BEIJING HANTONG YUZHI CONVENTION CENTRE LTD v. LAO YUAN YI

HCA 1208/2010

[2018] HKCFI 1030

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1208 OF 2010

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JUDGMENT

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1.  In this action the plaintiff, Beijing Hantong Yuzhi Convention Centre Limited (北京瀚通譽智會議展覽中心有限責任公司), seeks a declaration that the defendant, Mr Lao Yuan Yi [1](勞元一), holds 50% shareholding in Praiseup Limited (幹喜有限公司[2]) (“Praiseup”) on trust for the plaintiff together with other consequential relief.

2.  The plaintiff makes the claim on behalf China Venture Tech International Investment Corporation Shanghai (上海中創國際投資公司) (“SIS”) which, the plaintiff contends, is the beneficiary of 50% shareholdingin Praiseup.  This was the basis upon which To J determined the preliminary issue of whether plaintiff has locus standi to sue in this action, as recorded in §§19 and 74 of the Judgment dated 7 July 2014.  This is confirmed by Mr Nelson Miu (appearing with Ms Ann Lui) in his opening submissions.

3.  The parties agree that the following issues require determination of the court at trial:

   (1)   Whether there was a trust in respect of the entirety of the 50% shareholding in Praiseup as alleged by the plaintiff;

   (2)   If there was a trust as alleged by the plaintiff, whether there was any subsequent agreement between the defendant and SIS to the effect that the beneficial interest of SIS should be reduced from 50% to 18.53%; and

   (3)   Whether the equitable doctrine of laches applies in the circumstances of the present case to bar the plaintiff’s claim.

Background Facts

4.  Save where otherwise indicated, the following facts are not in dispute.

5.  China Venture Tech Investment Corp (中國新技術創業投資公司) (“VTI China”) was a state-owned financial enterprise established in 1986 by and accountable to the Ministry of Science and Technology and Ministry of Finance of the PRC.  Owing to mismanagement and breaches of rules and regulations, the People’s Bank of China (“People’s Bank”), with the consent of the State Council (國務院), passed a resolution on 22 June 1998 to close down VTI China and a winding-up committee (“Committee”) was established to manage its liquidation.

6.  SIS was established on 18 March 1993 as a wholly owned subsidiary of VTI China.  The defendant was one of the vice presidents of VTI China and the legal representative (法定代表人) and general manager of SIS.  The defendant was responsible for managing SIS as well as the representative office of VTI China in Shanghai.   

7.  Praiseup is a company incorporated in Hong Kong and was used by Chau Ngai Ming Alex (鄒毅明) (“Alex Chau”) to enter into a provisional agreement dated 19 April 1994 to purchase a commercial property known as Rooms A, B, C, 13/F, Guanglu Huangpu Centre (港陸黃浦中心) in Shanghai (“Property”) at the price of HK$15,848,944.  The price was required to be paid by 11 instalments as follows:

Due Date	Amount (HK$)	% of Price
(1)   Upon signing provisional agreement	360,000	2.27%
(2)   Within 5 days of provisional agreement	1,224,895	7.73%
(3)   Within 30 days of formal agreement	792,447	5%
(4)   Within 60 days of formal agreement	792,447	5%
(5)   26 September 1994	792,447	5%
(6)   26 December 1994	792,447	5%
(7)   26 March 1995	792,447	5%
(8)   26 June 1995	792,447	5%
(9)   26 September 1995	792,447	5%
(10)   26 December 1995	792,447	5%
(11)   Within 14 days of issue of occupation permit	7,924,473	50%

8.  The first five instalments equivalent to 25% of the Price (HK$3,962,235) were paid by Alex Chau.

9.  The defendant became a shareholder and director of Praiseup with effect from 19 April 1994, holding one of its two issued shares. The defendant says in his oral evidence that the documents effecting the transfer and appointment were signed by him much later but back-dated to 19 April 1994, to reflect the agreement he reached with Alex Chau that the transfer and appointment should take effect from 19 April 1994.  Although Mr Miu attempts to cast doubt on the defendant’s evidence in this regard, I do not think that the challenge is well founded as it is clear from the stamped copy of the instrument of transfer that it was only stamped on 9 December 1994 while the notification on appointment of director was only filed at the Companies Registry on 9 November 1994.  

10.  On 2 January 1996, the defendant and Alex Chau signed a shareholding confirmation (股權確認書) (“1^st Confirmation”) which stated as follows:

「 香港乾喜有限公司 (PRAISEUP LIMITED) 董事會現確認以下事項：

1. 勞元一先生擁有香港乾喜有限公司的50% 股份；

2. 勞元一先生是代表上海中創國際投資服務公司持有上述股份並擔任本公司的董事；

3. 香港乾喜有限公司擁有上海市六合路98號港陸黃浦中心第13層A, B, C室房物產權，合計675.01平方米。

4.   未經董事勞元一先生和鄒毅明先生的書面一致同意，香港乾喜有限公司不得以任何方式(包括轉讓，抵押和出租) 來處置上海市六合路98號港陸黃浦中心第13層A, B, C室的房產。」

11.  By a fax dated 1 July 1996 to the defendant (“1/7/96 Fax”), Alex Chau stated that:

   (1)   The price of the Property had been adjusted upwards to HK$16,095,905, and the last instalment payable was HK$9,520,384.14.

   (2)   As shown in schedule 4 thereto, between 26 September 1994 and 23 June 1995, “CVIC” (which appears to be the abbreviation of VTI China) made four payments described as 4^th, 6^th and 7^th instalments and accountancy fee in the aggregateamount of HK$3,234,375.91 (collectively “Sums”) to Praiseup.  The “unsettled balance” and the interest accrued as at 8 July 1996 was HK$1,367,10.127.

   (3)   Taking into account the amount payable by “中創” for the last instalment (HK$4,760,192.07), HK$6,127,293.34 should be remitted to his bank account by 8 July 1996.

12.  On 24 July 1996, the purchase of the Property was completed without any mortgage loan provided by the bank.  According to the documents appended to a “Schedule A”, the total cost for acquiring the Property was HK$17,449,698.38.  

13.  At first, the Property was left vacant.  In November 1996, Alex Chau on behalf of Praiseup authorised 王勇 (“Mr Wang”) of VTI China to handle all matters relating to the leasing of the Property.  It appears from some of the handwritten memos that Mr Wang also handled the administration matters such as the expenditures incurred by the Property and collecting the financial contributions from Alex Chau and SIS/VTI China.  

14.  Following VTI China’s liquidation on 22 June 1998, the People’s Bank ordered, inter alia, VTI China’s wholly owned enterprises to continue their business but VTI China’s investments (投資) in and loans (貸款) to those subsidiaries should be disposed of by the Committee.

15.  On or about 26 October 1999, an officer Mr Huang Wei De (黃為德) was sent by the Committee to take over all the management of SIS.  Since then, the defendant has ceased to have any involvement or responsibility in SIS, although he remained registered as its legal representative.

16.  On 6 September 2001, the defendant signed qua director of Praiseup another shareholding confirmation (股權確認書) (“2^nd Confirmation”) in these terms:

「 一， 茲確認中國新技術創業投資公司上海代表處於1994年9月起共分四期出資418,061.91美元(折合港幣3,234,375.91元) ，投資購買香港乾喜有限公司18.53% 的股權。上述股權由勞元一先生代表中國新技術創業投資公司上海代表處持有。

二， 香港乾喜有限公司擁有上海市六合路98號上海港陸黃浦中心第十三層A, B, C 三個單元物業產權，合計675.01平方米。

三， 中國新技術創業投資公司上海代表處分四期出資時通過銀行匯款的單據見附件。

附件(複印件) 有：1. 編號為0290JNCQ07的香港上海匯豐銀行有限公司收據 (HK2,045,021.50) ；2. 編號為97/01110香港上海匯豐銀行有限公司收據 (HK396,611.00) ；3. 編號為FX415915的香港上海匯豐銀行有限公司收據 (HK396,224.00) ；4. 編號為MNY188012167的香港上海匯豐銀行有限公司收據(HK396,519.41) 。」

17.  The 2^nd Confirmation was not signed by anyone on behalf of VTI China’s Shanghai representative office, which was the named counter- party.

