HIGHFIT DEVELOPMENT CO LTD (In Liquidation) v. KOO SIU YING AND OTHERS

HCA 494/2015

[2025] HKCFI 2775

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 494 OF 2015

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BETWEEN

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J U D G M E N T

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Background

1.  In these proceedings, the liquidator of Highfit Development Co Ltd (“Company”) seeks relief in respect of a sale by the Company 25 years ago of its entire shareholding and interests in a Mainland company, Shanghai Huifa Property Co Ltd (“HF”) (“Transaction”). HF held the land use rights in 41 Hengshan Road in Shanghai (“Land”) and in the residential building constructed thereon known as Gee House. It is claimed that the Transaction was at undervalue and was entered into by its directors, the 1^st and 2^nd Defendants herein, in breach of their fiduciary duties owed to the Company, and in breach of trust. According to the liquidator, the Company’s 100% shareholding in HF was transferred to the 3^rd Defendant (“HHL”), a company owned by the 1^st and 2^nd Defendants, in circumstances when the Company never received any consideration for the disposal of its valuable assets, and when the 1^st and 2^nd Defendants had interests in HHL. It is also claimed that the 1^st and 2^nd Defendants caused the Company at the time of the Transaction to waive the substantial shareholder’s loans owed by HF to the Company. On these grounds, the liquidator claims that the 1^st and 2^nd Defendants had acted in breach of fiduciary duties, and that the Company is entitled to equitable compensation from the Defendants for their breach of duties and fraudulent breach of trust.

2.  The Company was incorporated in Hong Kong in April 1991. Its first directors and the only shareholders were the late Mr Lim Por Yen (“Lim”), and Madam Koo Siu Ying (“Koo”) who was recognized as his third wife by customary law (the 1^st Defendant in these proceedings). Lim was a well-known businessman in Hong Kong until his death in February 2005. The notes made by Hang Seng Bank (“HSB”), a prominent bank in Hong Kong, in an application form (for a credit card) submitted by the Company to HSB in August 1992 reflect the public perception of Lim at the material time:

“(Lim), a director of the above company, is a well-known prominent merchant in Hong Kong, also a director of Lai Sun garment factory and Asia Television Limited, with substantial financial strength. The worth of (Lim’s) family and group members are estimated in the billions.”

Lim was described by HSB then as the Chairman of the Company, Koo as the director, and Lai Sun Garment (International) Limited was described as the “Introducer” of the applicant for the credit card.

3.  From July 1991, Lim and Koo each held one share in the Company, and they were its directors since June 1991. Under the shareholding structure of the Company in place from September 1992, Koo had been holding 94.999% of the shares, Lim had been holding 0.01%, and the balance 5% had been held by their daughter, Ling Meng Chu Pearl (“Pearl”), who is the 2^nd Defendant herein.

4.  It is not disputed, that in 1992, the Company became the foreign investor/shareholder in a joint venture with a Mainland partner to acquire the Land and to develop Gee House thereon. There was an initial agreement with a Shanghai shareholder for the development of Gee House, and the two joint venture parties entered into a land use right agreement with the Shanghai authority, to acquire the land use rights for approximately US$2.5 million. HF was incorporated as the joint venture vehicle for the Company and the Shanghai shareholder to develop the Land and Gee House, with the Company holding 60% and the Shanghai shareholder holding 40% of the HF shareholding.

5.  On its incorporation, HF had 5 directors including representatives from the Shanghai shareholder, and Koo was Chairman. A separate Mainland company (“ZM”) was incorporated around the same time, for the Company and the Shanghai shareholder to jointly develop a sports club on a site adjacent to the Land, known as the Gee Club.

6.  Further directors were appointed to the board of the Company in 1994 and 1995. These included Pearl, Ling Wai Kwan Eric (“Eric”, the son of Lim and Koo), and others.

7.  Some time in January 1996, the Company acquired the 35% interest of the Shanghai shareholder, such that it held 95% of the shareholding of HF. In December 1997, the registered share capital of HF was increased from US$12.97 million to US$30 million, and with the Company contributing solely to the additional capital, the interests of the Shanghai shareholder were diluted from 5% to 2.16%. Later, in September 1999, the Company acquired this remaining 2.16% shareholding of the Shanghai shareholder, and became the sole shareholder of HF.

8.  As at 31 December 1999, the net asset value of HF was stated in its 1999 audit report to be RMB 164,290,215.64. As HF’s business was the holding and development of the Land, its income, receivables and expenses were all related to the Land and the construction of Gee House.

The Gee House development

9.  The liquidator of the Company claims that since its inception, Gee House was intended to be a unique and luxurious residential development, purported to be unprecedented in Shanghai at the relevant time.

10.  Below sets out the Plaintiff’s own description of its case against the Defendants.

11.  According to the Company as Plaintiff, Koo, Pearl and Eric controlled the development of Gee House (“Project”). Koo was the legal representative and chairperson of HF, the joint venture vehicle, and was responsible for all major external dealings, including dealings with the Shanghai shareholder. Pearl was in charge of the conceptual and aesthetic design of Gee House and Gee Club, and she decided on the architects to employ, and supervised and worked with the architects and other professionals to execute and deliver her design. Eric was the general manager of HF with overall responsibility over the day-to-day operations and management as well as the financial matters of HF. Costing, budgets, requests and justification for funds had to be signed off by Eric. The professionals engaged to execute the development of Gee House were under the oversight and supervision of Koo, Pearl and Eric who had overall control over the project.

12.  Gee House was originally intended to be completed within 2 to 3 years, for sales to take place thereafter. The superstructure had been completed by 1996/1997, and pre-sale of Gee House commenced in 1995. However, the internal renovation and decoration works took much longer than anticipated, and renovation was still ongoing by 2000. As a result, some pre-sale purchasers demanded the return of their deposits paid with interest, and refunds were made by the Company using loans from Lim.

13.  The construction and development of Gee House was initially financed by: the Company borrowing from HSB on overdraft facility of HK$49 million, which was increased to HK$140 million in 1995, which the Company on-lent to HF; and HF borrowing from HSBC. Both the HSB overdraft and the HSBC facilities were secured by personal guarantees which were given by Lim. Koo and Pearl were the only authorized signatories of the HSB and HSBC bank accounts. These are not disputed by Koo and Pearl.

14.  As part of the security package for HSBC’s loans to HF, both the Land and Gee House were mortgaged to HSBC. The mortgage documents contain covenants by the Company not to sell or transfer any rights covered by the mortgage, or to assign any of its rights or interests under the mortgage agreement, which rights included the Company’s ownership rights and interests under its joint venture agreement with the Shanghai shareholder, as well as its rights, ownership and investments in HF including the shares in HF. These obligations were guaranteed by Lim personally.

15.  By late 1995/early 1996, the external financing of the Project was exhausted, but the internal renovation of Gee House was still ongoing (and was not completed even by 2000). Gee House could not be sold to generate income, and costs were escalating. On the Plaintiff’s case, personal loans were made by Lim from 1996, in order to keep the Gee House Project going. Transfers of substantial sums were made by Lim to the Company on a regular basis, ranging from HK$4 million to HK$30 million for each payment. The Plaintiff claims that these were all loans made by Lim to the Company, to be repaid with monthly interest.

16.  Lim was then implicated in a bribery case in Taiwan, and was arrested and detained when he entered Taiwan on 16 February 1997. It was not known at that time whether and when Lim could return to Hong Kong.

17.  When news broke of Lim’s detention. the Company came under pressure from the banks in Hong Kong with regard to its outstanding loans, which were guaranteed by Lim. Meetings had to be held with HSBC to discuss repayment of the loans from the sale of Gee House, which meetings were attended by Pearl and Tim Ho (Lim’s personal assistant/chief accountant, and an employee of the Lai Sun Group). The banks continued to pursue repayment throughout and after 2000.

18.  It was only in February 1999, that Lim was allowed to leave Taiwan and return to Hong Kong. According to the Plaintiff, after Lim’s return, there were no further advances of loans from Lim to the Company, save for a few insubstantial sums. According to the liquidator, Lim insisted that the loans which he had already made should be properly documented, and he also made it clear to Koo and Pearl that they could no longer rely on him for funding, and that they would have to resolve issues concerning Gee House themselves. According to Pearl, Lim considered, upon his return to Hong Kong, that he had lost a lot of his wealth.

