LAM WAI TUNG v. LEE SHING AND OTHERS

HCA 1610/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1610 OF 2006

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J U D G M E N T

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1.  This action is about forged signatures.  The plaintiff and the 3^rd defendant were the shareholders of a company called Asia Well Industrial Limited or 康亞實業有限公司.  The company upon incorporation on 5  December 1986 was called Creation Shell Limited (“Creation Shell”) or 雲廸有限公司.  It changed to its present name on 7 January 1993.  For clarity, I will call it Creation Shell.  Its only assets are the development rights of a piece of land measuring some 36,968 square metres and situated in Fangmapu, Guanlan Town, Boan District, Shenzhen (“the Land”). 

2.  Creation Shell has issued and allotted 100,000 shares.  The plaintiff used to own 60,000 shares.  He was also one of the two directors and the secretary.  The 3rd defendant is the plaintiff’s younger brother.  He was the owner of the remaining 40,000 shares and its other director. 

3.  The plaintiff’s 60,000 shares were purportedly transferred to the 1st defendant on 30 September 2002.  He also purportedly resigned from the offices of director and secretary on 18 June 2002.  The 3rd defendant’s 40,000 shares were transferred to the 2nd defendant also on 30 September 2002.  He also resigned from his directorship on 18 June 2002. 

4.  The 1st and 2nd defendants are husband and wife.  They were purportedly appointed the directors of the company and the 2nd defendant was purportedly appointed the secretary on 18 June 2002.

5.  The plaintiff now denies that he had transferred his shares to the 1st defendant or had resigned from the offices of director and secretary.  He says that the signatures purportedly made by him on the documents that effected the transfer of his 60,000 shares, his resignation from the offices and the appointments of the 1st and 2nd defendants as director and secretary were all forged.  He claims that he is still the owner of the 60,000 shares of Creation Shell and its director and secretary.  He also claims that the 1st and 2nd defendants have not been appointed to any office of the company.  He also claims that his purported signatures on the relevant documents were forged pursuant to a conspiracy of the defendants.  He is however not seeking any damages from the 1st, 2nd and 4th defendants.  The relevant documents containing forged signatures as referred to in the Statement of Claim are:

(i)  an instrument of transfer dated 30^th September 2002 purporting to transfer the said 60,000 shares from the plaintiff to the 1st defendant;

(ii)    a bought and sold Note dated 30^th September 2002 purporting to transfer the said 60,000 shares from the plaintiff to the 1st defendant;

(iii)  the minutes of a meeting of the board directors of Creation Shell held on an unknown date purporting to approve, among other matters, the transfer of 60,000 shares from the plaintiff to the 4th defendant and 40,000 shares from the 3rd defendant to the 1st defendant;

(iv)  the minutes of a meeting of the board of directors of Creation Shell held on 18^th June 2002 purporting to approve, among other matters, the plaintiff’s resignation as a director and as the secretary, the appointment of the 1st and 2nd defendants as directors and the appointment of the 2nd defendant as the secretary;

(v)    a letter dated 21^st June 2002 purportedly issued by Creation Shell to the Stamp Duty Office to confirm that Creation Shell had remained dormant since 31^st March 1993;

(vi)  a letter dated 21^st June 2002 purportedly issued by the plaintiff as Transferor and the 4th defendant as Transferee to confirm to the Stamp Duty Office that there was no agreement for the sale and purchase of the shares in Creation Shell.

(vii)    an undated notice purportedly issued by Creation Shell to confirm, among other matters, that the Plaintiff and the 3rd defendant would jointly and severally assume responsibility and liability for all the debts of Creation Shell, if any, incurred on or before the share transfer date (stated to be 30^th September 2002); and

(viii)  a standard form Notification of Resignation of Secretary or Director to the Companies Registry (Form D4) dated 18^th June 2002 purporting to notify the Registrar of Companies that the plaintiff had resigned as a director of Creation Shell effective from 18^th June 2002.

6.  After discovery, the plaintiff discovered two more documents which he said had forged signatures of his.  They are:

(ix)  an undated letter purportedly by the plaintiff and the 3rd defendant confirming to the Stamp Duty Office that, among other matters, the plaintiff had sold his 60,000 shares to the 1st defendant and the 3rd defendant had sold his 40,000 shares to the 2nd defendant; and

(x)    an undated letter purportedly by the plaintiff as the transferor and the 4th defendant as the transferee to the Stamp Duty Office confirming that there was no agreement for the sale and purchase of the shares in Creation Shell.

7.  The 3rd defendant gave notice on 28 August 2006 that he did not intend to contest these proceedings.  The 1st, 2nd and 4th defendants accept that the purported signatures of the plaintiff in the above-mentioned 10 documents were not made by him personally, but they contend that these signatures were made by the 3rd defendant on the plaintiff’s behalf by virtue of a letter of authorization or power of attorney given by the plaintiff to the 3rd defendant and dated 10 September 1996 (“the Authorization”).  The plaintiff says that the Authorization was not his and was created without his knowledge or consent from a letterhead he had previously signed in blank.

BACKGROUND

8.  By a contract dated 28 March 1991, Creation Shell acquired the development rights in the Land from the Committee of Guihua Village of Guanlan Town (“the Village Committee”).  The then shareholders of Creation Shell were the plaintiff and the 3rd defendant.  They were the only directors and the plaintiff was the secretary of the company.

9.  On 24 December 1992, Creation Shell entered into a joint venture agreement with a company called銀鑫實業有限公司 (“銀鑫”) or in English translation called Yinxin Industrial Company (“Yinxin”).  This was a wholly owned subsidiary of the Xiangtan (湘潭) Branch of the Bank of China in Changsha City, Hunan Province (“Xiangtan BoC”).  Under the joint venture agreement, Yinxin was to advance RMB11 million to Creation Shell for developing the Land.  The capital was to be advanced for one year.  Yinxin in return would receive from Creation Shell a profit cum interest liquidated at 28% of the capital plus the return of the capital.

10.  The joint venture agreement expressly provided that the amount to be paid to Yinxin should not be affected by the future market for sale of housing.  I understand that to mean that Yinxin would receive a liquidated annual return at 28% of its capital.  This arrangement appeared to be a mere lending of RMB11 million to Creation Shell at an interest rate of 28% p.a.  The agreement further provided that the development rights were mortgaged to Yinxin to secure the latter’s investment (or lending).  This loan might have been an irregular loan according to the evidence of DW2, Mr Qiao Xinming.  The development of the Land was unsuccessful and Yinxin was only paid RMB1 million.  The capital and interest were outstanding.

THE PLAINTIFF’S CASE

11.  The plaintiff himself gave evidence.  He said the development rights of the Land were acquired for Creation Shell by Mr Lam Chun Wing (“Lam”), the father of the plaintiff and the 3rd defendant.  The price stated in the contract was RMB2,138,543 which was raised by Lam.  The plaintiff was not aware of the details of how Lam raised the money.

12.  Creation Shell then entered into the joint venture agreement with Yinxin and obtained RMB11 million to develop the Land.  It then set out to develop 66 blocks of houses and several blocks of multi-storey apartments on the Land.  There was then a down turn of the economy and the sale of properties was not successful.  Creation Shell then experienced a cash flow problem and stopped work in 1994.  By that time, the bulk of the foundation works were completed and 10 odd blocks were built.  It owed the builder about RMB1,200,000.  There was no further progress.  In 1995, the plaintiff left for Chongqing to run some other business.  There was a dispute between Creation Shell and Yinxin on how to deal with the Land. 

