes.  He reminded us of what Godfrey JA said in Tang Kwok Ming v Daxprofit Scaffolding Ltd [1999] 1 HKC 657 at 663E to I:

“The approach of an appellate court to appeals on fact is well-established. An appeal to this court is by way of re-hearing. Accordingly, it is the duty of this court to re-consider all the materials before the judge, to make up its own mind, not disregarding the judgment below but carefully weighing and considering it, not shrinking from overruling it, if on full consideration, it comes to the conclusion that the trial judge’s finding was wrong.

But that does not mean that this court will re-try the case. The re-hearing is a re-hearing on the papers. This court will not usurp the function of the trial judge, i.e. to find the facts. It will certainly not disturb his findings of primary fact where these are based on the credibility of the witnesses or the preference of the evidence of one witness for that of another (although of course it may be willing to disturb inferences of fact drawn from primary facts, because an appellate court is in as good a position as the trial judge to draw such inferences).

It is important for counsel and solicitors … to remember the very limited extent to which this court will interfere in a case in which the appellant seeks to dispute the judge’s findings of fact. If it is necessary to disturb an adverse finding of primary fact, the appellant has to demonstrate either (1) that there is no evidence to support it; or (2) that it is contrary to documentary or other incontrovertible evidence which the judge overlooked. It is not enough to show there is little evidence to support the judge’s finding, or that it was ‘contrary to the weight of the evidence’. The weight of the evidence is a matter for the trial judge. It does not matter how many witnesses say one thing, and how few say the contrary. The judge is perfectly entitled to prefer the evidence of the few to that of the many.”

20.  This is a well established approach and has invariably been followed in appeals on findings of fact.

21.  The other point regarding how this court should approach this appeal is Mr Man’s submission that given the lapse of one year between the conclusion of the evidence and the handing down of the judgment (which was eight months after the conclusion of closing submissions), this court should scrutinise the judge’s factual findings more carefully, citing Mak Kang Hoi v Ho Yuk Wah (2007) 10 HKCFAR 552 at §58.

22.  In this instance, oral closing submissions before the judge took five days, in addition to written closing submissions served by all the parties in March 2009: closing submission of Cheung (180 pages), a joint submission of Cheung and Yung on “analysis of evidence” (63 pages), closing submission of Yung (77 pages) and closing submission of the plaintiff (65 pages).  Given such lengthy closing submissions in which the parties took the judge to much of the evidence as would assist their cases in great detail, there was no excessive delay for the judge to have taken eight months after closing submissions were made to complete a judgment of over 200 pages.  This is not a case that calls for the approach in Mak Kang Hoi.

23.  An outline of what this action is about with the salient findings has been given in the introductory section.  It is necessary to recap the factual background and the material findings of fact in the Judgment in greater detail so that one has a holistic view of the relevant findings and would thus be able to put in context and assess the significance or otherwise of Mr Man’s criticisms regarding some of the judge’s findings.  In other words, was counsel merely able to pick some holes in the Judgment with no material consequence or was he able to satisfy this court that the errors he managed to identify were crucial and critical to the judge’s conclusion so as to justify disturbing the findings of primary fact.

The material background

24.  Yung’s decision to sell the Units by auction was not a bona fide commercial decision made in the interests of the Companies[12].  He gave instructions to Top Auctioneer Limited to advertise the auction of the Units on 12 to 14 July 1993 with tender closing at noon on 14 July 1993.  The tender period of just two and a half days was “unconscionably short”, as against the normal period of four to six weeks[13].  The price at which Yung caused the Units to be sold to the only bidder (Global Fair, acting through Cheung) at the tender price was at a gross undervalue; it was at a 37.5% discount of the open market value or a 17% discount of the forced sale value[14].  The auction was just a sham and the decision to auction was manifestly made in bad faith[15].  The loss to the Companies was represented by the difference between the then open market value of the Units and the sale price, so the total damages to be awarded to the plaintiff amounted to $2.55 million[16].  There is no appeal against any of the above findings.

25.  It was the common evidence of Yung and Cheung that Yung designed the corporate structure and acquired the corporate vehicles for Cheung to bid for and hold the Units and Yung instructed a certified public accountant, William Leung, to provide the secretarial services for setting up the corporate structure[17].

26.  On 14 July 1993, Yung acquired Global Fair from a secretarial company.  On 29 July 1993, one subscriber share was transferred to Cheung and one to Avant Garde Company Limited (“Avant Garde”; a bearer share company incorporated in the BVI).  On 30 July 1993, 97 shares in Global Fair were allotted to Avant Garde and one share was allotted to Long’s Nominees Limited (a secretarial services company owned by William Leung), which was held on trust for Avant Garde.  So Cheung held one share and Avant Garde owned 99 shares in Global Fair.  Cheung and Avant Garde were appointed the first directors of Global Fair as from 19 July 1993[18].  Cheung was also appointed the secretary of Global Fair on 19 July 1993.

27.  Avant Garde was acquired by Yung from a corporate services company before he instructed William Leung to provide secretarial services on 13 July 1993.  At the same time, William Leung’s nominee company, Long’s Managers Limited, was appointed the sole director of Avant Garde in accordance with Yung’s instructions[19].  Avant Garde issued 50,000 bearer shares which are represented by four share certificates.  It was only in early August 1993 when William Leung became concerned about the ownership of the bearer shares that he asked Yung about this.  Yung then informed him that those four share certificates were to be held by Atkins Secretaries & Consultants Ltd (a secretarial services company of William Leung) for Cheung.  Cheung later collected the four share certificates from William Leung on 25 October 1993[20].

28.  According to the tender form dated 14 July 1993, Global Fair bid for the Units at the price of $2.05 million for Unit 1A and $2.2 million for Unit 1D, making a total sum of $4.25 million.  The tender form was completed by Yung and signed by Cheung on behalf of Global Fair.  She described herself as “Doctor Cheung” in the form without giving her full name and used an illegible signature which she had not used for over eight years.  She was unable to explain why she did not use her usual legible signature[21].

29.  Further, in her consent to act as director of Global Fair and other documents filed with the Companies Registry dated 19 July 1993 and on the share certificates of Avant Garde, Cheung signed in Chinese as “Wing Yee” which is her daughter’s name.  She also instructed William Leung’s staff to fill in various company documents stating her occupation as a merchant and giving the address of William Leung’s secretarial service company as her residential address[22].

30.  Under the conditions of sale, $850,000 being 20% of the tendered purchase price was required to be paid as deposit by cashier order submitted with the tender.  The deposit of $850,000 was paid by two cashier orders bought by Mrs Yung from the funds of Wealth Country Limited (“Wealth Country”; a company under the control of Yung) and from Mrs Yung’s own funds[23].

31.  On 15 July 1993, Yung instructed a new firm of solicitors Wong Shum & Co to take over from Hau, Lau, Li & Yeung (the solicitors who had been acting for the Companies in the sale by tender) in the sale of the Units[24].  On 16 July 1993, Wong Shum & Co wrote to Global Fair giving notice of acceptance of its tender and advising that completion should take place on or before 13 August 1993.