19.  It is therefore the liquidator’s case that because of the much delayed completion of the Gee House, the escalating renovation costs, and the fact that Lim was refusing to lend further sums at a time when the banks were pressing for repayment of the substantial loans due from the Company, Koo and Pearl thereupon took it upon themselves to take steps to protect themselves from the risks of the banks enforcing their claims against the Company and Gee House. This involved siphoning off HF’s assets to their own companies, in order to keep them outside the reach of the banks, and knowing that the banks could not go after Koo and Pearl personally, when they had never given any guarantees for the borrowings of the Company and HF.

The impugned Transaction

20.  By May 2000, the Company had exceeded its overdraft limit with HSB (of HK$140 million) by HK$8.9 million. On 12 May 2000, HSB demanded the Company to rectify this and to repay the excess of HK$8.9 million, or to submit a repayment plan. Lim executed an additional guarantee in favor of HSB for HK$155 million, on 19 May 2000. However, HSB did not consider this to be sufficient, and on 25 May 2000, it demanded that any excess of the overdraft of HK$140 million must be repaid immediately, or topped up with security.

21.  In response, the liquidator highlighted that Pearl signed a letter on 1 September 2000, apologizing to HSB, and stating that the Company would endeavor to make repayment after mid-2001, in accordance with a repayment schedule to be worked out.

22.  The liquidator further highlighted the fact that on 30 May 2000, a BVI shelf company changed its name to “Highfit Holdings Limited”, ie HHL (the 3^rd Defendant), of which Koo and Pearl were its only shareholders and directors.

23.  Koo, Pearl and Eric then signed what purported to be minutes of a board meeting of the Company which was held on 24 July 2000, resolving to convene an EGM of the Company on 7 September 2000 (“EGM”), to pass a resolution that the Company’s investment and interest in HF be sold to HHL for HK$192,369,835 (“Consideration”). There is no dispute, that no board meeting of the Company was ever held. There was only a resolution in writing which was signed by Koo, Pearl and Eric, for himself and for another director Ronald Suen. At that point in time, the Company had 7 directors.

24.  On 7 September 2000, Koo and Pearl (as shareholders of the Company) then purported to resolve at an EGM that the Company’s investment and interest in HF be sold to HHL at the Consideration (“EGM Resolution”). Purported minutes of the EGM were signed by Koo and Pearl.

25.  Nor is it disputed that Koo, Pearl and Eric then signed what purported to be minutes of a board meeting of the Company held on 8 September 2000 (when no meeting had actually been held) to resolve to sell the Company’s interest in HF to HHL at the Consideration, pursuant to the EGM Resolution, and authorizing Koo to sign documents on the Company’s behalf.

26.  On 8 September 2000, Koo signed on behalf of the Company a written agreement for the sale of all of the Company’s interest in HF to HHL for the Consideration (“SPA”).

27.  The SPA contains the following provisions:

“Clause 3 Payment

The share transfer price under this Agreement is HK$192,369,835. Party B shall pay the sum to Party A after this Agreement has been signed and approved by the Company’s existing approval authority, the business registration has been renewed, and the Company has obtained a new business license. Party B agrees to pay in full within one year after the completion of the aforesaid procedures. If Party B faces difficulties, both parties shall negotiate for changes.

Clause 6 Parties’ rights and obligations

Party A:

To receive the entire amount of share transfer price from Party B in accordance with this Agreement, no longer assume any obligations owed to the Company, and no longer assert any rights against the Company; to provide the materials required for the approval, filing and other procedures involved in respect of the share transfer. To be responsible for the submission, approval, and registration procedures for the share transfer.

Party B:

To be responsible for bearing the actual Loss and Bad Debts incurred by the Company before the share transfer takes effect, assist in handling the Approved Matters of this Agreement and the Company’s change of registration, and settle the share transfer price in accordance with this Agreement in a timely manner.

After this Agreement is approved by the existing approval authority of the Company, Party B shall enjoy all the rights in and bear all obligations to the Company that Party A originally enjoyed and bore.”

28.  According to the liquidator, on the face of the available bank statements of the Company, there is no evidence of the Consideration having been paid to the Company.

29.  Further, although the audited financial statements of HF clearly show that HF owed substantial shareholder’s loans to the Company, there is no further record after the Transaction of the shareholder’s loan recorded as being owed to the Company in the 2000 audited financial statements of HF. The liquidator referred to HF’s 1997 audited financial statements, which record “other payables” and “long-term payables” of RMB 368,364,162.10 due from HF to the Company; and HF’s 1999 audited financial statements, which record a shareholder’s loan of RMB 304,914,317.57 due to the Company (“Shareholder Loan/Indebtedness”). In the 2000 audited financial statements of HF, there was no longer any record of the Shareholder Loan, apart from a sum of RMB 99,022,419.31 as being owed to HHL.

30.  On the liquidator’s case, HF’s records show that it was no longer indebted to the Company for the Shareholder Loan, and that either the debt due to the Company was discharged and HHL advanced loans totaling RMB 99 million to HF; or the debt due to the Company was partially assigned to HHL (in the sum of RMB 99 million), with the balance discharged; and the whole of the long-term payables due to the Company had disappeared, suggesting that the liability had been discharged. The liquidator highlighted the fact that from the available bank statements of the Company for 1999 to 2000, the Company did not receive any repayment of the Shareholder Loan, such that it was not a case of repayment. The Company had no audited financial statements after 1995, so there was no evidence that HF remained liable to the Company for the Shareholder Loan after 2000.

31.  The liquidator therefore argued that the Company lost a highly valuable chose in action to claim the Shareholder Loan against HF, and that clause 6 of the SPA is consistent with the Company confirming that, pursuant to the SPA, it would no longer assert any rights vis-a-vis HF.

32.  Koo and Pearl were and remain the only shareholders and directors of HHL, a fact which is not disputed by them. HHL remains in operation and holds Gee House, with Koo being its legal representative and Chairman of HF, and Pearl being the Vice Chairman and director of HF.

33.  Matters became more acrimonious in and after 2001.

34.  By April 2001, the Company exceeded its overdraft limit with HSB, and pursuant to HSB’s demand for repayment of the excess, Lim made an advance of HK$7.6 million to the Company, which was applied to pay off the excess of the overdraft. On 25 April 2002, HSB again made demand for payment of the outstanding principal and interest, and Lim made a payment of approximately HK$12.7 million to HSB on 30 April 2002. However, HSB commenced legal proceedings against the Company on 6 May 2002 for the outstanding debt (“HCA 1700/2002”), whereupon the Company (under the control of Koo and Pearl) joined Lim as third party, claiming that he was personally responsible for the Company’s debt to HSB. HSB obtained summary judgment against the Company, and upon Lim’s payment of the judgment debt to HSB as guarantor, HSB’s claim against the Company was assigned to Lim.

35.  In the meantime, Lim also commenced proceedings against the Company and Koo in May 2002, to recover the loans he had advanced to the Company (“HCA 1942/2002”).

36.  Lim passed away in February 2005, and the sole executor named in Lim’s will obtained leave to carry on HCA 1700/2002 and HCA 1942/2002. In probate proceedings relating to Lim’s estate (“HCAP 4/2011”), Koo and Pearl challenged and disputed Lim’s last will dated 3 December 2004, under which Koo, Pearl and Eric were all disinherited. At the time of the trial of this action, judgment was pending in HCAP 4/2011, but as a matter of record, on 11 April 2025 (after the conclusion of the trial of this action), the Court handed down judgment in HCAP 4/2011, declaring Lim’s will of December 2004 to be invalid for lack of testamentary capacity and knowledge and approval.

37.  On 10 September 2008, the Company was wound up on the petition of a firm of solicitors for unpaid fees. On 29 April 2010, joint and several liquidators were appointed for the Company. Since 10 July 2013, Mr Bruno Arboit has been the sole liquidator.

38.  Between May and December 2010, the liquidators sought information from Koo and Pearl on the books and records and explanations concerning the Transaction, to no avail. In 2011, the liquidators applied for examination and disclosure orders against Koo and Pearl as former directors of the Company. Koo and Pearl attended interviews with the liquidators in November 2011 and February 2012, but provided little information. A further disclosure order was obtained from the Court in May 2012, and upon their default in compliance with the order, committal proceedings were commenced against Koo and Pearl in December 2012. They were found guilty of contempt, and fines of HK$200,000 were imposed on each of them. Documents of HF, HHL and ZM were disclosed to the liquidators in July 2013.

