BIG ISLAND CONSTRUCTION (HK) LTD v. WU YI DEVELOPMENT CO LTD AND ANOTHER

HCA1957/2005, HCA714/2007
HCA886/2007 & HCA1364/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1957 OF 2005

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J U D G M E N T

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A. INTRODUCTION

1.  This is the consolidated trial of HCA1957/2005, HCA714/2007, HCA886/2007 and HCA1364/2008.  The protagonists embroiled in these actions came from two camps : the Wu Yi Group and the Big Island Group.

2.  At the apex of the Wu Yi Group is Fujian Construction Engineering (Group) Limited (“Fujian Construction”).  It is a state-owned enterprise, with the Fujian Province People’s Government State-Owned Assets Supervisions and Management Commission (“the Commission”) as the sole registered shareholder.  Fujian Construction is a sizable company.  In 2005, its sales and profits were in the region of about RMB4,700 million and RMB122 million respectively, with a total assets of about RMB6,032 million.  It also holds 66.59% of the listed shares of China Wu Yi Company Limited (“China Wu Yi”), a listed company in Shenzhen.

3.  China Wu Yi has a very substantial business portfolio worldwide.  For the year ended 2006, it fetched a gross and net profits of RMB116 million and RMB33 million respectively.  The shareholders’ equity amounted to nearly RMB986 million.

4.  Further down the corporate chart are a number of subsidiaries including the following which feature in these proceedings :

(1) Wu Yi Development Co. Ltd (“WYD”);

(2) Wu Yi Construction Co. Ltd (“WYC”);

(3) Wu Yi (Holdings) Company Limited (“WYH”);

(4) Wu Yi Enterprises Co. Ltd (“WYE”); and

(5) Wu Yi Engineering Co. Ltd (“WY Eng”).

5.  Within the Big Island Group are Big Island Construction (HK) Ltd (“BIC”), Big Island Asia Ltd (“BIA”) and Nationbuild Pacific Ltd (“Nationbuild”).  The central figure is Mr Ben P Lee (“Mr Lee”). He owns 99.99% of BIA, which in turn owns 99.99% of BIC.  The balance of 0.01% is held by his sister, Ms Li Hung (“Ms Li”).  He also owns 25% of the issued shares of Nationbuild.  The remaining 75% is held by BIA.  He is a director of all the companies in the group.  Ms Li is the company secretary of BIC, responsible for general secretarial service and the bookkeeping of its accounts.

6.  The Wu Yi Group and the Big Island Group were business collaborators.  By a Chinese agreement dated 18 January 1991 (“the FBC Agreement”), Mr Lee and WY Eng agreed to incorporate a joint venture company in Hong Kong, which later became FBC Construction Company Ltd (“FBC”). Initially, Mr Lee and WY Eng each held 50% in FBC.  Their respective percentage of shareholding changed to 55% and 45% since 23 November 1994. On 11 May 1996, WY Eng’s shareholding increased to 60%.  The remaining 40% were held by BIA.  The 60% shares held by WY Eng were transferred to WYH on 14 August 1997 and then to WYC on 15 June 1998.  BIA remained the 40% shareholder throughout.  There was no further change in the shareholders or their shareholding since then.

7.  FBC’s board consisted of five directors.  Three were appointed by the Wu Yi Group, two by BIA.  The chairman was appointed by the Wu Yi Group from time to time.  Mr Lee was at all material times the managing director but had since 12 April 2006 been excluded from FBC’s office.  Ms Li was FBC’s secretary, responsible for general secretarial service.

8.  The business relationship between the two camps fell through in about 2005, which eventually resulted in litigation.

9.  In HCA1957/2005, BIC claimed against WYD and WYC for repayment of loans in the sum of HK$100,676,120 and HK$1,793,700 respectively.  In HCA714/2007[1], WYD sued BIC on three loans totalling HK$500,000.  In HCA886/2007[2], BIC sued WYE on a loan of HK$210,000.  In HCA1364/2008, a statutory derivative action brought by WYC on behalf of FBC[3], FBC claimed against Mr Lee for RMB2,650,000, which he had allegedly failed to account for in breach of his duties as director. 

10.  For the Wu Yi Group, the witnesses are :

(1) Mr Lian Mingshun (“Mr Lian”).  He came to Hong Kong to work for the Wu Yi Group in December 1998.  He was appointed as a director of WYC and WYH on 31 May 2000, a director of WYD and Fu Yin Financial Investment Co. Ltd (“Fu Yin”) on 3 September 2001, a director of WYE on 23 May 2002, the General Manager of WYD, and the Deputy General Manager of WYC and WYE on 11 November 2005.  Mr Lian is responsible for the overall conduct of these proceedings.

(2) Mr Xu Manluo (“Mr ML Xu”).  He came to Hong Kong to work for the Wu Yi Group on 23 September 1984.  He was appointed as the Managing Director of WYD in June 1998.  In July 2002, he resigned from his position as a director of WYD and WYC and left the Wu Yi Group.

(3) Mr Huang Limin (“Mr LM Huang”).  He came to Hong Kong to work for the Wu Yi Group in August 2001.  He was appointed as a director of WYC on 24 August 2001 and a director of WYD on 3 September 2001.  He resigned from his office in both WYD and WYC on 21 November 2005.  In December 2005 he was transferred back to the Mainland and became the Deputy Chief Economist of Fujian Construction.

(4) Mr Xu Zhonghua (“Mr ZH Xu”).  He came to Hong Kong to work for the Wu Yi Group in March 1989.  He was appointed as a director of WYC in March 1989, a director of WYD in December 1992 and a director of Fu Yin in November 1993.  He was transferred back to China Wu Yi in September 2001.  He resigned from his position as a director of Fu Yin in February 2002, of WYC on 6 March 2002 and of WYD on 10 July 2002.  He retired in May 2005 and now lives in the Mainland.

(5) Mr Chen Jiang (“Mr J Chen”).  He came to Hong Kong to work for the Wu Yi Group on 23 September 1984.  He was appointed as a director and Deputy General Manager of WYD in 1996.  He was transferred back to China Wu Yi in September 2001.  He resigned and left China Wu Yi in 2004.

(6) Mr Lin Baoshun (“Mr BS Lin”).  He came to Hong Kong to work for the Wu Yi Group in October 1993.  He was appointed as a director and Deputy General Manager of WYE in 1999.  He was transferred back to China Wu Yi in October 2001.  He resigned and left China Wu Yi in August 2004.

(7) Mr Wei Ran (“Mr Wei”).  He was appointed as an accountant in Fujian Construction in 1995.  Between 1995 and May 2002 he was also the project finance manager of FBC.  Since May 2002 he had been a manager in the Finance Department of Fujian Construction.

(8) Mr Chen Wei (“Mr W Chen”).  He was appointed as a manager in the Engineering Department in FBC in October 1999. He was transferred to work in a Wu Yi company in Macau in April 2002.  He is now a Deputy Manager of Fujian Construction.

(9) Mr Lin Enhui (“Mr EH Lin”). He was the accountant of FBC between August and end of 2002.

11.  For the Big Island Group, only Mr Lee and Ms Li gave evidence.  Two individuals had filed witness statements but were eventually not called.  They are Ms Lie Natalia Rosmiati (“Ms Lie”), Mr Lee’s cousin, and Mr Meng Qiang (“Mr Meng”), an employee of FBC.

12.  These proceedings are hotly disputed and bitterly fought.  The versions of events presented by the parties and their witnesses are diametrically opposed.  Serious allegations, including fabricating documentary evidence for the purpose of litigation, are raised.  The parties have submitted several rounds of closing submissions, which are very lengthy, taking almost every conceivable point, big and small.  I have already considered all the evidence and submissions with care.  I do not propose to deal with every single point arising from the evidence or submission advanced on behalf of the parties in this judgment.  It is unnecessary to do so.  Instead I will concentrate on those which I think are most pertinent to and determinative of the issues before me.

13.  When evaluating the evidence, I am mindful of two general points.

14.  The first general point is on the burden of proof.

15.  Senior counsel for the parties referred to a number of authorities on the court’s approach in resolving the factual disputes : The Popi M (Rhesa Shipping Co. SA v Edmunds) [1985] 1 WLR 948; Datec Electronics Holdings Ltd and others v UPS Ltd [2007] 1 WLR 1325; Ide v ATB Sales Ltd [2008] EWCA Civ 424, unreported, 28 April 2008; In re B (Children) [2009] 1 AC 11; and Yau Wah Yau v Commissioner of Inland Revenue [2006] 3 HKLRD 586.  The following principles may be derived from the cases.

16.  The court decides a fact in issue on the balance of probabilities.  The occurrence of the fact in issue must be proved to have been more probable than not.  The burden of proof rests with the party who substantially asserts the affirmative of the issue : Phipson on Evidence, 17^th Edition, para.6-06 at p.151.  If he fails to discharge the burden, then the fact is treated as not having happened.  As Lord Hoffmann explained in In re B (Children), supra, at para.2 :

“If a legal rule requires a fact to be proved (a ‘fact in issue’), a judge or jury must decide whether or not it happened. There is no room for a finding that it might have happened. The law operates a binary system in which the only values are zero and one. The fact either happened or it did not. If the tribunal is left in doubt, the doubt is resolved by a rule that one party or the other carries the burden of proof. If the party who bears the burden of proof fails to discharge it, a value of zero is returned and the fact is treated as not having happened. If he does discharge it, a value of one is returned and the fact is treated as having happened.”

17.  The task of making a finding when faced with two sharply conflicting versions of events is sometimes a difficult one.  The court must still perform it without prejudice and preconceived ideas to its best ability.  In In re B (Children), supra, Baroness Hale exhorted judges in these terms :

“32. In our legal system, if a judge finds it more likely than not that something did take place, then it is treated as having taken place. If he finds it more likely than not that it did not take place, then it is treated as not having taken place. He is not allowed to sit on the fence. He has to find for one side or the other. Sometimes the burden of proof will come to his rescue : the party with the burden of showing that something took place will not have satisfied him that it did. But generally speaking a judge is able to make up his mind where the truth lies without needing to rely upon the burden of proof.” [Emphasis supplied]

18.  As Baroness Hale observed, in most of the cases, the court will be able to decide which of the two conflicting versions is probable and which is improbable and make a finding on the fact in issue accordingly.

19.  If one version is found to be improbable, it does not necessarily lead to the acceptance of the other when, owing to the unsatisfactory state of the evidence, the court is not satisfied that the latter is probable. There are judicial utterances to the effect that in such scenario, the judge would be forced to say “I just do not know” on which side of the line the decision ought to be drawn.[4] However, such judicial utterances should not be understood to mean that the court will or should shy from making a finding.  What the court will do is to resort to deciding the matter on the burden of proof : The Popi M, supra, per Lord Brandon at p.956A; see also Yau Wah Yau v Commissioner of Inland Revenue, supra, per Tang JA (as he then was) at paras.42 to 46.  Applying In re B (Children), supra, the court will treat the matter of which the party carrying the burden of proof but failing to discharge it, as having not taken place.

20.  If neither version is improbable, rejection of one may justifiably lead to the acceptance of the other : Datec Electronics Holdings Ltd and others v UPS Ltd, supra, per Richards LJ at para.83 (upheld on appeal); Ide v ATB Sales Ltd, supra, per Thomas LJ at para.6.

21.  Finally, a good dose of common sense is required when the court evaluates the evidence in determining the probability or otherwise of the conflicting versions of events.

22.  I will deal with the burden of proof more specifically, as may be necessary, when I come to the main issues for each of the four actions.

23.  The second general point concerns the assessment of the witnesses’ credibility.

24.  In assessing credibility, the court takes into account, among other things, the inherent probabilities or improbabilities of one’s testimony, the contemporaneous documents or any evidence, which is undisputed or indisputable, tending to support or contradict one account or the other and the overall impression of the characters and motivations of the witnesses : see In re B (Children), supra, per Baroness Hale at para.31 at p.24, applied by this court in Standard Chartered Bank v Li Wai Ping & others, HCA10587/2000 & HCA3575/2003, 17 February 2011, unreported, at para.19.[5] Where there exists a wealth of contemporaneous documents, credibility is to be tested by reference most particularly to them : see Esquire (Electronics) Ltd v Hong Kong & Shanghai Banking Corp. Ltd [2007] 3 HKLRD 439, per Stock JA (as he then was) at para.158 at p.494.

25.  Further, some of the witnesses had given evidence for more than one action.  The best example is Mr Lee, who is in fact a key witness for all the four actions.  I must not take a blinkered approach when considering the testimony of such witnesses.  I must assess their overall credibility on all the matters that they have testified to.  If one’s evidence is found to be unreliable in one action, it will most likely affect his credibility in another.

B. HCA1957/2005

26.  I now come to HCA1957/2005, which is, given the size of the claims, regarded by the parties as their main battleground.

B.1. Overview

27.  BIC’s primary claims were based on an oral agreement made in or around October 1999 between Mr Lee on behalf of BIC and Mr ZH Xu on behalf of WYD and WYC, who was on BIC’s case the then chief officer representing the Wu Yi Group in Hong Kong (“the Loan Agreement”).  Pursuant to the Loan Agreement, BIC advanced 18 loans to WYD between 30 June 2000 and 17 August 2001 by way of 18 cheques, totalling HK$100,676,120 as follows :

Date	Cheque number	Amount (HK$)
30/06/00	151363	5,357,000.00
30/06/00	151364	3,570,000.00
31/07/00	151369	7,182,000.00
27/10/00	151370	7,800,000.00
08/12/00	480074	10,600,000.00
08/12/00	480098	15,650,000.00
11/01/01	480100	4,066,000.00
02/02/01	151403	4,155,000.00
13/03/01	151429	8,286,000.00
13/03/01	151430	7,160,000.00
14/03/01	151432	2,400,000.00
12/04/01	151436	870,000.00
25/04/01	151437	8,130,000.00
18/05/01	151453	5,312,500.00
20/06/01	556797	1,835,000.00
11/07/01	556818	2,306,300.00
14/08/01	556844	3,874,520.00
17/08/01	556851	2,121,800.00
	TOTAL	100,676,120.00

BIC also advanced another loan to WYC in the sum of HK$1,793,700 by way of a cheque no. 151368 dated 28 July 2000.  I will refer to the sums advanced to WYD and WYC as “the Sums” collectively below.

28.  Alternatively, BIC claimed recovery of the Sums as monies had and received without consideration.

29.  WYD and WYC did not deny that they had received the Sums.  Their case is that they were not paid to the Loan Agreement as alleged.  In about 2000, China Wu Yi planned to inject funds into WYD and its associate companies in Hong Kong.  However, the foreign exchange control policy then in place in the Mainland made it difficult to remit funds from the Mainland to Hong Kong.  In around May 2000, Mr Lee informed Mr J Chen, then a director of WYD that since a friend of his in the Mainland, Li De Fu (“Li”), needed RMB for his businesses, if WYD could arrange RMB to be transferred to Li, BIC could arrange or procure Li to transfer the corresponding amount of HK or US dollars (in accordance with an agreed exchange rate) to BIC who would then transfer the same to WYD, thereby completing the fund exchange desired.  Based on this understanding, BIC and WYD entered into nine fund exchange agreements (“FEAs”) between May 2000 and August 2001 under which WYD agreed to remit or cause or procure the remittance of RMB to BIC in the Mainland in return for its agreeing to remit or cause or procure the remittance of the equivalent amount of HK or US dollars to WYD in Hong Kong.  Particulars of the nine FEAs are :

30.  Between May 2000 and August 2001, WYD and WYC received the Sums from BIC and remitted equivalent amounts to RMB to different entities by cashier orders as directed by Li.  The monies received by WYD totalling HK$100,676,120 were covered by the 2^nd to 9^th FEAs listed above.  The sum of HK$1,793,700 received by WYC was paid pursuant to the 1^st FEA.  The table referred to in the defence which sets out the correlation between the FEAs, the cashier orders and the Sums received from BIC is reproduced at Annex 1.

31.  In reply, BIC alleged that the nine FEAs had nothing to do with the loans.  They were made in connection with the Shandong Project, to which I will return in a moment below.

B.2 Two main issues

32.  Two main issues arose from the pleadings :

(1) whether the Sums were loans advanced to WYD and WYC under the Loan Agreement; or

(2) whether the Sums were paid to them pursuant to the arrangement under the nine FEAs.

B.3. Burden of proof

33.  On the burden of proof, Mr Fung, SC, for BIC, cited Seldon v Davidson [1968] 1 WLR 1083 and a number of Hong Kong authorities that applied Seldon.[6]  Mr Ho, SC, for the Wu Yi parties, cited El Vince Ltd v Wu Wen Sheng [2005] 1 HKC 111, and Jian Yu Qiang v Li Shi Liang, HCA459/2003, unreported, 10 June 2005, a decision of mine, that followed El Vince Ltd.

34.  Seldon established the principle that where there is (a) a clear admission of the payment of the money and (b) no suggestion that it was paid in settlement of an existing debt, or that it was given in return for cash, or anything of that sort, the burden of proof is shifted to the defendant seeking to evade repayment to prove the facts which he alleged showed that the money was not repayable : Jian Yu Qiang, at para.28.  It does not support the much wider proposition that whenever there is an admission of payment, the burden of proof always shifts to the defendant.  In fact, that very proposition was rejected by the Court of Appeal in El Vince Ltd, supra, at paras.9-12 where Tang JA (as he then was) held that when the defendant alleged that the undisputed payment by the plaintiff was a part repayment of a loan due to him, the burden still remained with the plaintiff to make good his claims.