32.  On 21 July 1993, Wong Shum & Co received two cashier orders in the total sum of $1,350,000 from Global Fair in part payment of the purchase price.  The money came from the accounts of Wealth Country and Mrs Yung. On 27 July 1993, Wong Shum & Co received the balance of the purchase price in the amount of $2.05 million from Y C Leung & Co, the solicitors of Global Fair.  The funds originated from Cheung’s account with HSBC.  The sale and purchase of the Units was completed on 28 July 1993[25].  Together with the deposit of $850,000, the total amount paid by Yung and Mrs Yung towards the purchase price came up to $2.2 million, which was exactly the purchase price of Unit 1D.  The funds put up by Cheung towards the purchase price amounted to $2.05 million, which matched exactly the purchase price of Unit 1A[26].

33.  As winding-up proceedings were commenced by Vos against the Companies, the title deeds of the Units were withheld by the Official Receiver and it was only on 25 September 1993 that they were released to Global Fair[27].

34.  On 23 September 1993, Yung acquired New Champion.  This company was used to take over from Goldmark the business of distributorship in pet food products[28].

35.  Start Win was incorporated on 12 October 1993 with one subscriber share transferred to Cheung and one to Avant Garde.  On 13 October 1993, Cheung and her sister Cheung Wai Ha were appointed the first directors of Start Win.  On 4 November 1993, 98 shares in Start Win were allotted to Avant Garde.  So the shareholding of Start Win resembled that of Global Fair, with Cheung holding one share and Avant Garde 99 shares[29].

36.  On 25 October 1993, Cheung resigned as a director of Global Fair with immediate effect and Au was appointed to replace her.

37.  Global Fair then entered into an agreement for sale and purchase dated 3 November 1993 with Start Win, by which Unit 1A was to be sold to Start Win for $4 million.  Au signed the agreement on behalf of Global Fair and Cheung signed on behalf of Start Win.

38.  On 12 November 1993, Long’s Managers Limited passed a resolution as the sole director of Avant Garde by which Au was authorised to represent Avant Garde in acting as the director/shareholder of Global Fair and to sign on behalf of Avant Garde on all resolutions, minutes and other business documents in respect of a mortgage of Unit 1D in favour of HSBC and to affix the company chop thereon.

39.  Also on the same day, Global Fair passed two shareholders’ resolutions to amend its memorandum and articles with immediate effect to permit it to guarantee or secure the loans made to a third party and to approve the mortgage to be entered into by New Champion as the borrower and Global Fair as the mortgagor in favour of HSBC by which Global Fair was to charge Unit 1D as security for all monies owing by New Champion to the bank from time to time.  Global Fair passed a board resolution signed by Au to approve the mortgage and to authorise Au to execute the same on its behalf.

40.  The mortgage dated 12 November 1993 was entered into by Global Fair by which Unit 1D was charged as security for overdraft facilities granted by HSBC in favour of New Champion.  An overdraft with a limit of $2.5 million was granted by HSBC to New Champion.

41.  On 20 November 1993, Cheung and her sister passed a board resolution of Start Win to approve the creation of a first legal charge of Unit 1A in favour of Dao Heng Bank to secure general banking facilities granted to it and to authorise them to execute the legal charge.  By the facilities letter of 20 November 1993, an instalment loan of $2 million was granted by the bank to Start Win repayable by 60 monthly instalments secured by the first legal charge on Unit 1A and a joint and several guarantee from Cheung, her sister and her brother-in-law.

42.  On 23 November 1993, Long’s Managers Limited passed a resolution as the sole director of Avant Garde to authorise Au to represent Avant Garde to sign the assignment of Unit 1A by Global Fair to Start Win and that the purchase price of $4 million was to be paid to Au instead of Global Fair.  This arrangement was later aborted and the proceeds of the mortgage loan from Dao Heng Bank were paid into a new bank account of Global Fair at First Pacific Bank of which Au was the sole signatory[30].

43.  Global Fair executed an assignment dated 24 November 1993 of Unit 1A in favour of Start Win for the purchase price of $4 million.  Start Win executed a mortgage dated the same date in favour of Dao Heng Bank charging Unit 1A as security for the banking facilities granted to it.

44.  On 30 November 1993, Au withdrew $1 million from the bank account of Global Fair at First Pacific Bank and paid this to Wealth Country.  On 1 December 1993, he withdrew $900,000 from this account and paid this to Wealth Country.  Of the proceeds of the loan of $2 million to Start Win which was paid to Global Fair as the purchase price for Unit 1A, a total of $1.9 million was paid over to Yung.

45.  In December 1993, Cheung started to operate a veterinary clinic in Unit 1D under the name of Phoenix Veterinary Clinic.  Yung moved into Unit 1D to manage and supervise the operation of this clinic.  New Champion also operated from Unit 1D[31].  The clinic was closed down in April 1995.  As for Unit 1A, it was rented out since August 1994 and all the rental income was paid over to Yung until May 1995 when the writ of this action was issued.  Yung had received a total of $282,000 from the rentals[32].

46.  On 18 July 1994, Long’s Managers Limited resigned as the sole director of Avant Garde and Cheung was appointed its sole director with immediate effect.  On 27 March 1997, after this action was brought by the plaintiff, Cheung was re-appointed as director of Global Fair.

47.  The above are all factual matters of which there was no dispute.

Cheung’s case

48.  Cheung claimed to be a bona fide purchaser of the Units without notice of Yung’s breach of fiduciary duty.  She saw the advertisement for the auction of the Units on 12 July 1993 by coincidence, recalled they were the offices of Goldmark and contacted Yung who advised her to use corporate vehicles as she wanted to keep her investment in the Units secret from her husband[33].  Cheung signed the tender form, the documents relating to Global Fair filed with the Companies Registry and on the share certificates of Avant Garde in the way she did to keep the purchase secret from her husband[34].  It was for the same reason that she adopted the corporate structure of using Global Fair to hold the Units and Global Fair was in turn held by her and Avant Garde[35].

49.  The deposit of $850,000 was paid by Mrs Yung for Cheung as Cheung had told Yung on 14 July 1993 it was inconvenient for her to purchase a bank draft that day[36].  The amount of $2.2 million (including the deposit of $850,000) paid by Mrs Yung towards the purchase price of $4.25 million for the Units were loans she had obtained from the Yungs because she did not know the purchase would have to be completed within one month[37].

50.  As for the balance of the purchase price being $2.05 million, Cheung had borrowed $1,160,000 from her friends and relatives in July 1993[38] and she had cash in her bank accounts including overdraft facility to the extent of $700,000 and $345,000 in her joint account with her husband.  So she had total available funds of $2.905 million[39].  Her bank statement showed that on 21 July 1993 various cash deposits were paid into her account and then $2.05 million was debited leaving about $380,000 as the amount overdrawn[40].

51.  Of the friends and relatives who lent to her, most of them were repaid between 22 and 30 July 1993.  The most substantial loan of $500,000 from one Dr Ho was repaid on 15 December 1993[41].

52.  Of the $2.2 million which was advanced by the Yungs to her, 99% of the loan was repaid between November 1993 and May 1995.  The balance would be settled after the plaintiff’s litigation was over.  Au was appointed as director of Global Fair to enable Start Win to raise a mortgage loan over Unit 1A so as to enable her to repay part of the $2.2 million she had borrowed from the Yungs.  And for a mortgage loan to be granted by Dao Heng Bank, Unit 1A was first assigned by Global Fair to Start Win in a fictitious sale of $4 million to dress up the transaction as a new sale and purchase at the suggestion of the bank so as to circumvent restrictions imposed by the Monetary Authority[42].  $1.9 million was repaid from the proceeds of the mortgage of Unit 1A in November 1993, and $282,000 received as rental income from the letting of Unit 1A was repaid to Yung between August 1994 and May 1995[43].