13.  On 9 October 1996, the 3rd defendant purportedly on behalf of Creation Shell entered into an agreement with Yinxin to transfer the mortgaged development rights to Yinxin in settlement of the capital and interest payable to Yinxin.  Under this agreement, Yinxin had to pay RMB1,500,000 which was owed by Creation Shell to the builder.  This agreement was slightly amended and signed again on 31 October 1996.  There was also a supplemental agreement signed on the same day which provided a schedule for Yinxin to pay the said RMB1,500,000.  The plaintiff said he did not know and had not consented to the making of the agreement and the supplemental agreement.

14.  It turned out that Yinxin did not make any payment.  The 3rd defendant purportedly on behalf of Creation Shell sent Yinxin a letter dated 20 December 1996 declaring both the agreement and the supplemental agreement to be of no effect on the ground of nonpayment.  

15.  The plaintiff also sent a letter dated 8 May 1997 to the Boan Bureau of Land Resources saying that this agreement had not been approved by the board and its legal representative and the company disavowed it.  The copy of this letter as produced at the trial was unsigned and the name of the plaintiff was wrongly typed as “林卫東”.  The second character was wrongly typed as “卫” when it should be “伟”.  The character “卫” is in fact the second character of the 3rd defendant’s name.  The plaintiff explained in evidence in chief that this letter was prepared by his father Lam with the assistance of another person, hence the error.

16.  At the beginning of 2002, the plaintiff heard from the 3rd defendant that the 1st defendant was interested in acquiring the development rights of the Land.  He, the 3rd defendant and the 1st defendant then had a meeting at a café in Shenzhen.  The 1st defendant expressed his interest in the Land.  The plaintiff told him to negotiate with the 3rd defendant.  The meeting lasted for only 10 odd minutes and it was mainly for discussion on another matter which is not relevant to this action.

17.  In April 2002, the plaintiff and the 3rd defendant together went to a secretarial service company called Popular Corporate Services Company Limited (“Popular”) at Mercer Street, Hong Kong.  They signed at Popular’s office the annual returns for Creation Shell as it had not filed any annual return since 30 November 1992.  They thought that if they were to deal with the Land, they had to make good the annual returns first, otherwise they might encounter difficulties.  One Mrs Mak of Popular assisted them.  The returns they signed were then filed on 23 April 2002.

18.  Sometime in May 2002, the 3rd defendant gave the plaintiff a bundle of documents for him to sign.  These documents were for him to transfer his 60,000 shares in the company to the 4th defendant.  The 4th defendant was a company controlled by the 1st defendant.  The plaintiff asked the 3rd defendant whether he had arrived at any agreement with the 1st defendant on the sale of shares and the 3rd defendant said no.  The plaintiff then kept these documents and did not sign them.  He produced these unsigned documents at the trial.  They are the bought and sold notes, instruments of transfer, some minutes of board meetings, some letters to the Stamp Duty Office and some returns for filing with the Companies Registry.  The purposes of these documents are to transfer the plaintiff’s 60,000 shares of Creation Shell to the 4th defendant, to transfer the 3rd defendant’s 40,000 shares to the 1st defendant, to approve the transfers and their resignations as directors and secretary of the company, to appoint the 1st and 4th defendants as new directors, to appoint one Ms Chung Lai Ling (an employee of the 1st defendant) as the new secretary and to notify the Companies Registry about the changes in appointments.  These documents appeared to have been prepared by Popular as its name was printed on some of them.

19.  The plaintiff telephoned Mrs Mak one or two days later to enquire the position of the filing of annual returns.  Mrs Mak however mistakenly took him as the 3rd defendant and blamed him for having lost the whole bundle of documents so that she had to prepare a new set.  She further said that the new set of documents had been signed and were with the 1st defendant.  The plaintiff then told Mrs Mak that he was the plaintiff and not the 3rd defendant and he had not signed any share transfer document.  He further told Mrs Mak that if he should sign such document, he would do so before her.  He then telephoned the 1st defendant.  But the 1st defendant did not want to talk to him about the shares.  The 1st defendant only told him that the 1st defendant would arrange his employee, Mr Ren Qiaofu (“Ren”) and the 3rd defendant to meet him.  The plaintiff had not met Ren so far.

20.  The plaintiff, the 3rd defendant and Ren then met in a hotel in Shenzhen.  The plaintiff questioned Ren why there were his signatures on share transfer documents (as told by Mrs Mak).  Ren said he did not know about the matter.  The plaintiff then told Ren that before he and the 1st defendant had reached any agreement, he would not transfer the shares.  The 3rd defendant did not say anything.  After the meeting, the plaintiff thought that he had stopped the transfer of his shares and returned to Chongqing. 

21.  In 2002, the plaintiff was negotiating with one Liu Xingang (“Liu”) of Guanlan to have a joint venture agreement to develop the Land.  However, in about November 2002, Liu told him that it was not necessary to have a joint venture with him as his shares in Creation Shell had been transferred to someone else.  Liu also faxed him some share transfer documents, but the signatures thereon were not his.  The name of a secretarial service company called Telesec Limited (“Telesec”) appeared on some of them, but he had never engaged the service of this company.  He then faxed a letter to Mrs Mak of Popular telling her that there was no agreement to transfer his shares.  The letter also said that all his previous authorization(s) and document(s) could not replace him.  He also wrote various letters to the Business Registration Office, the Stamp Duty Office and Telesec trying to stop the transfer of shares.  He had also been to Telesec’s office and told one Mr Leung that he had not signed the documents.  But Mr Leung said that the documents were filed per the client’s instructions.  He made a search at the Companies Registry and found that his shares had been transferred and he was supposed to have resigned from the directorship. 

22.  He then had a meeting with Liu and Ren in Shenzhen.  Ren showed him a copy of the Authorization.  He was shocked by it as he had never made such document and had never seen it.  The Authorization was dated 10 September 1996.  It was purportedly made by him to give the 3rd defendant the full power to represent him and Creation Shell to resolve the problem of Creation Shell on the repayment of the loan of RMB11 million and interest thereon as secured by the mortgage of the Land.  It also authorized the 3^rd defendant to handle the transfer and letting of the Land, to resolve with the original builder all matters on payment and to handle all matters about the transfer of his 60% shares in Creation Shell.  It also authorised the 3rd defendant to sign all documents for transferring his shares, to receive all benefits there from and to bear all responsibilities thereof.  It was stated to be irrevocable.  It also purportedly dealt with a hotel joint venture that Creation Shell had with some other party which is irrelevant to this action.  Liu asked him if the signature on the Authorization was his.  He agreed that the signature appeared to be his, but denied he had made this document.

23.  He then complained to the Companies Registry of forged signatures and his case was referred to the Commercial Crimes Bureau (“CCB”).  The CCB investigated the matter, but eventually did not bring any prosecution.

24.  At the trial, he referred to two matters in the Authorization to further cast doubt on its genuineness.  The first point was that the Authorization was not made on the letterhead of Creation Shell, but was on the letterhead of a company called Asia Well Development Limited (“AW Development”).  AW Development was a company owned by him, the 3rd defendant and a friend.  This company had no activity since about 1993 to 1994.  The last document it filed with the Companies Registry was on 15 August 1995.  It was a notice of resignation from directorship by his friend.  There was also no annual return filed for 1995 and thereafter.

25.  Furthermore, the second character of his name in the Authorization was wrongly typed as “卫” when it should be “伟”.  The character “卫” is the second character of the 3rd defendant’s name. 

26.  The telephone and fax numbers on this letterhead of AW Development only have seven digits.  Therefore, it should have been printed sometime before 1 January 1995 as the telephone and fax numbers in Hong Kong were changed from 7 digits to 8 digits on that date.  He said that AW Development was engaged in trading of garments and vehicles.  He used to sign some letterheads of this company in blank in early 1990s for use by the 3rd defendant and his friend in its business.  He did not do so later as AW Development had no more trading since 1993/1994.  He had also signed letterheads of Creation Shell in blank.  He had not signed any more letterheads in blank after 1995 as AW Development had stopped trading and Creation Shell had also stopped the development of the Land.