35.  As I understand Mr Fung, he accepted that although receipts of the Sums are not in dispute, BIC still bears the burden of proving the Loan Agreement and the Sums constituted loans.  It follows that if BIC does not discharge the burden, its primary claims based on the Loan Agreement will fail.  As to the alternative claim based on money had and received, for reasons given below,[7] it either stands or falls together with the primary claim based on the Loan Agreement.

36.  That said, WYD and WYC bear the burden of proving their case based on the nine FEAs.  As I understand him, Mr Ho did not contend otherwise.  But he submitted, and I accept, that even if they fail to discharge the burden, which may clear the way for the court to accept BIC’s case, the court still needs to be satisfied that BIC has discharged its burden of proof, failing which, its claims will fail.

37.  I now come to the evidence.  I will begin with a summary and then consider if BIC has discharged the burden of proving its primary claim based on the Loan Agreement.

B.4.       Summary of the evidence

38.  It is common ground that in around 1999, the Wu Yi companies in Hong Kong experienced serious financial difficulties. Like many other companies, they were adversely affected by the recent Asian financial crisis and its aftermath.  They needed funds to finance their operations.

39.  In fact, according to the minutes dated 1 March 1999 of a meeting of the top management of the Wu Yi companies in Hong Kong attended by Mr ZH Xu, Mr ML Xu, Mr J Chen and Mr Lian and two others, (“the Minutes”, authenticity of which is in issue[8]) :

「 与会者讨论了近来亚洲金融风暴对香港房地产市场的严重影响；讨论了在港的中资企业相继因无力偿债而破产或重组后，我在港公司所面临的严峻局面。与会者一致决定采取下列措施 :

一，在香港及海外，不再进行新的投资，把工作的重点，转移到国内。把现有的项目发展完毕后，伺机出售，以收回资金，降低负债。

二，尽力降低皮费开支，减少人员。加快现已建成物业的出租速度，以租养息，为日后伺机销售，创造条件。

三，由于大岛建设(香港)有限公司所介绍的印尼财团有一定实力，且该公司目前急于投资国内而缺乏人民币资金，而我司近期还贷及供楼等急需一定数量的美元。鍳于上述原因，同意和大岛建设(香港)有限公司洽谈，采取资金互借的方式，即双方互借等额的资金，互不计息，待双方投资项目完成收回资金后，互相归还所借的款项。」

40.  Under cross-examination, Mr ZH Xu accepted that Mr Lee approached him around March 1999 and told him that the Indonesian group, referred to in the Minutes, which was related to the family of then President Suharto (to whom Mr Lee’s eldest sister is related), could offer financial assistance to the Wu Yi Group.  However, the subsequent negotiations failed.

41.  Mr Lee’s evidence is that in around October 1999, Mr ZH Xu told him about the financial difficulties faced by the Wu Yi companies in Hong Kong and they desperately needed funds to finance their operations and settled accrued bank interest.  At about the same time, Ms Lie, an Indonesian resident, was looking for a safe haven overseas to park some of her considerable wealth.  He met with her on several occasions in Shenzhen.  Eventually, she agreed to invest in BIC’s business by writing him a letter dated 25 October 1999 (“Lie’s Letter”, the authenticity of which is in dispute), stating :

“Dear Ben,

Over the last few months, during our meetings in Shenzhen we have discussed an injection of capital that I wish to make into your company, and the terms on which I wish to make that injection.

I wish to make this investment in your company because we have known each other for many years, and although I require no formal shareholding or written understanding between us as to profit shares, you will appreciate we will need to come to some formal arrangement when time permits.  Rest assured, the money advanced has no connection with any criminal activity.  Having given you this assurance, I will effect the necessary transfer.”

42.  Mr Lee went on to say that he then told Mr ZH Xu that BIC was expecting cash injections from Indonesia, then anticipated to be in the region of US$25 million, which might be on-lent to the Wu Yi companies as and when such monies arrived.  Mr ZH Xu agreed.  He further proposed on behalf of WYD and WYC to repay any amounts borrowed a year from the date on which the relevant sums were advanced.  Mr Lee agreed with his proposal.  Although Mr ZH Xu also offered interest at prime plus 2.5%, no agreement was reached as the period of the loan was for just one year and it was not Mr Lee’s major concern at that time.  His primary interest was to secure support from the Wu Yi Group in relation to bidding for an internal fitting out project in Shandong Province (中國山東省濟南市山東大厦賓館樓裝修工程 “the Shandong Project”).  Following further discussions, he and Mr ZH Xu reached the Loan Agreement at Mr Lee’s office on 20/F, Island Beverley in late October 1999.

43.  Mr Lee said he was shown a set of minutes by Mr ZH Xu in late 1999.  As far as he could recall, the minutes stated that WYD and WYC were in desperate need of funds; that BIC would arrange for monies from Indonesia to be loaned to them; and that such loans were repayable within 1 year at interest rate of prime plus 2.5% per annum.

44.  Mr Lee went on to say that between October 1999 and June 2000, Mr ZH Xu contacted him from time to time to ascertain if he had received any cash injections.  Ms Lie eventually made cash injections into BIC’s accounts between 29 June 2000 and 16 August 2001 through various individuals and entities.  Particulars of the injections, as evidenced by the relevant bank vouchers and BIC’s bank statements can be found at Annex 2.  Between 30 June 2000 and 17 August 2001, the sums received by BIC from Ms Lie were remitted in their entirety to WYD and WYC as loans under the Loan Agreement by way of cheques shortly after receipt of the same.

45.  The particulars of the Sums received by BIC as set out in Annex 2, per se, are not in dispute.  What WYD and WYC take issue is BIC’s allegation that the monies came from Ms Lie in Indonesia.

46.  For each of the sums that they had received, WYD had issued 17 official receipts and, WYC, one.  A summary of the receipts can be found at Annex 3.  The sums received were mostly described as mutual loans, temporary loans or mutual remittances.

47.  Mr Lee said despite repeated oral and written demands, neither WYD nor WYC had made any repayment of the loans.  He said he had made oral demand to Mr ML Xu at a meeting in or around early October 2001.  Mr ML Xu said he knew nothing about the loans and asked him to write a letter to set out the details.  Pursuant to his request, Mr Lee on behalf of BIC sent a letter dated 18 October 2001 to WYC marked for the attention of Mr ML Xu (“the 1^st Demand Letter”), stating :

「 由於我公司及我們的合資公司(福島建設有限公司)在國內參於投標的工程項目沒有中標，故我公司現在也不需要人民幣的資金。

          貴公司由2000年至2001年度由於現金周轉的需要向本公司所借的港幣合共104,554,260.00元。請你們安排退還給本公司。謝謝。」

48.  Mr Lee said he personally handed the 1^st Demand Letter to Mr ML Xu at the latter’s office on 18 October 2001.  Ms Li said it was she who typed the 1^st Demand Letter.  She also heard from Mr Lee that he had given it to Mr ML Xu. There was no reply to the 1^st Demand Letter.  Mr Lee said he continued to make oral demands to Mr ML Xu in 2002 until his retirement.

49.  Mr ML Xu denied that he had the alleged meeting with Mr Lee; that he had made any oral demands to him; or that he had ever received the 1^st Demand Letter.  The authenticity of the 1^st Demand Letter is disputed.

50.  Mr Lee said in 2003, due to the outbreak of SARS in Hong Kong and the drastic decline in property values, he realized that WYD and WYC might not have sufficient funds to repay the loans until the recovery of the economy.  He therefore ceased demanding until 2005 when the property market picked up again.  He issued a letter dated 28 February 2005 to WYC (“the 2^nd Demand Letter”), marked for the attention of Mr LM Huang, demanding repayment of all the loans in the sum of HK$106,600,000 thus :

「 貴公司於2000年至2001年間因貴公司的現金周轉需要，向本公司借了HK$106,600,000港幣。這些款項本公司是按貴公司的要求直接開支票給貴公司的附屬公司『武夷開發有限公司』。我於2002 年起曾多次向你們要求退還這些借款，但貴公司至今本息分文未還。請你們在收到這封信之後14天內務必歸還這筆款項，連本帶息合共HK$156,100,000 港幣。」

The 2^nd Demand Letter was purportedly copied to the Commission.

51.  Mr Lee said he gave the 2^nd Demand Letter, which was placed in an envelope, to the receptionist at the offices of WYD and WYC located adjacent to and on the same floor as BIC’s office at Island Beverley.  He asked her to pass the same to Mr LM Huang since Mr Lee was told that he was not at office at the time.  Mr Lee also sent the 2^nd Demand Letter by airmail to the Commission.  Again, Ms Li confirmed it was she who typed the 2^nd Demand Letter and that Mr Lee had told her that he had given it to Mr LM Huang.

52.  Mr LM Huang denied that he or the Commission had received the 2^nd Demand Letter.  The authenticity of the 2^nd Demand Letter is also disputed.

53.  Mr Lee said since there was no reply to either the 1^st or the 2^nd Demand Letter, BIC issued a statutory demand on 14 September 2005.  Litigation then ensued.

54.  Mr Lee said that after the commencement of HCA1957/2005, Mr Lian called him on a number of occasions in November 2005 to discuss possible settlement.  Mr Lian offered to pay HK$50 million to the Big Island Group by the end of the month in partial settlement in return for Big Island Group temporarily withholding all legal proceedings against the Wu Yi Group.  A few days after 21 November 2005, Mr Lian attended Mr Lee’s office and gave a letter dated 21 November 2005 from WYD to BIC (“the 3^rd Letter”), stating :

「 關于借款事宜

          我們雙方經友好協商原定本月底先還貴公司伍仟萬港幣一事，我公司由於和銀行的協調及手續安排，我們需推遲到2005 年12 月28 日才可支付。請原諒。」

55.  According to Mr Lee, Mr Lian told him, when handing over the 3^rd Letter, that he required HK$5 million in case as handling fee for himself and a group of people before he would make arrangements for the repayment.  Mr Lee immediately turned it down.  Mr Lian left the 3^rd Letter with Mr Lee and asked him to consider.  Later on the same day, Mr Lee called Mr Lian and formally rejected his proposal.  Mr Lian asked Mr Lee to return the original of the 3^rd Letter.  Mr Lee then took a photocopy of the 3^rd Letter for BIC’s record before returning the original to Mr Lian, who came to collect it in person.

56.  These allegations were all denied by Mr Lian. He specifically denied that he had issued the 3^rd Letter, the authenticity of which is disputed.

57.  The FEAs are the cornerstone of WYD and WYC’s defence.  The witnesses of the Wu Yi Group who were directly involved in the operations of the FEAs were Mr ML Xu, Mr J Chen and Mr BS Lin. Mr ZH Xu and Mr Lian’s involvement was relatively limited.  The thrust of their evidence may be summarized as follows.

58.  After the Asian financial crisis in 1997, the Foreign Exchange Bureau in the Mainland tightened its policy and control over RMB funds coming out from the Mainland.  The amount of funds that the Wu Yi Group in the Mainland could inject into its Hong Kong operations was accordingly restricted.  At the same time, the Wu Yi companies in Hong Kong had cashflow difficulties and required injections of funds from the Wu Yi Group in the Mainland to pay daily operational expenses and mortgages and bank loans. However, because of the foreign exchange policy, it was difficult for the Wu Yi Group in the Mainland to remit funds to Hong Kong.

59.  In his witness statement, Mr J Chen said :

「4. 在2000 年初，國內的母公司中國武夷準備給武夷開發，武夷建築等在港企業注資，但由於國內的外滙管制政策，人民幣資金不易滙出境外。大概在2000 年的3 月初，本人和大島公司之董事李平先生(即是現名為李信先生)聊起此事。李平先生得知此事後說，他的朋友李德富先生[9]在國內做裝修業務需要人民幣，只要武夷開發在國內給李德富先生人民幣，李平先生可以安排李德富先生通過大島公司在香港給武夷開發港幣。由於武夷開發與李德富先生互相不熟識，沒有信任基礎，而李平先生是公司的長期合作者，又在同一幢寫字樓工作，相互比較熟識。因此李平建議，大島公司與武夷開發以國內裝修需要簽訂互借人民幣/港幣的協定。可由李德富先生安排港幣先滙到大島公司帳戶，李德富先生收到武夷開發相應的人民幣後，大島公司再將代收李德富先生的港幣開支票給武夷開發。

5.       由於武夷企業有限公司(“武夷企業”)的林宝順先生當時在國內的時間較多，並認識李德富先生，我要求林宝順先生到國內與李德富先生商談具體操作辦法。林宝順先生與李德富先生商談後打電話向我滙報說，李德富先生明確要求， 每筆互借必須對應等值，計算對應等值的滙率，只要武夷開發和他根據當時市場滙率確定。這樣雙方每筆的互借就是人民幣和港幣交換，每筆結清。李德富先生問武夷開發是否同意。我當時立即電話告訴林宝順先生，可以答覆李德富先生，同意每筆的互借就是人民幣和港幣互換，每筆結清。但大島公司與武夷開發每筆還是要簽訂互借協定，有互借協定互換才有保證，同時公司財務作帳要有協定。」

60.  WYD and BIC signed twenty FEAs between 10 August 1997 and 3 July 2001.  They were couched in similar terms.  I will set out the one dated 10 August 1997 as an example :

「武夷開發有限公司（下稱甲方），公司注冊地址為香港銅鑼灣紀利佐治街1-5號金堡中心25字樓。

大島建設（香港）有限公司（下稱乙方），公司注冊地址為香港灣仔分域街18號捷利中心6樓。

甲乙雙方經過友好協商，本著互利互惠的原則達成協議如下 :

一． 乙方由于即將在國內展開房地產投資開發項目，暫時需要一定數額的人民幣資金用于支付訂金，因此，暫向甲方分次商借人民幣資金貳仟萬元正。

二． 甲方同意分次將人民幣資金借給乙方供周轉使用，但乙方需在動用人民幣資金的同時，將大致等值的港幣或美元存放于甲方指定的銀行戶口，待乙方完成上述房地產投資項目后，將人民幣資金歸還甲方，甲方即歸還相應的港幣或美元給乙方。

三． 甲乙雙方同意雙方互借的資金相互不計息。」

Particulars of the twenty FEAs are summarised at Annex 4.

61.  At the request of Mr J Chen and Mr Lee, Mr BS Lin carried out the actual operations of the FEAs in the Mainland.  In his witness statement, he said :

「5. 我在國內與李德富先生商議，李德富先生明確要求，每筆互借必須對應等值，且每次結清。計算對應等值的滙率，只要武夷開發和他根據當時市場滙率確定。這樣我們每筆的互借資金就是人民幣和港幣互換，每筆結清，問我們公司是否同意。我電話請示陳江先生同意後，明確答覆李德富先生，同意每筆的互借就是人民幣和港幣互換，每次結清。但大島公司和武夷開發每筆還是要簽定互借協定，有互借協定互換才有保證，同時公司財務作帳要有協定。

6． 我與李德富先生商議如何操作，並征得李平先生同意。具體操作方法如下 :大島公司與武夷開發簽訂互借人民幣/港幣的協定後，本人與李德富先生商定每次具體互借數額。按照李德富先生要求的的時間、金額、收款單位等辦理付款事宜。為確保滙付準時，方便及安全，主要採用滙票方式交付。李德富先生見到滙票後(開始二，三次看滙票，後來信任了，也就不看了)，安排港幣滙到大島公司香港中國銀行帳戶。我通知陳江先生與大島公司聯繫，核實李先生安排滙的款項已滙到大島公司香港中國銀行帳戶後，陳江先生通知我，將國內人民幣滙票交給李先生。大島公司知道李先生收到滙票後，就將李先生到大島公司香港中國銀行帳戶的港幣全額開支票轉給武夷開發。每筆滙款互換都照此辦法執行。」

62.  It soon transpired that what Li actually did was to exchange the RMB he obtained from the Wu Yi Group in the Mainland, exchanged it into HK dollars and remitted the same to BIC’s accounts.  Mr BS Lin said in his witness statement :

「7. 我與李德富先生接觸幾次後，雙方也熟悉了。李德富先生告訴我，他實際也沒有太多資金，只是將武夷開發先前付給他的人民幣通過市場換成港幣滙到大島公司帳戶。所以要求我們每次滙票分成多張，數額不要太大，通過互換人民幣和港幣，他可以從匯款中賺取匯兌的差價。」

63.  Although Li was engaged in money exchange, from the Wu Yi parties’ perspective, they were covered by the FEAs with BIC, which they could hold responsible if necessary.  So they were not concerned.

64.  WYD and WYC relied on numerous banking documents, and the official receipts issued by BIC to support their case on the FEAs.  Their authenticity is challenged by BIC.

65.  Mr Lee said that the 20 FEAs were signed in connection with the Shandong Project in one go in July 2001.  Mr W Chen gave evidence to explain why Mr Lee’s allegation is unfounded.  I will return to this aspect in greater detail below.