53.  As for the mortgage of Unit 1D to HSBC as security for New Champion’s overdraft of $2.5 million, Cheung did so at Yung’s suggestion so that she could repay him the loan of $2.2 million[44].  The overdraft was to be used by New Champion as well as by Cheung’s veterinary clinic and she also withdrew from the facilities to repay Dr Ho’s loan to her of $500,000 with interest of $20,000[45].  Her veterinary clinic suffered a loss of $700,000 and it was closed down in May 1995.  She settled her account with Yung in respect of the overdraft facilities and paid New Champion $1 million by her cheque dated 27 June 1995.  She paid off the outstanding mortgage loan with HSBC and also the mortgage loan owing to Dao Heng Bank by Start Win out of the income from her medical practice[46].

54.  For the purpose of this appeal, the parties have prepared jointly a flow chart giving the movements of the Units and the funds.  For ease of reference, it is annexed to this judgment, without the notes and footnotes.

The material findings in the Judgment

55.  The judge drew “the only irresistible inference” that Cheung bid for the Units by design rather than by coincidence[47].

56.  He rejected Cheung’s evidence that she signed various documents in the way she did to keep the purchase a secret from her husband and drew the “irresistible” inference that she was deliberately concealing her identity from Vos because Vos knew she was connected with Yung[48].

57.  The judge held that the corporate structure used for holding the Units was unusual for individuals with few and insubstantial properties[49].  He rejected Cheung’s evidence that the reason for adopting this unusual corporate structure was to keep her investment secret from her husband.  He held that the unusual corporate structure was to conceal Cheung’s identity as the person behind Global Fair bidding for the Units and Yung’s identity as the beneficial or joint owner of the Units[50].

58.  The judge rejected Cheung’s evidence that Mrs Yung paid the deposit for her because it was inconvenient for Cheung to purchase a cashier order[51].  He found it incredible she did not notice from the tender documents that the purchase would have to be completed within one month or that she would not have ascertained when payment would be due[52].  The judge accepted her evidence that $2.05 million of the purchase price was paid from her own sources and that she did no more than to ensure she had funds for the purchase of one unit only, but he rejected her evidence that the remaining $2.2 million paid by Mrs Yung were loans to Cheung.  He found Cheung’s attitude “totally inconsistent with someone purchasing in an arm’s length auction solely with her own funds” and that “the overwhelming evidence is that Cheung bid at the auction under a joint enterprise with Yung in which her agreed commitment was $2.05 million”[53].

59.  The judge rejected Cheung’s explanation of a fictitious sale to Start Win to enable a mortgage loan to be obtained from Dao Heng Bank as “incredible” and “self contradicting”[54].  There was absolutely no need to appoint Au as director of Global Fair and for Cheung to resign[55].  It was “extraordinary” that the proceeds of the loan should be paid into a new bank account of Global Fair with Au as the sole signatory.  The judge found that the purpose of Au’s appointment was to protect the Yungs’ interest in the $2.2 million[56].  He rejected Cheung’s evidence that the payment of $1.9 million to Yung by Au from the proceeds of the loan to Start Win and the payment of the rental income of Start Win to Yung were repayments of the loan of $2.2 million to Cheung[57].

60.  The judge found that another important mission of Au’s appointment as director of Global Fair was to bring about the mortgage of Unit 1D for the benefit of Yung[58].  He rejected Cheung’s evidence that she agreed to Yung’s suggestion to mortgage Unit 1D for an overdraft of $2.5 million to New Champion as “incredible”[59].  Her evidence that her veterinary clinic suffered a loss was contradicted by Dr Ewa-Anna Dahn who operated the clinic and Cheung had provided no documents about the accounts of the clinic or the facilities drawn by the clinic.  He found that the clinic could not have suffered a loss of $700,000 as alleged and this cast doubt on Cheung’s allegation she shared the use of the overdraft facility[60].  As for the repayment of $520,000 to Dr Ho, Cheung produced the bank statement of Dr Ho showing the payments in December 1993 but no documents were produced showing the source of those payments.  The judge was not satisfied that the overdraft facilities of New Champion provided the funds for repaying Dr Ho and declined to give weight to the oral evidence of Cheung and Yung[61].

61.  In view of all the circumstances, the judge drew the inference that Yung, being the person who was to be benefited by all these transactions, was the one orchestrating these transactions and the mastermind behind Avant Garde and Global Fair from the time Cheung bid for the Units until at least up to around the time of the transfer of Unit 1A to Start Win and the mortgage of Unit 1D as security for New Champion’s overdraft[62].  He drew the inference Cheung bid at the auction under a joint enterprise with Yung in which she contributed $2.05 million and the Yungs contributed $2.2 million[63].

62.  From all the above findings[64], namely, that the Units were sold at “ridiculous” or “glaring” undervalue[65] in an auction with an “unconscionably short” tender period[66], the concealment of Cheung’s identity in the purchase of the Units, the use of the unusual corporate structure for holding the Units, Yung’s funding of the purchase, Cheung’s lack of involvement in relation to the purchase, Au’s appointment as director of Global Fair, the subsequent payment to Yung of the proceeds of mortgage of Unit 1A, the mortgage of Unit 1D as security for overdraft facilities for New Champion, the judge had “no difficulties to draw as the only reasonable inference” that Cheung knew the auction involved impropriety of some sort on Yung’s part and it was conducted with ulterior and improper purpose[67], and found her position was “little different from Yung’s” as Cheung bid in the auction by design jointly with Yung[68], and she could not be said to be a bona fide purchaser without notice of Yung’s breach of fiduciary duty[69].  He concluded that Cheung knew what she did was dishonest by the ordinary standards of reasonable and honest people and held that she knowingly assisted in Yung’s breach with dishonest intention[70].

63.  Global Fair was the corporate vehicle which assisted in Yung’s breach of fiduciary duty and was in receipt of the Units sold to it.  Cheung’s knowledge was imputed to Global Fair as she was a director and the controlling mind at the time the Units were transferred to it.  Global Fair was liable to the Companies for dishonest assistance and knowing receipt[71].

64.  Start Win was not liable for dishonest assistance in Yung’s breach of trust as that breach had already taken place by the time Unit 1A was transferred to Start Win by Global Fair[72].  Cheung’s knowledge was imputed to Start Win as she was a director and its controlling mind when Unit 1A was transferred to it.  Start Win was a voluntary recipient in a fictitious transaction.  Even if the proceeds from the mortgage loan were treated as consideration, the amount paid was at an undervalue and was not the consideration stated in the assignment.  It must be unconscionable for Start Win to continue to retain Unit 1A.  It was liable for knowing receipt[73].

65.  As mentioned earlier, Mr Man sought to challenge on appeal many of the above findings of fact.  His argument that the judge’s main findings were not the pleaded case of the plaintiff will first be addressed.

