YI CHUN NAVIGATION INC. v. LU WEN YUN, JENNY AND ANOTHER

CACV 90/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 90 OF 2011

(ON APPEAL FROM HCCW 565/2006 AND HCA 2371/2005)

____________

_____________

BETWEEN

_____________

_____________

JUDGMENT

_____________

Hon Tang VP:

1.  Yi Chun Navigation Inc. (Petitioner) ("Yi Chun") and Jenny Lu (1^st Respondent) ("Ms Lu") are equal shareholders in J&D Industrial (HK) Limited (2^nd Respondent) ("the Company").

2.  The trial before Harris J was concerned with the beneficial interests of two lots of shares registered in the name of Ms Lu.  The first is 350,000 shares of Orient Overseas (International) Limited ("the OOCL shares"), and the issue was whether they were held by Ms Lu on trust for the Company.  The second lot of shares were US$1.5 million in the increased share capital in Liyou Industrial (Shenzhen) Co Ltd ("the Liyou shares") and the issue was whether the Liyou shares were held on trust for the benefit of Yi Chun.

3.  Harris J decided both issues against Ms Lu. This is Ms Lu's appeal in relation to the Liyou shares.

4.  As Mr Douglas Lam, for Yi Chun, has explained, Yi Chun's case with respect to the Liyou shares was that:

"(1) In March 1999, J&D advanced US$2,000,037.42 to Liyou ('the Advance').

(2) In or around December [2000], Ms Lu converted US$1.5 million of the Advance into shares registered in her name without the consent of J&D.

(3) At the time when J&D's accounts for the year ended 2000 ('the 2000 Accounts') were prepared, since the funds for the Advance originated from Yi Chun, J&D's accountants ('WLLK') prepared a declaration stating that Ms Lu held the Liyou Shares on trust for Yi Chun ('the Declaration of Trust') for her to sign. In August 2002, Ms Lu delivered, or had delivered a copy of the signed Declaration of Trust to WLLK. On the basis of the Declaration of Trust, WLLK finalised the 2000 Accounts.

5.  On the other hand Ms Lu claimed that she was beneficially entitled to the Liyou Shares, as the funds for the Advance belonged to her and represented part of the US$5 million bonus which Dr Chen Ching Chih ("Dr Chen") orally promised to pay her.  She claimed that she was promised such a bonus by Dr Chen, the owner of Yi Chun, as a result of her working as a consultant in the Wan Hai Group, which was Taiwan’s 3^rd largest shipping group in which Dr Chen's family is the major shareholder.  She worked for the Wan Hai Group between 1989 and 1996.  Ms Lu also denied that she had signed the Declaration of Trust. 

6.  The Declaration of Trust figured prominently at trial.  Its existence was supported by the evidence of the company accountants WLLK and Dr Chen.  The evidence at trial was that the Declaration of Trust was prepared by WLLK for Ms Lu to sign, evidence which Harris J accepted. 

7.  Unfortunately, only a copy bearing what purported to be Ms Lu's original signature was available.  However, both parties called expert evidence on the authenticity of what purported to be Ms Lu's signature on the copy.  I should add that there were two other declarations of trust which related to the OOCL shares where the authenticity of what purported to be Ms Lu's signatures were also in issue.  Harris J held in favour of the authenticity in relation to these other two declaration of trust and there is no appeal from that.  As for the Declaration of Trust, the learned judge accepted the evidence of Dr Strach (the Plaintiff's expert) and rejected the evidence of Ms Lu's expert.

8.  Both Ms Lu and Dr Chen gave evidence before the learned judge. The learned judge formed a very poor opinion of Ms Lu.  He said, for example:

"36. As can be seen from the declarations of trust they vary in length and Madam Lu’s signature appears on them at different points on the page. In the case of the OOCL documents the signatures are about half way down the page. During part of her evidence Madam Lu, with it seemed to me the intention of setting up an argument that even if she had signed the pieces of paper they had been blank at the time, told me that she was frequently asked to sign blank sheets. When it was pointed out to her that her signature was placed at materially different places on the paper she replied that she was also asked to sign at different points on different blank pieces of paper. Presumably this was intended to suggest that she was being asked to produce a series of different blank sheets which could be used depending on the length of the documents that were subsequently produced. I find this evidence to be a lie.

......