66.  After the completion of the fund exchanges, Mr ML Xu and Mr J Chen, for and on behalf of WYD and Mr Lee, for and on behalf of BIC, signed a settlement agreement dated 28 August 2001 (“the Settlement Agreement”), which stated :

「武夷開發有限公司(下稱甲方)，公司注冊地址為香港銅鑼灣紀利佐治街1-5號金堡中心25字樓。

大島建設(香港)有限公司(下稱乙方)，公司注冊地址為香港灣仔分域街18號捷利中心6樓。

甲乙雙方經過友好協商，達成協議如下 :

一. 甲乙雙方由1997年8月開始至2001 年8 月28 日止的所有資金互借協議執行已經完成。

二. 甲乙雙方已各自歸還雙方所有互借的資金，結算完畢，互不相欠。

三. 雙方同意日后若需要資金互借，雙方則再另行簽訂有關的協議。」

67.  Mr Lee initially alleged that the purported signature of his on the Settlement Agreement was forged and that the company chop of BIC was either forged or used without proper authority of BIC. However, in his second supplemental witness statement filed on 4 January 2010, Mr Lee accepted that he had signed the Settlement Agreement but alleged that he signed it by mistake without having read the contents.

68.  I now consider if BIC has discharged its burden of proving its primary case based on the Loan Agreement.

B.5.       Whether BIC has discharged its burden of proof on the Loan Agreement

69.  The key matters which BIC relied on to support its case are considered in turn.

B.5.a.    Ms Lie as the source of funds

70.  The first key component is, of course, Ms Lie as the source of funds which constituted the loans.

71.  BIC had been dormant since 1991.  It was financially incapable of providing the funds for the loans, which exceeded HK$100 million.  BIC was able to lend the loans to WYD and WYC because of Ms Lie’s cash injections.  Ms Lie as the source of the funds is therefore crucial to BIC’s case based on the Loan Agreement.  However, Mr Lee’s and Ms Li’s evidence on this aspect is highly doubtful for a number of reasons.

72.  First, Ms Lie’s particulars, especially her financial position, as disclosed by Mr Lee in his witness statements and answers to interrogatories are very scanty.  All he said in para.9 of his witness statement filed in February 2007 is that in about October 1999 Ms Lie agreed to invest in BIC by making cash injections of approximately US$25 million, without reaching any formal agreement regarding the precise terms of her investment including interests or returns.  He was interrogated in March 2007 as to, among other things, Ms Lie’s occupation, including the organization, company, business she worked for and her position.  In his answers filed in May 2007, Mr Lee only said that she was not in employment. He did not add much in his two supplemental witness statements filed in April 2009 and January 2010.  In short, Mr Lee had said nothing and had produced no documentary evidence to prove Ms Lie’s financial worth.  Mr Lee’s evidence so far could not have possibly satisfied the court, even on a balance of probabilities, that Ms Lie was as wealthy as he had claimed.

73.  Then in his oral testimony, Mr Lee said for the first time that Ms Lie was in the timber business which she inherited from her father in late 1960s and had accumulated considerable wealth.  Her net worth, he estimated, was in the region of HK$1 billion. Given the importance of Ms Lie’s financial position, I see no reason why Mr Lee would have failed to mention in any of his witness statements or answers to interrogatories what he had said in the box.  In my view, Mr Lee tried to embellish his case on Ms Lie’s financial strength, which remains to be wholly unsupported by any documentary proof, by making them up as he went along.  Mr Lee was pressed as to why in his answers to the interrogatories he said that Ms Lie was not in employment.  He explained that he was referring to the year when the answers were provided, that is, 2007.  In 2007, Ms Lie was not an employee but she used to own business, he said.  His explanation is disingenuous.  For the interrogatory in question was directed to para.9 of his witness statement which expressly referred to October 1999.

74.  If Ms Lie was really a successful business woman in the timber business, it is highly peculiar that she would list her occupation in her Indonesian passport and identity card as a mere housewife.  Mr Lee had offered no credible explanation as to why that was the case.  One may think that it is something which only Ms Lie could explain.  But BIC had not called her, despite the fact that she had made a witness statement and Mr Fung had indicated in his opening that she would be called.

75.  Second, Mr Lee’s case, be it in the pleadings or his witness statements, was that Ms Lie agreed to invest in BIC.  Under cross‑examination, it was pointed out to him that as BIC’s audited accounts showed accumulated losses between 1999 and 2001, investing in BIC was not attractive.  Mr Lee then changed his evidence and said Ms Lie trusted him and not his company.  Ms Lie was impressed by his success story of FBC and the fact that his joint venture partners were the Chinese Government.  So she decided to invest in him. As to which company he used as a vehicle, it was entirely up to him.  Ms Li also supported what Mr Lee had said and added that the sums injected into BIC were temporarily booked into BIC’s director’s account as loans from Mr Lee to BIC.[10]  This is also a change in her evidence.  For in paragraph 7 of her witness statement, Ms Li said that Mr Lee told her that the cash injections were arranged by Ms Lie as investment in BIC.

76.  Mr Lee’s and Ms Li’s evidence is, of course, flatly contradicted by Lie’s Letter, upon which they relied.  There, Ms Lie purportedly said twice that she wished to invest in his company.  I reject Mr Lee’s change in evidence as another piece of fabrication made up in the box to meet a question casting doubt on the inherent improbability of his story.  Ms Li just went along to corroborate her brother’s untrue story, which must be rejected as well.

77.  Third, according to Lie’s Letter, the terms of her investment were yet to be finalized.  In fact, on Mr Lee’s evidence, there was never any concrete agreement on the terms of her investment or arrangement of her injections into BIC.  When repeatedly asked, what Mr Lee could say was that the terms were contained in Lie’s Letter, which precisely stated that “we will need to come to some formal arrangement when time permits”.  The mind boggles at the inherently improbable suggestion that Ms Lie would inject about 10% of her substantial wealth without reaching any formal agreement with BIC or Mr Lee.  It also baggers belief that for such enormous sums, Ms Lie would reach no formal agreement with Mr Lee or BIC concerning the precise terms of her investment such as when monies were to be injected, how they were to be injected, how Mr Lee or BIC was to use the monies, how Mr Lee or BIC was to account to Ms Lie for the injections or to repay her and what interests or returns Ms Lie would be able to obtain from her investment. 

78.  Mr Fung submitted that the arrangement as stipulated in Lie’s Letter was entirely consistent with the close relationship between Mr Lee and Ms Lie.  They had known each other for many years and she reposed considerable trust in him.  I doubt if Mr Lee was as close to Ms Lie as she alleged.  Under cross-examination, he said he did not have her residential telephone number, her business telephone number or her business address.  He was wholly ignorant as to her real residential address. In answering the interrogatories about Ms Lie’s personal particulars, he listed the same wrong address as stated in Lie’s Letter.  In any event, there is no evidence before me to substantiate Mr Lee’s bare allegation that she reposed considerable trust in him so much so that she would be content to effectively leave 10% of her substantial wealth at Mr Lee’s disposal without any formal agreement to protect her interests.

79.  Fourth, BIC’s bank statements show that the injections purportedly made by Ms Lie were all in Hong Kong dollars.  Some of the entities or individuals who made the injections were money exchangers. However, there is not a single shred of documentary evidence to show that the Hong Kong dollars received by BIC came from Ms Lie or indeed Indonesia. Documents evidencing Ms Lie’s injections such as payment slips or notifications of payments by Ms Lie, which BIC should have no difficulty to produce, are glaringly missing.

80.  Fifth, Mr Lee said Ms Lie wished to invest US$25 million.  But BIC received Hong Kong dollars.  When asked, Mr Lee said, again for the first time in the box, that the arrangement was put together by Ms Lie’s partner, an executive in Permata Bank, to deal with foreign currency control in Indonesia.  It was then difficult to get all foreign currencies out of Indonesia.  What Mr Lee could not explain is that given the foreign currency control in Indonesia, why converting from US dollars to Hong Kong dollars, both being foreign currencies, would make the transfers out of Indonesia into Hong Kong easier.

81.  Sixth, it is Mr Lee’s evidence that Ms Lie had not pressed him for any repayment after the injections in 2000 and 2001 because she knew that the monies had been lent to WYD and WYC who refused to repay.  Thus there was not much she could do prior to the judicial resolution of these proceedings.  This is unbelievable.  I think any reasonable investor in Ms Lie’s position would have taken immediate steps against BIC or Mr Lee for recovery.  The least that she should have done is to preserve her rights by starting an action before the limitation period of 6 years expired.   

82.  Seventh, Lie’s Letter does not assist BIC a bit.

83.  Mr Lee detailed the circumstances leading up to the delivery of Lie’s Letter to him on 25 October 1999 as follows.  Lie’s Letter was drafted by Mr Malcolm Kemp of Messrs Stephenson Harwood.  Mr Lee met Mr Kemp in the Clipper Lounge of the Mandarin Hotel and told him about Ms Lie’s intended cash injections.  Mr Kemp warned him to guard against money laundering and advised him to protect himself by requesting Ms Lie to sign a letter.  Mr Lee drafted a letter and handed it to Mr Kemp during the meeting at the Mandarin Hotel.  Mr Kemp corrected the draft and typed up a faired version of the letter (without Ms Lie’s name and address) and faxed it back to Mr Lee for further handling.  When Ms Lie arrived in Hong Kong on 25 October 1999, she checked into Grandfield Pacific Hotel in Causeway Bay, which was a few minutes’ walk from BIC’s office in Island Beverley.  Mr Lee met her at the hotel and gave her Mr Kemp’s faxed draft letter and asked her to provide a letter in those terms to protect both of their respective positions.  Ms Lie wrote down her address on the top blank area of the draft letter and arranged for the letter to be typed up at the business centre of the hotel.  After the letter was typed and signed, Ms Lie delivered the letter by hand to Mr Lee’s office on the same day. 

84.  Ms Li, who provided secretarial services to BIC and FBC at the material time, was also adamant that Mr Lee gave her Ms Lie’s Letter for filing before she left Hong Kong for Australia in February 2000 to study accounting.  She said she subsequently found Ms Lie’s Letter in a cabinet containing only documents kept by her prior to her departure for Australia.

85.  Mr Ho, SC, for the Wu Yi parties, challenged the authenticity of Lie’s Letter by heavily relying on “the unsettling features” including the incorrect address stated there.  I will not dwell on his minute analysis of the evidence.  Instead I will determine the authenticity issue on a broader basis.  As seen above, Mr Lee’s evidence on Ms Lie as the provider of the funds for the loans is highly dubious.  It is most probable that Mr Lee resorted to fabricating Lie’s Letter in order to bolster his allegation.  And I so find.  I reject his evidence on how Lie’s Letter came about.  I also reject Ms Li’s evidence as well.[11]  I will not attach any weight to Lie’s Letter.

86.  Mr Fung submitted that if Lie’s Letter was fabricated, it made no sense for it to be dated 25 October 1999, some eight months before the 1^st sum was advanced to WYD on 30 June 2000.  I can immediately think of one reason why it was so dated.  It is because Ms Lie was, as shown in her passport, came to Hong Kong on 25 October 1999.  She was allowed to stay until 8 November 1999.  On the evidence before me, that was the last time she was in Hong Kong before 30 June 2000.  With that in mind, Mr Lee must have so dated Lie’s Letter in order to make his story believable and consistent with the objective fact that Ms Lie was indeed in Hong Kong on 25 October 1999.

87.  Eighth, there can be no doubt that Ms Lie’s evidence is crucial.  She could answer all the queries and challenges WYD and WYC had raised concerning BIC’s case that she was the source of the funds for the loans.  She had indeed filed a witness statement already.  Yet, inexplicably, she was not called, when it is Mr Lee’s evidence that he had no problems contacting her.  The failure to call her is most suspicious.  On Mr Lee’s evidence, she was fully aware that the disputes in HCA1957/2005 concern her monies essentially, which allegedly made up 10% of her wealth.  She never asked Mr Lee for the return of her monies in the last 6 years because she was aware of these proceedings and was waiting for the court’s adjudication.  That being the case, Ms Lie is clearly very much interested in the outcome of the litigation.  There is every reason for her to testify in order to prove that she was the provider of the funds and to dispel all possible queries that she was not.

88.  In Ip Man Shan Henry & Anor v Ching Hing Construction Co. Ltd & ors (No. 2) [2003] 1 HKC 256, Deputy Judge Lam (as he then was) held at para.155 that it there is evidence available to a party that could explain allegations made against him and he omits to call such evidence, unless there is some plausible explanation as to why such evidence is not called, an inference can be drawn that if such available evidence was adduced the allegations could not be explained.  That proposition applies here with full force.  Absent any credible explanation why Ms Lie was not called, I draw the inference that even if she were called, she would not be able to answer all the highly dubious features surrounding the allegation that she was the provider of the funds as discussed above.

89.  Finally, BIC relied on its internal accounting records and audited accounts to prove, among other things, that Ms Lie was the provider of funds.  I will deal with these accounting documents in Part B.5.c below.  For reasons stated there, I will attach no weight whatsoever to these accounting documents.

90.  For the reasons which I have stated, I find that BIC has failed completely to prove that Ms Lie was the source of funds for the loans.  In my view, there is not even an iota in the truth of the allegation that she was.

B.5.b.    The Loan Agreement

91.  The second key matter in BIC’s case is the Loan Agreement.  Mr Lee’s evidence on the Loan Agreement is extremely dubious.

92.  Mr Lee admitted that he did not take Ms Lie’s indication of injecting funds into BIC seriously in October 1999.  Yet in the same month he said he reached the Loan Agreement with Mr ZH Xu to on-lend the injections to WYD and WYC.  So he was relying on something that he was not serious about when entering into the Loan Agreement.  That is quite incredible.

93.  It is inherently improbable that for such significant amounts of loans, both Mr Lee and Mr ZH Xu would be content to have an oral agreement without reducing it into writing.  When pressed, Mr Lee initially said he did not know the reason why.  He then said he trusted Mr ZH Xu because they were then on good terms and he trusted the latter would ensure that WYD and WYC would repay the loans within the agreed time frame.  I find it unbelievable that Mr Lee, a seasoned businessman, would simply rely on Mr ZH Xu’s goodwill, even assuming (without deciding) that they were quite close at the time, to ensure that WYD and WYC would repay the enormous sums in time.  Mr Lee went further to say that he trusted the Fujian Government and the companies owned by the Chinese Government.  This is disingenuous.  Even assuming that the Fujian or the Central Government is ultimately responsible for WYD and WYC’s liability, in the absence of any written agreement to prove the loans, it is highly questionable if either Government would be prepared to accept responsibility or to entertain BIC’s claims based on the Loan Agreement.

94.  Further, Mr Lee’s notion that he trusted Mr ZH Xu or the companies owned by the Chinese Government at the time is contradicted by his own evidence.  He alleged that the Wu Yi side withdrew a sum of HK$29.6 million from FBC’s bank account in Kunming in June 1998 without his authorization or consent.  He discovered the withdrawal two to three weeks after the wrongful withdrawal.  By then, that is, in late June or July 1998, it must be apparent to him that the Wu Yi side was simply not trustworthy.  There was no reason why in October 1999, he would still trust Mr ZH Xu or the companies owned by the Chinese Government as alleged.  I do not think Mr Lee would be so naïve.  Indeed, given the unauthorized withdrawal which was detrimental to his interest, and which the Wu Yi side had failed to return, why would Mr Lee still agree to lend such enormous loans to help the Wu Yi companies in Hong Kong? Or why would he believe that the Wu Yi companies in Hong Kong would repay him? I cannot see any possible answer except that Mr Lee was lying when he said that he trusted Mr ZH Xu or the companies owned by the Chinese Government at the time so much so that he would be content with an oral agreement for the loans.

95.  Mr Lee alleged that he was shown a set of minutes by Mr ZH Xu in late 1999 stating that WYD and WYC were in desperate need of funds; that BIC would arrange for monies from Indonesia to be loaned to them; and that such loans were repayable within a year at interest rate of prime plus 2.5% per annum.  If that is true, the next thing to do logically is to reduce the Loan Agreement or the terms in the minutes in a formal written agreement.  I think he made this allegation up in order to bolster his case, which is rejected.  It follows that his challenge to the authenticity of the Minutes must also be rejected.  And I find that the Minutes is authentic.

96.  It is equally inherently implausible that the parties reached no agreement on the interest for the loans before any transfer took place.  Advancing such significant sums with no agreement on interest defies common and commercial sense.

97.  Mr Lee said he was prepared to lend Wu Yi companies in Hong Kong the loans without any formal agreement on interest because his primary concern then was to secure the Wu Yi Group’s assistance in the Mainland in relation to the Shandong Project as BIC might require the use of the first class licence of Fujian Construction to submit the relevant tender. This allegation is only to be contradicted by Mr Lee’s own evidence that even before FBC submitted its tender it was already known that the requirement for a Class A licence was not necessary to submit a tender, because the Shandong Government wanted to allow foreign tenderers from Hong Kong, Japan and Korea to participate.[12] FBC submitted the tender in June 2000.  So before the first sum was advanced to WYD on 30 June 2000, it was no longer necessary to secure Wu Yi side’s assistance for the Class A licence.  Naturally, Mr Lee ought to have revisited the issue of interest there and then but he did not.  Mr Lee explained it was still possible that the Class A licence might still be needed to be used.  But the requirement for such a licence was for the purpose of submitting a tender and FBC had already submitted its tender at the time.  Mr Lee’s explanation is nonsensical.  I think he just made it up.