18.  On 31 December 2001, the Committee appointed China Huarong Asset Management Corporation (中國華融資產管理公司) (“Huarong”), one of four specialist asset management corporations set up by the State Council, to deal with the affairs relating to the winding up of VTI China. 

19.  By an agreement dated 28 February 2006 [3], the Committee agreed to sell the residual assets with an aggregate book value of RMB 5,020,358,326.84 then owned by VTI China to Huarong (“Huarong Agreement”).  The residual assets listed in the schedule to that Agreement included VTI China’s investments (投資) in SIS in the amount of RMB 24,854,936.55 and account receivables (應收賬款) from SIS in the amounts of RMB 1,000,000 and RMB 18,055,039.61.

20.  By an agreement dated 23 October 2007, Huarong agreed to sell certain assets of VTI China located in Jiangsu and Shanghai to the plaintiff (“Hantong Agreement”).  The Hantong Agreement was signed by 李新圭 (“Mr Li”) who was (and still is) the legal representative of the plaintiff.

21.  The assets sold to the plaintiff were described in the schedule to the Hantong Agreement in this way:

	華融管理 序列號	客戶名稱	資產類別	賬面餘額
7		合計		63,918,738.22
4		上海地區		49,771,361.55
1	100030308	上海中創國際投資服務公司	投資	24,854,936.55
1	100030308	上海中創國際投資服務公司 (簡稱SIS)	應收賬款	1,000,000.00
1	1300031052	上海中創國際投資服務公司 (簡稱SIS)	應收賬款	18,055,039.61
0	100030393	香港乾喜有限公司(港陸黃浦)	投資	3,461,385.39
1	……	……	……	……
3		江蘇地區		14,147,376.67

22.  On 20 November 2007, Huarong published an asset transfer notice (資產轉讓公告) in a newspaper stating that it had transferred the assets described in the schedule to Hantong Agreement to the plaintiff.  There was an error in the amount of the total book value of the assets listed which was rectified in a subsequent notice published on 20 May 2009.   

23.  The plaintiff through its former solicitors issued a letter dated 15 September 2009 to the defendant requiring him to transfer the one share he held in Praiseup to the plaintiff and provide copies of the audited financial statements of Praiseup from 1 April 2007 within 7 days. There is a dispute as to whether the letter was received by the defendant.   

24.  On 3 October 2009, the Pudong District Branch of Shanghai Industry & Commerce Administrative Management Bureau (上海市工商行政管理局浦東分局) (“Bureau”) suspended (吊銷) the business licenceof SIS.  However, SIS’s registration as a legal person has not been revoked(未注銷).  It remains a suspended but unrevoked (吊銷未注銷) entity.   

25.  On 10 August 2010, the plaintiff commenced this action claiming, inter alia, a declaration that the defendant is holding 50% shareholding in Praiseup on trust for the plaintiff.  The defendant filed his defence on 18 October 2010. On 14 December 2011, the defendant amended his defence to include a plea that even if (which is denied) SIS had interest in any shareholding of Praiseup, the plaintiff could have no locus standi and no legal bases to claim against him.

26.  This was followed by the defendant’s application to strike out the statement of claim (“SOC”) or, alternatively, an order that the plaintiff’s locus standi be tried as a preliminary issue.  On 1 February 2013, Au- Yeung J ordered the issue of locus standi be tried as a preliminary issue which took place on 25 – 26 November 2013.

27.  In the judgment dated 7 July 2014, To J held (at §74) that the plaintiff as beneficial owner of the 100% equity in SIS has capacity to participate in litigation on behalf of SIS in its own right or as a person responsible for its liquidation and, as such, has locus standi to make the claim against the defendant.  The judgment was affirmed by the Court of Appeal in its judgment of 24 August 2015.  The Appeal Committee dismissed the defendant’s application for leave to appeal on 23 May 2016.

Pleaded Cases

28.  The plaintiff’s pleaded case is one of express trust.  The trust over the 50% shareholding (or one share) in Praiseup arose out of the following materials facts pleaded in §§3 – 6 of the SOC:

“ 3. In or about early 1994, VTI China planned to invest in the uprising property market in Shanghai, China through [SIS].

4. However, because of local restrictions, [SIS] decided to implement this investment plan through a Hong Kong company.

5. Eventually, it was resolved that the Defendant, being the officer in charge of [SIS], a veteran graduate of Fudan University Shanghai who had also been sent to study abroad under government sponsorship, and had a residence in Hong Kong, should acquire 50% shareholding of Praiseup, which was a company incorporated by one of the Defendant’s friends, Mr Chau Ngai Ming (鄒毅明) and as a result, the investment plan would thereafter be carried out by Praiseup instead.

6. Pursuant to this decision, the Defendant on behalf of [SIS] acquired 50% shareholding of Praiseup on or about 19 April 1994 and since then has become one of its directors.”  

(underline added)

29.  The other matters pleaded in §§7 – 11 of the SOC relate to the purchase of the Property by Praiseup, the winding up of VTI China, the Huarong Agreement and the Hantong Agreement which are not controversial.  In §12 of the SOC, it is pleaded that “By reason of the aforesaid, the Defendant has therefore been holding the said 50% shareholding in Praiseup on trust for the benefit of the Plaintiff since 23^rd October 2007.”

30.  In §13 of the SOC, it is alleged that the defendant acted “in breach of his duty as trustee to the Plaintiff and/or duty as officer in charge to [sic] [SIS]” by refusing to comply with plaintiff’s demand made on 15 September 2009 for transfer of the 50% shareholding in Praiseup and provision of its audited financial statements.  At trial, the plaintiff only pursues the alleged breach of duty of the defendant qua trustee to the plaintiff but not the alleged breach of duty qua officer of VTI China and SIS.  This makes sense as the duties pleaded in §2 of the SOC are the duties owed to VTI China and SIS, but the alleged breach of duty pleaded in §13 of the SOC has nothing to do with the defendant’s duties as officer of VTI China and SIS.

31.  The defendant sought further and better particulars on the “investment plan of VTI China” and the “resolution” pleaded in §§3 and 5 of the SOC but were met with the same answers that the requests relate to “matter of evidence only” and that the defendant “is and was in a better position of knowing the actual details of the allegation”.

32.  In light of the plaintiff’s answers, insofar as the plaintiff’s pleaded claim on the creation of the alleged trust is concerned, it is confined to the material facts pleaded in §§3 – 6 of the SOC.

33.  I should add that in his opening and closing submissions, Mr Miu seeks to characterise the plaintiff’s case as one of a bare trust. As I understand it, he submits that SIS would be the beneficial owner of 50% shareholding in Praiseup irrespective of whether it made any financial contribution towards the cost of acquiring the Property.  If and to the extentthat the defendant has made any financial contributions towards the Property, that is a matter of equitable accounting between shareholders when the Property is sold and does not affect shareholding, citing Re Li Yuet Mei, HCB 3304/2008, unreported, 7 December 2016, §13.  The submission must be rejected as the plaintiff has never pleaded such a case in the SOC.

34.  The defendant denies that there was a trust as alleged by the plaintiff or that he has acted in breach of his duties, whether as trustee or officer of SIS.

35.  The defendant’s case, as pleaded in §8 of the Re-Amended Defence (“RAD”), may be summarised as follows:

   (1)   Alex Chau proposed to form a joint venture with the defendant through Praiseup which he had used to purchase the Property and paid HK$3,962,236 as part payment.  

   (2)   The defendant decided that it was in the long term interest of SIS to enter into the joint venture with Alex Chau as SIS did not own any office premises and the financial burden would not be significant if Alex Chau could secure a mortgage loan from the bank.

   (3)   As SIS had no spare funds for its use, an arrangement was made between SIS and VTI China that (a) SIS would enter into a joint venture with Alex Chau and use Praiseup as the vehicle for acquiring the Property; (b) VTI China would finance the acquisition by way of loans to SIS; and (c) SIS would in due course repay VTI China (“Arrangement”).