39. My impression of Madam Lu is that she is the type of person who, having persuaded herself that she is entitled to something, has no qualms about making up a story to support her perceived entitlement and that this is what she has done in the present case. …"

9.  On the other hand, the learned judge formed a favourable opinion of Dr Chen.  For example, in para 34 he found Dr Chen's evidence was "straightforward and credible and supportive of Yi Chun’s case", but that:

"34. … Madam Lu in contrast I found an unreliable and untrustworthy witness advancing an unlikely case. I have already pointed out aspects of her case that are inherently doubtful and given examples of her propensity for embellishing her evidence. …"

10.  He then went on to give more examples of what he concluded was simply dishonest evidence set up by Ms Lu to support a dishonest case.  At the end, he said at para 41:

"41. Madam Lu has shown scant regard for the truth in her evidence before this court and has made unwarranted and serious allegations of dishonesty against Yi Chun. …"

11.  He then ordered her to pay costs on an indemnity basis.

12.  Mr K M Chong, appearing for Ms Lu, on appeal, but not at trial, relied heavily on certain email exchanges on 5 August 2003 between Dr Chen and WLLK to show that Ms Lu had not signed the Declaration of Trust. 

13.  In WLLK's e-mail to Dr Chen it said:

"However, if Ms Jenny Lu signed the Declaration of Trust for holding the shares in LiYou for Yi Chun, Yi Chun will absorb the liabilities at HK$11,700,000 (US$1,500,000) and the current account balance will have to be changed."

14.  In Dr Chen's reply, he wrote:

"Yi Chun does not need to receive Jenny's share in trust, as it is not in their book."

15.  Mr Chong submitted that these e-mails showed that there was no Declaration of Trust.  With respect, I do not agree.  The language of these e-mails are not very clear but the subject of discussion was the accounting treatment of the US$1.5 million paid for the Liyou shares.  It is clear that depending on whether the Liyou shares were held for Yi Chun the amount to be stated in the company's account as money owed to Yi Chun would vary. 

16.  Indeed, the audited accounts of the company for the year ended 31 December 2000 which was signed off by Dr Chen and Ms Lu on 9 August 2002, was prepared on the basis of the Declaration of Trust, namely, that Ms Lu held the Liyou shares on trust for Yi Chun.  See paras 17-23, 38 of the judgment.

17.  It is true that in the Company's accounts for the year ended 31 December 2001, which was signed off by Dr Chen and another director (but not Ms Lu) on 6 June 2003, the accounts were prepared on the basis that there was not the Declaration of Trust. 

18.  Dr Chen was cross-examined by Mr Denis Yu then acting for Ms Lu on the e-mails, and the learned judge was satisfied with Dr Chen's explanation.  Moreover, both Dr Chen and Mr Fung (Audit Manager of WLLK) gave evidence on the existence of the Declaration of Trust, which was accepted by the learned judge.

19.  But the e-mails do not support Mr Chong's submission that the Declaration of Trust never existed or was a forgery.  It is difficult to understand how the email exchanges could be said to have that effect. 

20.  Mr K M Chong complained that Mr Yu was not permitted by the learned judge to pursue his cross-examination of Dr Chen on the 5 August 2003 e-mails.  But the transcripts do not bear this out at all.

21.  Mr Chong also submitted that the learned judge ought to have considered the possibility that the Declaration of Trust was a made up document, using what might have been a genuine signature of Ms Lu.  But that possibility was not part of Ms Lu's case at trial although it was her evidence, rejected by the learned judge, that she had signed blank pieces of documents.

22.  Mr Chong submitted that Ms Lu had a fall back position, namely, even if she was not the beneficial owner of the Liyou shares, the beneficial owner was the Company and not Yi Chun.  But this so-called fall back position was not her case at trial, and is in any event inconsistent with the learned judge's finding on the beneficial ownership of the Liyou shares.

23.  We cannot interfere with the trial judge's finding of fact unless we are satisfied that even though we do not have the advantages of receiving the evidence at first hand, the trial judge's conclusion on the facts was plainly wrong: Ting Kwok Keung v. Tam Dick Yuen & Ors [2002] 3 HKLRD 1.  In the present case, there is no basis upon which we could disagree with the learned judge.

24.  So for the above reasons, I would dismiss the appeal with costs.  The appeal is totally unmeritorious and should not have been pursued.  In the circumstances I believe costs should be on an indemnity basis and I would make an order nisi to such effect together with a certificate for two counsel.

Hon Kwan JA:

25.  I agree with the judgment of the Vice-President and the costs order he proposes to make.

Hon Chu JA:

26.  I agree with the reasons given by the Vice-President and the orders that are proposed.