98.  BIC relied on its accounting documents referred to above as proof that WYD and WYC were its debtors for the loans, thus inferentially supporting its case on the Loan Agreement.  As explained in Part B.5.c., I will attach no weight to these documents.

99.  For the above reasons, I have no hesitation rejecting Mr Lee’s evidence as to how he had allegedly made the Loan Agreement with Mr ZH Xu.  I prefer and accept Mr ZH Xu’s evidence.  I find that the parties had not made the Loan Agreement as alleged.

B.5.c.    BIC’s accounting records

100.  I next come to BIC’s reliance on its internal accounting documents and audited accounts.  The internal accounting documents are management accounts comprising balance sheets and trial balances for the years 2001 to 2005, records of sundry debtors and payment vouchers.  

101.  Ms Li said the BIC’s internal accounting documents were prepared by her at the time.  Whether they are really contemporaneous depends on entirely Ms Li’s credibility.  As I have found her to be untruthful and would just come along to corroborate Mr Lee’s case, I reject her evidence that the internal accounting documents were contemporaneous.  Ms Li said that as no formal agreement had yet been reached as to the terms of Ms Lie’s investment, her injections were temporarily recorded in the management accounts as director’s loans from Mr Lee to BIC.  However, if the moneys did come from Ms Lie, I fail to see why they were not recorded in the BIC’s accounts simply as injections from Ms Lie, even though as alleged, no formal agreement on the terms of Ms Lie’s investment had been reached.  As already noted, she said they were booked as directors’ loans from Mr Lee because Ms Lie had agreed to invest in Mr Lee personally.  This is only to be contradicted by her own evidence in her witness statement that Ms Lie agreed to invest in BIC.  The trial balances and the records of sundry debtors and payment vouchers referred to WYD and WYC as sundry debtors.  I find that these self-serving documents are all fabricated by Ms Li for the purpose of litigation.  No weight will be given to these internal accounting documents.

102.  The audited accounts are for the years 2001 to 2005, stating in effect that WYD and WYC as debtors.  They are certainly not contemporaneous because they were all prepared in 2008, long after the action had started.  Ms Li gave an explanation for the delay, on which I need not make any finding one way or the other.  Whatever the explanation might be, they are, on Ms Li’s evidence, based on BIC’s internal accounting documents, which I have found to be fabrication.  That being the case, I will attach no weight whatsoever to these self‑serving audited accounts.

B.5.d.    The demands and the 3^rd Letter

103.  The fourth major component in BIC’s case is the demands by way of the 1^st Demand Letter, the oral demands in 2002 and 2003 and the 2^nd Demand Letter and the 3^rd Letter in which WYD had allegedly admitted liability.  The authenticity of these Letters is, as noted, being challenged.

104.  Mr Lee’s evidence on how the 1^st Letter came about is most unsatisfactory.

105.  Mr Lee originally said in his witness statement that he met Mr ML Xu on 28 September 2001.  He put forward an extract of his personal diary which he confirmed was “a contemporaneous record of our conversation entered into the diary by me shortly after our meeting on the same day.”  It was only after this meeting that he drafted the 1^st Demand Letter.

106.  However the indisputable travel records of Mr ML Xu showed that he was not in Hong Kong on 28 September 2001.  This flatly contradicts Mr Lee’s allegations.  Under cross-examination, Mr Lee said he might have written on the wrong page of his diary.  He maintained that the meeting occurred, which could be the weekly following Friday 28 September 2001 and caused him to draft the 1^st Demand Letter.

107.  I do not think Mr Lee could have made such a serious mistake concerning that very important meeting in his diary. Further, on the face of the diary, the entry was written under the day of 29 September 2001 because there was not enough space for the day of 28 September 2001.  He was careful enough to specify the time (being 10:00 am) and place (being 25/F) of the alleged meeting and to draw an arrow to indicate that the entry is meant to be for 28 September 2001.  He must have drawn the arrow to indicate precisely on what day the meeting occurred.  He could not have mistaken the date.  He must have made up the entry on 28 September 2001.

108.  There is another entry in his dairy on 3 October 2001, stating that Mr ML Xu requested more time for repayment of the loans.  Although Mr ML Xu could not recall if he had a conversation with Mr Lee on that day, he denied that he had asked for an extension of time.  In my view, the entry on 3 October 2001 was also fabricated by Mr Lee.  He made up the meeting preceding the 1^st Demand Letter.  He even went so far as fabricating entries in his diary.  The only irresistible inference to be drawn is that he must have fabricated the 1^st Demand Letter as well.  And I so find.  Mr Lee can derive no assistance from the 1^st Demand Letter at all.

109.  Mr Lee said he continued to make oral demands to Mr ML Xu until his retirement in 2002 and to Mr LM Huang in 2003.  When SARS broke out, he did not make any further demand between 2003 and 2005 because he realised that the Wu Yi companies might not have sufficient fund as a result of the impact of SARS on Hong Kong property market.  In my view, any reasonable creditor, in BIC or Mr Lee’s position, with such huge loans outstanding, would have immediately issued legal proceedings soon after 18 October 2001, irrespective of the debtors’ financial position when the 1^st Demand Letter was ignored.  I think his allegations of making oral demands in 2002 and 2003 and not doing so between 2003 and 2005 were all made up by him to fill the gap, as it were, in order to explain away he did not commence proceedings until 2005.  I reject them without any hesitation.

110.  The 2^nd Demand Letter was issued on 28 February 2005.  As I understand the evidence, three points of dispute arose from it.  First, whether it was sent to or received by WYC in the manner as Mr Lee had testified.  Second, whether he also sent it to the Commission.  Third, whether its contents were fabricated.

111.  On the first point, Mr LM Huang denied that he had ever received it.  Mr LM Huang’s denial was contradicted by Mr Lian, who was in charge of the litigation on behalf of WYD and WYC, who said that it might be possible that Mr Lee had sent it to Mr Yue Shengli, then chairman, and Mr LM Huang.  Mr LM Huang said that he had confirmed Ms Yolanda Chung, the receptionist, that she had not received it either.  Whether Mr Lee had sent the 2^nd Demand Letter to Mr LM Huang in the manner as he had described is an important issue.  WYD and WYC ought to have called Ms Chung.  I am not going to attach weight to Mr LM Huang’s hearsay evidence.  Mr Lee had sent the 2^nd Demand Letter is inferentially supportable by the statutory demand issued by BIC in September 2005, which made express reference to the 2^nd Demand Letter sent previously.  WYD and WYC had not disputed the receipt of the 2^nd Demand Letter at the time.

112.  On the second point, Mr Lee copied the 2^nd Demand Letter to the Commission because WYD and WYC were stated-owned enterprises and indirect subsidiaries of the Commission.  Plainly, he did so hoping that the Commission would look into the matter.  He should have brought the matter to the Commission’s attention so soon after the 1^st Demand Letter was ignored.  Mr Lee had adduced no documentary evidence such as mail receipt to prove that he had airmailed the 2^nd Demand Letter to the Commission.  Both Mr LM Huang and Mr Lian said that the 2^nd Demand Letter had not been sent to the Commission.  Had it been sent, the Wu Yi companies would have been informed of it.  On balance, I prefer Mr LM Huang and Mr Lian’s evidence, which sounds more reasonable.  Even assuming that Mr Lee did send the 2^nd Demand Letter to the Commission, it does not necessarily lend more credibility to his case.

113.  On the third point, although I find that Mr Lee had sent the 2^nd Demand Letter to WYC in the manner as described, it does not follow that what he had alleged there is true.  In line with what he had done with the 1^st Demand Letter, I find Mr Lee had made up the demand in order to lay down the basis for BIC’s further action, including the issue of the statutory demand and the commencement of this action. I will not attach any weight to the 2^nd Demand Letter.

114.  I now come to the 3^rd Letter, which was allegedly issued in November 2005.  On BIC’s case, this is undoubtedly a very important document.  Issued after the present proceedings had been commenced, it amounts to an unequivocal admission of liability.  Common sense dictates that when Mr Lian gave it to him, Mr Lee would retain the original as evidence.  But most surprisingly, Mr Lee only kept a copy and returned the original to Mr Lian. I reject Mr Fung’s submission that production of a copy lent credibility to Mr Lee’s story.  On the contrary, Mr Lee’s story of why he kept a copy and not the original is simply incredible.  I further reject Mr Fung’s submission that the reference to partial repayment and copy to the Commission also supports its authenticity.  I think that is precisely the reason why Mr Lee deliberately fabricated the contents in such a way.  He wanted to make the 3^rd Letter more believable by adding these features.  Although the letterhead and the company chop appearing on the 3^rd Letter look similar to the genuine ones, I have no doubt that Mr Lee fabricated the 3^rd Letter for the purpose of litigation.  He also made up the circumstances in which the 3^rd Letter came about, including the conversation that he had had with Mr Lian, in which Mr Lian asked for a handling fees of RMB5 million.  His allegations are rejected.

115.  All the four key matters in support of BIC’s case based on the Loan Agreement are now gone.

116.  BIC’s case is further contradicted by the official receipts issued by WYD and WYC, which are contemporaneous documents.

B.5.e.    The official receipts issued by WYD and WYC

117.  WYD had issued 17 official receipts and WYC, 1 receipt for the sums received.[13]  Of these 18 receipts, 12 described the sums advanced as “互借款”; 1 described the sum advanced as “往來款”; 2 described the sums advanced as “暫借款”; and 3 had no description of the sums advanced.  Those receipts which bear the descriptions “互借款” and “往來款” are inconsistent with the BIC’s case of a straightforward loan, which would have been described simply as “貸款” or “借款”.  The descriptions “互借款” and “往來款” are consistent with the Wu Yi parties’ case that these sums were in the nature of fund exchanges : Clause 3 of the FEAs contained the words “雙方互借的資金”.[14] Those receipts that bear the description “暫借款” is also consistent with the Wu Yi parties’ case because under the FEAs the mutual loans were temporary.  So the receipts bear the descriptions “互借款” and “往來款” are contemporaneous documentary evidence contradictory to or inconstant with the BIC’s case on the Loan Agreement. 

118.  Mr Lee alleged under cross-examination that the descriptions “互借款” and “往來款” are untrue and incorrect.  As to why he did not raise any objection to the descriptions at the time, Mr Lee said he only read the first receipt dated 30 June 2000 (“which stated “暫借款”) that he asked his secretary to file the receipts received and that it was only in around September 2005 that he first found out about these incorrect descriptions.

119.  I reject Mr Lee’s explanation.  Given the official receipts were the only documentary evidence coming from the WYD and WYC to confirm the loans, Mr Lee must have paid particular attention to the descriptions used there to make sure that the sums were accurately described as loans.  I find it unbelievable that he only read the 1^st receipt dated 30 June 2000.  His allegation that he only discovered the inaccurate descriptions in September 2005 is even more unbelievable.  When he prepared the 1^st Demand Letter in October 2001, which he said he did, Mr Lee must have had regard to the documentary proof that he had, including the official receipts, to ascertain the actual amounts owed by WYD and WYC.  To suggest otherwise is simply incredible.  He would have discovered the inaccuracies there and then.

120.  Ms Li also said that she never heard of the terms or understood their meaning or the difference in terminology.  I reject her evidence because in my view she just came along to support whatever her brother had said.

B.5.f.     Conclusion

121.  In my judgment, BIC has failed miserably to discharge the burden of proving its primary claims based on the Loan Agreement. I find that the Loan Agreement did not exist and that the Sums advanced to WYD and WYC were not loans as alleged.  BIC’s primary claims are wholly incredible, which is determinative.  Those claims must fail, even if I were to find that WYD and WYC’s defence based on the nine FEAs are equally incredible.

B.6.       Money had and received

122.  I next consider BIC’s alternative claim based on money had and received.

123.  Money had and received is now regarded as an action for restitution on the basis of unjust enrichment : see Goff & Jones on the Law of Restitution (7^th edn), at para.1-003.  The general approach is to look for an unjust factor, something which makes it unjust to allow the payee to retain the benefit : Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, per Lord Hope at p.409B.  Such unjust factors include mistake, whether of fact or law, and duress.  The burden is on the payer to show that the payment was unjust by reason of the factor.

124.  BIC pleaded “without consideration” as the unjust factor.  However, it is a concept of the civil law system.  Its adoption in common law would reverse the burden of proof by requiring the payee to prove the legal basis upon which he could retain the monies received, which is not permissible : see Kleinwort, per Lord Hope at p.408G-H.

125.  Recently, in Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners and another [2007] 1 AC 558, the House of Lords firmly rejected the adoption of “absence of basis” as a ground for restitution.  Lord Hoffmann said at p.569C-D :

“21 The answer, at any rate for the moment, is that unlike civilian systems, English law has no general principle that to retain money paid without legal basis (such as debt, gift, compromise, etc) is unjust enrichment.…In England, the claimant has to prove that the circumstances in which the payment was made come within one of the categories which the law recognizes as sufficient to make retention by the recipient as unjust.”

Similarly Lord Hope said at p.612G :

“I doubt whether this is the right time for your Lordships to decide whether to rebase the whole law of unjust enrichment on a highly abstract principle which … would represent a distinct departure from established doctrine.”

126.  These are highly persuasive authorities, which I will respectfully follow.  I hold that as the law now stands in Hong Kong, BIC’s plea of money had and received on the basis of “without consideration” is not a recognised form of action.

127.  Mr Fung cited Shanghai Tongji Science and Technology Industrial Company Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 for the well known proposition that total failure of consideration is a recognized unjust factor justifying restitution whereby the anticipated performance or the basis or purpose for which the money is paid has subsequently failed.  He submitted that should the court hold there to have been no effective binding loan agreement between the parties, the monies paid by BIC to WYD and WYC are recoverable.

128.  However, absence of consideration and total failure of consideration are two wholly different matters.  Shanghai Tongji does not support Mr Fung’s contention that when BIC fails to prove the Loan Agreement, it can still recover the payments as money had and received.  Such submission clearly takes absence of consideration as the unjust factor, which as I have said, is impermissible.

129.  In any event, any reliance on Shanghai Tongji is misplaced.  Applying the doctrine of failure of consideration, BIC has to prove (a) the purpose of the payments to WYD and WYC and (b) the purpose has failed.  Its case is that the payments were loans and the failure of the purpose lied in the non-repayment.  If BIC fails to prove the Loan Agreement, which must be the case in light of my earlier finding, there is no applicable unjust factor to support the claim of total failure of consideration.  Mr Ho is correct when he submitted that the alternative case based on restitution adds nothing to BIC’s claims.  It must fall together with its primary case on the Loan Agreement.

130.  What I have said is enough to dispose of HCA1957/2005.  It is strictly not necessary for me to deal with WYD and WYC’s case on the nine FEAs.  However, my findings on the matters relied on by WYD and WYC may have a bearing on the overall credibility of the witnesses concerned.  So I will say a few words about it.

B.7.       Whether WYD and WYC have discharged the burden of proving their case on the nine FEAs

131.  To recap, WYD and WYC’s case is that the sums that they had received were in fact fund exchanges made pursuant to the nine FEAs made by WYD and BIC between 25 May 2000 and 15 June 2001.

132.  BIC’s case is that the twenty FEAs signed by the parties related solely to the provision of RMB funding by WYD to BIC for the purpose of the Shandong Project in the event that the tender should succeed.  Let me dispose of BIC’s case about the Shandong Project right away.

B.7.a.    The Shandong Project

133.  Mr Lee said that the twenty FEAs were all signed in anticipation of the Shandong Project in one go sometime in July 2001.  Several months later, at the meeting that he had with Mr ML Xu on 28 September 2001, he told Mr ML Xu that the Shandong Project was withdrawn due to a corruption scandal.  His story does not bear a closer scrutiny.

134.  It was FBC who tendered for the Shandong Project.  And it is Mr Lee’s own allegation that the Wu Yi side would be responsible for the operational expenses of FBC.  If that were true, there was no need for WYD and BIC to sign the twenty FEAs.  The Wu Yi side could deal with the finance of the Project directly.  Further, BIC was not even a shareholder of FBC at the time.  BIA was.  If any FEA was required, the contracting party should be BIA and not BIC.

135.  Mr Lee’s story does not sit well with the timing relating to the tender process for the Shandong Project.  FBC submitted the tender in June 2000.  The tender bids were made public on 20 June 2000.  FBC’s bid was among the highest.  The tender deposit was returned to FBC on 17 August 2000.  Mr W Chen, FBC’s project manager, said he was the one mainly responsible for liaising with the preparation office of the Shandong Project committee, as he was most familiar with the tender practices in China.  He said that it is common practice in the Mainland that the return of the deposit meant that FBC’s bid was unsuccessful and in any event as FBC’s bid was amongst the highest when the bids were announced on 20 June 2007, his judgment at the time was that the bid would be unsuccessful.  I find his evidence reasonable and accept it.  Mr Lee alleged that, contrary to the tender notice, there was no actual timetable that he knew of being laid down for the tender process in the Shandong Project.  This defies commercial sense and I reject it.  In my view, since FBC had already failed in the tender bid, there was simply no need to sign the 20 FEAs in July 2001 as Mr Lee has alleged.