If there was departure from pleadings

66.  Mr Man reminded the court of these basic principles.  Firstly, that pleadings should define the issues in a trial and dictate the course of the proceedings and it would not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced (Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663 at §21).  Secondly, where the allegation amounts to fraud and dishonesty, it must be distinctly pleaded and sufficiently and properly particularised (Three Rivers District Council & Ors v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1 at §§184 and 186; Great Source Enterprise Ltd v Sino Estates Management Ltd [2004] 4 HKC 49 at §§65 to 67).

67.  Mr Man raised two arguments in this respect.  His first argument was developed in his written submission and was premised on the first sentence of §5(j) of the statement of claim[74] which read as follows:

“The Companies will ask the Court to find and/or infer that at all material times, Avant Garde and each of the other Defendants acted as nominees of and in accordance with the directions of Yung.”

68.  §5(j) went on to plead in sub-paragraphs (i) to (vii) a number of matters relied on by the plaintiff in support of the allegation that “Avant Garde and each of the other Defendants acted as nominees of and in accordance with the directions of Yung”.  Among them was sub-paragraph (v) which read:

“There was no ostensible or plausible reason why Madam Cheung would want to purchase the two Units (and consequently undertake substantial financial commitments) in the hasty circumstances prevailing in this case.”

69.  Mr Man submitted that according to the above, the pleaded case of the plaintiff was that Cheung, Global Fair, Start Win and Avant Garde were all “nominees” of Yung, that the Units were sold by Yung at an undervalue to his own nominees and so both Units were owned beneficially by Yung.  It was not pleaded that Cheung owned one of them, or that Yung and Cheung owned the Units jointly.  He then pointed to these parts of the Judgment and submitted that the judge would appear to have made findings that departed from the pleaded case:

“299. There is no direct evidence that Global Fair was Yung’s nominee in purchasing the Units. However, in my analysis of the claim against Cheung, Global Fair and Start Win, I made the finding that Cheung bid for the Units pursuant to a common design with Yung. I am unable to find what was the full extent of that design, but it included at least that Yung and Cheung were to provide the purchase price of Unit 1D and Unit 1A respectively or jointly. Subsequently, Yung’s and Cheung’s rights were referable to those respective Units … The further irresistible inference is that Cheung and Yung either purchased the respective Units separately or jointly. Whatever it was does not matter. Yung was in breach of the “no conflict rule” by purchasing through Global Fair. As the purchase was at a substantial undervalue, Yung was also in breach of the “no profit rule”.”

“388. … The need to bring in Au to do all those extraordinary things inconsistent with Cheung’s right as the beneficial owner of Global Fair and Avant Garde and of the Units raises the irresistible inference that Au was appointed to secure the interest of Yung over the Units and that Cheung was not the sole or absolute owner of Avant Garde, Global Fair and the Units. … Yung’s interest over the Units may be exclusive or jointly with Cheung. But that is not a matter I can resolve or need to resolve.”

“430. … I have found that Cheung did not bid in the auction by coincidence and by herself, but by design and jointly with Yung. She and Yung jointly provided for the purchase price of the Units. I have also rejected their evidence that Yung’s contribution was by way of a loan to Cheung. The inference is that she was bidding for the Units jointly for herself and Yung. …”

“433. … Cheung was purchasing the Units jointly with Yung. Accordingly, I find that Cheung had knowledge of Yung’s breach of trust when she participated in the bidding. …”

“435. …Yung was in breach of fiduciary duty by selling the Units at undervalue to the detriment of the Companies and Cheung assisted by purchasing the Units. … Even ignoring the inference that Cheung purchased the Units jointly with Yung, it is beyond argument that honest people do not intentionally deceive others to their detriment or take away others’ property. …”

“436. … On my finding, she either purchased Unit 1A for herself and Unit 1D for Yung or both Units jointly for themselves. …”

70.  Mr Man then made the point that all these are very different from the pleaded case that Avant Garde and all the other defendants were just Yung’s nominees.  He argued that the pleaded case was fraught with problems in view of the findings quoted above, as they were inconsistent with the idea that Yung owned everything.  Given that the judge could not have upheld the pleaded case on the above findings, Mr Man submitted that the judge should have held that no dishonest scheme was proved against the defendants and the judge was wrong to hold that an unpleaded scheme could justify liability.

71.  Mr Lam’s answer was that Mr Man’s submission was premised on a misreading of the pleading and the Judgment.  The plaintiff’s pleaded case against Cheung, Global Fair and Start Win was one of dishonest assistance and knowing receipt.  Thus, in §5 of the statement of claim, it was pleaded inter alia that:

“… the said sales and assignments were procured by Yung who was guilty of misfeasance and in dishonest breach of trust and/or his fiduciary duties to the Companies … and/or were part of a dishonest scheme by Yung to strip the Companies of their assets and/or to harm the Companies.”

72.  Particulars were given of Yung’s misfeasance, breach of fiduciary duties and dishonest scheme in §§5(a) to (j).  §5(j) was one of the particulars under §5 and it came right at the end of the particulars given.  It was clearly not the whole of the plaintiff’s case against the defendants.  The particulars under §5 included the short tender period for the auction of the Units (§5(ca)), the submission of the tender form by Cheung on behalf of Global Fair when she was not yet appointed as a director nor registered as a shareholder (§§5(d) and (e)), the payment by Mrs Yung of the deposit of $850,000 for Global Fair (§5(f)), the payment of the balance of the purchase price $1,350,000 of which came from Wealth Country and $2.05 million was by a cheque of Global Fair’s solicitors (§5(ff)), the undervalue at which the Units were sold in a rising market and the re-sale to Start Win within four months but with the proceeds payable to Au (§5(g)), the mortgage of Unit 1D as security for banking facilities to New Champion (§5(i)).

73.  In §6A, the plaintiff pleaded the defendants’ knowledge of the dishonest intention of Yung in these terms:

“By reason of the matters pleaded in paragraphs 1(d), 2 and 5(j) hereinabove, each of the other defendants knew of and/or were affixed with Yung’s dishonest intention.”

74.  §6B pleaded dishonest assistance in Yung’s dishonest design.  Particulars were given of the acts of Global Fair (§6B(a)), Start Win (§6B(b)) and Cheung (§6B(e)).  The acts alleged against Cheung included:

“ (i) Assisting Yung in setting up Global Fair and Start Win and acting as a first director and subscriber of Global Fair and Start Win;

(ii) Assisting Yung to use Avant Garde as his nominee, or alternatively, procuring Avant Garde to act according to the directions of Yung;

(iii) Participating in the tender for the purported sale of Units 1D and 1A, including executing various documents leading to the sale of the said Units to Global Fair;

(iv) Arranging for and/or assisting Yung and/or [Mrs Yung] to contribute funds towards the purported purchase of the said Units by Global Fair.”

75.  §6C pleaded that “by reasons of the matters aforesaid, Global Fair and Start Win are liable for the dishonest receipt of Units 1D and 1A”.  §6D pleaded that Global Fair and Start Win “received the Plaintiff’s property with knowledge that they were disposed of by Yung in dishonest breach of trust and/or his fiduciary duties”.

76.  Mr Lam submitted that it was wrong for Mr Man to focus just on §5(j) and on the word “nominees” in particular.  It is necessary to read §§5, 6A and 6B as a whole, the salient parts of which have been summarised above.  That was also how the judge had understood the plaintiff’s case, see §323 of the Judgment.  Whether Cheung and the other defendants were nominees of Yung was clearly not the only case pleaded and alleged against them.