   (4)   The joint venture between SIS and Alex Chau was conditional upon their making financial contributions towards the purchaseprice and expenses of the Property, and “it was their agreement and/or common intention and understanding” of SIS and Alex Chau that each would contribute half of the cost of acquiring the Property and be responsible for half of the mortgage loan and the interest accrued thereon (“Joint Venture”);

   (5)   By July 1995, VTI China paid HK$3,234,375.91 (ie the Sums) on behalf of SIS to Praiseup which were treated as loans to SIS (“Loans”);

   (6)   The 1^st Confirmation was signed by the defendant in January 1996 on the assumption that the Arrangement and the Joint Venture would be fully implemented;

   (7)   As SIS only paid the Sums and did not make any financial contributions after July 1995, it did not acquire 50% ownershipof Praiseup and its proportionate ownership only came to 18.53%; 

   (8)   Around the time of completion, it was agreed between the defendant and SIS (through the defendant as its legal representative and/or Mr Zhou Xiaohe (周小鶴) (“Mr Zhou”), the President of VTI China, the holder of all the equity of SIS) that instead of being entitled to 50% shareholding in Praiseup, SIS would only be entitled to 18.53% shareholding in Praiseup (“1997 Agreement”);

   (9)   SIS never repaid the Loans advanced by VTI China. On 6 September 2001, the defendant on behalf of SIS agreed to set off the Loans by transferring 18.53% shareholding in Praiseup to VTI China, which was agreed by the Committee (“2001 Agreement”).  At the request of the Committee, the defendantsigned the 2^nd Confirmation qua director of Praiseup to confirm that VTI China had acquired 18.53% shareholding in Praiseup. 

   (10)   In the premises, the 1^st Confirmation was superseded and rendered inoperative.   

36.  The defendant also relies on the equitable defence of laches the particulars of which are set out in his voluntary particulars dated 5 December 2017 as follows:

   (1)   the relevant cause of action could have been asserted by the plaintiff’s predecessors, viz, VTI China (or SIS) from 19 April 1994, the Committee from 21 [4] June 1998, and Huarong from 28 February 2006; and the plaintiff from 23 October 2007;

   (2)   alternatively, the Committee could have and should have brought a claim against the defendant by 6 September 2001, when the defendant unequivocally indicated his position in the2^nd Confirmation that he would not accept that VTI China or SIS had beneficial interest in 50% shareholding in Praiseup; and

   (3)   there was inordinate and inexcusable delay on the plaintiff and its predecessors in prosecuting the action and the defendant’s ability to defend the action is substantially prejudiced as a result of loss of witnesses and documents and his inability to recall who in the Committee had agreed on the matters stated in the 2^nd Confirmation.

Approach to Evidence

37.  Where, as here, the events in question took place many years before the trial, the contemporaneous documentation is of special importance.  Also of particular use where a trial is long removed from the time of the events in question are conflicts within the evidence, inherent probabilities, and a study of how matters were originally pleaded and asserted in witness statements (Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, §7 per Rogers VP and §135 per Stock JA (as he then was)).

38.  This approach applies with particular force in the present case, which concerns an alleged trust said to have been created 24 years ago.  Amongst the entities and persons involved, VTI China was put in liquidation 20 years ago while SIS was suspended in October 2009.  The defendant ceased to have any involvement in SIS in October 1999 and the personnel dealing with the administration of the Property, Mr Wang, died.  The only factual witness who gives evidence on behalf of the plaintiff, Mr Zhang Liping (張立平) (“Mr Zhang”), has no contemporaneous knowledge of any of the events relating to the dispute, as he only joined the plaintiff as its in-house counsel in 2008.     

39.  There is no dispute that the general principle governing burden of proof in civil cases, as stated in Phipson on Evidence, 19^th ed, §6-06, applies:

“ So far as persuasive burden[5]is concerned, the burden of proof liesupon the party who substantially asserts the affirmative of the issue. If, when all the evidence is adduced by all parties, the party who has this burden has not discharged it, the decision must be against him. This is an ancient rule founded on considerations of good sense and should not be departed from without strong reasons.

This rule is adopted principally because it is just that he who invokes the aid of the law should be the first to prove his case; and partly because, in the nature of things, a negative is more difficult to establish than an affirmative….

In deciding which party asserts the affirmative, regard must be had to the substance of the issue and not merely to its grammatical form; the latter the pleader can frequently vary at will. Moreover, a negative allegation must not be confused with the mere traverse of an affirmative one.  The true meaning of the rule is that where a given allegation, whether affirmative or negative, forms an essential part of a party’s case, the proof of such allegation rests on him.  An alternative test, in this connection, is to strike out of the record of the particular allegation in question, the onus lying upon the party who would fail if such a course were pursued.”  

(underline supplied)

40.  I turn to the 3 Issues.

Issue 1:    Whether there was a trust in respect of 50% shareholding in Praiseup as alleged by the plaintiff

41.  Mr Miu submits that the starting point is that the defendant was, as of January 1996, holding the one share in Praiseup on trust for SIS, as confirmed by the 1^st Confirmation and admitted by the defendant in his RAD.  The burden is on the defendant to prove that there was a subsequent agreement that the beneficial interest of SIS should be reduced from 50% to 18.53% and that he is entitled to the defence of laches.

42.  I do not think that the defendant has admitted that he held the one share on trust for SIS. As stated in §35(3) – (4) above, the defendant’s pleaded case is that he held the 50% shareholding in Praiseup on behalf of SIS on the bases of the Arrangement and the Joint Venture. 

43.  Mr Bernard Man SC (leading Mr James Man) appearing for the defendant, submits that the starting point is that the defendant is the legal and beneficial owner of the 50% shareholding he held in Praiseup.  It is for the plaintiff to prove its version of events to justify the displacement of the beneficial interest from the legal title in the way it alleges (Re Lee Yuet Mei, at §9).  If the plaintiff does not discharge its burden of proof, the claim should be dismissed.  It does not matter whether the defendant’s version of events is proved, as the trial judge is not compelled to choose between two rival contentions where the evidence is unsatisfactory (The Popi M [1985] 1 WLR 948 at 955F – 965F per Lord Brandon; Cyberland (China) Ltd v Zhang Wei Bing, HCCL 3/2014, unreported, 10 November 2015 at §96 per Chow J).

44.  I agree with Mr Man that the burden is on the plaintiff to prove that the beneficial interest of the 50% shareholding held by the defendant in Praiseup belongs to the plaintiff.  If the plaintiff fails to discharge this burden, the claim must be dismissed.   

45.  Mr Man submits that where, as here, the plaintiff’s claim is based on an express trust, it must satisfy the “3 certainties” namely, certainty of words evincing an intention to create a trust, certainty of subject matter and certainty of object.  On certainty of words, Sir James Bacon VC stated in Heartley v Nicholson (1874–75) LR 19 Eq 233 at 242 thus:

“ It remains, therefore, only to be considered whether or not the testator did in his lifetime constitute himself such trustee. It is notnecessary that the declaration of a trust should be in terms explicit. But what I take the law to require is, that the donor should have evinced by acts which admit of no other interpretation, that he himself had ceased to be, and that some other person had become, the beneficial owner of the subject of the gift or transfer, and that such legal right to it, if any, as he retained was held by him in trust for the donee.”

(underline supplied)

46.  The court should construe the substance and effect of the expression used by the settlor against the background of the relevant circumstances (Snell’s Equity, 33^rd ed, §22-013).