136.  Another loophole in Mr Lee’s story is that the figures covered by the 20 FEAs totaled RMB337,500,000, which well exceeded the tender sum for FBC’s tender, RMB138,158,335.  To plug the hole, Mr Lee attempted to redefine the scope of the Shandong Project to be something much wider than that in the tender documents, including a conference center.  He alleged that the tender put in by FBC was only for a small part of the Shandong Project.  Therefore, so he claimed, the Shandong Project would require RMB 600 million to 1 billion. The redefinition is new and not supported by any documentary evidence.  It is contradictory to Mr Lee’s own witness statement and pleadings which defined the Shandong Project according to the tender documents.  I have no doubt he just made it up.  I prefer and accept Mr W Chen’s evidence that the only project for the Shandong building concerned the hotel and nothing more, and that the conference center was part of the hotel.

137.  Another difficulty in Mr Lee’s story in this.  He said at the meeting on 28 September 2001, he told Mr ML Xu that the Shandong Project tender was withdrawn because of a corruption scandal.  I have already found that the alleged meeting on 28 September 2001 did not take place as alleged.  Further, according to Mr W Chen, which I accept, work for the Shandong Project as defined in the tender notice had already started in May 2001 and was completed in March 2002, something which Mr Lee admitted.  How could the work have started and completed if according to Mr Lee, the tender process was withdrawn in September 2001.  Mr Lee then harped on his story that the scope of the Shandong Project was wider than what appeared on the tender notice.  March 2002 would only be a partial or soft opening.  However, as rightly pointed out by Mr Ho, the entire Shandong Project must have been completed in March 2002 as for a building like a hotel a partial/soft opening is quite impossible.

138.  I reject Mr Lee’s story.  I find that the 20 FEAs were not signed in one go in July 2001 in anticipation of the Shandong Project.  He so alleged because the FEAs referred to BIC’s project in the Mainland.  He made up his story in order to meet WYD and WYC’s defence on the nine FEAs.

139.  Mr Ho submitted that if the court rejects Mr Lee’s, the only explanation is that the FEAs were signed for the purpose of the fund exchange arrangements as asserted by WYD and WYC.  I disagree.  I do not think rejection of Mr Lee’s story must necessarily lead to acceptance of WYD and WYC’s version.  As I will demonstrate below, their version is on the whole quite unsatisfactory.

140.  I first highlight two aspects which are supportive of WYD and WYC’s case.

B.7.b.    Receipts issued by the parties

141.  As noted, the official receipts issued by WYD and WYC for the sums in question are consistent with Clause 3 of the FEAs.  BIC had also issued receipts stating that the RMB sums received from the WYD as “互借款”.  BIC disputed their authenticity.  But it is not in dispute that BIC’s company chop appeared on the receipts, for which Mr Lee could not offer any credible explanation.  Mr J Chen said he received all the receipts in one go in the second half of August 2001 from Ms Li, after the signing of the Settlement Agreement.  Although Ms Li denied that, I accept Mr J Chen’s evidence.  I find that the receipts are authentic and are contemporaneous evidence capable of supporting the Wu Yi parties’ case. [15]

B.7.c.    Movements of funds

142.  The table at Annex 1 shows a degree of correspondence between (a) the HK dollars received the Wu Yi parties from BIC in Hong Kong; and (b) the RMB paid by the Wu Yi parties in the Mainland.  They are arguably suggestive of movements of funds between the parties, which may inferentially show that there was some form of fund exchange arrangement.

B.7.d.    Considerable doubts about the FEAs

143.  But it remains WYD and WYC’s case that all the fund exchanges were made pursuant to the nine FEAs.  And there are considerable doubts in WYD and WYC’s evidence on the FEAs.

144.  First, the parties had signed a total of twenty FEAs but only the nine identified above[16] were utilized by the parties for the fund exchanges in question.  The first seven FEAs were dated between 10 August 1997 and 28 November 1999, which were on their face well before any of the fund exchange took place (“the 7 FEAs’).  They covered a total sum of RMB152 million.  They do not concern the fund exchanges in question at all.  WYD denied in their pleadings that they were, as alleged, backdated.  None of their witnesses had dealt with these 7 FEAs in their witness statements.  However, under cross‑examination, they said a number of things about them for the first time since the commencement of this action some 5 years ago.  These matters were not even put to Mr Lee when he was cross-examined.  More importantly, their evidence raised more questions than answers and in some important aspects is self contradictory.

145.  Contrary to Wu Yi side’s pleaded case, Mr ML Xu and Mr J Chen now said that the 7 FEAs were signed by Mr Lee in March 2001 and were backdated.  The change in stance is not explained.  They alleged that the 7 FEAs covered Wu Yi’s fund exchanges with four other entities wholly unrelated with BIC between 1997 and 1999.  They could not satisfactorily explain why the 4 entities were not asked to sign the 7 FEAs themselves and why Mr Lee would sign them when they had nothing to do with BIC and BIC derived no benefit whatsoever from them.  They said the 7 FEAs were signed for the purpose of complying with the rules of the Foreign Exchange Bureau.  But they could not satisfactorily explain why they were not signed at the time.  Mr ML Xu and Mr Lian said that the financial personnel from China Wu Yi did inspect the accounts of the Wu Yi companies in Hong Kong after 1997 especially on many occasions between 2000 and 2002, and could not discover any irregularities.  This begs the question of why it was necessary to sign the 7 FEAs in March 2001. Mr J Chen contradicted them by saying that the 7 FEAs were signed as a result of inspections by the financial personnel from China Wu Yi before March 2001 during which breaches of the relevant foreign exchange regulations were revealed in respect of the fund exchanges in 1997 to 1999.

146.  All in all, their evidence is wholly incredible and I have no doubt that they were made up in order to explain away the existence of the 7 FEAs which fell outside the period of the fund exchanges that the Wu Yi side relied on as defence in this action.

147.  Second, the cross-borrowing methodology mentioned in the FEAs is entirely different from the actual course of dealings for the exchanges that took place.  Mr J Chen, who drafted the FEAs, said that the cross-borrowing methodology was used in order to deal with inspections by the Foreign Exchange Bureau.  If fund exchange was actually mentioned in the FEAs, it would cause them trouble.  Mr J Chen is in effect saying that the cross-methodology was used as a smokescreen to mislead the Foreign Exchange Bureau.  Why would Mr Lee agree to sign the FEAs thereby exposing himself to potential liability when apparently he had nothing to gain from the fund exchanges?  I reject Mr J Chen’s allegation that BIC and Mr Lee made profits out of the fund exchanges.  His allegation is devoid of any evidential basis and was not even put to Mr Lee in cross-examination.  On the evidence before me, I see no reason for Mr Lee to do so.

148.  Third, it is Mr J Chen and Mr BS Lin’s evidence in their witness statement that the FEAs were signed for accounting purposes. However, none of the FEAs were ever referred to in WYD’s accounting documents. Under cross-examination, Mr J Chen disavowed his earlier evidence by saying that the FEAs were not for the purpose of accounting.  The witnesses also said the FEAs were signed for the purpose of “guarantee”, meaning that the Wu Yi side would be protected should any dispute arose out of the transaction. But WYC did not sign any FEA.  So no protection was given to WYC.  No credible explanation had been offered.  More importantly, the FEAs would not offer any real protection to the Wu Yi side because they simply did not reflect the actual dealings between them.  If any dispute arose and the Wu Yi side wished to claim against BIC, Li or any recipient of the RMB in the Mainland, they had to reveal and rely on the true nature of the course of dealings, which is contrary to what the FEAs had stipulated.  No useful purpose of protection as alleged can be served by the FEAs at all.  Further, the notion of protection is undermined by the undisputed fact that for three transfers on 11 April 2001, 19 June 2001 and 16 August 2001, they were remitted to Li one day before BIC received the corresponding sums from him.

149.  Fourth, it is WYD and WYC’s case that they had to resort to the FEAs and the fund exchanges in order to circumvent the then restrictions on foreign exchange control which applied to all, state-owned enterprises included, and which made remittance and conversion of RMB from the Mainland into Hong Kong as Hong Kong dollars difficult.  But none of their witnesses had been able to explain with cogent and credible reason why Li, an individual who, as they learnt later, made a living by money exchange, was able to get round the restrictions to remit the very substantial sums of RMB that he received from the Wu Yi companies in the Mainland into Hong Kong as Hong Kong dollars.

150.  Fifth, on the actual methodology used for the fund exchange, it was simply not necessary to engage BIC at all.  If Li could arrange the Hong Kong dollars to be remitted to BIC’s account in Hong Kong, he could have equally remitted them to WYD’s or WYC’s account in Hong Kong directly.  The Wu Yi witnesses said it was necessary to involve BIC because they did not know Li.  But Mr BS Lin stated in his witness statement that Li initially requested to see the bank drafts before remitting the corresponding Hong Kong dollars to BIC.  But after two to three transfers, he longer required to see such bank drafts beforehand as trust was established between them.  If that were the case, there is simply no reason why Li and the Wu Yi side could not have dealt directly with each other without involving the rather cumbersome methodology with BIC/Mr Lee as the middleman.

151.  Sixth, it is rather incredible, as Mr ML Xu alleged, that the Wu Yi side would just remit RMB to whatever recipient as directed by Li without knowing if the recipient existed or not.

152.  Seventh, it beggars belief that WYD and WYC would be content to transfer over RMB100 million to Li without even asking his contact details, save and except his mobile number, which Mr BS Lin claimed to have lost now.  This mysterious Li just disappeared in the thin air and is nowhere to be found now.

153.  Eighth, according to Mr J Chen, for each of the FEAs, he would first agree with BIC about the amount to be exchanged and then he would prepare the FEA concerned.  For the FEAs dated 5 and 15 April, 18 November 2000 and 3 July 2001, no fund exchange had been carried out at all.  Mr J Chen and Mr ML Xu said that it was because BIC did not have the Hong Kong dollars.  However, their allegation was not even put to Mr Lee in cross-examination.  I reject it as something they made up in the box. Further, the parties entered into a FEA on 25 May 2000 for RMB8 million. Apparently there was no need to do so because the amount could have been covered by the “unused” FEA dated 15 April 2000 for RMB17 million.  Similarly, there was no need to enter into the FEA dated 1 December 2000 for RMB20 million when the one dated 18 November 2000 for RMB11 million was not “used”. A lesser amount would do. 

154.  Of the remaining FEAs, only four, that is, those dated 15 June, 28 July, 20 October and 1 December 2000 were completely “used up” in the sense that the total amounts for the purported fund exchanges allegedly carried pursuant thereto tally exactly with the sums stipulated in those FEAs.  Others were not, leaving quite substantial amounts “unused”.  That is to say only a portion of the amount provided for in those FEAs was in fact exchanged.  It begs the question why Mr Lee and Mr J Chen would have agreed on a much larger sum in the first place only for Mr BS Lin and Li to reduce it days later.  It also raises the doubt why the “unused” portion could not be used up first before entering into the next FEA.

155.  Ninth, Mr BS Lin initially said that there was no document recording his discussions with Li concerning the fund exchange.  This is strange.  Surely, Mr BS Lin must have some written records for the actual amount to be exchanged that he agreed with Li and the name and account of the intended recipient of the RMB as instructed by Li.  Mr BS Lin then changed his evidence and said that Li had given him slips of paper with the names and account numbers of the designated recipients, which he brought back to Hong Kong for reporting to Mr ML Xu and Mr J Chen. He is flatly contradicted by Mr ML Xu who insisted that there was nothing in writing.  Mr J Chen could not recall if there was any such paper.  Mr BS Lin also said that Li might have provided him information by fax.  No such fax of course had been produced.  It is simply inconceivable that none of the papers or fax, if they existed, were not retained by the Wu Yi side and produced for trial.  Mr BS Lin just made it up as he went along.

156.  Tenth, Mr BS Lin said he regularly reported to Mr ML Xu and Mr J Chen on the fund exchanges with Li.  Yet, there was not a single piece of documents evidencing such reports other than the fax dated 12 April 2001 discussed below, which is rather unbelievable.

157.  Eleventh, Mr ML Xu relied on a fax that he allegedly sent to “彰州武夷房地產開發有限公司” on 27 July 2000 and the fax that Mr BS Lin allegedly sent to Mr ML Xu on 12 April 2001.  The first fax referred to a request by WYC to “彰州武夷” to issue two cashier orders of RMB2 million each in favour of two entities in Fuzhou, who were two of the recipients under some of the fund exchanges.  I do not think the instruction contained in the fax confirms any fund exchange.

158.  The fax allegedly sent on 12 April 2001 is more problematic.  It was undated.  It set out the name of Nationbuild and the particulars of its account in typewritten English from at the top.  The rest of the contents was in Mr BS Lin’s handwriting.  He wrote down FBC’s account next to Nationbuild’s account.  He then referred to a sum of 3 million from “東南亞” to be split into three sums and remitted to BIC’s account (HK$870,000); Nationbuild’s account (US$240,350) and “福銀國華’s account” (HK$635,000).  Mr BS Lin’s evidence on this fax is unsatisfactory.

159.  He could not recall who typed the particulars of Nationbuild on the top.  He said the piece of paper with those words were faxed to him in Fuzhou from Hong Kong, and after receiving it he faxed the information with his Chinese manuscript from Fuzhou to Hong Kong for Mr ML Xu’s attention.  But it does not make sense for Li to fax the details of Nationbuild to Mr BS Lin as he himself was supposed to be responsible for remitting the Hong Kong dollars to BIC.  Mr BS Lin later retracted and said that the paper was not faxed to him from Hong Kong and that the fax could be form Mr Lee. I am sure he made it up as he went along.

160.  Mr BS Lin also stated for the first time under cross‑examination that the purpose of the fax was in fact to enable Fuzhou Light, a entity designated by Li, to know where to remit the funds and since Li was not in Fuzhou at the time, he asked Mr BS Lin to arrange for funds to be remitted from Fuzhou Light.  He also said that he had faxed such information to Fuzhou Light.  I think he again made it up as he went along.

161.  Mr BS Lin also gave evidence about the three sums set out in the fax.  I do not propose to go into details.  His evidence simply does not sit well with the methodology that he had agreed with Li for the fund exchange.  I will not give any weight to this fax, even assuming (without deciding) that it is, despite BIC’s challenge, authentic.

162.  Mr Fung has deployed some other points in attacking WYD and WYC’s case on the FEAs.  In order not to overburden this judgment, I will not discuss them here.  I think what I have said so far is already enough to enable me to conclude that when taken in its totality the evidence presented by WYD and WYC on the FEAs is so poor that, even on a balance of probabilities, I must reject it as improbable.  I find that WYD and WYC have failed to discharge their burden of proving that the purported fund exchanges pursuant to any of the FEAs took place as alleged.

B.7.e.    Settlement Agreement

163.  What remains is the Settlement Agreement.  As noted, Mr Lee initially said that his signature on the Settlement Agreement was forged.  He eventually accepted that it was his but alleged that he signed it without having read the contents.  I reject Mr Lee’s allegation, which I find incredible.  That said, the Settlement Agreement only showed that the parties had treated the twenty FEAs as having been executed.  It does not show that the purported fund exchange arrangements pursuant to the FEAs, as alleged, took place.  I do not think WYD and WYC can derive much assistance from it.

B.8. Orders

164.  Although WYD and WYC have failed to prove their defence, BIC’s claims still fail because, as I have found, its case is equally, if not more, incredible.  My distinct impression is that both Mr Lee and Ms Li and the Wu Yi witnesses had not told me the whole truth about what had actually happened about the Sums that WYD and WYC had received from BIC and the sums that the Wu Yi side had remitted to various recipients in the Mainland.  Something more than meets the eyes is there, which they have chosen, for reasons best known to them, to conceal it from the court.

165.  I dismiss BIC’s claims, whether it is the primary claim based on the Loan Agreement or the alternative claim based on money had and received.  Costs should follow the event.  I make an order nisi, to be made absolute within 14 days from handing down, that BIC do pay WYD and WYC costs of HCA1957/2005 including all costs reserved, with a certificate for two counsel, to be taxed if not agreed.

C. HCA714/2007

166.  I next come to HCA714/2007.

C.1. Overview

167.  WYD sued BIC on three loans pursuant to three letters of request :

168.  BIC alleged that on or around 18 February 1991, Mr Chen Bin Hua (“Mr BH Chen”) acting for WY Eng and Mr Lee orally agreed that WY Eng shall be responsible for providing all of FBC’s operational funds and Mr Lee shall be responsible for managing the business and the trading operation of FBC (“the Oral Agreement”).  In around 1994, Mr Lee and Mr ZH Xu for WYH and WY Eng orally agreed to novate the Oral Agreement such that WYH shall take over the rights and obligations and stand in the place of WY Eng under the Oral Agreement.  Similar oral novations were made between Mr Lee, either acting himself or BIA, with Mr ZH Xu acting for WYH or WYC when the shareholders of FBC were subsequently changed.  (These subsequent oral novations between 1994 and 1998 are referred to as “the Subsequent Oral Agreements” below.)  Thus, WYC was at the material times responsible for providing of all operational funds of FBC.  The sums advanced by WYD were contributions made by WYC (through WYD) to FBC pursuant to the Oral Agreement and the Subsequent Oral Agreements, which were upon the requests of Mr LM Huang, then a director of WYD and WYC, dressed up as loans by WYD to BIC.

C.2. The main issue

169.  The main issue as defined by the pleadings is : were the three sums in question WYD’s loans to BIC or WYC’s contributions to FBC?