The pleaded claims and the defence

39.  The claims made against the Defendants in this action are that in causing the Company to enter into the Transaction, Koo and Pearl acted in breach of their fiduciary duties owed to the Company, in that the Consideration under the SPA is not a fair market value of the assets sold thereunder. According to HF’s audit report for the period ending 31 December 1999, in the financial year before the Transaction, the net asset value of HF was RMB 164,290,215.64, and the total amount of indebtedness was RMB 309,155,257.62 (HF’s total owners’ equity and account payable to the Company). As a result of the Transaction, and according to the Company’s audit report for the financial year ending 31 December 2000, the net asset value of HF was RMB 162,614,725.99, and there was no further indebtedness due from HF to the Company. On the Plaintiff’s case, the fair market value of the shareholding in HF as at 8 September 2000 was RMB 690,114,000, or HK$732,763,000, whereas the Consideration under the SPA was only HK$192,369,835, with a shortfall of HK$540,393,165. The assets of HF had been sold at a gross undervalue to HHL, which was wholly owned and controlled by Koo and Pearl.

40.  The liquidator claims that Lim had no notice of the Company’s purported board meeting of 24 July 2000, the EGM of 7 September 2000 and the board meeting on 8 September 2000. The liquidator further claims that Koo and Pearl had failed to disclose their interests in HHL at any of the aforesaid meetings, and that they failed to procure any independent valuation to determine the market value of the Company’s investment and interest in HF. According to the liquidator, Koo and Pearl caused the Company to enter into the Transaction, knowing that the assets sold were at gross undervalue, that the terms of the SPA were unreasonably favorable to HHL and not in the interests of the Company.

41.  The pleaded claims are that Koo and Pearl had wrongfully failed to comply with the Articles of Association of the Company, had engaged in self-dealing, placed themselves in a position where their personal interests conflict with those of the Company, failed to act bona fide in the interests of the Company, made secret profits, failed to exercise due care and skill in managing the affairs of the Company, and had exercised their powers as directors of the Company for improper purposes. At paragraph 22 of the Re-re-re-Amended Statement of Claim (“SOC”), the liquidator pleads that Koo and Pearl acted in breach of their fiduciary duties, and/or in breach of trust, by causing the Company to enter into the Transaction for the improper purpose of allowing their company (HHL) to obtain the investment and interest of the Company in HF “at gross undervalue or fictitious consideration”.

42.  By way of relief, the liquidator claims that Koo and Pearl are liable to compensate the Company for breach of fiduciary and/or trustee duties, to account to the Company, and that HHL hold all property and sums received as constructive trustee for the Company.

43.  In the SOC, the liquidator further claims that it is entitled to rely on section 20(1) of the Limitation Ordinance. It pleads in paragraph 24(1a) of the SOC that Koo and Pearl are liable to account to the Company for property or sums misappropriated by them in breach of fiduciary duties and/or breach of trust, including the shares in HF. The liquidator further pleads in paragraph 24C that the Company’s claim is in respect of the Defendants’ “fraudulent breach of a trust”, in that they had “deliberately failed to disclose to the Company’s board” that they were the sole directors and shareholders of HHL which stood to make a profit by virtue of the impugned Transaction. The SOC goes on to plead, at paragraph 24C(1)(vii) that the Court should infer that Koo and Pearl at all material times intended to conceal the impugned Transaction from Lim, and never intended to cause the Company to pay the Consideration. At paragraph 24C(2), the SOC pleads that the Company seeks recovery of trust property or the proceeds thereof in the possession of the Defendants, namely, the HF shares or their proceeds which are trust properties.

44.  In this context, I cannot accept the submissions made for the Defendants, that the cause of action in this case is somehow not based on “actual fraud”, or that fraud is not an essential, or pleaded, element in the action against Koo and Pearl for breach of fiduciary duty.

45.  As rightly contended for the Defendants, the allegations made against Koo and Pearl in this action are of serious misconduct. As such, the allegations against them must be pleaded with particularity, inferences of fraud are not to be reached by mere conjecture, and the Defendants must be given adequate notice of not only the allegations made against them but also of the facts relied upon to support the serious allegations made.

46.  Upon a fair reading of the SOC, it can be said that the Plaintiff has given to the Defendants in this case clear notice that the Plaintiff is asserting a case not only of fraudulent breach of trust on the part of Koo and Pearl, but also a case of fictitious consideration for the transfer of assets, of misappropriation, and concealment of their interests in HHL and of their secret profit. These are pleaded at paragraph 24C(1), and also at paragraph 21(5) to (6) of the SOC, where the Plaintiff expressly pleads that Koo and Pearl had caused or allowed Company to enter into the Transaction “knowing that the assets sold… were at a gross undervalue”, and “knowing that the terms of the SPA were unreasonably favorable to HHL and not in the interests of the Company”. At paragraph 22, the fictitious consideration is pleaded.

47.  As rightly pointed out by Counsel for the Plaintiff, a breach of trust within section 20(1)(a) of the Limitation Ordinance encompasses any breach of fiduciary duties of a director (First Subsea Ltd v Balltec Ltd, [2018] Ch 25, paras 62 - 63), and a “fraudulent” breach of trust can be sufficiently established if there is an absence of honesty or good faith. This covers a case where a director carried out an act in the knowledge that it would injure the company and with the intention that it should injure the company, or was reckless as to the consequences of the action complained of, or acts in a way which the director does not believe is in the interests of the company (First Subsea at para 64, and Cyberworks Audio Video Technology v Mei Ah (HK) Co Ltd [2020] HKCFI 398, paras 86 - 87).

48.  The only distinction made in First Subsea was between a fraudulent breach of trust, which connotes an absence of honesty or good faith, and a deliberate breach, which is not enough to constitute fraudulent breach (see para 64 of the judgment). The Court of Appeal accepted in First Subsea that a defendant would not be entitled to rely on the limitation defence if the alleged breaches of fiduciary duty were fraudulent.

49.  In Armitage v Nurse [1998] Ch 241, English Court of Appeal held that fraud means “actual fraud”, and explained succinctly that this simply means dishonesty which “connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to the interests or not”.

50.  Having pleaded that Koo and Pearl had procured the Transaction knowing that it would harm the Company, there is clearly a pleading of an absence of honesty or good faith, which is also expressly pleaded at paragraphs 17(1) and 21A(4) of the SOC. For the avoidance of any doubt, paragraph 24C(1) contains the express averment of a “fraudulent breach of trust”.

51.  On the face of the pleadings, when there is a plea of a breach of fiduciary duties with knowledge that the Transaction made in breach of such duties would injure the Company, I cannot accept that fraud, or the absence of honesty or good faith, has not been pleaded as an essential element in the Plaintiff’s cause of action against the Defendants in this case. Nor can I see any valid distinction between a plea of fraudulent breach of trust as a reason to rely on section 20(1)(a) of the Limitation Ordinance, and an allegation of fraud as a primary cause of action. In this case, a breach of fiduciary duties with knowledge of injury to the Company has been sufficiently pleaded as being the primary cause of action against Koo and Pearl for breach of fiduciary duties, and it has also been pleaded that the Plaintiff is entitled to rely on section 20(1)(a) of the Limitation Ordinance. The pleading has served its primary and important function of informing the Defendants that the Plaintiff relies on Koo’s and Pearl’s breach of fiduciary duties with the absence of honesty or good faith, and that the Plaintiff seeks to rely on section 20(1)(a) of the Ordinance to claim that there is fraudulent breach of trust.

52.  The key plank of the Defence as pleaded is that as between Lim on the one hand and Koo and Pearl on the other, the Company was itself a family arrangement and that as the patriarch of the family, Lim was throughout in de facto control of the Company, and of HHL after it was acquired. According to Koo and Pearl, it was Lim (and/or his staff, acting with his knowledge and authority) who had decided the terms of the Transaction and arranged for Koo and Pearl to sign all the papers in connection with the Transaction. Throughout these proceedings, Koo and Pearl maintain that they had simply followed Lim’s instructions and had acted in accordance with his wishes and decision with regard to what was in the best interests and for the purpose of the Company.

53.  Koo and Pearl accept that no physical meetings had been held for the Transaction, and that only the minutes/resolutions had been signed by them and by Eric. They claim that the Transaction was duly authorized by the Company by virtue of the EGM Resolution which specifically addressed, approved and authorized the Transaction. The minutes of the EGM recorded the attendance of Koo and Pearl, who as shareholders holding 99.999% of the shares of the Company resolved that the investment and interest of the Company in HF be sold to HHL for the Consideration. According to their Defence, the attendance of Koo and Pearl holding more than 51% of the paid-up capital of the Company would have constituted a sufficient forum for the EGM, as per Article 23 of the Company’s Articles.