77.  As for the question of the beneficial ownership of the Units, Mr Lam submitted this arose in the context of assessing the defence that Cheung, through Global Fair, was a bona fide purchaser of the Units for value without notice of Yung’s breach of fiduciary duty.  The judge assessed this defence against the undisputed fact that $2.2 million of the purchase price originated from the Yungs and rejected Cheung’s evidence that the $2.2 million was loaned to her.  In §§299 and 388 of the Judgment, which have been quoted above, the judge made clear it was not necessary to resolve the precise extent of Yung’s and Cheung’s interest in the Units as between themselves.  So long as Yung was beneficially interested in the acquisition of the Units to some extent (the precise extent of which remains uncertain), this would be sufficient to defeat the defence of bona fide purchaser without notice.

78.  The judge recognised at §327 of the Judgment that liability for dishonest assistance is fault based and not dependent on any receipt of trust property.  The extent of any beneficial interest in the Units actually acquired by Cheung through Global Fair, or conversely whether Cheung was merely a nominee of Yung in respect of one or both of the Units or none of the Units, was not necessary for establishing accessory liability for dishonest assistance.  It is also clear that an assister does not need to know all the details of the fraudulent scheme, so long as he is aware that the property is disposed of in a manner which he knows or suspects is improper (PBM (Hong Kong) Ltd v Tang Kam Lun Allan & Ors, HCA 12138/1997, 24 May 2002 at §§28 and 29, citing Agip (Africa) Ltd v Jackson [1990] 1 Ch 265 at 295A to B and [1991] Ch 547 at 569C, E to F; Barlow Clowes International Ltd (in liquidation) & Ors v Eurotrust International Ltd [2006] 1 WLR 1476 at §§27 and 28).

79.  I agree with Mr Lam’s submissions.  The complaint that the judge’s findings had departed from the plaintiff’s pleaded case is misconceived.  And there was no inconsistency in the judge’s findings with the pleaded case.  The judge had clearly found that Avant Garde and the other defendants had acted in accordance with Yung’s directions:

“396. In view of all the circumstances, I draw the inference that Yung, being the person who was to be benefited by these transactions, was the one orchestrating these transactions. He was the mastermind behind Avant Garde and Global Fair from the time when Cheung bid for the Units until at least up to around the time of the transfer of Unit 1A to Start Win and mortgage of Unit 1D as security for New Champion’s overdraft facility, i.e. December 1993 or possibly until 18 July 1994 when Cheung was re-appointed director of Avant Garde. During that period of time, Yung had control over Avant Garde, Global Fair and Start Win and was the mastermind behind these companies.”

80.  The second argument of Mr Man regarding the pleadings was made in his oral submissions.  He contended that the allegation of knowledge of dishonest intention in §6A was not sufficiently and properly particularised. §6A alleged knowledge of dishonest intention by referring to the matters pleaded in §§1(d), 2 and 5(j). As §1(d) was concerned with Wealth Country and §2 with Avant Garde, the only allegation of knowledge pertaining to Cheung would be found in §5(j).  It was pleaded in §5(j) that Avant Garde and the other defendants “acted as nominees of and in accordance with the directions of Yung”, not that they “acted as nominees of or in accordance with the directions of Yung”.  Counsel argued it was not sufficient to infer knowledge of dishonest intention from the allegation that the defendants acted as nominees in holding the Units which were beneficially owned by Yung.

81.  I reject also the submission of Mr Man that the allegation of knowledge of dishonest intention was not sufficiently particularised.  On a proper reading of the pleading, two allegations were made against the defendants, that they were Yung’s nominees and that they acted in accordance with his directions.  Each was a standalone allegation, even though the word “and” was used in §5(j).  This was made patently clear in §6B(e)(ii), which pleaded an act of dishonest assistance against Cheung in these terms: “Assisting Yung to use Avant Garde as his nominee, or alternatively, procuring Avant Garde to act in accordance to the directions of Yung.”

82.  Further, the particulars provided under §5(j) do give sufficient particulars from which knowledge of dishonest intention might be inferred against Cheung.  They included the allegation there was no plausible reason why she would want to purchase the Units in the hasty circumstances prevailing in this case (§5(j)(v)), there was no plausible reason why she should choose Au to act as a director of Global Fair (§5(j)(vi)), and that Yung remained in de facto control and occupation of Unit 1D after it was sold to Global Fair under the guise of assisting Cheung in her veterinary clinic (§5(j)(vii)).

83.  For all the above reasons, there is no merit in any of Mr Man’s arguments in relation to the pleadings.

If the alternative theories were flawed

84.  Mr Man’s argument here was that the alternative theory that Cheung owned Unit 1A and Yung owned Unit 1D was flawed as Unit 1A was held by Start Win and Unit 1D by Global Fair and the shareholders of these companies were the same.  Furthermore, in §393 of the Judgment, the judge inferred that “Au had somehow become the holder of the bearer shares of Avant Garde on or before 12 November 1993 in place of Cheung”.  Counsel submitted that this was inconsistent with the theory that Cheung owned Unit 1A as Avant Garde owned both Global Fair and Start Win.  The judge had also overlooked that Cheung paid for the stamp duty and legal costs for both Units, which amounted to over $160,000, so the contribution of the Yungs of $2.2 million did not coincide with the purchase price for Unit 1D (which should include stamp duty and legal fees) to support the theory that the Units were intended to be separately owned by Yung and Cheung according to their respective contributions.

85.  These arguments may be disposed of shortly.  As mentioned earlier, the judge had refrained from making any finding as to the precise allocation of beneficial interest of the Units between Yung and Cheung, having found that Cheung bid for the Units through Global Fair pursuant to a common design with Yung.  It was unnecessary for the judge to make any finding as to the precise contributions and allocation of beneficial interest as between Yung and Cheung.

86.  The judge considered all the relevant surrounding circumstances, including the conduct of Yung, Au and Cheung subsequent to the sale of the Units to Global Fair, and concluded that Cheung was not the sole beneficial owner of the Units.  As submitted by Mr Lam, the registered shareholdings of Global Fair and Start Win or the shareholding of Avant Garde, which has bearer shares, do not cast a different light on the matter and cannot be indicative of where the beneficial ownership of the Units lay.

If the judge was wrong to reject Cheung’s case of repayment of loan

87.  Mr Man submitted that the judge’s finding that the $2.2 million paid by the Yungs towards the purchase of the Units was not a loan to Cheung should be overturned.  His arguments ran as follows.

88.  Out of the proceeds of the mortgage of Unit 1A to Dao Heng Bank, $1.9 million was paid to Yung.  It was Cheung’s evidence that she repaid this mortgage loan, as well as the mortgage loan from HSBC.  This evidence was rejected by the judge who said at §413:

“Then, lastly, Cheung said that she repaid the mortgage loans from Dao Heng Bank and HSBC. Again, none of those allegations was supported by any bank statements, which are wholly under her possession, custody and control. If indeed there was evidence that she repaid the mortgage loan, it would support her case that she was the purchaser of the Units. If not, the beneficial owner of the Units remains a mystery, but one thing that is sure is that Cheung’s explanation is to be rejected. The overall inference to be drawn from the totality of the evidence is that Unit 1A and Unit 1D were beneficially owned by Cheung and Yung respectively according to their contribution to the purchase price or jointly.”