C.3. Discussion

170.  WYD’s case is well supported by contemporaneous documents issued by BIC : (a) the three letters of request dated 9 January, 1 March and 21 April 2004, (b) the three corresponding receipts; and (c) a cheque dated 5 March 2004 drawn in favour of WYD in the sum of HK$450,000 (“the Cheque”), which equalled the total amount for the first two loans.

171.  The three letters of requests were written on BIC’s letterhead and affixed with its company chop.  They were all signed by Mr Lee. They were all couched in similar terms, stating that BIC wished to borrow the sums for the specific purpose : “為了支付福島建設有限公司的近期職工的薪金以及雜費開支”; and that the loans would be repaid within the time as stipulated.  On the first letter dated 9 January 2004, Mr LM Huang wrote down “同意支付”.  Similarly on the third letter dated 21 April 2004, he wrote down “同意借款”.

172.  For each of the sums advanced, BIC issued a receipt.  The first receipt was dated 9 January 2004, which stated that the sum of HK$150,000 received was a loan for and on behalf of FBC.  The second receipt was dated 5 March 2004.  It also stated that the sum of HK$300,000 received was a loan for and on behalf of FBC.  The third receipt was dated 22 April 2004.  It described the sum of HK$50,000 as loan and referred to the third letter of request.

173.  Mr Lee gave the Cheque to Mr LM Huang on 1 March 2004, which was post dated to 5 March 2004.[17]  Mr LM Huang’s evidence, which I accept, is that Mr Lee gave him the Cheque on 1 March 2004 to procure the 2^nd loan of HK$300,000 and for the purpose of repaying the 1^st and 2^nd loan, totalling HK$450,000.  The Cheque was not cashed because Mr Lee later told him that BIC did not have sufficient funds in its account.

174.  To make good the dressing up defence, BIC, through Mr Lee, needs to discredit all the contemporaneous documentary evidence.  In his witness statement, Mr Lee first referred to how he reached the Oral Agreement and the Subsequent Oral Agreements with the responsible officers of the Wu Yi side.  He then said :

“26. As mentioned above, notwithstanding my repeated demands, [WYC] refused to provide operational expenses to FBC since September 2002. In around early 2004, I had 3 meetings with [Mr LM Huang], who was then a director of the Plaintiff and [WYC] and the Chairman of FBC, to demand [WYC] to pay the outstanding operational expenses of FBC in satisfaction of its obligations under the 4^th Agreement. To the best of my recollection, I attended [Mr LM Huang’s] office respectively on 9^th January 2004 (the ‘First Meeting’), 1^st March 2004 (the ‘Second Meeting’) and 21^st April 2004 (the ‘Third Meeting’), to demand [WYC] to make contributions to FBC.

27. At the First Meeting, I requested [Mr LM Huang] to arrange for [WYC] to contribute HK$150,000 to FBC as FBC was in need of funds to settle its employees’ salaries and other operational expenses. I told [Mr LM Huang] that since the Fujian Government had indicated to FBC their intention to resume the land owned by FBC in Ping Tan (平潭)(the ‘Proposed Land Resumption’), it would be in the interest of both parties to keep FBC alive. After all, as the majority shareholder of FBC, [WYC] would be entitled to receive 60% of any profit made by FBC under the Proposed Land Resumption.

28. However, [Mr LM Huang] told me that following the change of management in Fujian Construction, their head office in the PRC, the new management refused to grant permission to [WYC] to make further cash injections/contributions into FBC and therefore, he could not arrange for [WYC] to make contributions to FBC directly pursuant to the 4^th Agreement. In view that FBC might receive a significant amount of compensation from the Proposed Land Resumption, he agreed that it would be in the interest of the parties to keep FBC alive. I also believe that [Mr LM Huang] certainly had a direct personal interest in the matter in that if FBC is profitable, he would expect to be rewarded by his employer for his efforts (as [Mr LM Huang] was specifically designated by the Wu Yi Group to be responsible for FBC), at least in terms of promotional prospects if not significant monetary reward/bonuses. Furthermore, [Mr LM Huang] was more than an employee of the Wu Yi Group. He was in fact a government official (處級國家幹部) and had a duty to safeguard the image of the Wu Yi Group in Hong Kong (given that the Wu Yi Group is controlled by the Fujian Government).

29. [Mr LM Huang] proposed that instead of arranging for [WYC] to make contributions to FBC directly, which, according to [Mr LM Huang], would require prior approval from Fujian Construction, he proposed to arrange for the Plaintiff (on behalf of [WYC]) to pay HK$150,000 to FBC through the Defendant to enable FBC to settle its operational expenses and salaries. He further proposed that in order to enable him to make further arrangements, the payment should be dressed up as a loan from the Plaintiff, to avoid the need to notify and to obtain prior approval from Fujian Construction before effecting the payment, as such approval would not be forthcoming.

30. In that regard, he asked me to write a letter to the Plaintiff on behalf of the Defendant, specifying in the letter that the sum of HK$150,000 was a loan for use by FBC and that repayment would be made after the Chinese New Year. At the time, it was expected that FBC would receive compensation under the Proposed Land Resumption from the Fujian Government shortly after the Chinese New Year and the matter could be rectified shortly.

31. [Mr LM Huang] also requested a receipt to be issued by the Defendant, acknowledging the payment from the Plaintiff. To protect the Defendant’s position, however, he told me to specifically state on the receipt that the sum received from the Plaintiff was a loan on behalf of and for use by FBC.

32. According to [Mr LM Huang’s] request and instructions, I prepared the letter dated 9^th January 2004 and gave it to [Mr LM Huang] directly after our meeting. The letter states clearly that the loan was for the purpose of settling salaries and other operational expenses of FBC. Shortly afterwards, I received a cheque dated 9^th January 2004 in the sum of HK$150,000 issued by the Plaintiff to the Defendant …. As requested by [Mr LM Huang], I (on behalf of the Defendant) issued to the Plaintiff the receipt dated 9^th January 2004 … which states clearly that the sum of HK$150,000 is a loan for and on behalf of FBC.

33. When I demanded [Mr LM Huang] to arrange for [WYC] to make contributions to FBC at the Second and Third Meetings, [Mr LM Huang] again asked me to write/issue similar letters and receipts on behalf of the Defendant to the Plaintiff to enable him to make necessary arrangements for payment. I therefore prepared the letters dated 1^st March … and 21^st April 2004 … on behalf of the Defendant and gave each of the letters to [Mr LM Huang] respectively after the relevant meetings. The letters again state clearly that the loans were for the purpose of settling salaries and other operational expenses of FBC. Similarly, after receiving the cheques of HK$300,000 … and HK$50,000 … from the Plaintiff, I issued to the Plaintiff the receipts dated 5^th March 2004 … and 22^nd April 2004 …. The receipt dated 5^th March 2004 states clearly that the sum of HK$300,000 was a loan for and on behalf of FBC, whereas the receipt dated 22^nd April 2004 specifically refers to the letter from the Defendant dated 21^st April 2004, which as mentioned above, states that the loan was for the purpose of settling salaries and other operational expenses of FBC. I should mention that neither [Mr LM Huang] nor any other officers or directors of the Plaintiff has ever complained about the contents of these letters and the receipts.

34.    There is also no conceivable reason for the Defendant to ask the Plaintiff for loans in order to make payment of FBC’s expenses or otherwise.  As mentioned above, the Defendant, [BIA] and the companies in the Big Island Group have never been under any contractual obligations to finance the operational expenses of FBC. I would also like to specifically point out that neither the Plaintiff, [WYC] nor any companies in the Wu Yi Group have ever denied their obligations to provide the operational funds of FBC pursuant to the 1^st, 2^nd, 3^rd or 4^th Agreements prior to the commencement of this action.”

175.  As to the Cheque, Mr Lee said :

“49. During the Second Meeting on 1^st March 2004, I requested [WYC] to make further contributions to FBC. [Mr LM Huang] expressed his serious concern that the arrangements to finance FBC’s operational expenses were made without the approval of Fujian Construction. [Mr LM Huang] said that he could arrange for another sum of HK$300,000 to settle FBC’s operational expenses through the defendant but it would be easier for him to make internal arrangements if the Defendant could write a letter and receipt (similar to that issued by the Defendant on 9^th January 2004) specifying that the sum of HK$300,000 was for the use by FBC to settle its outstanding salaries and expenses and that it was a loan for and on behalf of FBC. He also asked me to arrange to issue a cheque of HK$450,000 to the Plaintiff so that he could at least show the Cheque to Fujian Construction in case their management discovered the arrangements and in order to avoid any trouble. From what I understand, it was Fujian Construction’s practice to send their representatives to Hong Kong every year to inspect the books and accounts of the companies in the Wu Yi Group in Hong Kong.

50.    [Mr LM Huang] further assured me that he was fully aware of [WYC’s] obligation to make contributions to FBC and so he promised me that the Plaintiff would not present the cheque for payment.  He also said that he would only show the cheque to Fujian Construction if necessary.  As FBC was desperately in need of money to settle outstanding employees’ salaries and other operational expenses at the time and I trusted that [Mr LM Huang] only needed the cheque for making internal arrangements, I arranged for the Defendant to issue the cheque of HK$450,000 to the Plaintiff on the same day after receiving the cheque of HK$300,000 from the Plaintiff.”

176.  Mr Lian said he had discussed the matter with Mr BH Chen, who told him that he had not made the Oral Agreement with Mr Lee.  Mr ZH Xu also denied that he had made any of the Subsequent Oral Agreements with Mr Lee.  Mr LM Huang denied that Fujian Construction had instructed the Wu Yi side not to inject funds to FBC or that he had asked Mr Lee to dress up the loans or issue the Cheque for show only.

177.  In my view, Mr Lee’s evidence does not stand up to a closer scrutiny for a number of reasons.

178.  First, it is BIC’s pleaded case that the Oral Agreement was made on or around 18 February 1991, that is, after the FBC Agreement had been signed (on 18 January 1991) and after FBC had been set up (in February 1991).  That is also the thrust of Mr Lee’s witness statement.  In para.10 of his witness statement, he said the Oral Agreement was made on or before 18 February 1991.  What he said, when being considered in context, is that the Oral Agreement was made after the FBC Agreement had been signed and after FBC has been set up.  He did not say that the Oral Agreement was made before the FBC Agreement was signed or FBC was set up.  But under cross-examination, he said he made the Oral Agreement with Mr BH Chen in late 1990, that is, before the FBC Agreement was signed and FBC was set up.  His evidence on when exactly the Oral Agreement came into existence is self-contradictory.  More importantly, Mr Lee went on to say that he and Mr BH Chen had defined the parties’ responsibilities very clearly.  If that were the case, the FBC Agreement should not have imposed on him, as general manager, various duties concerning financial matters of FBC : see clauses 12 and 13. His duties were not confined to managing the business and trading operation of FBC alone as alleged.  When this apparent inconsistency was pointed out to him, Mr Lee said the clauses were just copied from another joint venture agreement which the Wu Yi was involved in and that they were not carried out. I have no doubt he made it up as he went along.  And Mr Lee has pointedly failed to explain why the parties had failed to draft the FBC Agreement correctly, which is not difficult at all, and why they would and did sign the FBC Agreement when it did not reflect accurately the terms of duties that he and Mr BH Chen had clearly defined.

179.  Second, as to why Fujian Construction had instructed not to inject funds to FBC, Mr Lee alleged that the then chief officer of the Wu Yi side, Mr Yue Shengli, had formed a company called Poly-Wuyi (Hong Kong) Development Ltd (“Poly Wu-yi”), which he preferred over FBC.  Under cross-examination, Mr Lee accepted that Poly Wu-yi was in fact a company of the Wu Yi Group and that it was his belief rather than knowledge that Mr Yue preferred Poly Wu-yi over FBC.  His belief is of course entirely without basis.

180.  Third, the alleged instruction of Fujian Construction not to inject funds to FBC is flatly contradicted by the undisputable evidence showing that after September 2002, the Wu Yi side continued to make contributions to FBC.  Accordingly to the documentary evidence summarised by and referred to in paragraph 26 of Mr Lian’s witness statement, such contributions were mostly monthly payments deposited by the Wu Yi side in FBC’s account in the region of HK$110,000 between April 2003 and June 2005.  According to Mr LM Huang, and I accept, the payments were for repayment of FBC’s overdraft facility, which are well supported by customers’ advice issued by the banks and cheques.  Initially, Mr Lee challenged the authenticity of the supporting documents.  But he effectively abandoned the challenge under cross-examination and only alleged that he was not aware of the purpose of the payments.  This change of case is inevitable as his challenge is clearly doomed to fail.  Mr Lee also alleged that because FBC’s overdraft facility was guaranteed by the Wu Yi side, they made the payments in order to avoid the bank suing them.  Why the Wu Yi side made the payments is irrelevant.  What matters is that they did, which is a fact that Mr Lee could not possibly deny.

181.  Fourth, I can see no conceivable reason why Mr LM Huang would go all the way to defy the express instruction from Fujian Construction and to cause WYC to contribute FBC’s operation expenses.  Mr Lee said there were two reasons.  Mr LM Huang, Mr Lee alleged, had a direct personal interest in the matter because if FBC was profitable, he would be expected to be rewarded by his employer.  This is a most far‑fetching allegation.  Mr Lee then said Mr LM Huang was a governmental official and had a duty to safeguard image of the Wu Yi Group in Hong Kong.  If Mr LM Huang was in fact a governmental official, one would only reasonably expect him not to act contrary to the express instruction of Fujian Construction, a state-owned enterprise.

182.  Fifth, the whole purpose of dressing up the loans was to prevent Fujian Construction from finding out that the monies from WYD were advanced to fund FBC’s operations.  That very purpose was, however, defeated when the three letters of request specifically stated the purported loans were for paying FBC’s salary and miscellaneous expenses.  Under cross-examination, what Mr Lee could say was that it was Mr LM Huang who told him how to prepare the letters of request.  What he had not explained is why Mr LM Huang would do so when the purpose of the scheme would be readily exposed.

183.  Sixth, Mr Lee’s explanation about the Cheque is highly unsatisfactory.  If Mr LM Huang were really concerned about that Fujian Construction might find out the arrangement, he should have asked Mr Lee to issue a cheque covering all the loans, and not just the two of them.  Mr Lee said he trusted Mr LM Huang.  But it is his own case that as at March 2004, the loans owed WYD and WYC in HCA1957/2005 had been outstanding for years, and that he already knew that the Wu Yi side had without his consent withdrawn HK$29.6 million from FBC’s account in June 1998.  How could he have trusted Mr LM Huang in such circumstances?  Further, if Mr LM Huang had asked Mr Lee to issue the Cheque for the purpose of showing it to Fujian Construction, when necessary, in order to cover up, why would he on the same occasion ask Mr Lee to specify in the receipt for the second loan that the money was a loan for and on behalf of FBC, thereby indicating that the money would go to FBC?

184.  Seventh, the relevant bank payment vouchers and cheques of BIC showed that after receiving the first sum of HK$150,000 in January 2004, BIC had directly paid the November 2003 salaries and MPF contributions to FBC’s staff.  The documents suggest that the money received from WYD did go to BIC, who used it for FBC’s purpose.  They are consistent with what was stated on the 1^st letter of request and the 1^st receipt.  The money was a loan borrowed by BIC to pay FBC’s expenses.

185.  Eighth, BIC had issued debit notes to FBC for reimbursement of the expenses that BIC had paid for FBC with the moneys received from WYD.  They clearly showed that BIC had treated the moneys received from WYD as its own, thereby inferentially confirming that they were loans from WYD and not WYC’s contributions to FBC.  Mr Lee said the debit notes were prepared for BIC’s internal accounting purposes and were not issued to FBC.  He clearly made it up as he went along.  His evidence is also contradicted by Ms Li who said the debit notes had been issued to FBC.

186.  Ninth, Mr Lee sought to rely on a letter dated 22 January 2003 that he wrote as BIC’s director to Mr LM Huang as evidencing the Oral Agreement and the Subsequent Oral Agreements.  Mr LM Huang agreed that he had received the letter but denied the events set out there were true.  This letter was not contemporaneous.  It was clearly written at a time when the parties’ relationship had already showed signs of strains.  The version of the events set out by Mr Lee is self-serving.  I will attach no weight to it.  Mr Lee sought to rely on another letter dated 14 June 2005 written by him as BIC’s director.  He complained, among other things, that the Wu Yi side had not made any contributions to FBC after Mr Yue took over the management.  Mr LM Huang denied that he had received it.  In any event, he said the events set out there were untrue.  Again, this letter is not contemporaneous.  It is self-serving and I will not attach any weight to it.

187.  Tenth, Mr Lee said that WYD had never demanded repayment until 4 days after BIC commenced HCA1957/2005.  Mr LM Huang testified and I accept that he had made oral demands to Mr Lee in March and September 2005.  

188.  Eleventh, Mr Lee relied on his request for due diligence, which was raised by him in the two letters that he wrote and referred to above.  He repeatedly harped on it under cross-examination. I agree with Mr Ho’s submission that this point is but a red-herring.  Mr Lee raised it to confuse the real issue and evade liability.