47.  Mr Miu does not dispute these principles. 

48.  On the plaintiff’s pleaded case, the trust arose out of the act “resolved” as pleaded in §5 of the SOC.  However, the plaintiff’s case on the creation of the trust has never been made clear and in fact keeps shifting during the trial in that:

   (1)   despite the defendant’s request for particulars on the resolution referred to in §5 of the SOC, the plaintiff refused to provide any particulars;

   (2)   in opening, Mr Miu submits that the plaintiff’s case is that the trust was created on 19 April 1994 and the reference to “resolved” was a resolution of SIS or a decision made by the defendant on behalf of SIS;

   (3)   the plaintiff has not produced any resolution of SIS.  Nor has the plaintiff called any factual witness to prove that a resolution of SIS had been passed as alleged in §5 of the SOC;

   (4)   faced with an obvious lack of evidence in support of the plaintiff’s case, Mr Miu seeks to rely on the mental decision made by the defendant which, he submits, gave rise to a trust binding upon SIS and the defendant;

   (5)   in response to the questions posed by the court, Mr Zhang says in his evidence that the resolution referred to in §5 of the SOC was a reference to the two sets of board resolutions of Praiseup dated 19 April 1994 whereby the directors resolved (a) to appoint the defendant as a director of Praiseup and approve the transfer of one share to the defendant, and (b) to approve the agreement for sale and purchase of the Property atthe price of HK$15,848,944 (together “Praiseup’s Resolutions”). Mr Zhang emphasises that the plaintiff also relies on other documents, which are not resolutions, as evidence of the creation of the trust; and

   (6)   in closing, Mr Miu submits that Mr Zhang misunderstood the import of the Praiseup Resolutions and effectively urges the court not to accept his evidence.  This is despite the fact that Mr Miu never puts this suggestion to his own witness.

49.  In my view, the plaintiff has failed to discharge the burden of proving its case that a trust was created over the 50% shareholding in Praiseup as alleged in §§3 – 6 of the SOC.

50.  First, the Praiseup Resolutions did not constitute a declaration of trust.  Nor did they have the effect of creating the alleged trust.

51.  Second, the plaintiff’s reliance on the mental decision made by the defendant is misplaced.  The evidence of the defendant is that he decided to hold 50% shareholding on behalf of SIS on the bases of the Arrangement and the Joint Venture the combined effect is that the interest of SIS in Praiseup would be proportionate to the financial contributions it made towards the cost of acquiring the Property up to 50%.

52.  The evidence of the defendant is consistent with the evidence of Mr Feng Jun (馮軍) (“Mr Feng”) [6], the former legal consultant engaged by SIS.  Mr Feng says that to his understanding, the arrangement between SIS and Alex Chau was that SIS would bear 50% of the cost of acquiring the Property in exchange for 50% shareholding in Praiseup and 50% interest in the Property.  

53.  The above evidence of the defendant and of Mr Feng is not challenged at trial.  There is thus no evidence in support of the plaintiff’s contention that the mental decision of the defendant created the trust as alleged in §§3 – 6 of the SOC.  

54.  Third, the plaintiff relies heavily on the 1^st Confirmation which Mr Miu submits, constituted an admission by the defendant that he held the one share in Praiseup on trust for SIS.

55.  The 1^st Confirmation (set out in §10 above) was described as a confirmation by the board of directors of Praiseup and was signed by the defendant and Alex Chau as such directors.  In §2, it was stated that the defendant held the 50% shareholding and the directorship in Praiseup on behalf of SIS.  It is the unchallenged evidence of the defendant that:

   (1)   the 1^st Confirmation was signed at the time when his relationship with Alex Chau had turned sour;

   (2)   the main purposes of signing the 1^st Confirmation were (a) to confirm the interest of SIS vis-à-vis Alex Chau, but not the interest as between the defendant and SIS, and (b) to prevent Alex Chau from unilaterally disposing of the Property without the consent of the defendant; and

   (3)   at that time, the defendant was operating under the assumptionand belief that SIS would pay the full 50% contribution towards the cost of acquiring the Property.

56.  The evidence of the defendant is consistent with the demand made by Alex Chau in the 1/7/96 Fax requiring “中創” to pay the last instalment and the “unsettled balance” representing 50% of the cost of acquiring the Property. 

57.  As it is not the plaintiff’s case that the 1^st Confirmation constituted a declaration of trust, it is not necessary to consider whether the words used in the 1^st Confirmation satisfy the “3 certainties” for creating a trust enforceable by SIS.

58.  Fourth, the plaintiff relies on three documents as evidence in support of the plaintiff’s pleaded case that a trust had been created over the 50% shareholding in Praiseup.  Mr Miu submits that “the 3 certainties were satisfied: D was to hold the 1 share as bare trustee for [SIS]”.  

59.  The first document is the handwritten instruction given by the defendant to Mr Wang on 24 August 1996 which were in these terms:

「 “乾喜”的唯一資產是港陸的房產，SIS應佔“乾”的50% 權益。文件改過來，讓王勇商馮軍，ALEX 一起辦。

ALEX處，請王勇聯繫辦，將分攤的管理費用明細列支，由ALEX分攤其中的50% 支付方式雙方商定。」

(underline supplied)

60.  The next document is the handwritten note from Mr Wang dated 26 November 1996 in which he stated as follows:

「 SIS 與香港中置[7] 聯合購買的港陸黃浦中心 (本市六合路98號13層) 房產，於1996年7月23日收房並啟用。

按勞總指示，SIS 與香港中置各佔該房產的50% 權益，該房產日後的收入和管理費用也由雙方各50%分攤。

上述房產日後的管理費用主要有管理費 (每月HK$18,160.00) ，電話費，電費等。

……」

(underline supplied)

61.  The last document is Mr Feng’s fax to Alex Chau dated 18 March 1997 in which he said:

「 我們在上海曾商定。根據香港乾喜有限公司 (PRAISEUP LIMITED) 董事會的確認：勞元一先生擁有香港乾喜有限公司的50% 股份，並代表上海中創國際投資服務公司持有上述股份並擔任乾喜公司的兩董事之一；香港乾喜有限公司的全部資產為擁有上海市六合路98號港陸黃浦中心第13層A, B, C室的房物產權。請你提供經香港執業會計師簽署的勞先生擁有香港乾喜有限公司的50% 的股權證明和乾喜公司的資產負債表。可是至今只收到勞先生的持股證明, 現請你盡快提供香港會計師行簽署的乾喜公司最新年度資產負債表, 以供中創公司作為投資紀錄存檔。」

(underline supplied)

62.  I am unable to accept the plaintiff’s contention that these three documents support its case on the creation of the trust as pleaded in §§3 – 6 of the SOC:

   (1)   As stated above, it is not the plaintiff’s pleaded case that the defendant held the one share in Praiseup as a bare trustee.

   (2)   The suggestion that these documents satisfy the “3 certainties” is misconceived, as it is not the plaintiff’s case that the trust was created or constituted by these three documents.   

   (3)   The three documents are equally consistent with the defendant’scase that he held the 50% shareholding in Praiseup on the bases of the Arrangement and the Joint Venture.

63.  By the time these three documents were prepared, the purchase of the Property had already been completed without any mortgage loan having been obtained by Praiseup.  I accept the defendant’s evidence that bythe time he gave the handwritten instruction to Mr Wang on 24 August 1996, he was still hoping that SIS would pay back the amount of acquisition cost he had paid towards the Property.  

64.  There is a dispute as to who paid the HK$6,127,293.34 (“Final Payment”) required to be paid in the 1/7/96 Fax.

65.  I find that on a balance of probabilities, the Final Payment was paid by the defendant for the following reasons.

66.  In the audited accounts of Praiseup for the year ended 31 March 1997 (“1997 Audited Accounts”) disclosed by the plaintiff, the value of the “investment properties” was stated at HK$17,389,686 while the amounts due to directors were HK$17,482,625.  No other loan was recorded.  This confirms that the cost of acquiring the Property was met by the loans provided by the directors, rather than by any banks or third parties.

67.  The possibility that the Final Payment was made by SIS can be ruled out.  All the documents discussed in §§11 – 16 above point to the same fact that VTI China had advanced the Loans to SIS which, in turn, were treated as SIS’s contributions towards the cost of acquiring the Property.  The same amount (HK$3,234,375.91) was mentioned in the Hantong Agreement as well as the transfer notice issued by Huarong dated 20 November 2007.