89.  Mr Man subjected the above paragraph to close analysis.  He laid particular emphasis on this sentence: “If indeed there was evidence that she repaid the mortgage loan, it would support her case that she was the purchaser of the Units.”  He submitted there was evidence that Cheung had repaid the mortgage, so it was wrong to reject her evidence that the $2.2 million was loaned to her and that she was not a purchaser of the Units.  The judge was wrong to say that the payment of the mortgage loan was not “supported by any bank statements”.  Cheung had produced a bundle of incomplete bank statements of the current account of Start Win from December 1993 to November 1997, showing that deposits were made each month for $40,792.50 to be withdrawn as the monthly instalment payment of the mortgage loan.  Mr Man referred to Cheung’s evidence in her witness statement and her oral testimony to the effect that she paid the Dao Heng mortgage by depositing money into the account each month, and pointed out it was not put to Cheung that she did not repay the Dao Heng mortgage, citing the decision of the English Court of Appeal in Kapgold Ltd & Anr v Colonia Insurance Company (UK) Ltd, 8 November 1990, Westlaw transcript WL10631239 for the proposition that when a party is alleging fraud it must be brought home to the witness under cross-examination the case on which that party relies to make good the allegation of fraud.  Also, the judge had overlooked the fact that the Dao Heng mortgage was guaranteed by Cheung and her family members.

90.  Further, in §417 of the Judgment, the judge had said this:

“I draw the inference that Cheung bid at the auction under a joint enterprise with Yung under which she contributed $2.05 million and Yung and Mrs Yung contributed $2.2 million. I find that the said contribution of $2.2 million by Yung and Mrs Yung was not a loan to Cheung but a contribution pursuant to the said joint enterprise and that the payment of the $1.9 million to Yung from the proceeds of mortgage of Unit 1A was part of that design and not a repayment of loan.”

91.  Mr Man submitted that according to the above, the judge had rejected Cheung’s evidence that the payment of $1.9 million to Yung was for repayment in part of the $2.2 million loan, but there was no “viable theory” put forward or upheld as to why the $1.9 million had to be paid by Cheung to Yung.

92.  As to the reason for rejecting Cheung’s evidence that the $1.9 million was for repayment in part of the $2.2 million loan, the judge had said this at §415:

“Furthermore, on Cheung’s account, after repaying $1.9 million, nothing was repaid until Unit 1A was rented out almost a year later and not by way of a lump sum, but by monthly rental income from Unit 1A. On her evidence, Unit 1A was rented out between August 1994 and May 1995 and the rental income in the amount of $282,000 was paid to Yung as part of the repayment of her loan. She said that the balance would be settled after the present litigation. Thus, according to Cheung, she repaid Yung and Mrs Yung $1.9 million in November 1993 and $282,000 between August 1994 and May 1995, which was 99% of the money she borrowed from them. However, the parties chose not to settle the small balance still owing but to wait until the conclusion of this litigation. By now it was fifteen years! Cheung’s explanation is just like fitting a square peg into a round hole, which either does not fit or leaves gaps unfilled. I am only bound to reject her evidence.”

93.  Mr Man submitted that in coming to the above conclusion, the judge had overlooked Cheung’s reasonable explanation in her oral evidence[75] to the effect that given the vast sums she had to spend on this litigation, both she and Yung did not regard it as important she had to repay 100% of what she owed to Yung.

94.  Lastly, in §386 of the Judgment, the judge held that Au’s appointment to the board of Global Fair in place of Cheung was “to ensure the payment of $1.9 million from the account of Global Fair to Yung” and “to protect Yung’s and Mrs Yung’s interest in the $2.2 million which they had put in the design”.  Mr Man submitted that this finding, which was premised on the judge’s view that Yung had an interest in the $1.9 million raised from the mortgage of Unit 1A and which required protection, was inconsistent with the alternative theory that Cheung owned Unit 1A and Yung owned Unit 1D.

95.  I am not impressed with any of the above submissions and do not think they provide any or any sufficient justification for this court to disturb the findings of fact based on the credibility of the witnesses.

96.  The judge was entitled to reject Cheung’s evidence the mortgage loans were repaid from the income of her medical practice as an “empty assertion” on the ground that “though the mortgages were paid off, the source of payment was unsupported by documentary evidence which would reasonably be expected to have been produced”[76].  The judge had not made any error when he said at §413 that Cheung’s allegation was not supported by “any bank statements”.  It is clear from other parts of the Judgment[77] what the judge had in mind was documentary evidence showing the source of the mortgage repayment.  The bank statements of the current account of Start Win showing the payment of the mortgage instalments but not the source were insufficient.  The judge made this clear at §414:

“Cheung provided no documentary evidence about the accounts of Phoenix Veterinary Clinic, the facilities drawn by the clinic, how she repaid Dr Ho, how she settled the overdraft account with Yung and how she paid the mortgage loan from HSBC and Dao Heng Bank. The Plaintiff could tender no evidence to rebut Cheung’s allegations. However, Yung and Cheung have been invited to produce bank statements of their personal accounts and New Champion’s account to support their case. They were aware of the litigation as early as 1993 and should have preserved the evidence which is exclusively in their possession. They elected not to produce such evidence when such evidence is reasonably expected of them. In the circumstances, I can give no weight to their oral testimony.”

97.  The sentence in §413 of the Judgment relied on by Mr Man regarding the repayment of the mortgage loan must be read in context.  The judge also said at the end of that paragraph “the overall inference to be drawn from the totality of the evidence” was that the Units were beneficially owned by Cheung and Yung respectively according to their contributions or jointly.  Who provided the funds for the mortgage repayments subsequently was but one piece of evidence that might throw light on the earlier intention of Yung and Cheung at the time the Units were sold to Global Fair by tender.  It is but a relatively small part of the case and must be viewed against the totality of the evidence and material findings summarised in the earlier part of this judgment under “The material findings in the Judgment”.

98.  As for the complaint that it was not put to Cheung in cross-examination she did not provide the funds for the repayment of the mortgage loans, the principle in Browne v Dunn (1894) 6 R 67 HL does not lay down an inflexible rule requiring every point that might be used against a witness to be put to him. It is ultimately a question of whether it would be unfair to the witness if a specific point was not put to him (Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd & Ors, CACV 90, 91, 93 to 96/2012, 17 September 2013, §§124, 125).  There was no unfairness in this instance.  The judge disbelieved Cheung’s evidence as she did not produce documentary evidence in support of her allegation.  As pointed out in §414 of the Judgment, Yung and Cheung had been invited to produce bank statements of their personal accounts and New Champion’s account to support their case even after the close of evidence[78] and they “elected not to produce such evidence when such evidence is reasonably expected of them.”

99.  The attacks on the alternative theory of each owning one unit according to the respective contributions are not to the point.  As mentioned previously, it was unnecessary and the judge did not make any findings as to the precise contributions and the allocation of beneficial interest between Yung and Cheung.  Nor was it necessary to make findings as to the precise details of the common design or joint enterprise including how the bulk of the proceeds of the mortgage loan from Dao Heng Bank were to be utilised and accounted for between them.

100.  The judge was entitled to reject Cheung’s evidence[79] mentioned in §415 of the Judgment why she chose not to repay in full the monies she allegedly borrowed from the Yungs despite having paid Yung 99% between November 1993 and May 1995.  That she had given another explanation for her conduct in her oral evidence would not assist her cause.