27.  He also denied knowledge of or consent to two agreements purportedly signed by the 3rd defendant on behalf of Creation Shell.  The first one was dated 3 February 2002 and made between Creation Shell and the 4th defendant (“the Sale Agreement”).  By this agreement, Creation Shell agreed to sell the 4th defendant the Land for RMB1,500,000.  If Creation Shell should be able to assist the 4th defendant to raise a loan of RMB20 million, the purchase price would be increased to RMB2 million.  In addition to the purchase price, the 4th defendant also agreed to assume responsibility for RMB2 million management fee for the Land payable to the Village Committee, RMB1.5 million outstanding construction fees payable to the original builder and the loan and interest owed by Creation Shell to Yinxin.  The 3rd defendant also wrote some remarks at the end of the agreement which read:

“本合同所有事宜，只与林衛國一人往来，将运廸有限公司在深圳市宝安区放馬埔地段36968平方米土地转让给俊山发展有限公司。”

The free translation of the remarks is:

“All matters in this contract are/were communicated only with Lam Wai Kwok; to transfer the ownership of Creation Shell’s plot of land at Shenzhen City, Boan District, Fangmapu measuring 36,968 square metres to Dragon Hill Development Limited.”

28.  It is not clear if the remarks mean that the 3rd defendant was the only person with whom all matters in the Sale Agreement were discussed or that the 3rd defendant was the only person with whom all matters in the Sale Agreement should be discussed.  The 1st defendant prefers the letter meaning.  The 3rd defendant in fact wrote the first character of the Chinese name of the company wrongly.  He used the charger “运” when the correct character should be “云”.  But I do not think anything would turn on this error.

29.  The second agreement was dated 16 March 2002.  It was purportedly made by Creation Shell, the 4th defendant and Yinxin (“the Tripartite Agreement”).  By this agreement, Yinxin agreed to receive from the 4th defendant RMB2 million for the discharge of the RMB11 million loan and RMB5,060,716.11 accrued thereon and due from Creation Shell and for the transfer of all its rights in the Land and the development project thereon to the 4th defendant.

30.  The evidence of DW2, Mr Qiao Xinming suggests that this loan was irregular.  This loan was managed by the Changsha Office of a state financial institution called中國東方資產管理公司or in English translation called China Eastern Assets Management Company (“China Eastern Assets”) at the time of the making of the Tripartite Agreement. 

31.  It is the 1st defendant’s case that the plaintiff owed him or the 4th defendant money.  A loan receipt signed by the plaintiff for RMB360,000 and dated 15 March 1991 has been produced by the 1st defendant, but the plaintiff said that he had repaid the loan already.  The 1st defendant also alleged another loan to the plaintiff for him to buy a flat in North Point, but the plaintiff denied the allegation.  The plaintiff also denied of having received any part of the RMB1,500,000 payable by the 4th defendant to Creation Shell under the Sale Agreement or any part of a sum of HK$60,000 allegedly paid by the 1st defendant through his employee Ren to the 3rd defendant for the sale of his 60,000 shares in Creation Shell.  Regarding the RMB11 million loan owed to Yinxin since the early 1990s, he said Yinxin had taken no action against Creation Shell or him for recovery of the same.

THE DEFENDANTS’ CASE

The 1^stdefendant

32.  The 1st and 2nd defendants are husband and wife and the 4th defendant is a company controlled by the 1st defendant.  The 1st defendant is acquainted with Lam, the father of the plaintiff and the 3rd defendant.  The 1st defendant came to know Lam in the 1980s.  He was then in the business of importing auto-parts into the Mainland.  Lam was the manager of China Resources in Shenzhen.  The 1st defendant did business with this company through Lam.

33.  The 1st defendant was on good terms with Lam because they both spoke the Hakka dialect and Lam treated him as a Hakka.  When Lam’s son the 3rd defendant immigrated to Hong Kong in about 1990, he lived at the 1st defendant’s home for about a year.  The 3rd defendant was therefore better acquainted to him than the plaintiff.  He had also lent money to the plaintiff and the 3rd defendant.  He produced the loan receipt from the plaintiff for RMB360,000 as mentioned above.  He also produced another loan receipt for HK$1,500,000 and dated 29 August 1991 which was signed by the 3rd defendant.  He said neither the plaintiff nor the 3rd defendant had repaid any of the loans.  He was then doing business with Lam’s employer.  He did not press the plaintiff and the 3rd defendant too hard for repayment for fear of affecting his business.  In addition, he also lent the plaintiff HK$140,000 in mid-1990 to assist him in the purchase of a flat in North Point.  This sum was also not repaid despite repeated promises by the 1st defendant.

34.  In the early 1990s, Lam suggested to him to develop the Land.  The price of the Land was about RMB1,620,000.  The costs for levelling and connecting essential services were about RMB300,000.  Lam said that he could assist the 1st defendant in the development.  The 1st defendant regarded the development a good project.  He gave Lam a cheque for HK$1,600,000 which was drawn on the bank account of a company owned by him and a few friends.  That sum was equivalent to about RMB1,200,000.  (That left a shortfall of RMB420,000 or RMB720,000 if the costs for levelling and connection of essential facilities were included.  This sum was supposedly paid by Lam.  In fact, the price for the development rights on the Land as recorded in the contract dated 28 March 1991 between Creation Shell and the Village Committee was RMB2,138,543.  Therefore if the 1st defendant had indeed paid Lam RMB1,200,000, Lam had to make up the shortfall of more than RMB938,000 before the costs for levelling and connection of facilities were included.)

35.  At the end of 1992, Lam showed the 1st defendant the documents of purchase of the Land in a restaurant in Shenzhen.  The 3rd defendant was also present.  The 1st defendant found that the Land was not purchased in the name of his company, but in the name of Creation Shell.  He questioned Lam why the Land was purchased in the name of his son’s company.  Lam told him that he was merely asked to provide the funds, and it was not incumbent for the Land to be registered in the name of his company.  He flared up and wanted to fight with Lam but was stopped by the chauffeurs and the waiters of the restaurant.  The meeting dispersed rather unhappily.  He then severed his contacts with Lam, the plaintiff and the 3rd defendant. 

36.  In cross-examination, he said a fellow shareholder of his company then resolved the dispute with Lam who promised to give him and his fellow shareholders a few blocks of property after completing the development.  But that never happened.  He did not trust Lam, the plaintiff or the 3rd defendant.  The plaintiff had also defaulted on the two loans mentioned above.

37.  At the end of 2001, the 3rd defendant suddenly approached him and told him that the development of the Land had become a shambles.  The 3rd defendant said he should takeover the development.  The 3rd defendant also said that Creation Shell still owed Yinxin money.  The 3rd defendant assured him that if he should be interested in the development, the 3rd defendant could help him raise a RMB20 million loan.  The 3rd defendant also claimed that the loan from Yinxin to Creation Shell was raised by the 3rd defendant.  Since he previously had problems with the Lams, he therefore asked the 3rd defendant whether the 3rd defendant had authority to deal with the Land.  The 3rd defendant then showed him a copy of the Authorization.  He recognized the plaintiff’s signature on it.  The 3rd defendant also showed him the agreement and the supplemental agreement between Creation Shell and Yinxin both dated 31 October 1996.  He indicated to the 3rd defendant his interest in the Land.  The 3rd defendant asked for RMB2 million for the sale of the rights of Creation Shell in the Land to him and for assisting him to raise a loan of RMB20 million.  If the 3rd defendant should fail to raise this loan, the price would be reduced to RMB1.5 million.  Regarding the amount of the loan and interest owed to Yinxin, the 3rd defendant said it was at about RMB16 million.  He told the 3rd defendant that he would deal with Yinxin directly on this loan.