68.  There is no suggestion that Alex Chau paid the Final Payment.  Indeed, any such suggestion would be untenable as by 18 March 1997 when Mr Feng requested Alex Chau to provide the audited financial statements of Praiseup, he still referred to the contents of the 1^st Confirmation and described the defendant held the 50% shareholding in Praiseup on behalf of SIS.  Had Alex Chau paid more than 50% of the costs of acquiring the Property 9 months ago, one would have expected him to require an adjustment to his shareholding in Praiseup to reflect his financial contribution in excess of 50% which he never did.

69.  The defendant says that the Final Payment was paid by him as VTI China would not grant further loans to SIS and Alex Chau had not been able to obtain any mortgage loan on terms acceptable to Praiseup.  As the property market in Shanghai had started to become sluggish and there might not be a positive return on the investment in the Property, the defendant thought that it was only right for him to take over from SIS the outstanding contribution obligation in order to minimise the loss to SIS.  He arranged his companies in the US to settle the Final Payment.  The defendant explains that he has not been able to produce any primary documents in support of the payment, as he found out that his former accountant in the US had passed away 10 years ago and the other relevant records were destroyed during the “911” incident in 2001.

70.  It is the unchallenged evidence of the defendant that in 1997, he acted as a personal guarantor of International Enterprises Investment Company Limited (萬國創業投資有限公司) (“IEI”), an indirect subsidiary in which VTI China had 50% interest, in respect of a bank loan of HK$70 million.  After IEI had defaulted in repayment, the defendant extended personal loans to pay certain principal and interest to the bank on behalf of IEI.  The defendant produces 5 loan agreements to show that between June and November 1997, he advanced loans in the aggregate amount of HK$59,757,425.05 to IEI.  The defendant says that these agreements show that he had the financial means to pay the Final Payment.  Although the plaintiff files a notice of non-admission to challenge their authenticity, Mr Miu does not put to the defendant that these loans were not extended at the time stated or that the agreements were forged in any way.

71.  The defendant’s evidence that he paid the Final Payment is consistent with the following undisputed fact, and I accept his evidence:

   (1)   In the 1997 Audited Accounts, the loans from directors were stated as HK$17,482,625 which was slightly more than the book value of the Property.

   (2)   During the time the defendant held the positions in VTI China and SIS, he had other businesses and joint ventures in the US, and was the managing director and later Chairman of First Shanghai Investments Limited and China Assets (Holdings) Limited [8], both of which were (and still are) listed companies in Hong Kong.  This shows that the defendant did have the financial means to pay the Final Payment.

   (3)   After the 1/7/1996 Fax requiring “中創” to pay the Final Payment, Alex Chau did not make any further demand against the defendant in respect of any amount relating to the cost of acquiring the Property. 

72.  For the above reasons, I am not satisfied that the plaintiff has discharged the burden of proving its pleaded case that a trust was created on 19 April 1994 over the defendant’s 50% shareholding in Praiseup as alleged by the plaintiff. 

73.  In light of my conclusion on Issue 1, it is strictly speaking not necessary to make any finding on whether the defendant has proved his pleaded case on the bases upon which he held the 50% shareholding in Praiseup.

74.  Nevertheless, having considered all the evidence, I should state my findings on the defendant’s case.

75.  Mr Miu submits that the defendant’s evidence is not contemporaneous evidence, and his evidence on the understanding and the bases upon which he held the 50% shareholding in Praiseup are “his subjective evidence or purported oral agreements with others” and, as such, are “self-serving statements of intention, which remain inadmissible”, relying on Shephard v Cartwright [1953] 1 Ch 728 at 758, per Denning LJ.  I am unable to accept the submission.

76.  The defendant gives evidence on what happened in the past.  It is for the court to decide whether his evidence is credible or should be given any weight.  It is neither helpful nor appropriate to characterise the defendant’s evidence as not “contemporaneous”.  In any event, as Mr Miu accepts, the “modern approach” of the court in dealing with subsequent actsand declarations is that described in Leung Wing Yi Asther v Kwok Yu Wah(2015) 18 HKCFAR 605 at §§55 – 56, per Stock NPJ:

“ 55. A question canvassed in the course of argument before this Court was whether those earlier and later events were admissible as evidence of intention at the time of transfers. It seems to me that they were and that the issue was one of weight. In the context of a question whether evidence of conduct subsequent to the registration of shares in the names of children was admissible to rebut the presumption of advancement, it was held in Shephard v Cartwright [9] that whereas acts and declarations of the parties before or at the time of the transaction or so immediately after it as to render it a part of that transaction are admissible ‘either for or against the party who did the act or made the declaration … subsequent declarations are admissible as evidence only against the party who made them, not in his favour.’ The modern approach is less rigid in relation to evidence of subsequent conduct:

…it does not follow that subsequent conduct is necessarily irrelevant. Where the existence of an equitable interest depends upon a rebuttable presumption or inference of the transferor’s intention, evidence may be given of the subsequent conduct to rebut the presumption or inference which would otherwise be drawn. [10]

56. As a matter of common experience, contemporaneous conduct is inherently more likely to be a reliable indicator of intention, to be given greater weight, than are words and conduct after the event, especially in the case of ‘self-serving statements or conduct of the transferor, who may long after the transaction be regretting earlier generosity.’ [11] That rationale is not restricted to evidence in rebuttable of presumptions but embraces any evidencefrom which an inference of the transferor’s intention may properly be drawn.” (underline supplied)

77.  I accept the defendant’s evidence that sometime after 19 April 1994, he decided to hold the 50% shareholding in Praiseup on behalf SIS on the bases of the Arrangement and the Joint Venture.  The defendant’s case is consistent with all the contemporaneous documents including the 1^st Confirmation, the three documents relied upon by the plaintiff and the fact, as I so find, that it was the defendant who paid the Final Payment.

78.  Most importantly, as will be seen further below, the contemporaneous documents show that the subject matters of the defendant’s shareholding in Praiseup, the Loans and the assets and liabilities of SIS had been reviewed by the Committee, the special audit commissioned by the Committee and Huarong and none of them regarded SIS to have any interest, whether 50% or 18.53%, in Praiseup.

Issue 2:  If there was a trust as alleged by the plaintiff, whether there was any subsequent agreement to reduce SIS’s beneficial interest from 50% to 18.53%

79.  I consider this issue on the basis that, contrary to my conclusion on Issue 1, the plaintiff has discharged the burden of proving that there was a trust as pleaded in §§3 – 6 of the SOC.

80.  It is the unchallenged evidence of the defendant that the acquisition of the Property became unnecessary after SIS had found a new office in Shanghai at a lower rental than its previous office at Portman.

81.  The defendant says that sometime in 1997, Mr Zhou informed him that VTI China would not provide any further loan to finance SIS’s acquisition of the Property.  As the defendant had already made the Final Payment, he agreed with Mr Zhou that SIS would only be entitled to 18.53% shareholding in Praiseup, being SIS’s share of the financial contribution to the cost of acquiring the Property (i.e. the 1997 Agreement).  The defendant regarded the 1997 Agreement as crystallising the division of interest between himself and SIS over the 50% shareholding he held in Praiseup.

82.  I note that there is an inconsistency in the defendant’s case as to when the 1997 Agreement was made in that:

   (1)   in §8(10B) of RAD and §19 of his witness statement dated 22 May 2012, the defendant seems to suggest that the discussion and agreement with Mr Zhou was made around the time of completion in July 1996; and

   (2)   in §6 of his supplemental statement dated 21 November 2016, the defendant says that the discussion and agreement with Mr Zhou was made in or around 1997 although he no longer remember the exact date.

83.  Given that over 15 years have elapsed between the 1997 Agreement and the defendant’s witness statement, I do not regard the inconsistency in his recollection of the precise time he made the 1997 Agreement to be a matter which casts doubt on the credibility of his evidence in this aspect.