189.  Twelfth, under cross-examination, when Mr Lee was asked why he gave the Cheque to WYD on 1 March 2004, he undermined his own case agreeing that WYD was then reluctant to lend any more money to BIC.  He only retracted after Mr Fung’s intervention and said “we did not need to borrow the money”.  At another stage of cross-examination, Mr Lee admitted that it was BIC who borrowed the loans albeit for the purpose of BIC.  He later resiled from the clear admission by saying that FBC would be responsible for repaying the loans.  His admissions and the subsequent attempts to salvage the position are most telling.  It unequivocally shows that in actual fact, BIC borrowed the loans from WYD for the purpose of paying FBC’s expenses.  Indeed, Ms Li also admitted at one stage of her cross-examination that the sums totalling HK$500,000 were borrowed by BIC from WYD for FBC’s expenses.

190.  For the above reasons, I have no doubt whatsoever that BIC made up the dressing up defence in order to evade liability.  The defence of waiver and estoppel fail as well.  I find that the three sums were in fact loans WYD lent to BIC.

C.4.       Orders

191.  I enter judgment for WYD against BIC in the sum of HK$500,000 with interest at the judgment rate from the date of writ until payment in full.

192.  Costs should also follow the event.  I make an order nisi that BIC do pay WYD the costs of the action including all costs reserved, with a certificate for two counsel, to be taxed if not agreed. The order nisi will be made absolute after 14 days of the handing down of this judgment.

D. HCA886/2007

D.1. Overview

193.  BIC claimed against WYE for the repayment of a loan of HK$210,000.  The loan was lent to WYE on or around 11 October 2000 at the request of Mr ZH Xu pursuant to an oral loan agreement that repayment would be made within two weeks.  Mr ZH Xu requested the loan so that WYE could lend it to a friend of his, Mr Huang Zhi Yin (“ZY Huang”).

194.  WYE alleged that ZY Huang was in fact a friend of Mr Lee.  The said sum of HK$210,000 was a payment by BIC to WYE pursuant to a fund transfer agreement, in return of an equivalent sum of RMB paid to ZY Huang by the Wu Yi side in the Mainland.

195.  BIC denied that ZY Huang was a friend of Mr Lee. Mr Lee said he did not know him and only first heard of his name from Mr ZH Xu.

D.2. The main issue

196.  The main issue is : was the sum of HK$210,000 a loan to WYE or a payment to WYE pursuant to the fund transfer agreement.

D.3. Discussion

197.  In his witness statement, Mr Lee said :

“7. On or around 11^th October 2000, I received a telephone call from [ZH Xu], who asked me to write down the name of an individual called [ZY Huang] and the details of a Chinese Merchants Bank card (招商銀行一卡通), card number 0010-01744-886. [ZH Xu] explained to me that [ZY Huang] was his friend in the People’s Republic of China and that [ZY Huang] was encountering cash flow problems. He asked me if I could urgently assist by lending [ZY Huang] a personal loan of RMB231,000.00.”

198.  In his witness statement, Mr ML Xu said :

「2. 大約在2000 年10 月份的某一天，原告人國民建設(香港)有限公司的李平先生(即是現名為李信先生)來找本人，李先生要求被告人幫忙在國內匯款人民幣20 多萬元款項給李先生的朋友王致殷先生，李先生在香港給港幣予被告人。隨後本人帶李先生去找被告人董事副總經理林宝順先生。我們三人商議在國內按當時港幣與人民匯率 1 :1.1計算，談妥後，李先生就將210,000 元港幣的支票及寫有他朋友(即王致殷先生)的姓名，銀行卡號的字條交給了林宝順先生。當天，林宝順先生就通知被告人在國內的客戶辦理匯款事宜。」

199.  Mr BS Lin’s evidence is similar.  He said :

「5. 大約在2000 年10 月11 日下午 ，被告人的原董事許敏洛先生(已經於2002 年7 月辭去董事之職位)(“許先生”)帶國民建設(即原告人)的李平先生(即是現名為李信先生)到我辦公室。李先生說，他在中國的朋友王致殷(“王先生”)急需要款項，由於將港幣匯入國內需要辦理結匯，手續較為繁瑣及費時間，所以要求被告人幫他匯給王致殷一筆人民幣20 多萬元的款項。

6. 李先生將一張已寫上王先生的姓名及王先生在中國招商銀行的銀行戶口號碼 0010-01744-886的文件交給我(這些文字是寫在印有“FBC Construction Company Ltd”及“福島建設有限公司”的信頭的文件上)，希望能盡快辦理，整個過程有許先生在場……」

200.  Mr Lee’s evidence is contradicted by the official receipt issued by WYE on 11 October 2000, which stated that the sum of HK$210,000 was “往來款”, not a loan.  Mr Lee said he was aware of the receipt at the time but did not pay attention to it and did not even look at it.  It is unbelievable as the receipt is the only piece of documentary proof coming from WYE confirming the purported loan.  Common sense suggested that Mr Lee must have looked at it and would have raised objection to it if it did not accurately state the nature of the sum received by WYE.

201.  Mr Lee’s evidence does not sit well with his own manuscript.  Mr Lee said Mr ZH Xu asked him to write down the particulars of ZY Huang on the paper.  However, any reasonable man, in Mr Lee’s position, must have first asked Mr ZH Xu for the purpose before writing down those particulars, especially when ZY Huang was on his case a complete stranger.  Once Mr ZH Xu told Mr Lee that they were for a personal loan to be made to ZY Huang, and Mr Lee said he was not going to do it, Mr Lee would have no need to write down the particulars.  Further, Mr ZH Xu could pass the particulars to Mr BS Lin for further handling without involving Mr Lee at all.  I think the version proffered by Mr ML Xu and Mr BS Lin as to how the manuscript came about makes more sense.  The only reasonable explanation as to why the ZY Huang’s particulars were written by Mr Lee is that he was his friend and that it was Mr Lee who asked Mr ML Xu for a favour.  And I so find.

D.4. Orders

202.  I dismiss BIC’s claim.  There will be an order nisi, to be made absolute within the next 14 days, that BIC do pay WYE costs of the action including all costs reserved, with a certificate for two counsel, to be taxed if not agreed.

E. HCA1364/2008

E.1. Overview

203.  In about 1990s, FBC invested in a real estate joint venture project in Kunming, Yunnan Province.  Dispute between FBC and the joint venture partner subsequently arose.  In the ensuing arbitration proceedings, FBC was awarded RMB2,921,872.85.  Upon default of payment, FBC applied to the Intermediate People’s Court of the City of Kunming for enforcement.  On 6 January 2003, the joint venture partners paid into the Kunming Court a sum of RMB2,800,000 as full and final settlement of the enforcement proceedings.  

204.  In the statement of claim, FBC pleaded that Mr Lee had collected the said sum of RMB2,800,000 purportedly for and on behalf of FBC on or about 10 January 2003.  He paid RMB150,000 towards legal and other miscellaneous expenses.  However, he had in breach of his fiduciary duties failed to account for the balance of RMB2,650,000, and misappropriated the same.

205.  FBC gave further voluntary particulars of paragraph 14 of the statement of claim, which dealt with Mr Lee’s breach of duties.  It pleaded that the FBC had an account with China Construction Bank (“the Bank”) in Kunming (“the Account”).  At all material times, two seals were required to stamp on bank documents for monies to be withdrawn from the Account : FBC’s special seal for finance use (“財務專用章”) (“the Finance Seal”) and Mr Lee’s person seal bearing his former name “李平”[18] (“the Lee Seal”) Mr Wei and Mr Lee held the Finance Seal and the Lee Seal respectively.  On or about 13 November 2002, Mr Lee changed the bank mandate of the Account by replacing the Finance Seal with a forged seal and the Lee Seal a new seal in his current name of “李信” (“the New Lee Seal”).  He had since then assumed absolute control of the Account.  He then collected the said sum of RMB2,800,000 purportedly on behalf of FBC on 10 January 2003 without FBC’s knowledge or consent.  On or about 13 January 2003, he misappropriated the balance of RMB2,650,000 by depositing the same into the Account which was in his absolute control without FBC’s knowledge or consent.  On or about 14 January 2003, he further misappropriated a sum of RMB2,400,000 from FBC by transferring or causing it to be transferred from the Account to a company called “深圳市君仲飛實業有限公司” (“the Shenzhen Company”) with which FBC had no dealings, without FBC’s knowledge or consent.  On or about 30 June 2003, he further misappropriated RMB500,000 from FBC by transferring or causing it to be transferred from the Account to the Shenzhen Company without FBC’s knowledge or consent.  FBC’s claims however remained the same : Mr Lee had failed to account the said sum of RMB2,650,000 and misappropriated the same.

206.  In his closing submissions, Mr Ho purported to clarify FBC’s pleaded case.  He submitted that FBC’s case is not limited by the amount of RMB2,650,000.  The payment of RMB2,650,000 into the Account formed part of the factual matrix leading to the misappropriation of funds by Mr Lee. Essentially all monies in the Account belonged to FBC.  If Mr Lee secretly seized control of the Account and caused the sums of RMB2,400,000 and RMB500,000 to be transferred out, that was a misappropriation of such sums in breach of his fiduciary duties as director.

207.  How FBC had pleaded its case is far from satisfactory.  But I do not think Mr Lee has suffered any real prejudice.  He fully understands the case that he has to meet.  Mr Fung has made no submission to the contrary.

208.  In his defence, Mr Lee pleaded that in early January 2003, FBC’s lawyer in the arbitration proceedings told him that the Kunming Court had received RMB2,800,000 from the joint venture partners.  On or about 10 January 2003, Mr Lee went to Kunming.  On the following day, he met with the lawyer who requested FBC to settle his legal fees of RMB150,000.  The lawyer suggested he could arrange two cheques to be issued by the Kunming Court.  Mr Lee agreed.  The Kunming Court later issued a cheque of RMB2,650,000 in favour of FBC.  On or about 12 January 2003, upon Mr Lee’s instruction, FBC’s driver, Mr Meng collected the cheque of RMB2,650,000 from the lawyer and deposited the same in the Account.  Mr Lee also instructed Mr Meng to despatch the original paying-in slip to the headquarters of WYC in Fuzhou, marked for the attention of Accounts Department of the Wu Yi Group.  On or about 13 January 2003, Mr Lee called Mr LM Huang, then a director of WYC, informing him of the deposit and payment of the sum of RMB2,650,000 into the Account.

209.  Mr Lee further denied that he had changed the bank mandate of the Account as alleged.  He pleaded that at all material times, both the Finance Seal and the Lee Seal were held by the representative of WYC.  In early November 2002, Mr Lee was staying at the Green Lake Hotel in Kunming, whilst attending a meeting with FBC’s lawyer.  Two officers from the Wu Yi head office in Fuzhou located him and told him the Finance Seal and the Lee Seal needed to be changed and the Bank required a local contact person in Kunming.  Since there were no longer any officers of the Wu Yi Group in Kunming, Mr Lee proposed that Mr Meng be nominated on the bank mandate form (“the Form”), which he completed and handed to the WYC officer called “小林”.  The two officers then left.  At no time did Mr Lee have possession, custody or control of any of the Seals.  Finally, Mr Lee denied that he had misappropriated the said sum of RMB2,400,000 or RMB500,000 from the Account as alleged.

E.2. The main issues

210.  The main issues are :

(1) whether Mr Lee had wrongfully changed the bank mandate of the Account on 13 November 2002 as alleged; and

(2) whether he had misappropriated the said sums of RMB2,400,000 and RMB500,000 as alleged.

E.3. Summary of the evidence

211.  Mr Wei was the accounting officer of FBC in Kunming between 1995 and January 2002.  Thereafter he was transferred to Fuzhou.  Since then he worked on as FBC’s accountant on a part time basis until 31 July 2002.  After Mr Wei’s departure, Mr EH Lin took over as FBC’s accountant in Fuzhou since August 2002.  Mr EH Lin said since 1 January 2003, he had not received any business receipts/vouchers (“業務單據”) relating to FBC.  So he had not made any accounting record for FBC since then.

212.  It is not in dispute that the Finance Seal and the Lee Seal were required to operate the Account.  The Finance Seal was a square seal bearing the words “福島建設有限公司財務專用章”.  The Lee Seal was also a square seal bearing “李平” before the change to “李信” in November 2002.

213.  Mr Wei said when he first started to work for FBC in 1995, the two Seals were already there.  He kept the Finance Seal whereas Mr Lee kept the Lee Seal.  He explained the reason for the arrangement in his witness statement :

「3. 這個安排的目的是互相監察，所有支出都須要雙方(即武夷建築及國民亞洲有限公司(前名大島集團有限公司)(“國民亞洲”))共同批准，分別由雙方各自拿出自己保管的章來蓋才可以動用福島公司在該賬戶的錢。由於被告人經常不在昆明，被告人通常把以他的名字“李平”為名的私章交給他的司機孟強保管，有需要時孟強會拿私章來福島公司，與我手上的財務專用章共同使用。我從來沒有保管過被告人的私章。

4. 如果福島公司須要從銀行提取金錢或者要開支票，我須要通知被告人或他的司機孟強，要求他們把被告人的私章拿出來，我才可用我手上的財務專用章，加上被告人的私章，蓋在有關的支票或其[他]財務文件上，這樣才可以動用該賬戶的錢。我一個人肯定不能動用該賬戶的錢。

5. 被告人是福島公司的董事總經理，我所有財務方面的事情都要向他匯報，要他批准才可以支付費用。對於每月經常性開支，他會通常委托孟強處理，授權孟強把他的私章拿來蓋在有關文件上。對於非經常性開支，我須要特別請被告人批准。

6. 在2002 年初，由於昆明已經沒有太多工作，所以我被武夷建築調回廈門工作。在2002 年6 月28 日，我收到被告人代表福島公司發給我一封信，要在2002 年7 月31 日起把我在福島公司的職務終止。我覺得很愕然，就此我向被告人發了一封日期為2002 年6月29 日的信，表明“你予2002 年6 月28 日簽署的要求我停止工作的傳真文件我以收到”，“如今驟生此變，我很不解”，但也接受他停止我的職務的安排。我並指出，回想八年來，大概只有兩件事被告人和我的意見不相合，其一是將來昆明及平潭資金收回後的調度使用問題。我現將該兩封信的真確副本展示在證物“WR-1”.

7. 大約於2002 年8 月份，我安排把福島公司的財務專用章，移交到武夷建築轉交中國武夷。被告以《李平》為名的私章並沒有被移交到武夷建築或中國武夷。

8. 此後我就要沒有參與福島公司的業務。」

214.  Mr EH Lin said after he took over as FBC’s accountant, he kept the Finance Seal.  Mr Lee continued to keep the Lee Seal.

215.  Mr Lee said that since the incorporation of FBC, he had agreed with Mr BH Chen that WY Eng would be responsible for managing the internal administration, finance and accounts of FBC and for providing operational funds to FBC and he would exercise his expertise in the industry to solicit business and clients for FBC and be responsible for managing the business and trading operation of FBC.  The Account was all along within the sole control of the Wu Yi Group through the possession of both the Finance Seal and the Lee Seal.  He said as he was only sporadically in Kunming and the financial officer appointed by the Wu Yi Group, that is Mr Wei, was permanently stationed in Kunming, and the Account would need to be utilized from time to time, the Wu Yi Group, through Mr Wei who kept control of both the Finance Seal and the Lee Seal to draw money from the Account.  He denied the joint monitoring of FBC’s expenditures as alleged by Mr Wei.

216.  Mr Lee said he only became aware of Mr Wei’s departure in mid-2002.  He then wrote in his capacity as general manager of FBC a letter dated 28 June 2002 to Mr Wei, asking him to hand over his finance work to Mr Chen Yong, FBC’s deputy manager.  On 1 August 2002, Mr Lee wrote to WYC and the Accounting Department of China Wu Yi, requesting time to complete the transfer as soon as possible documents including documents of FBC’s Account and “財務印章”.  He said “財務印章” referred to both the Finance Seal and the Lee Seal.

217.  Mr Lee dealt with the change of bank mandate in his witness statement thus :

“46. After my request for transfer of documents on 1^st August 2002, Mr Zhao Chaoqing (趙朝清) (‘Zhao’), chief financial officer of the Wu Yi Group’s headquarters in Fuzhou and a Mr Lin (小林) (‘Lin’) visited me in my office in Hong Kong. Zhao introduced Lin to me and told me that Lin would take over Wei’s work and be in charge of the finance and accounts of the Plaintiff in Kunming.

47. In early November 2002, I was staying at the Green Lake Hotel (翠湖賓館) in Kunming, whilst attending a meeting with Liu. Lin called me and told me that the seals (or chops) in my name and the name of the Plaintiff in respect of the Account needed to be changed and that the Bank required a local contact person in Kunming. As I was in Kunming at the time, I asked him to visit me direct.

48. As a result, Lin and another officer from the Wu Yi Group’s headquarters in Fuzhou visited me.  Lin explained to me that in order to complete the procedures for changing the seals (or chops) in my name and the name of the Plaintiff in respect of the Account, the Bank required them to nominate a local contact person who was permanently stationed in Kunming.  As there were no longer any officers of the Wu Yi Group in Kunming after the transfer of Wei and the Plaintiff needed the Account for recovering and receiving the outstanding balance of the Award, and upon obtaining the consent of Meng who was also present at the meeting, I proposed that Meng be nominated as the local contact person on the bank mandate form, which I completed and handed to Mr Lin (小林) of the Wu Yi Group.  After the officers of the Wu Yi Group completed the procedures for the change of the seals (or chops), they went back to Fuzhou together with all the financial chops.  At no time whatsoever did I have possession, custody or control of the said seals (or chops).”