38.  He then procured the 4th defendant to enter into the Sale Agreement dated 3 February 2002 with Creation Shell.  Regarding the handwritten remarks of the 3rd defendant at the end of the agreement as referred to above, he said because of his bad experience with Lam and his sons, he did not want to have any more dealings with Lam and the plaintiff.  For that reason, the 3rd defendant wrote the remarks on the agreement before him.  (There is however no indication in the Sale Agreement that the 3rd defendant had signed the Sale Agreement by virtue of the Authorization.  No copy of the Authorization is stapled with the agreement.) 

39.  After making the Sale Agreement, he approached Yinxin on the repayment of the loan.  He was told that the loan was managed by China Eastern Assets which was willing to accept RMB2 million in return for its discharge together with the outstanding interest.  He then procured the 4th defendant to enter into the Tripartite Agreement of 16 March 2002 with Creation Shell and Yinxin.  He also said that before the signing of the Tripartite Agreement, the 3rd defendant had produced the Authorization to the representatives of China Eastern Assets.  The 3rd defendant then signed this agreement on behalf of the Creation Shell.  That was done at the office of China Eastern Assets in Changsha.  After the signing of the Tripartite Agreement, he took the original Authorization from the 3rd defendant and had it kept by the 4th defendant. 

40.  Yinxin later gave him a letter of confirmation of the transfer of the rights of the Land for him to deal with the Village Committee.  At that stage, he did not want to purchase the shares of Creation Shell despite a suggestion by the 3rd defendant.  However, the Village Committee did not recognise Yinxin’s confirmation letter.  They only recognised Creation Shell as the owner of the development rights of the Land.  He therefore entered into an oral agreement with the 3rd defendant in about March/April 2002 to purchase all the shares of Creation Shell for HK$100,000.  Of this sum, HK$40,000 was for the 40,000 shares owned by the 3rd defendant and HK$60,000 was for the 60,000 shares owned by the plaintiff.

41.  After entering into this oral agreement, he paid the 3rd defendant HK$40,000 cash and told the 3rd defendant to deal with his employee, Ms Chung Lai Ling on the transfer procedure as Ms Chung was known to both the plaintiff and the 3rd defendant.  His secretarial service company was Telesec and he told Ms Chung to arrange the transfer procedure with Telesec.

42.  He did not know Popular which had provided service to the plaintiff and the 3rd defendant in preparing the annual returns for Creation Shell.  He suspected that Popular was introduced to them by Ms Chung as Ms Chung had told him that she had introduced a secretarial service company to them.

43.  After the transfer documents were prepared by Telesec, he took them to the Mainland in May/June 2002 and passed them to his employee Ren for delivery to the 3rd defendant.  The 3rd defendant was supposed to sign them and to obtain the plaintiff’s signatures on them.  He did not know if the plaintiff would sign them personally or the 3rd defendant would sign them for the plaintiff by virtue of the Authorization.  He also gave Ren HK$60,000 for payment to the 3rd defendant after the documents were signed.  About 10 days later, Ren telephoned him and said the documents had been signed.  He confirmed it with the 3rd defendant on the phone and then told Ren to release the HK$60,000 to the 3rd defendant.  Ren released the money to the 3rd defendant but did not ask for any receipt.  He later got the signed documents from Ren and passed them to his staff in Hong Kong.  (The plaintiff does not accept that there was this agreement for sale and purchase of the shares of Creation Shell at HK$100,000.  The plaintiff’s position is that the shares were sold together with the development rights of the Land at RMB1.5 million.)

44.  He had been investigated by the CCB as a result of the plaintiff’s complaint of forged signatures.  In his record of interview with the CCB, he was shown two documents marked LS-17 and LS-18.  Document LS-18 was the Sale Agreement.  LS-17 was another agreement.  He told the police that under the agreement in LS-17, he had to pay no less than RMB1,500,000 or RMB2 million for purchasing the rights of the Land and also the company Creation Shell.  This agreement also referred to the RMB11 million loan borrowed from Yinxin. 

45.  No copy of this agreement was produced, but the record of interview is evidence of the existence of this agreement and that the RMB1,500,000 was not just for the rights of the Land, but was also for purchasing the shares of Creation Shell.  Hence, the money was to be paid to the shareholders of Creation Shell in return for the shares rather than to Creation Shell in return for the rights of the Land.  I think the simple reason was that if the money should be paid to Creation Shell, then when the previous shareholders transfer their shares of Creation Shell to the 1st defendant and the 2nd/4th defendant, they would receive nothing for their shares.  Indeed, this is supported by a receipt issued by the 3rd defendant to the 4th defendant and dated 22 November 2002 which reads:

「收據

本人林卫國（身份证号 …）代表原云廸有限公司及股东於二00二年二月三日与俊山发展有限公司签订股权及覌澜桂花苑項目转让合同书。現俊山发展有限公司已将前述合同韦中約定的150万转让款項，截止至二00二年十一月二十二日，全部向本人支付完毕。」

The free translation reads:

“RECEIPT

I Lam Wai Kwok (Identity Card No. …) represented the original Creation Shell Ltd. and shareholders on 3rd February 2002 signed agreement for transfer of shares and of the Guihua Garden Project at Guanlan with Dragon Hill Development Ltd.  Now up to 22nd November 2002 Dragon Hill Development Ltd. has already fully paid to me the transfer sum of 1,500,000 as agreed in the above-mentioned agreement.”

46.  Furthermore, there is no receipt for the so-called HK$100,000 share price of which HK$40,000 was allegedly paid by the 1st defendant to the 3rd defendant direct and HK$60,000 allegedly paid by Ren to the 3rd defendant.  The 1st defendant said no receipt was asked for in respect of these two payments.  But no reason was given on why the 3rd defendant was not asked to acknowledge receipt of these sums.

47.  In cross-examination, the 1st defendant said that the 3rd defendant had shown him the Authorization before he had the meeting with the plaintiff and the 3rd defendant in early 2002.  Though the 3rd defendant had the Authorization, he still wanted to know if the 3rd defendant had the power from the plaintiff because he did not trust the Lam family.  He therefore told the plaintiff in the meeting that he was interested in developing the Land.  The plaintiff told him to discuss the matter with the 3rd defendant.  But he had not mention the Authorization to the plaintiff.

48.  He had also asked the 3rd defendant why the plaintiff had given the 3rd defendant the Authorization.  The 3rd defendant said that the plaintiff wanted to abscond from Yinxin which was chasing for repayment.  The plaintiff therefore left the Authorization to the 3rd defendant for the 3rd defendant to deal with Yinxin.  The 3rd defendant had also been imprisoned by Yinxin for two to three days because of non-repayment of the loan. 

49.  The 1st defendant further said that he could recognise the plaintiff’s signature as he had seen it on the loan receipt many times in about 1992 and he had a good memory.  He thus accepted the Authorization as genuine.

50.  Regarding the points raised by the plaintiff on the Authorization, he said the fact that it was prepared on the letterhead of AW Development was not important; instead the signature and chop were important.  He did not notice that the second character of the plaintiff’s name was wrongly typed as “卫”.  He also said that the plaintiff and the 3rd defendant often interchange “卫” and “伟” for the second character in their names.  He noted the date of the Authorization was 10 September 1996 and he had asked the 3rd defendant for a new authorization, but the 3rd defendant pointed out that the Authorization was irrevocable.  However, he did not seem to have accepted this as he had consulted a Mainland lawyer on the effectiveness of the Authorization about a week before making the Sale Agreement.  He had also showed the Authorization to his wife many times as his wife often said that the plaintiff and the 3rd defendant were not trustworthy.