If the judge was wrong to reject Cheung’s case she was the purchaser of the Units

101.  This was an argument raised in the oral submissions of Mr Man and was premised on the basis that Cheung had paid a substantial part of the purchase price of the Units from her own sources with reference to the flow chart and that she had repaid the mortgage loans of Dao Heng Bank and HSBC.  It was submitted that the source of funds used for purchasing the Units and who repaid the mortgage loans had formed an essential part of the judge’s reasoning, citing §§335 and 413 of the Judgment in support, so the plaintiff’s case against Cheung would collapse if it ought to be found that she had paid a substantial part of the purchase price and had repaid the mortgage loans.

102.  I would reject this argument for the reasons already given.  The judge was entitled to reject Cheung’s case that she was the purchaser of the Units on the totality of the evidence even though she had paid $2.05 million from her own sources[80] and not to accept her bare assertion that she had paid the mortgage loans when she had produced no documentary evidence to show how she paid the mortgage loans of Dao Heng Bank and HSBC[81].

If the judge was wrong to emphasise on New Champion being the borrower in the HSBC mortgage

103.  The judge found the mortgage of Unit 1D to secure the overdraft facility of New Champion “highly suspicious”[82] and rejected Cheung’s evidence that this facility was also used for her own purposes.

104.  Mr Man argued the judge was wrong to reject Cheung’s evidence that she needed to raise further money to repay Dr Ho and to defray the losses of her veterinary clinic.  Cheung had produced the relevant bank statement of Dr Ho’s account and it was apparent that on 15 December 1993, two sums totalling $520,000 were paid into Dr Ho’s account by “cash deposit” and by “savings/time deposit”.  The judge observed at §412 of the Judgment there was no documentary evidence of the source of the payment and no corresponding bank statement from New Champion’s bank account showing the payment out. He then went on to say:

“Cheung was selective in her production of documentary evidence. She took the trouble to obtain the bank statement from Dr Ho but withheld the bank statement of New Champion which was within the possession and control of Yung from whom she could reasonably obtain. That makes the non production of her own bank statements more inexplicable and suspicious. On the evidence, I cannot be satisfied that the overdraft facilities of New Champion was the source of funds for repaying Dr Ho. This undermines her explanation.”

105.  Mr Man said the above criticism of Cheung was unjustified, as it is not clear why it was said that the bank statements of New Champion were documents that Cheung could reasonably obtain, New Champion being a company owned and controlled by Yung.

106.  As for the rejection of Cheung’s evidence that New Champion had paid for the losses of her veterinary clinic, it was contended that the judge was wrong to proceed on the basis that Dr Dahn gave “undisputed” evidence Global Fair was unlikely to have incurred “significant loss” from the clinic operation, as practically all the outgoings and expenses were paid by Dr Dahn[83].  Mr Man pointed out it had been put to Dr Dahn in cross-examination that the clinic expenses were paid by Global Fair or Cheung and this was denied by Dr Dahn[84].  Counsel also criticised the judge for accepting Dr Dahn’s evidence that the clinic was unlikely to have suffered significant loss merely because Yung had withdrawn $61,000 from the income generated by the clinic over three months.

107.  Mr Man further submitted it was wrong to hold it was “highly suspicious” that New Champion was used as the borrower of the facility instead of Global Fair in that the judge had “overlooked” the explanations given by Yung[85] (that Global Fair could not obtain the overdraft facility as it was a new company without any business record) and Cheung[86] (that New Champion was a company with a business) on this.

108.  Mr Man also said the judge was wrong to state in §414 of the Judgment that Cheung provided no documentary evidence of “how she settled the overdraft account with Yung”, as Cheung had produced a cheque of $1 million dated 27 June 1995 drawn on her account in favour of New Champion and a deposit slip showing that this sum was paid into New Champion’s account on 4 July 1995.  Cheung had given evidence her cheque was to repay New Champion for its payments under the HSBC mortgage[87].

109.  I agree with Mr Lam that none of the arguments raised here by Mr Man are legitimate appeal points and they are just an attempt to re-try the case before this court.

110.  The incontrovertible fact was that Unit 1D was mortgaged to obtain an overdraft of $2.5 million for New Champion, which was owned and controlled by Yung.  As the judge had remarked in §410 of the Judgment, Cheung was not a signatory to the overdraft account of New Champion, she had neither the knowledge of nor the means to monitor the outstanding balance of this account.  The judge was fully entitled to reject Cheung’s evidence here as “a cover up of her assistance in Yung’s breach of fiduciary duty after commencement of this action”.

111.  As for the production of documents of New Champion to substantiate the allegation that Cheung also used the overdraft (to repay Dr Ho and to cover the expenses and losses of her veterinary clinic), the judge had not erred in drawing adverse inference against Cheung for failing to produce such documents, given her admission of her close relationship with Yung[88], that Cheung had said in evidence she did not see the need to produce them[89], and that she and Yung were given the opportunity even after the close of evidence to produce bank statements of New Champion to support their case but elected not to do so[90].  The judge was fully entitled to take the view that “Cheung was selective in her production of documentary evidence”[91].

112.  There is nothing of substance to impugn the judge’s finding that the veterinary clinic could not have occasioned a loss of $700,000 in about a year as alleged by Cheung, given Cheung’s failure to produce documentary evidence about the accounts of the clinic and the facilities drawn by the clinic[92].  The judge saw no reason to doubt Dr Dahn’s credibility[93].  There is no basis to interfere with his acceptance of Dr Dahn’s evidence.

113.  Nor is there any merit in the contention that the judge had overlooked the explanation why Global Fair could not have obtained an overdraft facility, unlike New Champion.  New Champion could hardly be regarded as a company with a business record, as Yung had only acquired this as a shelf company on or about 23 September 1993[94], less than two months of its entering into the mortgage of Unit 1D as the borrower.  Quite clearly, Global Fair could have raised money by mortgaging Unit 1D in the same manner as it had done in mortgaging Unit 1A, without the necessity of a fictitious sale of Unit 1A to Start Win.

114.  Likewise, there is no substance in the contention that the judge had overlooked Cheung’s cheque of $1 million to New Champion.  He was entitled to give little or no weight to this piece of evidence, given the lack of supporting documentary evidence as to the purpose of this payment.

If the judge was wrong to hold that Yung had control over the corporate structure

115.  In §393 of the Judgment, the judge drew the inference that “Cheung was only a nominee owner of Avant Garde” and in §396, the judge held that “Yung had control over Avant Garde, Global Fair and Start Win” at the material time and “was the mastermind behind these companies”.

116.  Mr Man submitted that the above findings were contradictory to a subsequent finding in §440 that “Global Fair and Start Win were the alter ego of Cheung”.

117.  He also submitted that the above findings were premised on the error that Au had “somehow become the holder of the bearer shares of Avant Garde on or before 12 November 1993 in place of Cheung”[95], which allegation was not put to Cheung or Au, and the judge had overlooked Cheung’s evidence that she had authorised Au to represent Avant Garde[96].