84.  The defendant’s evidence on the 1997 Agreement is corroborated by (1) the 2^nd Confirmation, which shows that there was an antecedent agreement finalising the interest between the defendant and SIS in the 50% shareholding in Praiseup; and (2) the unchallenged evidence of Mr Feng that he was told by the defendant, and may be Mr Zhou, that the original arrangement whereby the defendant held 50% shareholding in Praiseup on behalf of SIS had been varied so that the defendant only held 18.53% shareholding on behalf of SIS.  If and insofar as necessary I find that Mr Zhou did make the 1997 Agreement with the defendant.

85.  The plaintiff takes issue on the authority of Mr Zhou to make decision on behalf of VTI China on the basis that VTI China was a state-owned entity and, as such, the decision must be made in accordance with the provisions governing all state-owned entities.  The defendant disagrees and explains that VTI China was not bound by such provisions as it was specifically created by the State Council to pursue investments and businesses in new technology without being subject to the provisions governing state-owned entities.  Neither party has adduced the relevant provisions or expert evidence at trial to make good their point.  

86.  In my view, whether the 1997 Agreement was made with Mr Zhou does not affect the position.  If, as I so find, the defendant held the 50% shareholding in Praiseup on the bases of the Arrangement and the Joint Venture, the fact that SIS only paid the Sums, which represented 18.53% of the cost of acquiring the Property, means that SIS only ever acquired 18.53% in Praiseup. 

87.  It is not clear from Mr Miu’s submissions as to whether the plaintiff disputes the authority of the defendant to make the 1997 Agreement on behalf of SIS.  I do not think that it is open to the plaintiff to contend that the defendant had no authority to enter into the 1997 Agreement on behalf of SIS, having itself relied on the decision made by the defendant in 1994 on behalf of SIS as the basis of making the claim against the defendant (see §48(2) above).    

88.  I turn to the 2001 Agreement.

89.  It is common ground that in October 1999, the affairs of SIS was taken over by the Committee.  Since then, the defendant ceased to haveany involvement in SIS other than attending interviews with the Committeeand assisting its investigation from time to time.  As neither party has called anyone involved in the work of the Committee to testify at trial, the court has to consider the contemporaneous documents against the evidence of thedefendant and Mr Zhang when making findings on what happened after the Committee had taken over the management of VTI China and SIS insofar as they relate to the Property and Praiseup.  

90.  Mr Zhang says in his oral evidence that after the plaintiff had acquired SIS under the Hantong Agreement, he went to an office previously used by SIS at 中創大廈on Nanjing West Road, Shanghai and found documents belonging to SIS.  Amongst the documents, he found a set of 30 documents bound together with an index described as “港陸黃浦資產　卷內文件目錄” (collectively "Documents”). The Documents included, inter alia, the sale and purchase contracts of the Property, the three documents relied upon by the plaintiff, the 1/7/96 Fax, the 1^stConfirmation,the Praiseup Resolutions and the 2^ndConfirmation.  The defendant says that during the time he managed SIS, its office was located at No 689 Huaihai Zonglu, and he has no idea why the documents of SIS were kept at 中創大廈.  There is no inconsistency in the evidence of Mr Zhang and that of the defendant, which is explicable by the fact that after the Committee had taken over the management of SIS, it caused the documents of SIS to be transferred to and kept at中創大廈.  

91.  It can be seen from the manner in which the Documents were arranged and described in the index that they had been undergone a process of collation, review and arrangement, and the process took place sometime after September 2001 as the 2^nd Confirmation was included in the Documents.  Further:

   (1)   The 2^nd Confirmation was a carefully prepared document in that it accurately described the fact that it was VTI China which had paid the Sums by way of 4 instalments including details of each instalment and records of remittances as well as the details of the Property.

   (2)   Given that the Committee had by then been managing the affairs of SIS for at least 2 years, it is reasonable to infer that the Committee was aware of the contents of the Documents including the 1^st Confirmation and the 2^nd Confirmation.

92.  The defendant says that as SIS never repaid the Loans to VTI China, they remained outstanding when VTI China was put into liquidation.  On or about 6 September 2001, at the request of the Committee, the defendant agreed qua legal representative of SIS to set off the Loans by transferring its 18.53% shareholding in Praiseup to VTI China (i.e. the 2001 Agreement).  The Committee then prepared the 2^nd Confirmation to reflect the 2001 Agreement and asked him to sign in his capacity as director of Praiseup.  The defendant signed the 2^nd Confirmation on or about 6 September 2001 and returned it to the Committee for counter-signing, but he never saw the 2^nd Confirmation again until the plaintiff disclosed it in its list of documents filed on 2 February 2011.

93.  It seems to me that unless there is a proper basis to impugn the 2^nd Confirmation, it is a compelling evidence in support of the 2001 Agreement.   

94.  The plaintiff appears to dispute the 2^nd Confirmation on the bases that (1) it was only signed by the defendant and, therefore, “cannot have any legal effect”; (2) the contracting party was not the Committee, which it is said “always used its own name in issuing circular or entering into contracts”, citing 4 examples; and (3) the defendant is unable to state the name of the person(s) in the Committee whom he allegedly dealt with at the time.

95.  In my view, the plaintiff’s challenge on the 2^nd Confirmation is not well founded and must be rejected.

96.  First, as stated in §90 above, the 2^nd Confirmation was found alongside with other documents relating to the Property from the documents belonging to SIS.  There is no basis for the plaintiff to suggest that the Committee was aware of all the other documents bound together as the Documents but not the 2^nd Confirmation.  There is no evidence to suggest that the Committee has ever disputed the contents or validity of the 2^ndConfirmation.

97.  Second, in the audit report entitled “關於上海中創國際投資服務公司董事勞元一任期經濟責任審計報告” dated 4 December 2003issued by independent certified accountants engaged by the Committee and Huarong (“Audit Report”), it was stated, inter alia, that:

   (1)   the accountants formed an investigation unit and performed an audit from 27 November 2003 to 4 December 2003 in respect of the defendant’s work and responsibility in SIS for the period from 22 June 1998 to 31 October 2003;

   (2)   on 31 May 2002, the defendant had handed over the assets of SIS and since then, Huarong took over all the management of SIS; and

   (3)   there were extensive discussions on the assets and liabilities of SIS in great details but no reference to the Loans owed to VTI China or any interest owned by SIS in Praiseup or the Property.  This was despite the fact that in the table on other payables, Praiseup and “港陸黃浦中心” were mentioned with less than RMB 17,000 described as remaining balance (往來尾款) (at page 13).

98.  The above contents of the Audit Report show that the affairs and assets of SIS had been subjected to an extensive review and audit by independent accountants who reported to the Committee and Huarong.  It is reasonable to infer that during the process, the accountants would have had access to all the information and documents relating to the Loans and the corresponding interest in the shareholding in Praiseup (including the Documents, which belonged to SIS) as they were able to list out and describein great details the assets and liabilities of SIS, their status and whereabouts.The fact that the accountants did not describe the Sums as an asset of SIS or the Loans as liability of SIS is only explicable by the fact that prior to the Audit Report, an agreement had already been reached which had the effect of eliminating both the Sums and the Loans as SIS’s asset and liability respectively.  This is consistent with the defendant’s evidence that by the time the Audit Report was issued, he had already made the 2001 Agreement with the Committee whereby the Loans were set-off against the 18.53% shareholding in Praiseup held by the defendant on behalf of SIS.

99.  Third, in light of the fact that Huarong had since May 2002 taken over all the management of SIS and, subsequently acquired all the assets of VTI China (including 100% equity in SIS), it is reasonable to infer that Huarong would have been aware of the existence of the Documents including the 2^nd Confirmation.  Yet, there is no evidence to suggest that Huarong has ever disputed the validity of the 2^nd Confirmation.

100.  Fourth, the fact that Huarong considered it appropriate to enter into the Hantong Agreement to sell VTI China’s assets which comprised of (1) all the equity in SIS, (2) the accounts receivable owed by SIS to VTI China and (3) the interest in the Property to the extent of the Sums show thatHuarong must have been aware of and accepted that the interest in the Property was an asset of VTI China, rather than that of SIS.  This is only explicable by the fact that Huarong was aware of the existence of the 2001 Agreement and the fact that it was binding upon VTI China and SIS, as without the 2001 Agreement, Huraong would have to sell the Loans owed by SIS as an asset of VTI China, and would not have listed the interest in the Property to the extent of the Sums as an asset of VTI China.