51.  When asked whether it was discussed between him and the 3rd defendant on who would be the transferees for the 60,000 shares and the 40,000 shares, he said it was up to the 3rd defendant to decide and the shares could be transferred to him and his wife or to him and the 4th defendant.  He further said that if the 3rd defendant should ask Ms Chung, the 3rd defendant would be told what to do because Ms Chung had worked for him for many years.

52.  He further said that after making the oral agreement with the 3rd defendant to purchase the shares, he told Ms Chung that 60,000 shares should be transferred to him and 40,000 to his wife.  Ms Chung then engaged Telesec to prepare the transfer documents accordingly.

53.  He denied of having sent Ren to meet the plaintiff in May/June 2002.  (It is the plaintiff’s case that there was such a meeting in which the plaintiff told Ren that before reaching any agreement with the 1st defendant, the plaintiff would not transfer his shares.)

Ren Qiaofu

54.  Ren was called to give evidence.  He had worked for the 1st defendant from the 1980s to the end of 2005.  He is a Mainland resident.  He said he only came to give evidence because of a subpoena which was served on him in the Mainland.  He claimed that he had at the 1st defendant’s instructions paid the 3rd defendant RMB1,500,000 by instalments.  The payments were pursuant to the Sale Agreement.  He said that the 1st defendant had given him a copy each of the Sale Agreement and the Tripartite Agreement together with a copy of the Authorization.  He also said that the 3rd defendant had also told him that the plaintiff had given the 3rd defendant the Authorization because the plaintiff was afraid of being pursued by Yinxin and had absconded after giving the Authorization to the 3rd defendant.  After he had paid the 3rd defendant the RMB1,500,000, the 3rd defendant gave him a receipt.  I have already quoted the receipt above.

55.  Ren denied of having met the plaintiff in May 2002 or at the end of that year.  He said he only met the plaintiff for the first time in 2004 to 2005 at a public security office in Guanlan.

56.  The most important part of Ren’s evidence is that the 1st defendant had given him some documents in May/June 2002 for him to pass to the 3rd defendant for the signatures by the 3rd defendant and by the plaintiff.  He said the 1st defendant also gave him HK$60,000 for him to pay the 3rd defendant after the documents were signed.  He then passed the documents to the 3rd defendant at a hotel in Shenzhen.  About ten days later, the 3rd defendant went to his home and gave him the documents duly signed.  He checked the documents and saw the signatures of the plaintiff and the 3rd defendant.  He then confirmed with the 1st defendant that the documents were signed and released the HK$60,000 to the 3rd defendant.  But unlike the payments under the Sale Agreement for which he got receipts from the 3rd defendant, he did not ask the 3rd defendant for a receipt for the HK$60,000.

57.  In cross-examination, he said when the 1st defendant gave him copies of the two agreements and the Authorization, he asked the 1st defendant what was the Authorization.  The 1st defendant told him that the two agreements were made with the use of the Authorization.  He did not know why the 1st defendant gave him a copy of the Authorization.

58.  Regarding the receipt given by the 3rd defendant for the RMB1,500,000, he said it was drafted by the 3rd defendant and he had read it.  He could not explain why the receipt should refer to the transfer of shares in addition to the interests in the Land.

59.  Regarding the share transfer documents which he had passed to the 3rd defendant for signatures, he could not read English and therefore could not understand their contents.  He had also not counted them.  He recognised the signatures of the 3rd defendant, but he did not check the plaintiff’s signatures on the documents against the signature on the Authorization.  When asked what would happen if some of the documents should have been lost by the 3rd defendant, he said he had not paid the 3rd defendant the whole sum of RMB1,500,000 and they could have recourse against the 3rd defendant in case of loss. 

60.  Regarding the lack of receipt for the HK$60,000, he said the 1st defendant had not asked him to get a receipt from the 3rd defendant and he did not consider the 3rd defendant would deny the receipt, hence, he did not ask the 3rd defendant for a receipt. 

Qiao Xinming

61.  The 1st defendant also called Qiao Xinming to give evidence.  Qiao was the manager of China Eastern Assets.  His employer was set up by the Mainland Government to takeover irregular loans of national banks.  Yinxin was a debtor of Xiangtan BoC and the debt(s) due to Xiangtan BoC had been taken over by his employer.  He was present at the signing of the Tripartite Agreement on 16 March 2002 which took place in Changsha.  He was present because Creation Shell owed Yinxin Money and Yinxin owed his employer money.  He saw the Authorization which was produced by the 3rd defendant to all parties present.  The Tripartite Agreement was then signed by the relevant parties.  He also produced a letter from his employer and dated 10 November 2007 which confirmed that the 3rd defendant had exhibited the Authorization to prove his representation of Creation Shell at the signing of the Tripartite Agreement.

The 3rd defendant

62.  The 3rd defendant also gave evidence.  She had almost no personal knowledge in all significant matters.  She also had no or poor recollection of the events that she was asked about.  She however agreed that the 1st defendant had shown her the Authorization and she had compared the plaintiff’s signature on it with the plaintiff’s signature on the loan receipt dated 15 March 1991.  That showed her concern about the genuineness of the Authorization.  However, the easy way to confirm the genuineness of the Authorization was for the 1st defendant to confirm the same with the plaintiff.  I do not know why she did not ask the 1st defendant to do so.

ANALYSES AND FINDINGS

1^st defendant’s alleged contribution for purchasing the Land

63.  The plaintiff has denied that the 1st defendant had contributed to the purchase of the development rights on the Land.  He said in cross-examination that he learnt this from his father Lam.  But he had not mentioned this in his evidence in chief.  Counsel for the 1st, 2nd and 4th defendants asked me to place little or no weight on this evidence.  I do not think whether the 1st defendant has contributed to the purchase is really important save perhaps on the question of credibility.  The 1st defendant is not relying on the contribution to claim any right over the Land.  In fact when the 1st defendant was interviewed by the CCB, he also did not mention it.  I would therefore make no finding on whether the 1st defendant had or had not made the contribution as alleged.

Yinxin’s demand for repayment and the Authorization

64.  Counsel for the 1st, 2nd and 4th defendantsreferred to the plaintiff’s letter dated 22 November 2002 to Mrs Mak of Popular which stated that none of his previous authorization(s) and document(s) could replace him.  The plaintiff’s case is that he did not know about the Authorization at that time.  Counsel thus submitted that it was strange that the plaintiff should have referred to authorization(s) in the letter if the Authorization was not made by him and he did not know of any authorization.  Counsel therefore submitted that the plaintiff must have known of the Authorization.

65.  Counsel also said the plaintiff’s evidence on how he signed the letterheads in blank was unsatisfactory because there were contradictions regarding where and to whom he had given the letterheads after signing.  Counsel also submitted that there was no need for the plaintiff to have signed any blank letterhead of AW Development as the company did not have much business and had not filed any annual return since 1995.  But counsel did not address the question of why the Authorization was made on a letterhead of AW Development when it was supposed to be an authorization by Creation Shell and its shareholder the plaintiff.

66.  Counsel also referred to the demand letters issued by the plaintiff’s solicitors in 2006.  Counsel said the letters did not suggest that the Authorization was forged.  But this point seems to be over meticulous.  When the 1st defendant’s solicitors asserted to the plaintiff’s solicitors that the share transfer documents were signed by the 3rd defendant by virtue of the Authorization as enclosed in the letter, the plaintiff’s solicitors replied that:

“4. At all material times, our client has never authorised nor delegated his power to anyone, nor authorised any person to sign on his behalf.

5.  The matter has been reported to Wanchai Police Station and … the Companies Registry.  ...”

I think these are clear statements that the Authorization was not made by the plaintiff.