54.  It was also contended for Koo and Pearl that the EGM Resolution clearly represented the unanimous consent of all the shareholders of the Company at the time (namely, Koo, Pearl and Lim) in approving and authorizing the Transaction. By application of the Duomatic principle, Koo and Pearl claim that they would not be in breach of any fiduciary or statutory duty owed to the Company by carrying out the act which the shareholders had agreed to orally, in writing, or by conduct (Shun Hing Holdings Co Ltd v Li Kwok Po David [2020] HKCA 309 at para 46, citing Sharma v Sharma [2014] BCC 73 at para 52).

55.  Although Lim himself did not sign the EGM Resolution, Koo and Pearl claim that he was in de facto control of the Company and of HHL, and was in reality the person who had engineered the Transaction, by deciding its terms and arranging for and procuring Koo and Pearl to sign the relevant papers therefor, including the EGM Resolution/Minutes. In so doing, it was argued that Lim had by his conduct given his clear assent to the Transaction, and that the Company’s shareholders had unanimously approved and authorized the Transaction. The EGM Resolution was subsequently confirmed at the board meeting of the Company on 8 September 2000, the minutes of which recorded the attendance of 4 out of 7 of the Company’s directors (Koo and Pearl, Eric and Ronald Suen), and that Lim must be taken also to have assented to the minutes by virtue of his de facto control and engineering of the terms of the Transaction.

56.  Koo and Pearl deny that they should be liable for breach of any fiduciary duty or breach of trust, which had been consented to by the shareholders, and claim that the Company is further estopped from alleging breach of fiduciary duties/breach of trust. They further deny that the Transaction was at undervalue, or that there was any foregoing of the Shareholder Loan/Indebtedness. They claim that the Consideration was above the book value of HF at the material time, which on the Plaintiff’s own case was RMB 164,219,215.64 as at 31 December 1999, and RMB 162,614,725.99 as at 31 December 2000. The Consideration of HK$192,369,835 was equivalent to RMB 204,258,290.80.

57.  Koo and Pearl further plead that the Plaintiff’s claims against them are all time-barred, when the proceedings issued in 2015 were commenced more than 6 years after the alleged breach of duties, which took place in 2000. Further or alternatively, they claim that the relief sought by the Company in respect of the alleged breaches should be refused by laches, or by reason of the Plaintiff’s acquiescence and delay.

58.  The issues in dispute as formulated by the parties can be summarized, as follows:

1. Whether Lim was in de facto control of the Company and engineered and/or procured the Transaction.

2. Whether the sale of the Company’s interest and investment in HF to HHL (ie the Transaction) was duly authorised by the Company by virtue of the EGM Resolution of 7 September 2000.

3. Whether Koo and Pearl were in breach of their fiduciary duties to the Company and/or in breach of trust.

4. If so, whether such breach (as found by the Court) had been acquiesced and/or waived and/or ratified and/or condoned by the Company by virtue of the EGM Resolution, an/or whether the Company is estopped from alleging such breach by virtue of the EGM Resolution.

5. Whether the Plaintiff’s causes of action are time-barred. In particular:

5.1 Whether Koo and Pearl acted in fraudulent breach of trust within the meaning of section 20(1)(a) of the Limitation Ordinance; and

5.2 Whether the Company’s action is to recover from the trustee(s) trust property or the proceeds thereof in the possession of the trustee(s), or previously received by the trustee(s) and converted to his use within the meaning of section 20(1)(b) of the Limitation Ordinance

6. The quantum of the Company’s loss as a result of the Transaction, and the relief (if any) that the Company is entitled to claim against Koo, Pearl and HHL. This includes issues of whether the Transaction was at an undervalue, and whether the agreed consideration for the Transaction was paid to the Company.

7. Whether the relief sought ought to be refused by reason of laches, acquiescence and/or delay of the Company in the commencement of this action.

59.  I agree with Counsel for the Defendants that it would be logical for the Court to resolve the issue as to Lim’s de facto control of the Company and his role in engineering and/or procuring the Transaction, before turning to the claims of whether there was breach of duties, and whether there could have been authorization of the Transaction by virtue of the EGM Resolution.

Lim’s position

60.  It should be made clear at the outset that since Lim passed away in February 2005, there is no direct evidence from him in these proceedings as to his intentions at the material time, and at different times, for the Company, the Project, and the advances made to the Company/Koo. There is evidence of letters issued in his name, or under his letterhead, in 2001, which were in Chinese. There is also evidence of letters issued by solicitors engaged to act for Lim.

61.  The parties have referred to an affirmation made by Lim in August 2002, in the third party proceedings instituted by the Company against him in 2002, after HSB had commenced HCA 1700/2002 against the Company for recovery of the loans made to the Company, and disputes had arisen between Lim and Koo/Pearl. The affirmation in question was made in English, which is not Lim’s mother tongue, and the translation/interpretation clause was signed by his adopted son from a different branch of the Lim family, rather than by a more independent solicitor. This has to be considered against the background, of disputes which had already arisen between the different branches of the Lim family over the control of companies holding Lim’s and the Lim family’s assets (and ultimately leading to the contested probate proceedings in relation to Lim’s will made in December 2004, where it was claimed that Lim had been under the undue influence of one branch of the Lim family (the so-called “Rival Beneficiaries”) at the time when he made his last will). It remains one of the assertions of Pearl in these proceedings, that members of the Rival Beneficiaries had controlled or influenced Lim’s claims against Koo and Pearl, or the claims made in his name, as well as the conduct of the legal proceedings which had been commenced in Lim’s name against Koo and Pearl, in an attempt either to take over the assets vested in the Company (in which only Koo and Pearl have beneficial interests), or to exert pressure on them, in the hope that Koo would be compelled to settle her claims to Lim’s estate. Further, it is noted from the Judgment of Au-Yeung J in HCMP 2749/2012 (to which the parties have referred in these proceedings) that the executor of Lim’s estate admitted himself that some of the legal proceedings involving the Company and Lim had indeed been funded by the Rival Beneficiaries.

62.  In Lim’s absence at trial, his intentions at the material time of the impugned transactions can only be presumed or inferred from the evidence described above and from whatever contemporaneous documentary evidence as may be available, against the opposing evidence and direct testimony of Koo, Pearl and Eric. And against the particular background and circumstances of the case, the reliability (or independence in nature) of some of the documentary evidence relied upon by the liquidator in this case should be tested.

63.  As part of the relevant factual matrix, it is not disputed that in 2001/2002, legal proceedings had been brought by Lim against Koo, third party proceedings had been initiated in the name of the Company (under the control of Koo and Pearl) against Lim, and in January 2003 Pearl also brought defamation proceedings against Lim in respect of statements which he made against her at a press conference. Pearl and Koo do not dispute that during that period when they were embroiled in litigation, there was a falling out and their relationship with Lim was more distant. They maintain however that prior to 2001, their relationship with Lim had always been good. Further, it is Pearl’s evidence in these proceedings that notwithstanding their falling out in 2001, Lim had initiated a reconciliation when he called Pearl in London in 2003, and (to her surprise) talked to her for 30 minutes about his business and personal matters. During this conversation, there was no mention at all of the legal actions which had been commenced, and later in 2003, Koo told Pearl that Lim had also called her and had suggested a dinner.

64.  Lim, Koo and Pearl did have a dinner in Shanghai, in late 2003, which was also attended by other guests. This was followed by another more private dinner at the Mandarin Grill in Hong Kong in November 2003. Over dinner, Lim talked with Koo and Pearl as usual, and told them that they would be taken care of and protected by him. Again, there was no mention at all of any of the litigation or rancorous correspondence which had been exchanged between them. Lim even gave Koo a cheque for HK$50,000 and to Pearl, a cheque for HK$100,000 (which she did not accept as she did not consider it appropriate). According to Pearl, this was Lim’s manner of making peace with her and Koo, and that it was his way of apologizing and offering to put behind them their disputes and the difficulties they had experienced in their relationship in the past.

65.  I accept Pearl’s evidence in this regard, as to the meaning of Lim’s approaches to his wife and daughter in 2003. As a traditional Chinese patriarch, it was unlikely that Lim would have expressed any open apology, or made any overt offer to them for reconciliation (as that would have indicated a loss of face on his part). By taking the initiative of calling Pearl and Koo, having the dinner with them, and offering them the gifts of money, it was the only way he knew and the only thing he could do, to show his acceptance of Koo and Pearl into his life again, and it demonstrated that he was prepared to put the litigation and any hostility behind him, after the years of court proceedings and formal correspondence through lawyers.