101.  Fifth, although the counter-party named in the 2^nd Confirmation was VTI China’s Shanghai representative office rather than the Committee, it does not affect the validity of the 2^nd Confirmation, as there is no dispute that VTI China’s Shanghai representative office had since at least 1999 been under the management and control of the Committee.  I do not think that the plaintiff can simply rely on the 4 documents made in the name of the Committee and contends that the Committee would not have entered into any agreement in the name of VTI China’s representative office.

102.  Lastly, I do not think that the defendant’s inability to recall the name of the person(s) from the Committee whom he dealt with when entering into the 2001 Agreement and signing the 2^nd Confirmation is sufficient to cast doubt on the credibility of his evidence, bearing in mind that the events took place more than 16 years ago.  It is understandable that the defendant is not able to recall the details of the personnel other than the fact that there were several people in the Committee involved in the matters.   

103.  For these reasons, I find that even if there was a trust as alleged by the plaintiff, SIS’s interest in Praiseup was reduced to 18.53% under the 1997 Agreement and the same interest was transferred to VTI China as repayment of the Loans under the 2001 Agreement. Since then, the 18.53% interest in Praiseup has become an asset of VTI China.

104.  As the plaintiff’s claim is made on behalf of SIS (but not VTI China) and for the entire 50% shareholding in Praiseup, it must fail for this additional reason.  

Issue 3:  Whether the equitable doctrine of laches applies in the circumstances of the plaintiff’s claim

105.  Mr Man submits that under the equitable doctrine of laches, the court would determine whether it is “practically unjust” to award relief, and this turns on the circumstances of each case.  In Lindsay Petroleum Co v Hurd(1874) LR 5 PC 221, Sir Barnes Peacock explained the doctrine at 239 – 240:

“ Now the doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material. But in every case, if an argument against relief, which otherwise would be just, is founded on mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.”

(underline supplied)

106.  In Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, Lord Blackburn elaborated on the nature of the acts done during the period of delay at 1279 in this way:

“ I think, from the nature of the inquiry, it must always be a questionof more or less, depending on the degree of diligence which might reasonably be required, and the degree of change, which has occurred, whether the balance of justice or injustice is in favour ofgranting the remedy or withholding it. The determination of such a question must largely depend on the turn of mind of those who have to decide, and must therefore be subject to uncertainty; but that, I think, is inherent in the nature of the inquiry.”

(underline supplied)

107.  It has been acknowledged that loss of evidence caused by the delay, especially loss of viva voce evidence which could have been given by key witnesses, amounts to significant prejudice against the defendant.  In Watt v Assets Co [1905] AC 317, Earl of Halsbury LC said at 333:

“ I should be content to rest my judgment on the language of the Lord Ordinary himself, in which, on both occasions, he has pointed out, I think with great force and accuracy, the result that ought to follow from the absence of evidence which has been the fault of those who are the pursuers here—that is to say, they have lain by upon their supposed rights all this time, during which timewitnesses have died and the means of explanation have disappearedalso to an extent which, to my mind, renders it impossible, or at allevents extremely inexpedient as a matter of law and administration, to allow these things to be ripped up at this distance of time, when both the opportunities of explanation have gone by and when witnesses have passed away.”

108.  Mr Miu does not dispute the above principles.  As I understand it, Mr Miu contends that the defence of laches is not available to the defendant for the following reasons:

   (1)   Where, as here, the claim is based on a breach of fiduciary duty or breach of trust and the property is still in the possession of the trustee, no limitation period applies to the claim and “by analogy laches would not apply”, citing Snell’s Equity, 33^rd ed, at §7-063;

   (2)   an essential ingredient of laches is detrimental reliance (Fisher v Brooker [2009] 1 WLR 1764 §64) but the defendant fails to allege or prove such reliance;

   (3)   laches is a personal disqualification (Nwakobi v Nzekwu [1964] 1 WLR 1019 (PC)) and, as such, the delay or inaction on the part of the Committee and Huarong is irrelevant to the plaintiff’s claim;

   (4)   there has been no delay on the part of the plaintiff in pursuing the claim.  For this purpose, time does not start to run until the plaintiff has notice of the breach of trust, citing Beale v Kyte [1907] 1 Ch 564.  In this case, the plaintiff only found the 2^nd Confirmation in 2009.  It was only after the defendant failed to transfer the one share in Praiseup pursuant to the plaintiff’s demand letter of 15 September 2009 that the plaintiff has a cause of action against the defendant; and

   (5)   the defendant “failed to produce any evidence or even sufficient particulars to substantiate his claim of prejudice suffered”. While the death of a material witness may be a serious prejudice (Reimers v Druce (1857) 23 Beav 145, at 156 – 158 (CA)), neither Mr Wang nor the defendant’s accountant, Mr James Wu, are material witnesses.  The loss of accounting records is not a matter which the defendant can blame the plaintiff or its predecessors in title.

109.  I deal with these contentions in the same order described in §108 above.

110.  First, the submission that recovery of trust property is not covered by any limitation period and therefore by analogy laches would notapply, is misconceived.  As Mr Man submits, laches is an equitable defenceand not founded on any express statutory provision. Indeed, the passage in Snell’s Equity (§7-063) cited by Mr Miu states that the defence of laches can apply even if no statutory period of limitation applies to the claim.  The same point was made in Re Loftus [2007] 1 WLR 591 at §§40 – 41, per Chadwick LJ.

111.  Second, the suggestion that detrimental reliance is an essential ingredient of laches is not supported by the passage in Fisher v Brooker [2009] 1 WLR 1764 relied upon by Mr Miu.  Lord Neuberger (at §64) said this:

“ … laches is an equitable doctrine, under which delay can bar a claim to equitable relief. In the Court of Appeal, Mummery LJ said that there was ‘no requirement of detrimental reliance for theapplication of acquiescence or laches’ [2008] Bus LR 1123, para 85. Although I would not suggest that it is an immutable requirement, some sort of detrimental reliance is usually an essential ingredient of laches, in my opinion. In Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221, 239–240, Lord Selborne LC, giving the opinion of the Board, said that laches applied where ‘it would be practically unjust to give a remedy’, and that, in every case where a defence is ‘founded upon mere delay … the validity of that defence must be tried upon principles substantially equitable.’‌….”

112.  Third, Mr Miu’s contention that laches is a personal disqualification and the delay and inaction of the predecessors is irrelevant to the plaintiff’s claim is not supported by Nwakobi v Nzekwu, where Viscount Radcliffe (at 1024) described the principle in this way:

“ Laches is not like this. It does not bite at an identifiable moment of time and it can be relied on only when account has been taken of all the circumstances that affect both the immediate plaintiff and the immediate defendant. Lapse of time is always one of these circumstances, and the inaction of a predecessor is not a matter to be ignored, for such inaction may itself lend some support to the defendant’s equity. It may well be important from other points of view. It may itself contribute part of the positive defence of a defendant’s title, where that is uncertain: or it may constitute that type of acquiescence which, when analysed, operates as an estoppel, because it has led a defendant to alter his position on the faith of the established inaction. But these considerations are separate from laches, and it only leads to confusion to speak of one in terms of the other.” (underlined supplied)

113.  As is clear from the above passage, in considering the defence of laches, the court has to consider not only the delay or inaction on the part of the plaintiff but that of its predecessors.

114.  Mr Man submits that the plaintiff is not suing as a successor in title but asserting a cause of action of SIS.  As such, the cases on whether laches can bar the cause of action asserted by a successor in title do not assist.  I agree.  It is thus necessary to consider the action or inaction during the period when SIS was under the management and control of the Committee and Huarong, that is, from 22 June 1998 to 23 October 2007.      