67.  Counsel also said that the 1st defendant had already acquired from Creation Shell and Yinxin the rights over the Land and there was no need to forge the Authorization.  Counsel further said that even if the parties should have intended to forge the Authorization, it was not necessary to include an irrelevant matter of a hotel in it.  For this question, the 1st defendant himself has already given the answer.  He said he had to deal with the Village Committee who did not recognise the certificate of confirmation given by Yinxin and only recognise Creation Shell as the owner of the development rights on the Land.  He therefore needed the control of Creation Shell.  It is his case that he has obtained the plaintiff’s shares and hence the control of Creation Shell through the 3rd defendant’s use of the Authorization.  The fact that the Authorization has included something irrelevant may just be a gimmick to give it the look of authenticity.

68.  The next point raised by counsel was the plaintiff’s evidence that Yinxin had not demanded repayment of the RMB11 million loan and outstanding interest.  The 1st defendant and his witness Ren raised Yinxin’s demand as the reason for the plaintiff to have given the 3rd defendant the Authorization before he allegedly absconded.

69.  I think the plaintiff might have overstated his case when he said Yinxin did not even demand repayment.  The agreement and supplemental agreement Yinxin made with Creation Shell through the 3rd defendant on 31 October 1996 is evidence of Yinxin’s desire to get something back in return for the loan and interest.  Nevertheless, Yinxin did not comply with the terms of the agreement and it did not take effect. 

70.  Though the plaintiff might have overstated his case, there remains the lack of evidence of Yinxin having sued Creation Shell, the plaintiff or the 3rd defendant for repayment.  If Yinxin did not sue, then there might have been something irregular about this loan.  That may also explain why China Eastern Assets was involved in the Tripartite Agreement.  If Yinxin had legal obstacles in recovery, then there was less need for the plaintiff to hide away or abscond.

71.  However, even if Yinxin was making demands and did so vigorously, it did not mean that the plaintiff had to abscond.  The life of a fugitive is not an easy one.

72.  Furthermore, even if he had decided to go into hiding, it was not necessary for him to give the Authorization to the 3rd defendant.  The 3rd defendant when chased by Yinxin would not have required the Authorization to protect himself.  Even if the plaintiff should have absconded, the 3rd defendant could still represent Creation Shell to negotiate for a settlement with Yinxin and could do so without any formal authorization.  He would only require a formal authorization when signing a settlement agreement with Yinxin.  Alternatively, if a settlement could be achieved, the plaintiff could sign the settlement personally.

73.  Furthermore, even if the plaintiff would like to given an authorization to the 3rd defendant for him to negotiate with Yinxin, it was not necessary for it to be an irrevocable one and to last indefinitely.  The plaintiff could have made the authorization to last for a year or two.  He also would not have to use the letterhead of AW Development.  If there was no letterhead of Creation Shell, he could have used a blank piece of paper rather than a wrong piece of paper. 

74.  Counsel also said the typing of “卫” for the plaintiff’s name is nothing strange as the plaintiff might have used “卫” and “伟”interchangeably.  Counsel relied on the unsigned letter dated 8 May 1997 that was sent to the Boan Bureau of Land Resources where the second character of the plaintiff’s name was typed as “卫”.  Counsel submitted that the plaintiff’s oral evidence that the letter was prepared by his father with the help of someone should not be believed as he said in his witness statement that he issued the letter.  Furthermore, counsel said that even if it was prepared by his father with the help of someone, his name should not be wrongly written unless the “卫” and “伟” were used interchangeably for his name.  Hence, counsel said the use of “卫” in typing the plaintiff’s name in the Authorization was nothing surprising. 

75.  For all the signatures of the plaintiff that are in the evidence, none of which has “卫” for the second character.  He always used the character “伟”.  For all documents and letters emanating from him personally including the various forms and returns filed with the Companies Registry (save the disputed unsigned letter dated 8 May 1997), he always used the character “伟” in his name.  He did not use “卫” and “伟” interchangeably for his name.  I find the use of “卫” in his name in the Authorization an error though his father might have also been erroneous in the letter of 8 May 1997.  I further find that he would not have allowed his name to be typed wrongly in the Authorization if it was indeed made by him.

76.  In the premises, I find that even if Yinxin was making vigorous demands for repayment of the RMB11 million loan and interest, it was still unnecessary for the plaintiff to have made the Authorization which was expressed to be irrevocable.  The plaintiff would also not have made the Authorization on the letterhead of AW Development and allowed a character of his name to be typed wrongly.

Visit to Telesec

77.  Regarding the plaintiff’s visit to Mr Leung of Telesec and his fax to Telesec dated 30 November 2002, he told the CCB that he had sent the fax first, but he said at the trial that he went to Telesec before sending the fax.  I think he had sent Telesec the fax before visiting its office in Hong Kong.  The reason being that he had said in the fax that he was then not in Hong Kong and could not go to Telesec’s office personally to explain the situation to them.  But I do not see anything significant that may turn on this.

Discovery of transfers of shares

78.  The next point is the discrepancy between what the plaintiff said in the CCB interview and his evidence in this trial on his discovery of the transfers of shares to the 1st and 2nd defendants.  He said at the trial that his friend Liu in Guanlan had faxed him documents showing the transfers of shares to the 1st and 2nd defendants.  However, he did not refer to this at all in his CCB interview.

Popular’s involvement

79.  The scheme for the transfers of shares and appointments of directors and secretary as implemented by the staff of the 1st defendant is different from the unused scheme contained in the bundle of documents prepared by Popular and kept by the plaintiff.  In the unused scheme, 60,000 shares would be transferred to the 4th defendant and 40,000 shares to the 1st defendant.  The new directors would be the 1st and 4th defendants and the new secretary would be Ms Chung Lai Ling.  In the scheme as implemented, 60,000 shares were in fact transferred to the 1st defendant and 40,000 shares to the 2nd defendant.  The 1st and 2nd defendants were purportedly appointed the new directors and the 2nd defendant the new secretary.  The 4th defendant and Ms Chung were not involved.

80.  There were however some peculiar documents used in the scheme as implemented.  The minutes that purportedly approved the resignations and appointments of directors and secretary stated that the board meeting took place on 18 June 2002.  There was also a notification to the Companies Registry of change of registered office of Creation Shell to the 3rd defendant’s office on 18 June 2002.  However, the documents that transferred 60,000 shares to the 1st defendant and 40,000 shares to the 2nd defendant were effected and stamped on 30 September 2002. 

81.  Furthermore, despite the plaintiff and the 3rd defendant had purportedly resigned from the board on 18 June 2002, the minutes stated that the board meeting for approving the instruments of transfer of shares, (which should have been stamped 30 September 2002), was convened on an unknown date at the previous registered office of the company.  The meeting, if there was one, would have been held on or after 30 September 2002.  But by that time, the plaintiff and the 3rd defendant were no longer directors of Creation Shell and the registered office was at the office of the 1st defendant’s office.  There was no reason for this board meeting to be held at the old registered office and attended by the plaintiff and the 3rd defendant.  Curiously, the minutes approved the transfer of 60,000 shares to the 4th defendant and 40,000 shares to the 1st defendant.  This was not in line with the scheme as implemented, but in line with the unused scheme prepared by Popular.  The minutes also bear the signature of the 3rd defendant and the purported signature of the plaintiff. 

82.  These minutes were obviously intended for implementing the unused scheme contained in the unsigned documents prepared by Popular rather than the scheme as implemented.  There is also no minutes of the board of Creation Shell approving the actual transfers of 60,000 shares to the 1st defendant and of 40,000 shares to the 2nd defendant.  It seems that in implementing the scheme of transfers, someone has mistakenly used the wrong draft board minutes which were prepared by Popular for a different scheme.  Therefore, the board of Creation Shell has not yet approved the transfers of shares to the 1st and 2nd defendants. 