66.  According to Pearl, Lim had also stated at a radio show after their “reconciliation”, when he was asked about an alleged loan to Pearl, that everything had (from his perspective) been settled. He also continued to speak to Koo on the telephone and initiated another dinner in May/June 2004, which had to be postponed when Lim had a fall and was injured. On Pearl’s evidence, Lim was by this time calling Koo four or five times a week.

67.  Koo’s evidence is that from June 2003, Lim had called her through Tim Ho (who was Lim’s chief accountant). Ho told Koo that Lim understood that she was unhappy about his litigation with the Company, and suggested that they should resolve their dispute. Ho also informed Koo that Lim wanted them to forget the past, and to meet up with them. The Shanghai dinner then took place, followed by the Mandarin Grill dinner in November 2003. According to Koo, these initiatives on Lim’s part demonstrated that he was regretful for having taken legal proceedings against her, and his payments to Koo and offered to Pearl were Lim’s expression of apology, and that he wanted a reconciliation.

68.  On Koo’s and Pearl’s evidence, the differences and any hostility between Lim and them had already been settled, and they had reconciled in 2003.

The nature of Lim’s funding

69.  On the Company’s pleaded case in this action, the financing for the Project was provided by Lim, who advanced over HK$551 million to the Company between 1994 and 2001, and through an overdraft facility of HK$140 million made available to the Company by HSB, which overdraft was secured by a personal guarantee from Lim. The liquidator of the Company claims that Lim’s advances were made as commercial loans to the Company, and were repayable with interest. According to the liquidator, this is supported by documents such as notes made of calculation of interest on the loans extended, and by copies of the cheques issued by the Company to Lim showing payments of monthly interest and of the principal of some of the loans. In HCA 1942/2002 which was commenced by Lim against the Company and Koo, Lim claimed and pleaded in the Statement of Claim that the principal loan extended as at May 2002 was HK$573,775,480, and that interest on the loans advanced by him to the Company was payable at 1.5% per month.

70.  In all the legal proceedings involving Lim, Koo and the Company, it has consistently been the case advanced by Koo that the Project had been financed by loans from Lim, but that these loans or advances made by Lim were gifts from Lim to Koo, and were not repayable by Koo. In the Defence filed in HCA 1700/2002 which was commenced by HCB against the Company for amounts due under the overdraft facility, the Company (through Koo) claimed that Lim had undertaken to assume sole and personal liability for repayment of the loans extended by HSB to the Company.

71.  In fact, in HCA 1942/2002 which was commenced by Lim against Koo and the Company for repayment of Lim’s loans totaling HK$1,009,185,969.32 (with interest), it was pleaded by Lim that the agreement between Lim and Koo was that the loans were to be repayable by the Company on demand, but only after the completion of the Project.

72.  On behalf of the liquidator and the Company, it was submitted that the contemporaneous documents that are available clearly show that Lim’s advances and transfers to the Company were all loans on which interest was payable. Counsel referred not only to the cheques issued by the Company over the years by way of payment of monthly interest, but highlighted the fact that whilst Lim was detained in Taiwan from late 1997 to early 1999, lawyers in Singapore had sent a fax to the Company on 10 September 1998, enclosing a draft loan agreement expressed to be for onward transmission to Pearl, with the intention of having the draft agreement translated for Lim’s perusal. The draft loan agreement set out the Company’s borrowing of US$56,308,725.57 from Lim, and terms of repayment of the principal within 5 years, with an unspecified rate of interest.

73.  I cannot place a lot of weight on this document. Objectively, and without further evidence from any other witness (and there was none), the fax and the draft agreement can, at most, show that someone had instructed the lawyers to prepare an agreement to record the relevant amount as a loan from Lim to the Company, but the draft was intended for Lim’s perusal, and for his perusal only, and there is no other evidence that Lim himself had either given instructions on the contents of the draft agreement before the date of the fax, or agreed to the contents of the draft either before or after the date of the fax: that it was a loan, repayable on the terms set out, and that interest was payable (since the rate was left in blank in the draft).

74.  It is not disputed, that the draft loan agreement was never formalized and never signed. This may well be due to the fact that Lim did not consider that the draft accurately reflected the nature of his arrangement with Koo, with regard to the funding which he had provided for the Company.

75.  The liquidator also referred to an acknowledgment signed by Koo on 17 August 1999, admitting that Lim had paid construction costs for the Company in 1999 and had made advances. There is a further note dated 3 December 1999 signed by Koo as Chairman of the Company, addressed to Lim, and acknowledging Lim’s payments to HSBC on the Company’s behalf, on 18 September and 18 November 1999, of the respective sums of US$1,655,000 and US$1 million, and that a further sum of US$1,904,112.99 would shortly be paid. Koo undertook by such note to repay the Company’s debts to Lim if “any properties” of the Company were sold, and the bank loans had been repaid in priority. These are more probative of the fact that the advances made by Lim at the relevant time and referred to in the acknowledgment were considered and agreed to be loans which were repayable – but on the terms that the repayment to Lim would be made after the property in question (Gee House) had been sold, and after the bank loans had been repaid. This is consistent with Lim’s pleaded case in HCA 1942/2002, that the agreement between Lim and Koo was that the loans Lim had made to the Company were to be repayable by the Company on demand, after the completion of the Project.

76.  On behalf of Koo and Pearl, Counsel contended that the above notes only reflected a one-off arrangement with regard to the specific construction fees in 1999 which were referred to, and cannot evidence any general agreement in relation to the entire funding provided by Lim to the Company over the years, or any acknowledgment that all these advances were considered to be loans. On the face of the acknowledgment, I agree.

77.  Further, with regard to the hand written notes on the pay-in slips, referring to the “transfers”, “payments”, “advances” and “deposits” made, and on calculation of interests, I accept the submissions made for Koo and Pearl, that firstly, there is no evidence as to who made these notes, and secondly, that the language used is ambiguous. It is very likely that the notes in question were made by Lim’s staff, who were unlikely to possess any true knowledge of the arrangement between Lim and Koo with regard to the funds provided by Lim. As Counsel for Koo and Pearl pointed out, what mattered to the staff making the notes was that the funds were transferred to the Company upon Lim’s instructions, and it did not matter to them, whether the advances, deposits or payments were in the nature of a gift, or a loan, and how and whether they were described as such.

78.  I have also borne in mind the valid point made by Counsel for Koo and Pearl, that the loans from the Company to HF and how they are recorded in the financial statements of HF is separate to the question of any loans from Lim to the Company. If money was advanced by Lim to the Company as a gift to Koo, it could nonetheless have been on-lent by the Company to HF. On the other hand, the forgiving or waiver of the Company’s loan to HF does not mean necessarily the forgiving or waiver of any loan made by Lim to the Company.

79.  Despite the dispute between the parties and the evidence referred to at trial as to the nature of the advances made by Lim to Koo/the Company, this Court has not been asked to decide this dispute in these proceedings. This action was not commenced to seek payment of the loans due to Lim or his estate. The claim is for alleged breach of fiduciary duties on the part of Koo and Pearl, for their role in the Transaction which had the effect of divesting the Company of its valuable interests in the Project and the Shareholder Loan/Indebtedness due from HF to the Company. The loans made by Lim comprise part of the background, to explain (according to the liquidator) why the Transaction was devised by Koo and Pearl, as a result of the pressures exerted by Lim and by the banks on them and on the Company, by reason of the debts due to them. The essential issue for determination in these proceedings is whether Koo and Pearl decided on and implemented the Transaction, without the knowledge and consent of Lim, and were in breach of their duties to the Company, by causing the Company to enter into the Transaction, knowing that it was not in the best interests of the Company (paragraph 21(6) of the SOC), and was for the improper purpose of allowing their own company (HHL) to obtain the Company’s interests in HF at undervalue, or for a fictitious consideration (paragraph 22 of the SOC). The nature of Lim’s funding is relevant to the consideration of the inherent probabilities of the parties’ respective case.

Lim’s control of the Company and the Project

80.  By the time of trial, Koo was too infirmed to give any lengthy testimony. In Koo’s witness statement filed in these proceedings, which was made in January 2016, she claimed that she met Lim when she was 15 years old, at a time when Lim was married to his first wife, Lai. There is no dispute that Lim had cohabited with Koo since the 1950s, and had provided for Koo and their two children throughout, although he sought to deny in HCA 1700/2002 that they had undergone any form of marriage.