115.  Mr Man submits that the period of delay is substantial.  The writ was issued on 10 August 2010.  On the plaintiff’s pleaded case in paras 4A and 5B of the Reply, the claim could have been asserted by the predecessors, namely the Committee and Huarong from 22 June 1998 and 28 February 2006 (date of Huraong Agreement) respectively.  The plaintiffitself could have made the claim from 23 October 2007 (date of the Hantong Agreement).

116.  So far as the delay or inaction on the part of the Committee and Huarong, there is no answer from the plaintiff. The fact that neither the Committee nor Huarong has taken any step to assert the claim during the entire period from 22 June 1998 to 23 October 2007 shows that the Committee and Huarong did not regard SIS to have any basis to make a claim against the defendant.

117.  Fourth, given that the plaintiff is asserting a cause of action of SIS, it would be wrong for the court to just look at the delay or inaction (or the absence thereof) on the part of the plaintiff and ignore the delay or inaction of the Committee and Huarong.  In any event, I do not accept that the plaintiff could not have asserted the cause of action until 2009 (when Mr Zhang found the 2^nd Confirmation) as it is the plaintiff’s own case that upon purchasing all the equity in SIS under the Hantong Agreement, it acquired SIS’s right to make claim the shareholding in Praiseup.  See the Judgment of To J §§71, 72 and 74.

118.  Mr Man submits that no breach of trust is required before a beneficiary of a trust can ask for the return of the trust property.  As a matter of fact, prior to commencing this action, the defendant has never been asked to render any account for the profits and benefits derived from the alleged trust property.  Moreover, by signing the 2^nd Confirmation and returning it to the Committee, the defendant unequivocally indicated his position that he would not accept that VTI China or SIS had interest in the entire 50% shareholding held by the defendant in Praiseup, and the Committee could have made a claim against the defendant after 6 September 2001.  Mr Miu has not advanced any submissions in response.  I agree with Mr Man’s submissions.

119.  Fifth, Mr Man submits that the prejudice suffered by the defendant is as follows:

   (1)   the accounting records of the US companies through which the defendant arranged to pay the cost of acquiring the Property were destroyed during the 911 incident in 2001;

   (2)   the defendant’s accountant in the US, Mr James Wu, who could have provided useful evidence on the defendant’s contribution to the acquisition costs, passed away in around 2002;

   (3)   the defendant gives evidence on one example of the difficulty he encountered in locating documents from the bank he sued in the US, the Manufacturers Hanover, which merged with Chemical Bank, and the new Chemical Bank was acquired by Chase Manhattan, which was subsequently merged with JP Morgan, in the past 24 years;

   (4)   Mr Wang, who was in charge of SIS’s general administration, passed away more than 10 years ago.  Mr Wang could have given evidence on the instructions given by the defendant about the payment of the ongoing expenses incurred by the Property, which is relevant to the 1997 Agreement, and the hand written direction of the defendant dated 24 August 1996 relied heavily upon by the plaintiff; and

   (5)   the general and significant prejudice that the defendant is required to testify to events which happened more than 20 years ago. This militates against Mr Miu’s contention that the defendant has not provided enough particulars or proof on the prejudice allegedly suffered.

120.  The evidence of the defendant set out in sub-paragraphs (1) to (4) of the preceding paragraph has not really been challenged by Mr Miu.  Indeed, his submission is that if the court finds that the defendant did pay the balance of the acquisition cost of the Property, the alleged prejudice falls away.

121.  As stated in §§69 – 71 above, I accept the defendant’s evidence as to why he has not been able to provide documents to prove that he had paid the Final Payment.  This in my view is the prejudice suffered by the defendant as a result of the delay or inaction on the part of the Committee, Huarong and the plaintiff in pursuing the claim.  I do not thinkthere is any substance in the plaintiff’s complaint about lack of particulars oflaches, as the defendant has in his voluntary particulars filed on 5 December 2017 provided the requisite particulars on his plea of laches.

122.  In light of the substantial delay on the part of the Committee in making the claim against the defendant which it could have made shortly after 22 June 1998 or at the latest, by 6 September 2001, I consider that it would be unjust to give any remedy to the plaintiff even if, contrary to my findings on Issues 1 and 2, SIS was the beneficial owner of 50% shareholding in Praiseup.

123.  If and insofar as is necessary, I find that the defendant has beenprejudiced by the delay and inaction on the part of the Committee, Huarongand the plaintiff in making the claim.  In addition to lost of documents and loss of witnesses who would otherwise be available to give evidence in this action, I consider the position of the defendant has changed substantially during the period from 22 June 1998 to 10 August 2010 in that (1) he changed from being the person in charge of the management of SIS to someone who has no knowledge of, or any involvement in dealing with, SIS’s affairs, assets and liabilities; and (2) during the whole period, the defendant’s work has been subjected to an extensive review and the findings of the Audit Report confirmed that his 50% shareholding in Praiseup was not an asset of SIS and, as such, he was entitled to treat himself as the legal and beneficial owner of 31.47% shareholding in Praiseup, and held 18.53% on behalf of VTI China.     

124.  For the above reasons, I hold that the plaintiff’s claim is barred by laches.  It follows that the plaintiff also fails on Issue 3.  

Lack of valid statement of truth

125.  Mr Man submits that Mr Zhang made a false declaration in certifying that he had translated to Mr Li the contents of the SOC.  In Mr Zhang’s evidence, he says he cannot read English and has not translated the contents of the SOC to Mr Li.  Mr Zhang says he only provided a Chinese written summary of the SOC prepared by the plaintiff’s solicitors to Mr Li.  In view of Mr Zhang’s false declaration, the statements of truth signed by Mr Li under the purported translation of Mr Zhang in respect of the Reply, the Amended Reply and the Re-re-Amended Reply would also be invalid.  Mr Man submits that the court should strike out the SOC, as the requirement of a valid statement of truth is more than a technicality, as stated by Rogers VP in Tong Kin Hing v Autron Mauritius Corp [2010] 1 HKLRD 77 at §19.     

126.  Mr Miu submits that Mr Zhang’s declaration was a “slip” on the part of the plaintiff’s former solicitors, and Mr Zhang’s declaration is not a statement of truth.

127.  In my view, although the declaration made by Mr Zhang is not correct, it is not a statement of truth which is what Rogers VP observed is a serious and important requirement.  I accept Mr Zhang’s evidence that he had provided a Chinese summary of the contents of the SOC in Chinese prepared by the plaintiff’s former solicitors to Mr Li, and Mr Li signed the SOC on the basis of such summary.  I do not think that the court should exercise its power under Order 41A, rule 6 of the Rules of the High Court to strike out the SOC or the Re-re-Amended Reply in these circumstances.

Conclusion and Relief

128.  Mr Miu submits that even if the plaintiff fails on all issues, the plaintiff should still be entitled to a declaration that the plaintiff is entitled to 18.53% interest in Praiseup and the consequential directions on account of profit.  This is despite the fact that “there is no express pleading for such relief” as “there is no reason why a court of equity should not grant such a declaration (or such declaration as it deems fit and just) under the heading of ‘Further and other reliefs’”.

129.  On the other hand, Mr Man submits that there is no plea by the plaintiff for any relief on the basis that the beneficial interest to the extent of 18.53% lies with VTI China, and the court should not make any order in respect of the plaintiff’s claim.  As to the suggestion that the court can grant a declaration belatedly suggested by Mr Miu under the prayer for “Further and other relief”, Mr Man refers the court to the passage in Hong Kong Civil Procedure 2018, para 18/15/4, where the editor stated that the court will not grant a declaration under a prayer for “further or other relief” which is inconsistent with the specific relief that is expressly claimed.  I agree.  In any event, given that the plaintiff has never pleaded any alternative claim on behalf of VTI China nor has it pleaded any claim for 18.53% interest in Praiseup, it is simply not open to the plaintiff to ask the court to grant the relief suggested by Mr Miu in his closing submissions.

130.  I dismiss the plaintiff’s claim.

131.  As for costs, I make a costs order nisi that the costs of and occasioned by the action including all costs reserved be paid by the plaintiff to the defendant with certificate for two counsel, to be taxed if not agreed.