83.  A comparison of the documents that bear the purported signatures of the plaintiff against the unsigned documents kept by him show that the 6th and 10th documents enumerated in paragraphs 5 and 6 above, which are the letter dated 21 June 2002 and the undated letter both addressed to the Stamp Duty Office, are the same as a draft letter prepared by Popular.  By these two letters, the plaintiff and the 4th defendant purportedly as transferor and transferee of shares notified the Stamp Duty Office that there was no agreement for sale and purchase of the shares of Creation Shell.  If the scheme of transfer was handled properly, this notification should have been made by the plaintiff and the 1st defendant as the 60,000 shares were supposed to have been transferred from the plaintiff to the 1st defendant and not to the 4th defendant.  These two letters as signed must be further errors committed by the person in the 1st defendant’s employ who was entrusted with the task of handling the documentation of the transfer.  This person must have access to the drafts of Popular and mistakenly used some of those drafts to implement the latter scheme and overlooked the fact that the latter scheme as implemented was different from the unused scheme. 

84.  Furthermore, the 1st defendant said in evidence that after he had agreed with the 3rd defendant on the purchase of shares, he told Ms Chung to engage Telesec to prepare the transfer documents.  If that was the case, how come that there is the set of draft papers prepared by Popular for transferring 60,000 shares to the 4th defendant and 40,000 shares to him.  The new directors and new secretary as stated therein are also different.  I do not think the 3rd defendant and/or Ms Chung would have instructed Popular to prepare these transfer documents for a different scheme without the knowledge or consent of the 1st defendant.  The 1st defendant could not explain why Popular was engaged to prepare this other set of documents.  Someone had to pay Popular for the redundant work.  There was also the error of some papers prepared by Popular being wrongly used in the scheme as implemented.  The 1st defendant’s only answer to these questions was that he did not know.

85.  There is some evidence of two invoices of Popular each for over $50,000 which were issued to the 1st defendant and paid by Ms Chung.  Since the invoices were not produced and I do not know what work they were for, I make no finding about them.

The plaintiff’s meeting with Ren in 2002 and Ren’s evidence

86.  Counsel also attacked the plaintiff’s evidence on his two meetings with Ren in 2002.  For the first meeting in May/June 2002, counsel criticized the brevity of the plaintiff’s reference to it in his witness statement with important details only came out in his oral evidence.  Counsel also highlighted the plaintiff’s failure to put the matter on record. 

87.  Regarding the plaintiff’s second meeting with Ren at the end of 2002, counsel said that the plaintiff did not provide in his witness statement the date and place of the meeting and the fact that his friend Liu was also present.  Counsel also said that this meeting, in which Ren allegedly showed him the Authorization, was not referred to in contemporaneous documents or his CCB interview.  The plaintiff had also told the Companies Registry and the police in interviews that he had never seen the Authorization.  When cross-examined on this, he said that when he gave this answer to the Companies Registry and the police, he only meant that he did not make the Authorization.

88.  The contemporaneous documents that counsel referred to are the letters to the Government Departments and Telesec.  The plaintiff said in these letters that he had not transferred the shares.  Since the transfer documents in question all bear signatures purportedly made by him personally and not appeared to be signed by his attorney or agent, I do not see why he should have referred to the Authorization in these letters and gone on to explain that he had not given it to his brother and his signatures were forged.  That would be a complicated story which the addressees of the letters need not be told.

89.  Counsel also said that Ren’s evidence that there were no such meetings should be preferred as Ren was an independent witness who was compelled to attend the hearing by a subpoena and he was firm on his evidence.  I doubt if Ren was really an independent witness.  He had been in the 1st defendant’s employ for possibly up to 20 years.  He made a simple denial regarding the two meetings in 2002.  For a simple denial, it is easy to stay firm.

90.  Furthermore, the evidence of the 1st defendant and Ren on the passing of documents to the 3rd defendant for signatures is also problematic.  In so far as the 1st defendant was concerned, the transfers of the Creation Shell shares to him and his wife were of utmost importance as he needed the control of Creation Shell before he could develop the Land.  He had by the Sale Agreement and the Tripartite Agreement already incurred liabilities of about RMB8,500,000, but still could not start with the development.  He needed the control of Creation Shell.  If he was acquiring the shares of Creation Shell in a bona fide manner, he should have made sure that the transfer procedure was properly carried out.  Since he said he had taken the Authorization on 16 March 2002 and believed that it was a genuine document, he could have arranged for the 3rd defendant to meet Ms Chung or an employee of Telesec so as to sign the documents for himself and for the plaintiff.  If the Authorization was good enough to enable the 3rd defendant to sign the Tripartite Agreement on behalf of Creation Shell and in place of the plaintiff as the legal representative of Creation Shell, it would also have been good enough to enable the 3rd defendant to sign the share transfer documents on behalf of the plaintiff.  If the 1st defendant should have so arranged, there would have been no risk of error of execution or loss of document.  I see no reason why the 1st defendant should have adopted the casual way of passing the documents to the 3rd defendant through Ren.

91.  Furthermore, Ren could not read English.  He could not read the documents.  In his evidence, he did not count the documents or check the plaintiff’s signature against the signature in the copy Authorization allegedly in his possession.  He just released the HK$60,000 to the 3rd defendant upon telephone confirmation from the 1st defendant.  The 1st defendant had not had sight of the documents as signed when the money was released.  He also did not get a receipt from the 3rd defendant for the HK$60,000.  He said some of the RMB1,500,000 payable to the 3rd defendant under the Sale Agreement was still outstanding and the 1st defendant could have recourse against the 3rd defendant if anything should have gone wrong.  But that would not be sufficient comfort to the 1st defendant when what the 1st defendant needed was the control of Creation Shell to commence with his multi-million dollar development project.

92.  I therefore do not believe that the 1st defendant had asked Ren to pass the documents to the 3rd defendant for signature.  If he was acquiring the shares bona fide, it was too important a task for him to have so arranged.  I also do not believe in Ren’s evidence.  If he should have been instructed by the 1st defendant to carry out this task, he would not have discharged his task in so casual a manner as he said. 

93.  I also find Ren is of poor credibility and reject his evidence as a whole in so far as it is in conflict with the plaintiff’s evidence.  I prefer the plaintiff’s evidence that he had met Ren twice in 2002 and was shown a copy of the Authorization by Ren in the second meeting.

Qiao’s evidence

94.  I do not overlook the evidence of Qiao.  But even if the Authorization was produced on 16 March 2002 and relied on by China Eastern Assets in the execution of the Tripartite Agreement, it does not necessarily mean that it was genuine or that the 1st defendant believed it to be genuine.  For Yinxin and China Eastern Assets, they would suffer nothing even if the Authorization was a faked one as they were at the receiving end in the Tripartite Agreement.  They were not assuming any obligation.  So they were not assuming any risks of misfortune if the Authorization should turn out to be a faked one.

The signatures were purportedly by the plaintiff, not his agent

95.  Furthermore, the 1st defendant’s case that the transfer documents were executed by the 3rd defendant for the plaintiff by virtue of the Authorization is also problematic.  The purported signatures of the plaintiff in fact appear to be made by the plaintiff personally.  I see no reason why an agent/attorney would have signed in a manner to make the reader of the document think that the signature was by the principal personally and not by the agent/attorney.  There is an element of deception here.  If the 3rd defendant was exercising a bona fide authority under the Authorization, I do not believe that he would have signed in a deceptive way to make the reader think that the documents were in fact signed by the plaintiff himself.

Consistency of the plaintiff’s case

96.  The plaintiff’s evidence indeed has some imperfections as pointed out by counsel for the 1st, 2nd and 4th defendants.  However, there is overall consistency with his case that he had never made the Authorization and had not agreed to sell his 60% shares in Creation Shell to the 1st or 4th defendant.  The imperfections can be explained by the long lapse of time. 