81.  Lim was a very wealthy man by the 1990s, and was known for his investment in the Lai Sun Group of companies which extended to different sectors of business. As Koo had not received any formal education in Shanghai where she was born, nor in Hong Kong where she settled in 1949, she remained a housewife and was entirely dependent upon Lim throughout their relationship, until it took a downturn in 2001/2002, as a result of the litigation referred to above. Koo was never involved in managing Lim’s businesses in Hong Kong.

82.  Koo claims that she had expressed concerns to Lim over the future of Hong Kong in the late 1980s, when she asked Lim to provide funds for her to acquire property overseas, as he had done for other members of the Lim family. Lim encouraged her to revisit Shanghai, and to acquire property in Shanghai for development. The Hengshan Road property was considered suitable for development, and Lim agreed to provide Koo with money to finance the purchase and redevelopment of the Land. According to Koo, the Project was intended by Lim to be a gift to her, since she was not interested in accepting shares of the Lai Sun Group which had been offered to her. As the Project was a gift to Koo, Lim arranged for the Company to hold the Project, and for Koo to be made a shareholder and director. However, Koo had never attended any formal meetings of the Company, and had never participated in its management, since everything had been managed and operated by Lim and his staff, and it was Lim who controlled the Company in fact.

83.  Pearl (who had been abroad) was made a director of the Company in 1994, when Lim asked her to spend more time in Hong Kong and to help in the Project. According to the evidence of both Koo and Pearl, they had been habitually signing documents in relation to matters of the Company, all upon Lim’s requests and by arrangements made through Lim’s staff. Documents would routinely be prepared by Lim and his staff, and sent to Koo and Pearl, and they would simply sign in the spaces indicated, without any questions asked. Koo explained that this was because she would not be able to understand the contents of business documents, and she was confident that Lim would be taking good care of everything, and would only ask her to do what was necessary and in the interests of the Company.

84.  Pearl likewise claims that she had taken no interest in the financial matters of the Company, and had only been asked by Lim to help in the Project since it was her mother’s. She had never been involved in Lim’s business interests, and had only been asked to return to Hong Kong from the United Kingdom to assist in the design aspects of the Gee House development, while her father remained in control and took care of the finances, assisted by his trusted staff. She maintained that she did not pay attention to the contents of the documents which she was asked to sign for the Company, since these documents were normally prepared by Lim’s staff and would be brought to her for signature only, which she did, without raising any query with Lim. She signed the documents prepared as matters of formality as she fully trusted her father’s judgment, and was accustomed to following her father’s instructions on these matters, knowing that he would only act in their interests.

85.  It is also Pearl’s evidence that she could no longer recall the circumstances in which the minutes and resolutions relating to the Transaction were signed, but to the best of her recollection and belief, they were prepared by Lim’s staff and given to her for signature, in accordance with their past and usual practice. She claimed that she had no knowledge of how the Consideration of HK$192 million was arrived at, and believed that the transfer to HHL and the calculation of the Consideration was all arranged by Lim or his staff, and that the matter had been devised by her father as part of a restructuring of the Company and its indebtedness at the relevant time. She claims that she did not even know she was a director of HHL, as it had all been arranged by Lim.

86.  To summarize Koo and Pearl’s case, the Company was a family arrangement. Although Koo and Pearl were directors prior to and until 2001 (when they ceased to be directors at Lim’s suggestion only because of some adverse publicity concerning his companies), it was Lim who was the mastermind behind the Company and its operations, and both Koo and Pearl were accustomed to following Lim’s instructions, without questions asked, as they trusted his judgment and decisions relating to the Company.

87.  Koo and Pearl therefore claim that the minutes, EGM Resolution and documents relating to the Transaction were all prepared by Lim and his staff, and that they had simply signed at his direction. Lim was the mastermind behind the Transaction, who had knowledge of and consented to the transfer of the Company’s interests in HF to HHL in 2000. They claim to have no knowledge of the alleged undervalue of the shares transferred, deny that they were in breach of any fiduciary duties, and claim that if there were any breach, Lim had agreed and consented to the Transaction and waived any breach.

88.  Having considered all the evidence on the facts, the background history and the particular circumstances of the Lim family in this case, I have little doubt that the Company was set up by Lim as a family arrangement for Koo and their issue, and that the Project had all along been intended as a venture in which Koo and her children were to benefit from. The matters I have taken into consideration in coming to such conclusion include the following.

89.  As pointed out by Counsel for Koo and Pearl, the contrast in the experience and expertise of Lim on the one hand, and of Koo and Pearl on the other, was stark, particularly at the time when the Project was first acquired by the Company. Lim was a veteran and successful businessman, well known in Hong Kong as the founder of the Lai Sun Group, a person of considerable wealth being involved in the management of a number of listed companies in Hong Kong. He was recognized as having substantial experience in the field of property development, which was one of the major business segments of the Lai Sun Group. He was also known to be the patriarch of his extended family, which consisted of at least three branches with different common law wives.

90.  The Company was incorporated in Hong Kong in 1991, and Lim and Koo were the only shareholders and the only first directors. Since 1992, Koo was registered as the holder of 99.99% of the shares in the Company, and when the joint venture agreement was first signed in September 1992 with the Shanghai shareholder for the development of Gee House, Koo remained the registered shareholder of 94.999% of the shares of the Company, with Pearl holding 5% and Lim 0.01%. Additional directors were only appointed to the Company in 1994 and 1995 (which included Pearl, Eric and two other external directors).

91.  During the relevant time of the joint venture agreement for the development of Gee House in 1992, Koo was 54 years old and remained essentially a housewife. Her only business experience had been that of managing a small clothing boutique which did not appear to have been operated on any sizeable scale.

92.  Pearl was at that time 34 years old, and had agreed to come back to Hong Kong only at her father’s wishes, to assist her mother in the Project when Lim made Koo a director of the Company and of HF which held the Land and the Project. Pearl’s chosen career was contemporary arts, rather than following in her father’s footsteps in business. Neither Pearl nor Koo had, prior to 1994, taken any part in Lim’s businesses in the Group.

93.  There is a ring of truth in Koo’s evidence, which I am prepared to accept, that she had asked Lim in the early 1990s for funds to acquire property for emigration purposes, since Lim had done so for his other families, and that Lim had persuaded her to be involved instead in the development of Gee House, in view of her Shanghai connections and her being native Shanghainese (as she could assist in making contact and liaising with the Shanghai authorities and personnel). If she was active in any way, it was in a social context and to assist in relationship building and making contact with the relevant personnel in Shanghai. In view of Koo’s lack of business experience, her being registered as the majority shareholder and her appointment as director of the Company and of HF holding the Land can only be explained as an intention on Lim’s part to make a gift to Koo of the shares in the Company and of the Company’s interests in the Project, rather than to have her play any major role in the Company’s business or in the Project.

94.  The Project was indisputably large scale and complex. According to the Land Use Right Transfer Contract of August 1992, the Land was to be acquired for US$2,453,400, 60% of which was to be contributed by the Company. The Project comprised two 24-storey adjoining towers, with underground carparks, a site area of approximately 3,525 m² and a total gross floor area of approximately 37,396.39 m². The Company was contemplating an investment of US$12 million for the Project. From the early stages of the development, the Project required the input of a large team of professionals such as architects, quantity surveyors and electrical and mechanical professionals and experts. It required experience and know-how to undertake selection of the professionals involved in the Project, to prepare the tender documents, and for the overall supervision of the progress of the construction work and the management of the project finances.

95.  Given the size and complexity of the Project, it is inherently improbable and highly unlikely that a man like Lim would have been prepared to relinquish control over the Project, and the Company which controlled and had substantial interests in the Project, and to have left them in the hands of Koo and Pearl, who to his knowledge were totally inexperienced and were novices in property development, and might if given a free hand have put the entire Project at risk.

96.  Whilst I do not accept carte blanche the evidence of Pearl and Koo that they had no knowledge whatsoever of any details of the Project or its general finances as time evolved, I accept as being more probable that Lim had retained a tight rein over the details of the Project and of the Company, and in particular, the finances. This was at least up to the period of his incarceration in Taiwan at the end of 1997 until early 1999 when he was released from Taiwan and returned to Hong Kong.

97.  Overall, it is more likely that all the technical matters of the development, such as the signing of construction contracts, the procurement of materials and supplies, the supervision of construction works and progress and the management of the finances and accounts, would have been undertaken by staff provided by and working for Lim, so that he would be able to keep overall control and supervision of the Project. According to Pearl, the construction works were supervised by the project manager appointed by Lim who also took care of its finance, and that one of the project managers was Mr Liu Kwai Wah (“Liu”), a trusted assistant of Lim who helped him in the overall management and the financial aspects of the Project, at least until 2001.