118.  Further, in §389 of the Judgment, it was stated that “William Leung issued invoices to Yung for the services he provided and those invoices were duly settled without complaint from Yung that he was not responsible for the payment”.  Mr Man submitted there was evidence Cheung had paid for an invoice issued by William Leung dated 3 August 1993 for $8,288 in respect of secretarial services rendered to Global Fair, and this evidence was overlooked by the judge.  He also pointed to documents showing that William Leung or his staff had sought Cheung’s approval before releasing the company documents of Global Fair to Global Fair’s solicitors in November 1993, before executing a board resolution by the sole director of Avant Garde in November 1993, and before changing the sole director of Avant Garde to Cheung in June 1994.  Again, these documents were overlooked by the judge.

119.  All these arguments are just attempts to pick holes in the Judgment.  They are of little moment.

120.  The statement in §440 of the Judgment that “Global Fair and Start Win were the alter ego of Cheung” must be read in context of the rest of that paragraph, in which the judge addressed the issue whether Global Fair and Start Win had knowledge of Yung’s breach of fiduciary duty when they received the Units.  It was in that context that he held the knowledge of Cheung must be imputed to Global Fair and Start Win, there being no dispute that these corporate entities acted through her at the material time.  There is no inconsistency with other parts of the Judgment (§§393 to 397) in which the judge found that Yung was the one orchestrating these transactions and the mastermind behind these companies.

121.  The manner in which Au was authorised to act for Avant Garde is of no importance.  What really mattered was why he was authorised to perform the acts which were described by the judge as “extraordinary”, and for which Cheung was unable to give any credible explanation[97].

122.  The fact that Cheung had paid an invoice issued by William Leung makes no significant difference to the totality of the evidence in this regard.  The judge was fully entitled to accept the evidence of William Leung that Yung was the one who gave instructions to him for the setting up of Global Fair and Avant Garde until at least the middle of 1995[98]; and that invoices for professional fees and disbursement relating to Global Fair and Avant Garde were issued to Yung, whom William Leung believed to be the contact person, at least up to the middle of 1995[99].  Further, in Cheung’s oral evidence, she accepted that these invoices might have been paid by Yung, although it would be sorted out later between them[100].

If the judge was wrong to hold that Cheung had attempted to conceal her involvement in the purchase of the Units

123.  In §§366 and 374 of the Judgment, the judge inferred from the use of the unusual corporate structure and the way in which Cheung signed various documents that Cheung had intended to conceal from Vos her identity as the person behind Global Fair bidding for the Units.

124.  Mr Man attacked the above finding by these arguments. Cheung was registered as a shareholder (albeit of one share) and director of Global Fair and Start Win, this would have been revealed to Vos if he had conducted a company search.  As put to Cheung in cross-examination, she was very open about her involvement in Start Win[101].  The judge had observed in §372 there were many and easier ways with which Cheung could have concealed her investment from her husband (as alleged by her) without using an unusual corporate structure, and this observation would just as well militate against the judge’s conclusion that Cheung was trying to conceal her involvement from Vos.  The judge overlooked Cheung’s evidence that the use of a company with bearer shares was to allow her to pass the assets to her children more easily[102].  And the judge was wrong to place too much emphasis on Cheung signing her daughter’s name in Chinese on various company documents and he should not have rejected Cheung’s evidence why she had signed in that way as “desperate” and “untrue”[103].  It was of no significance that she gave the address of William Leung’s secretarial service company as her residential address in the company documents[104] because she gave evidence that Vos did not know her residential address and this was not challenged[105].

125.  None of the above would provide a proper basis to interfere with the findings of fact in §§361 to 374 of the Judgment, which are based on the assessment of Cheung’s credibility as a witness.  The attempt to pick holes here and there must be resisted.  There is nothing to indicate that the judge was plainly wrong to have come to the findings of fact relating to the secrecy and concealment of Cheung’s identity in bidding for the Units.  The judge was entitled to reject Cheung’s evidence as untrue.  What weight he decided to attach to a particular piece of evidence was entirely a matter for him.

If the judge was wrong to hold that Cheung had knowledge of the short tender period

126.  In §429 of the Judgment, it was held that Cheung “must have been aware what was the usual tender period and that the auction period in the present case was ridiculously and unconscionably short”.  Mr Man submitted there was no evidence to support this finding. Cheung’s evidence was that she read about the auction in the newspaper on 12 July 1993.  The advertisement only gave the closing date for tender, not the commencement date.  Further, it was not put to Cheung she knew the tender period was just two and a half days.  This was unfair to Cheung as the judge had used this to infer that she had the requisite knowledge to found accessory liability in §§429 and 436.

127.  The holding in §429 of the Judgment must be read in the context of the findings in that paragraph as well as other parts of the Judgment.  Based on all the unusual features which were suspicious and inexplicable, the judge drew as the only irresistible inference that Cheung did not come to know about the advertisement and bid in the auction by coincidence but she made a tender by common design with Yung[106].  Having found there was a common design, it was open to him to infer that Cheung must have known that the auction period was two and half days and she must have appreciated that this was “unconscionably short”.  As found by the judge, Cheung “would have appreciated that there were ways Yung could have sold the Units under more favourable circumstances by negotiating with Rabobank” and if Rabobank was not going to force sell the Units within a short time, there was no good reason why Yung should attempt to sell with a tender period of two and a half days.  He rejected Cheung’s evidence as “no one in his right mind would have failed to appreciate that the auction in the circumstances was tailored made for Yung or his nominee to bid at undervalue”[107].  This is clearly a conclusion the judge was entitled to reach.  There is no basis to impugn the judge’s finding here.

If the judge was wrong to find that Cheung had knowledge of the undervalue

128.  In §428, the judge held that Cheung “must have known her bidding price was well below forced sale value which was usually between 25% to 30% below open market value”.  Mr Man pointed out this had not been put to Cheung and her knowledge in valuation matters at the time of the trial in 2009 could not be regarded as evidence of what her knowledge in such matters was in 1993.

129.  The judge inferred Cheung’s knowledge of property prices not from “the very competent way she challenged the Plaintiff’s valuation expert’s evidence”, but from Cheung’s evidence that in 1993 “she read thousands of property advertisements every day and she bid at what she said was a forced sale value” and that she had “kept abreast with property advertisements” and “must have known that the market was rising”[108].  It was put to Cheung in cross-examination that the tender price was far below market value[109].  There is no substance in this complaint.

Conclusion and costs

130.  Save for the ground (which was newly raised) concerning the rate of interest in the pre-judgment period, there is no substance in any of the grounds of appeal advanced by Mr Man on behalf of these defendants.  The appeal should be dismissed except for the ground relating to the rate of interest and the order of the judge should be set aside only to that limited extent and be substituted with an order that interest is to be awarded on damages at 1% over the HSBC lending rate for the period from 28 July 1993 to the date of judgment and thereafter at judgment rate.

131.  We have heard submissions on costs and it is not in dispute that costs should follow the event.

132.  In view of the near wholesale abandonment of the original grounds of appeal only by the supplemental notice filed on 26 August 2014, it is appropriate that the 1^st, 3^rd and 6^th defendants should pay the whole of the plaintiff’s costs of the appeal up to 26 August 2014 and 90% of the plaintiff’s costs after that date given the very limited extent of success in the appeal.  The plaintiff seeks costs on an indemnity basis but I propose not to make this order as Mr Man has reduced the scope of the appeal considerably even though none of the grounds in his supplemental notice has found favour with the court.

Hon Chu JA:

133.  I agree.