97.  Furthermore, the fact that the 3rd defendant had taken the trouble of delivering the share transfer documents prepared by Popular to the plaintiff for his signatures is also consistent with his case that he had not given the 3rd defendant the Authorization.  If he had already given the 3rd defendant the Authorization, the 3rd defendant would not have to take the documents to him for signature.  The 3rd defendant could have just informed him about the agreement of sale of shares and then signed the documents on his behalf by virtue of the Authorization.  Besides, the fact that he was contented just to keep those documents and did not think that the 3rd defendant would sign them for him by virtue of his authorization is also consistent with his case that he had not given the Authorization.   

98.  There were indeed imperfections and non-essential inconsistencies in the plaintiff’s evidence overall.  His mentioning of authorization(s) in his letter to Popular dated 22 November 2002 also creates difficulty.  However, looking at his evidence as a whole and in the light of my analysis above, I accept his case on a balance of probability.  I find that he had not made the Authorization and the Authorization was fabricated on a letterhead of AW Development which he had signed in blank previously.

No confirmation by the 1st defendant with the plaintiff

99.  The 1st defendant had not confirmed with the plaintiff on the existence or validity of the Authorization or the terms of the Sale Agreement or the Tripartite Agreement.  He admitted that the plaintiff was just a telephone call away.  He had indeed taken the trouble of confirming with a lawyer in the Mainland on the validity of the Authorization, but he did not say why he could not explain why he did not do so with the plaintiff.  This was particularly so as the Authorization was an irrevocable one but was not made before a notary or in any way notarized.  His excuse was that he was negligent.  But he was a successful businessman and the person in control of a listed company in Hong Kong.  I do not believe that he could have been so careless.  This was particularly so when the validity of the Authorization was of grave importance to his development of the Land.  The Sale Agreement and the Tripartite Agreement were also very important to him as he was going to invest millions of RMB pursuant to them.  He also did not confirm their terms with the plaintiff before signing.

100.  If the 1st defendant was going about this business of acquiring Creation Shell and the interest in the Land bona fide, he had no reason not to get in touch with the plaintiff and confirm with him on all the important matters like the Authorization and the two agreements.  Yinxin or China Eastern Assets might not have found it important to telephone the plaintiff for confirmation as they were not acquainted with the plaintiff and could not tell who would be at the other end of the telephone call.  They were also not assuming any liability in the Tripartite Agreement.  But the 1st defendant was different.  He was acquainted with the plaintiff and a confirmation on the phone could have avoided the risks of subsequent disputes. 

101.  Furthermore, the 1st defendant and his wife had emphasized in their evidence their mistrust of Lam, the plaintiff and the 3rd defendant.  He said the plaintiff had repeatedly failed to honour his promise to repay loans of money.  The more he and his wife mistrusted Lam, the plaintiff and the 3rd defendant, the more important it was for him to have prior confirmation with the plaintiff on the Authorization and the two agreements.  His failure to contact the plaintiff at all only reflects that he was aware that the Authorization was not genuine and the plaintiff was not aware of the terms of the Sale Agreement and the Tripartite Agreement.  I do not think he had acted bona fide in his dealings with the 3^rd defendant or his acquisition of the plaintiff’s shares in Creation Shell. 

Findings of fact

102.  In the light of my analyses above, I accept the evidence of the plaintiff and reject the evidence of the 1st defendant and Ren in so far as they are in conflict with the plaintiff’s evidence.  I accept Qiao’s evidence that he had seen the Authorization before the Tripartite Agreement was executed. 

103.  Since the 2nd defendant knew almost nothing, I find her evidence of little use save her mistrust of the plaintiff and the 1st defendant.  

104.  I find that the plaintiff had signed at least one letterhead of AW Development in blank for use of the 3rd defendant in or before 1995.  The 3rd defendant then used it to make the Authorization without knowledge or consent of the plaintiff.  The 3rd defendant could have done so before the signing of the agreements between Creation Shell and Yinxin dated 9 and 31 October 1996.  Alternatively, he might have done it shortly before he signed the Tripartite Agreement on 16 March 2002. 

105.  The RMB1,500,000 was to pay for the development rights of the Land as well as the transfer of Creation Shell shares.  This was recorded in a document marked LS-17 and referred to in the transcript of interview of the 1st defendant by the CCB.  There was no separate payment of cash of HK$40,000 and HK$60,000.

106.  The share transfer documents of Popular were prepared on the instructions of the 1st defendant.  The 1st defendant had at that time directed that 60,000 shares of Creation Shell be transferred to the 4th defendant, 40,000 shares be transferred to him, he and the 4th defendant would be made the new directors and Ms Chung, the new secretary.  The 3rd defendant then took these documents to the plaintiff for signature.  But he dared not disclose to the plaintiff that he had already agreed with the 1st defendant to sell everything of and in Creation Shell to the 1st defendant for RMB1,500,000.  After the plaintiff had refused to sign the documents and kept them, he then told Mrs Mak of Popular that he had lost the documents and asked her to produce a new set of the same.

107.  Mrs Mak duly acceded to the request and provided the new documents to the 1st and/or 3rd defendants.  However, after the plaintiff had told Mrs Mak on the telephone sometime in May 2002 that he had not agreed to sell the shares, Mrs Mak did not proceed with the transfer procedure.  The 1st defendant then resorted to the service of Telesec.  But for some reasons he changed his mind on the transferees and the composition of the new board.  He instructed that 60,000 shares should be transferred to him, 40,000 shares to his wife, he and his wife would be the new directors and his wife would be the new secretary.  This relieved Ms Chung from the office of secretary. 

108.  The 3rd defendant then signed the documents for himself.  The plaintiff’s signatures were then forged on them.  I do not know who actually made the forgeries.  But I find that both the 1st and 3rd defendants knew about their making and they were made pursuant to the conspiracy of the 1st and 3rd defendants to harm the plaintiff’s interest. 

109.  The 1st defendant interposed Ren between him and the 3rd defendant in his defense in this action just to distance himself from the forgeries, but I reject this evidence of the 1st defendant and Ren.  I further find that if the Authorization was made by the plaintiff and given to the 1st defendant bona fide, the 1st defendant would have confirmed with the plaintiff on its existence and validity.  The 3rd defendant would also have signed the transfer documents on the plaintiff’s behalf by relying on the Authorization.  In that event, the signatures would not bear such striking resemblance to the signatures of the plaintiff.  Such resemblance is the result of efforts of forgery.  Both the 1st and 3rd defendants knew that the Authorization was not genuine and they conspired to forge the plaintiff’s signatures on these documents to enable the 1st defendant to take over Creation Shell and the development of the Land.

JUDGMENT

110.  In the light of my findings above, I declare that the signatures purportedly made by the plaintiff on the 10 documents referred to in paragraphs 5 and 6 above are not the plaintiff’s but are forged signatures.  These documents are invalid to the extent of their validity being dependent upon the genuineness of the plaintiff’s signatures.

111.  I further declare that the plaintiff has not transferred or sold his 60,000 shares in Creation Shell to the 1st defendant and is still the owner of these shares.  I also declare that the plaintiff is still a director and the secretary of Creation Shell.  I also declare that the board of Creation Shell has not approved the transfer of its 40,000 shares from the 3rd defendant to the 2nd defendant or the appointments of the 1st and 2nd defendants as its new directors or the 2nd defendant its new secretary.  I further order that the register of members, the register of directors and the register of secretary of Creation Shell be rectified accordingly.  I also order the 1st and 2nd defendants to deliver up all the books and accounts of Creation Shell to the board of Creation Shell.

112.  I also direct that notice of the rectification of the register of members ordered herein be given to the Registrar of Companies pursuant to section 100(4) of the Companies Ordinance, Cap. 32.

113.  Finally, I make an order nisi that the 1st, 2nd and 4th defendants do pay the costs of this action to the plaintiff.