98.  Even when Lim was in Taiwan, I consider it to be more probable that he would have instructed his staff, and that his staff would have continued to stay involved in the management of the Project, no doubt reporting to him, and to Pearl and Koo more than before, during this interim.

99.  Eric had in fact been sent by Lim to Shanghai to be his “eyes and ears” on the ground, to monitor the progress of the Project, at the time when works were delayed and costs had been escalating. Lim’s control of the Project and his involvement in the financial aspects and funding thereof is clearly evidenced by the faxes adduced in evidence at trial, which show that breakdowns of construction costs had been regularly sent (with minute details) under the Company’s letterhead to Tim Ho, Lim’s chief accountant and right-hand man. Tim Ho and another employee of Lim, Corrina Ho, appeared to be the persons responsible for approving payments to subcontractors of the Project. It was only after the sums particularized in the faxes had been approved by Tim Ho that Lim would issue his personal cheques for the amounts sought by Eric. At times, Ho and/or Lim would only approve and make payment of a sum which is smaller than the amount claimed and approved by Eric for the works in question. Another member of Lim’s staff who was mentioned in the evidence is Ronald Suen, who (according to Lim’s own letter of 10 September 2001) handled some aspects of the funding for the Project, and according to Pearl, he was the one responsible for overseeing the process of approving orders for construction materials.

100.  I agree that the clear and obvious inference to be drawn from the series of faxes (dating from October 1996 to December 1997) on approval of costs is that Lim would only issue cheques for payment of the costs claimed if he was satisfied on Tim Ho’s advice that the requests for payment were justified, and further, that Lim was fully aware of the purpose of the payments and of the general progress of the Project onsite.

101.  I accept on the evidence that Lim and/or his staff reporting to him were substantially involved in the payment approval for the expenses and costs incurred for the Project, and in monitoring the progress of the development on the Land. The evidence of Koo and Pearl, that they were not responsible for the day-to-day supervision of the Project is consistent with such evidence, and is in my judgment inherently credible. Pearl’s interest and role were more to do with the concept and the aesthetic design and aspects of the Project, and less involved with the financial features or implications. I do not accept that it was Koo, Pearl and Eric who were in control of the development of Gee House.

102.  In my judgment, Lim’s close involvement and monitor of the Project indirectly held by the Company makes it more probable that he would have exercised and maintained control over the Company, through his team of trusted and experienced staff.

103.  Given the scale of the investment, Lin had clearly intended from its inception that the Project was to be financed not only with his own funds but also with outside resources. As Pearl has sought to emphasize, and I agree, it is inconceivable that Lim would have expected Koo to be able to secure such funding on her own, or in her name. Koo had little wealth of her own, had no employment nor personal assets and no bank would have been prepared to lend her, or the Company held by her, any substantial amount for the Project, when she had zero experience in land development to speak of. Pearl also pointed out that it was inconceivable that her father could have intended or expected her mother to be able personally to make repayment to him of the substantial sums he had put into the development of the Project, well knowing that she had no resources other than Lim’s financial support, and no assets from which she or the banks could look for repayment of the loans extended to the Company for the Project. Lim must have no intention to make Koo personally liable for the loans extended either by himself, or by the banks which had agreed to extend loans to the Company in reliance on the personal guarantees Lim had provided.

104.  The only interest Koo had at the material time was her shareholding in the Company and the Company’s holding in HF which held the Land and development of Gee House. Even if Lim’s intention was only to make a gift to Koo of the shares in the Company, and it was his intention that the loans he advanced to the Company for the Project would have to be repaid, it is more probable than not that he intended such repayment to be made from the proceeds of sale of Gee House. It might be that Lim had not envisaged that the Project would take as long as it did, to complete, as the development was changed when it was decided to turn various floors of the building into serviced apartments, which had to be altered and decorated. Eventually, although construction of the building itself was “substantially completed” in 2000 (as pleaded in paragraph 16(1) of the SOC), the fitting out, internal renovation and decoration of Gee House was still underway at the time. According to Pearl’s evidence, in 2000, the 1^st to 5^th floors and the penthouse had not been renovated in full, and the application for alteration of the five floors from office to residential use had not even been made. Completion and sale were accordingly both delayed.

105.  Given the delayed completion (and the delay in realizing the anticipated proceeds of the investment), Lim’s funding in the Project, and his personal liability under his guarantees to the banks, Lim would obviously have been concerned to control and monitor the progress and the costs of the Project, and to control the Company which indirectly held the Project.

Alleged motives?

106.  As part of the relevant background, Lim returned to Hong Kong from Taiwan in February 1999. The evidence is that upon his return, and having been kept away from Hong Kong and his businesses for over a year, Lim saw himself as having suffered very substantial losses to his wealth. According to the liquidator, Lim ceased advancing loans to the Company (save for a few insubstantial amounts), insisted that the advances he had made to the Company should be properly documented and, according to the testimony from Koo and Pearl, Lim made clear to them after his return that they could no longer count on him for support, and that they would have to resolve issues concerning Gee House themselves.

107.  It is the liquidator’s case that after 1999, Lim’s change in attitude, and the increasing pressure from the banks for repayment of the loans extended to the Company, prompted Koo and Pearl to orchestrate and procure the Company to enter into the Transaction, with the purpose of avoiding the liabilities due to Lim and the banks, and any potential enforcement action against the security in the Project/Gee House.

108.  In this context, the liquidator’s version of Koo and Pearl’s “motives” for the Transaction comes into play.

109.  In the liquidator’s 3^rd supplemental statement made on 20 June 2022, he stated as follows:

“24. Taking a step back and looking at the surrounding circumstances leading to the Agreement and the Transaction, I believe that there were a number of interrelated factors that motivated Koo and Pearl Ling to act in breach of their fiduciary duties owed to the Company effectively misappropriating Huifa and the Gee House from Lim: the deterioration of the relationship between Lim on one hand and Koo and Pearl Ling on the other hand; the Defendants' fear that they might be left with close to nothing if something happened to Lim again or he passed, and their concern that Lim would no longer financially support the Company.

25. First of all, I note that as admitted by the Defendants:

(a) Koo believed that some of Lim's other wives and children held grudges against Koo and Pearl Ling (see §21 of Koo's Witness Statement dated 22 January 2016).

(b) Lim was involved in a bribery scandal in Taiwan and was detained in Taiwan from December 1997 to February 1999 (see §17 of Pearl Ling's Witness Statement dated 22 January 2016 and §4 of Pearl Ling's Supplemental Witness Statement stated 20 November 2019).

26. I have also come across news reports showing the deterioration of relationship between Lim and Koo/Pearl Ling (see PSLOD3 Items 128 and 129). In particular, these news reports state that the deterioration of relationship was due to Pearl Ling being a spendthrift and the massive over-budget in the design, construction and fitting out of Gee House spearheaded by her.

27. I therefore had reasons to believe that by 2000, Koo and Pearl Ling must have been deeply concerned that with the deteriorating relationship with Lim and all the uncertainties concerning Lim's personal circumstances, they might end up with close to nothing if something happened to Lim or when he passed away. As a matter of fact, I note that Lim and the Defendants did fall out publicly in 2002, and Lim effectively disinherited Koo, Pearl Ling and her brother in his will.

28. I also believe that Koo and Pearl Ling were concerned, as a matter of practical reality, that Lim would no longer continue to financially support the Company due to their worsening relationship with Lim.…”

110.  The liquidator went on to refer to the legal proceedings instituted by the HSB, the summary judgment obtained against the Company in those proceedings, and the legal proceedings instituted by Lim against Koo and the Company. His conclusion at paragraph 31 of his statement was as follows:

“I believe that the above provides an explanation for Koo and Pearl Ling orchestrating the Agreement and the Transaction in September 2000 to (in effect) misappropriate (HF) (and Gee House) from (the Company) to HHL, their wholly owned and controlled corporate vehicle. Had this not been done in September 2000, either Lim would have taken back control of (the Company) (and Huifa), or the liquidators would have taken control of the same upon the company’s liquidation in September 2008.”

111.  As described in the earlier paragraphs of this Judgment, Lim had (on Koo and Pearl’s evidence) reconciled with them, but that was only in 2003. The alleged exclusion of Koo and Pearl from Lim’s inheritance has also now been put in doubt, by virtue of the findings made in the probate action on Lim’s lack of testamentary capacity in 2004. However, it can be said that these should not affect the position and alleged motives of the parties at the time of the Transaction, in July 2000.