218.  Mr EH Lin said he was the only officer responsible for FBC’s accounting work after taking it over from Mr Wei. He had no nick name called “小林”.  He was not in Hong Kong between August and November 2002.  So he had not seen Mr Lee during that period.  He said within the Accounting Department of China Wu Yi, two other officers, one male and another female, were also surnamed Lin.  But they had no nick name “小林”.  They were not involved in FBC’s accounting work.  Mr EH Lin further said that he did not go to Kunming in November 2002.  He did not give the Form to Mr Lee.  The two other officers surnamed Lin did not go to Kunming either as they were not responsible for FBC’s account.  He only saw Mr Lee in Hong Kong in around February or March 2003 when he came to Hong Kong to perform internal audit.  They chatted for a few minutes at WYC’s office.  That was the only occasion that he saw Mr Lee.  In his witness statement, Mr EH Lin said :

「2. 在2002 年8 月份，我受武夷建築和中國武夷委派，從魏然那[裡]接手處理福島公司的財務會計工作，並沒有其他人從魏然處接手處理福島公司的財務會計工作，我是唯一一名處理福島公司財務會計工作的職員。我沒有任何別名叫“小林”，大部份同事叫我的名字“恩惠”。我並沒有在2002 年8 月至11 月間到過香港，所以更從沒有在2002 年8 月至11 月間在香港見過李平。在中國武夷負責財務的，當時有另外兩個人都姓林，一男一女，他們也都沒有任何別名叫“小林”，他們也不負責福島公司的財務會計工作，所以他們也沒有可能在2002 年前往香港會見李平。我相信趙朝清並沒有如李平所說，在2002 年8 月1 日後，帶一位小林去香港見李平，並介紹說小林會從魏然那[裡]把財務工作接過來。因為我是武夷建築和中國武夷委派的唯一一名職員，從魏然那[裡]接手處理福島公司的財務會計工作，所以我相信李平所說的小林這人根本就不存在。

3. 2002 年8 月底，我曾經到昆明，處理福島公司財務上的事情。這是我唯一一次到昆明處理福島公司財務上的事情。據我記憶，當時孟強在昆明接待我(未見到李平)，我負責把福島公司的財務專用章蓋在一張金額為人民幣十萬元支付給劉胡樂律師的支票上，當時我還把財務專用章蓋在另外一張現金支票上，支票金額為人民幣貳萬叁仟貳佰伍拾元，用以支付孟強、陳漢的工資。李平的私章是李平一方管，由李平一方把李平的私章蓋在該兩張支票上。除了這兩張支票外，在2002 年9 月份，我曾把財務專用章蓋在另外一張金額為捌仟多元的現金支票上，用以支付辦公費用等，這是我最后一次將我所保管的財務專用章蓋在支票上。從這之后，我再也沒有把我所保管的財務專用章蓋在任何支票或其他銀行匯款單据上。

4. 我並沒有於2002 年11 月前往昆明，更沒有把任何申請更改銀行印鑑的申請交給李平填寫，或與李平進行任何對話。在中國武夷負責財務的，當時有另外兩個人都姓林，一男一女，他們都沒有任何別名叫“小林”，他們也不負責福島公司財務會計工作的事情，所以他們也沒有可能在2002 年11 月前往昆明去與李平進行任何接觸或將任何申請更改銀行印鑒的申請書交給李平填寫。

5. 在2003 年2、3 月期間，我把福島公司少量的2002 年度財務會計憑證移交給香港。

6. 我所做的財務工作就是上述這些。由於我接手福島公司財務會計工作的時候，福島公司已經沒有什麼業務活動，所以沒有太多的財務會計工作要做。且從2003 年1 月1 日起，我就再也沒有收到與福島公司有關的業務單据，所以也就開始沒有記帳。

7. 在2003 年2、3 月期間，我到香港作內部審計，在武夷建築辦公室與武夷建築的其他同事工作時，李平剛巧出現，我的同事就把李平介紹給我，這是我跟他第一次碰面，我們只是閒聊了幾分鐘，之後他便離去。

8.    此後我就再沒有參與福島公司的事務。我根本不知道福島公司銀行印鑒被更改的事情，也不知道李平什麼時候從昆明項目收取人民幣2,650,000 元並將其放進福島公司的戶口，更不知道該筆款是什麼時候用什麼方式被轉走的。因為當時我主要負責記賬、保管及有需要時使用財務專用章，其他財務事情全部由李平那方管，李平的私章也由李平一方保管。」

219.  Mr Lee could not identify Mr EH Lin as “小林” in court.

220.  Mr Lee said he instructed Mr Meng to send the original of the paying-in slip for the deposit of RMB2,650,000 to the Wu Yi Group’s headquarters in Fuzhou, marked for the attention of the Accounts Department of the Wu Yi Group.  On or about 13 January 2003, he also called Mr LM Huang, who was then FBC’s chairman and a director of WYD, telling him about the deposit and the payment of the said sum into the Account.

221.  Mr LM Huang denied that Mr Lee had ever called him and told him about the payment.

222.  The alleged wrongful transfer of RMB2,400,000 from the Account to the Shenzhen Company took place on 14 January 2003. It is not disputed that Mr Lee was in Shenzhen on the very same day.  He said he left Kunming for Shenzhen on that day because he travelled to Shenzhen for the purpose of transit to Hong Kong.  That was necessary because there were many more passenger flights between Shenzhen and Kunming than between Hong Kong and Kunming at that time.  It was therefore more convenient for him to travel between Hong Kong and Kunming via Shenzhen, just as many other Hong Kong-based businessmen did.  He said he had no knowledge of the Shenzhen Company and the transfers of RMB2,400,000 and RMB500,000 in January and July 2003.

E.4. Whether FBC has discharged its burden of proof

223.  The burden rests squarely on FBC to prove that Mr Lee had changed the bank mandate of the Account as alleged. However, FBC has not adduced any direct evidence to prove that the “財務專用章” affixed on the Form and the two “借方憑證” for the two transfers to the Shenzhen Company is forged.  It has called no expert in support.  In fact, FBC has not even applied for leave to adduce any expert evidence.  They only sought to rely on a “鑒定文書” dated 25 December 2006 prepared by “昆明市公安局” (“the Report”), without even calling the officer who carried out the examination and prepared the Report.  Absent leave, the Report is not admissible as expert evidence.  In any event, no weight whatsoever can be attached to the Report.  The Report purported to compare the original of two cheques and one “借方憑證”, which are not the subject matters of this action, and the two “借方憑證” of the two wrongful transfers to the Shenzhen Company and a document which bore the nine impressions of the Finance Seal.  (The photocopies of these documents were extremely blurred.)  There is a lack of evidence on the provenance of the reference sample which was submitted to the Kunming Public Security Bureau in December 2006, some 4 years after the alleged change of mandate.  The reference sample was not even the Finance Seal but merely a piece of paper bearing the nine impressions.  The report gave no details whatsoever of the testing methodology, the analysis and the reasoning in support of the conclusion that the seal applied to the documents under examination was different from the Finance Seal.  The responsible office is not called to be tested by cross-examination.

224.  Mr Ho submitted that, as common ground, the change of bank mandate of the Account involved changing both the Finance Seal and the Lee Seal.  Mr Lee admitted that he was the one who completed the Form and it is his handwriting that appears on the face of it.  Prima facie the change of the bank mandate does not show any involvement of any persons from the Wu Yi side.  Given the circumstances as outlined, if Mr Lee’s explanation as to how the bank mandate was changed is found to be incredible, the irresistible inference is that he must have changed the bank mandate without FBC’s knowledge and thereafter controlled the Account.  For reasons to be given below, I agree that Mr Lee’s explanation as to how the bank mandate was changed is incredible.  However, I think the burden still remains with FCB to prove with cogent evidence its pleaded case that Mr Lee had wrongfully assumed the control of the Account by changing the bank mandate by forging the Finance Seal and replacing the Lee Seal with the New Lee Seal in November 2002.  FBC cannot discharge the burden by simply asking the court to draw the inference that he had done so after rejecting his version of the events.  FBC must discharge the burden of proving the primary facts which enable the court to draw such inference.  I say so because in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387, Ribeiro PJ said at paras.184 to 187 that when weighing up and assessing the probabilities in relation to the evidence adduced by a party raising fraud, the court must bear in mind the seriousness of the misconduct alleged, recognizing that it carries an inherent degree of improbability.  Where the court is invited to reach a conclusion of forgery as an inference to be drawn on the basis of circumstantial evidence, any such inference must be properly grounded in the primary facts found.  The court guards against indulgence in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question.

225.  I now examine the evidence more closely to see if the primary facts are capable of supporting the inference that Mr Lee had wrongfully assumed the control of the Account in November as alleged.

226.  I accept Mr Wei’s evidence and find that at all material times before August 2002, he kept the Finance Seal only.  He did not keep the Lee Seal at the same time as alleged by Mr Lee.  The Lee Seal was kept by Mr Lee or Mr Meng for Mr Lee.  The notion that the Seals were kept separately is consistent with the purpose of joint monitoring which Mr Wei had testified to.  The notion of joint monitoring is in turn consistent with Clause 13 of the FBC Agreement : “……公司日常開支支票及銀行其他印鑑，由陳彬華、黃文聰之其中一人與李平雙簽方能有效……”.

227.  I accept the evidence of Mr Wei and Mr EH Lin and find that Mr Wei handed the Finance Seal to Mr EH Lin for safekeeping when he returned to Fuzhou in August 2002. The Lee Seal was still kept by Mr Meng.  This finding is supported by Mr EH Lin’s evidence, which I accept, that at the end of August 2002, he went to Kunming and stamped the Finance Seal on two cheques for RMB100,000 and RMB23,250 while Mr Meng affixed the Lee Seal on them.

228.  Mr Lian exhibited in his first witness statement a receipt signed by Mr EH Lin had signed a receipt in Chinese dated 26 August 2002 to confirm that he had received “財務專用章壹枚” from Mr Wei. Both Mr Wei and Mr EH Lin did not deal with the receipt in their witness statements.  Under cross-examination, they testified to its authenticity.  I recognise some force in Mr Fung’s submission that they should have dealt with the receipt in their witness statements if it is a genuine document.  However, I find Mr Ho’s submission more convincing.  He submitted that they needed not resort to fabricating the receipt at all when all the surrounding circumstances supported their version objectively.  I find that the receipt is genuine, which confirm what is already the obvious : the Finance Seal and the Lee Seals were kept separately.

229.  It is common ground that the bank mandate was changed on 13 November 2002 and the change involved the change of both the Finance Seal and the Lee Seal.  So although the “財務專用章” that appeared on the Form looked similar to the Finance Seal, they were two different seals.  It must follow, and I so find, that, although the “財務專用章” applied to the two “借方憑證” for the two transfers to the Shenzhen Company looked similar, they were in fact different seals.

230.  Mr Lee’s explanation as to the change of the bank mandate is incredible.  His reference to a “小林” smacks of fabrication, which is wholly contradicted by Mr EH Lin’s evidence. I reject his version without hesitation.

231.  That said, it does not necessarily follow that FBC had discharged the burden of proving that the bank mandate was changed without their knowledge.  It is plain that the Form is not the only document required for changing the bank mandate.  According to the email issued by the Bank dated 25 December 2008,[19] more documents are required for changing the Lee Seal to the New Lee Seal :

「因法定代表人或单位负责人变更等原因需变更个人名章的，应向开戶行提交《中国建设银行人民币单位银行结算账戶预留印鉴变更申请书》、营业执照(变更法定代表人等的应提供变更后的营业执照)、开戶许可证等相关证明文件和印鉴卡(客戶留存联)。变更预留印鉴中的授权代理人签章的，可不提供营业执照，但必须提供法定代表人出具的撤销原授权并对新的代理人授权的授权文件。建议请您向单位开戶行咨询办理细则.」

The underlying documents will certainly shed more light on the circumstances surrounding the change of the bank mandate.  FBC should be able to procure the Bank to produce the relevant documents but inexplicably, it has not.  I will draw the adverse inference against FBC that had the documents been produced, they might cast some doubt on their case.

232.  There are two more doubts in FBC’s case, which are more fundamental.

233.  Changing the Lee Seal to the New Lee Seal as part of the fraudulent scheme does not make sense.  Mr Lee changed his name on 9 October 2000.  This is a fact known to the Wu Yi side.  Changing the old seal to the new seal bearing his new name, would completely expose his identity and involvement in effecting the change of the bank mandate. 

234.  Further, the whole idea of changing the bank mandate in order to assume control of the Account is otiose.  After August 2002, the Wu Yi side no longer had any officer in Kunming.  There was not much banking activity in the Account either.  The easiest way for Mr Lee to assume control of the Account is to forge the Finance Seal and then used it together with the Lee Seal to operate it.  There would be no need for him to take the drastic step of effecting a change in the bank mandate in order to make the fraudulent transfers, leaving documentary traces and risking his forgery being discovered.

235.  FBC relied on three sets of minutes.  The first set concerns the shareholders’ meeting held on 10 December 2004 in which it was stated that “关於……昆明项目，2005年2月28日前，仍由李信先生负责，并及时向董事会通报进展情况。”.  Mr Lee said the minutes were inaccurate because the date of 28 February 2005 was not mentioned.  Otherwise the minutes were accurate.  In other words, he accepted that the Project had been mentioned during the meeting.  He however said that the issue of the recovery of RMB2,650,000 was not mentioned.  As rightly submitted by Mr Ho, the recovery of the sum would effectively mark the end of the Project.  Mr Lee should have told the meeting that the sum had already been recovered and deposited into the Account.  It also cast doubt on his allegation that he had informed Mr LM Huang that the sum of RMB2,650,000 had been deposited into the Account or Mr Meng had dispatched the paying-in slip.  For if his allegation were true, he must have so informed the meeting.  I find that Mr Lee had not informed Mr LM Huang or had asked Mr Meng to dispatch the paying-in slip.

236.  FBC next relied on the minutes of another shareholders’ meeting on 12 August 2005.  It was stated in paragraph 4 : “公司停业後，遗留的昆明……项目款项的追讨，委托李信先生负责处理，收回款项直接汇入福岛公司在中国银行(香港)所设帐户，到戶后，按收回金额的30%作为李信先生的奖励金及费用。”.  Again Mr Lee disputed the accuracy of the minutes by saying that paragraph 4 was not discussed.  When he received the minutes, he wrote down “收到” on the top to register his disagreement. I find Mr Lee’s evidence incredible and reject it.  The minutes show that FBC were still unaware of the recovery of the said sum of RMB2,650,000 at the time.

237.  FBC relied on yet another set of minutes of the board meeting held on 10 March 2006.  Mr Lee was recorded to have reported to the meeting that the sum of RMB2.6 million odd had been collected and deposited in FBC’s account it the Mainland.

238.  The three sets of minutes show that FBC were unaware of the recovery and deposit of the said sum of RMB2,650,000 into the Account until 10 March 2006 when Mr Lee disclosed the same.  It is rather suspicious for him to conceal the fact until then.  But that alone is insufficient to enable me to draw the irresistible inference in the overall context of the evidence before me that he had wrongfully perpetuated the fraud over the Account as pleaded.

239.  Finally, there is simply no evidence to show that Mr Lee had misappropriated the said sum of RMB2,400,000 or RMB500,000 as alleged.  The mere fact that he was in Shenzhen when the said sum of RMB2,400,000 was transferred to the Shenzhen Company is not sufficient for me to draw the inference that he had misappropriated it.

240.  In my view, both sides have not told the court the whole truth about what had really happened.  Both versions of the events are rejected.  FBC has accordingly failed to discharge the burden of proving its claim.

E.5. Orders

241.  For the above reasons, FBC’s claim is dismissed.  There will be an order nisi that FBC do pay Mr Lee the costs of the action including all costs reserved, with a certificate for two counsel, to be taxed if not agreed.  The order nisi is to be made absolute within the next 14 days.

Annex 1

Table showing the date of the relevant fund exchange agreements, date of delivery of cashier orders, unit in the PRC by which cashier orders were drawn, date of cheque issued by BIC to WYD and WYC and the amount of such cheques

*   The aggregate sum of RMB11,300,000 (5,000,000+6,300,000) was split into two sums of RMB8,500,000 and RMB2,800,000 respectively.  The sum of RMB8,500,000 was the exchange amount under the FEA dated 20/10/00.  The balance in the sum of RMB2,800,000 was not the exchange amount under the FEA dated 20/10/00, but a corresponding amount in HK dollar as remitted directly to WYE.

* This amount was remitted by Fuzhou Min Gang to one南安市官橋神珠建材經銷部and was then split into two corresponding sums in Hong Kong dollars.  Of these, a sum of HK$870,000 was remitted directly into BIC’s amount in Hong Kong on or about 12/4/01, whilst the balance in the sum of HK$635,000 was remitted to the bank account of the WYD’s associate company in Hong Kong, Fu Yin Financial Investment Co Ltd on or about 12/4/01.

Annex 2

Particulars of the Cash Injections into BIC’s Accounts

Annex 3

Table of Receipts from WYD & WYC

WYD

WYC

Annex 4

FUND EXCHANGE AGREEMENTS

Note : Items 10-13, 15-19 are, on WYD and WYC’s case, the 9 FEAs under which the alleged fund exchanges with BIC were made.