112.  The other matters relied upon by the liquidator as evidence of the deterioration of the relationship between Lim and Koo and Pearl are, in my judgment, totally worthless. I agree with Counsel for Koo and Pearl, that the so-called “news reports” referred to by the liquidator are mere gossip published online anonymously by unknown internet users, who had no personal knowledge of the relationship between Lim, and Koo and Pearl. The posts were published in January 2018 and December 2019, more than 15 years after the alleged family feud between Lim and his wives and children. It is surprising that the liquidator should seek to refer to and rely on such materials, when they are totally unreliable, disclose no factual basis to support the conclusions reached, and should be ruled inadmissible (Jademan (Holdings) Ltd v Francis, Leung Pak-to and Others [1989] 2 HKLR 151 at 158H).

113.  According to Counsel for Koo and Pearl, it is the liquidator’s pure speculation, to surmise that by 2000, Koo and Pearl must have been deeply concerned about their prospects if Lim should pass away. On the liquidator’s case, the falling out in 2001 was serious enough to lead Koo and Pearl to decide to misappropriate HF or Gee House, and falsify the accounts of HF and/or the Company to hide the Indebtedness, and for the reasons set out below, I am unable to come to such conclusion. As for Lim’s alleged disinheritance of Koo and Pearl, apart from it being mere speculation, it was a matter which Koo and Pearl never believed in at the material time, and so, could not have been a reason or motive for devising the Transaction.

Lim’s actual payments

114.  The claim that Lim would no longer support the Company financially is in fact undermined by the fact that even after his return to Hong Kong in February 1999, Lim did in fact support the Company financially. I do not agree with the liquidator, that the payments after Lim’s return were few and “insubstantial”. The total amount Lim paid to the Company between 16 June 1999 and 18 April 2001 was HK$51,946,082.67. In particular, Counsel for Koo and Pearl highlighted the fact that on 18 April 2001, Lim issued a cheque for HK$7,600,000 in favor of the Company, and on 30 April 2002, Lim issued a cheque for HK$12,688,920.39 in favor of HSB, to discharge part of the Company’s indebtedness to the bank. It was suggested to Pearl in cross-examination that on these occasions, Lim was only responding to the bank demands for repayment. However, the fact remains that Lim did make the payments to settle the Company’s debts to the bank when called upon to do so, which supported Koo and Pearl’s view that there was no real cause for concern on their part that Lim would withdraw his financial support for the Company and the Project. The actual payments spoke louder than any voiced complaint Lim may have had. I also bear in mind that in May 2000 (after Lim’s return to Hong Kong), he had given an additional personal guarantee in favour of HSB for HK$155 million, for the Company’s overdraft.

Evidence of Lim’s intentions from other contested proceedings

115.  In my judgment, it is a valid consideration, that the position advanced by Lim in HSB’s proceedings against the Company (ie HCA 1700/2002), and in the Company’s third party proceedings against Lim, should be approached with some caution. As Counsel for Koo and Pearl argued, Lim had the obvious motive in those proceedings to distance himself from the Company and from the claim made by the Company that Lim had agreed to be solely and primarily liable for the loans made by HSB. His defence to the claim of his liability for HSB’s loans was that he had never agreed with Koo to be solely responsible for the repayment, and that he was only a guarantor. According to Counsel for Koo and Pearl, although summary judgment was entered against the Company by HSB, and it was assigned to Lim (upon his payment to the HSB), Lim undertook not to enforce the judgment against the Company pending the resolution of the Company’s third party claim against him. It was contended that this shows that Lim must have considered that the third party claim had good prospects of success, because he had in fact provided the funding to the Company as a gift or investment rather than as a loan. It is also a fact that Lim never took further steps in relation to HCA 1700/2002 before his death.

116.  Apart from the above, and as already noted in the earlier part of this Judgment, Lim’s affirmation in HCA 1700/2002 made in August 2002 was in English, which was not his mother tongue, and it was interpreted to him by his adopted son, who belonged to the Rival Beneficiaries. The extent of Lim’s understanding of the contents of the affirmation, and whether the affirmation represented the true facts to which he affirmed, is not without doubt.

117.  Also as part of the relevant background, and in considering the alleged deterioration of the relationship between Lim, and Koo and Pearl, I have borne in mind as Koo and Pearl urged me to do, that HCA 1942/2002 was brought in the name of Lim against Koo and the Company, 17 days after HSB had commenced HCA 1700/2002 against the Company for recovery of HK$167 million with interest. On behalf of Koo and Pearl, Counsel submitted that Lim had a clear motive to commence HCA 1942/2002 in order to provide support for his case in the HSB proceedings, to deny that he was the one solely responsible for repayment of the Company’s debt to HSB. It may have been a pure tactical move on Lim’s part to initiate his action against Koo and the Company.

118.  Finally, the courts have often highlighted the fact that the process of litigation and preparations for trial have a tendency to interfere with the reliability of human memory. Affidavits and statements made in the course of hostile litigation are often slanted in the language lawyers choose to use in order to prove or assist a party’s pleaded case. In the same context, when courts refer to assessment of witnesses’ evidence, the reference to contemporaneous documents and to the testing of witnesses’ credibility focus on contemporaneous documents which came into existence before disputes and problems emerged, and on indisputable evidence based on objective facts.

119.  I have regarded Lim’s affirmation and the correspondence exchanged after the threat and commencement of legal proceedings in the above light. Lim’s affirmation has not been tested by cross-examination in this or any other action.

Whether the Transaction was orchestrated by Koo and Pearl, or by Lim

120.  Considering the matter in the round, I cannot accept that there is sufficient evidence for me to find that Koo and Pearl had motives and reasons to orchestrate the Transaction for the purpose of siphoning off Gee House to their own entity, and leaving to Lim the Company as an empty shell bearing liabilities – for the reasons propounded by the liquidator. The main reason, as Counsel for Koo and Pearl pointed out, is that I do not consider that their position could have been improved by transferring the HF shares away from the Company, when HF itself owed substantial liabilities to the banks and (since August 2000 at least) its interests in the Project had been made the subject of security for such lending. It was pointed out by Counsel for Koo and Pearl that the Transaction would not have the effect of transferring HF to Koo and Pearl (through HHL), clean of any liabilities. They would still have to rely on Lim’s financial support to pay off the debts owed by the Company and by HF.

121.  This apart, I am not satisfied that Koo and Pearl had to be concerned that Lim would not continue to provide financial support for the Project. This is because of the simple fact that Lim had already put in so much funding into the Project, and had personally assumed liability to the banks for the advances made to the Company on the security of the interests in the Project, such that he would want to make sure that the Project could be completed, his investment could come to fruition, and the indebtedness due from the Company could be repaid to him from the proceeds of the development. On the evidence, notwithstanding his complaints about the costs of the Project, and his allegedly diminished wealth after his return from Taiwan, he did continue to fund the Company in April 2001 and April 2002, and to personally guarantee the Company’s lending. The letters issued in his name in 2001 and 2002 called for accounts and repayment, but also sought proposals for further lending and restructuring of the Company, including the conversion of parts of the debt into shares of the Company, and/or the setting up of a new company to hold the development of the Project. They do not reflect any intention on Lim’s part to abandon the Company or the Project, or to leave Koo and Pearl to their own devices altogether.

122.  If, as suggested, Koo and Pearl were so concerned over the possibility that the bank-creditors of the Company might take recovery and enforcement proceedings, that they would procure the Transaction in order to siphon off the HF shares and interests in the Project, then Lim had the same reason if not more cause for concern, when he was the guarantor of the Company’s debts. That might give him the same motive as that attributed to Koo and Pearl, to devise the Transaction. In fact, with his experience and savvy, and with his ready team of professionals to advise him, it was more likely that the documents for the entire scheme were prepared by Lim and his staff, with professional help.

123.  It was contended for the liquidator that Lim could not have engineered/procured the Transaction, as he would know that this would have been a breach of the covenants under the charge dated 16 January 1998 which HSBC had over the Company’s shares in HF (that Lim and the Company would not alienate the shares in HF), and that it would have triggered a default to render him personally liable under his guarantee to the bank. On that basis, it was argued that it was not likely that Lim would have incurred such risk of breach, and the consequences of the bank taking immediate action for repayment of the entire debt.

124.  Firstly, the same consideration may be said to apply to Koo and Pearl, who should likewise be aware of the fact that Gee House was subject to security in favor of the bank creditors. Even if Koo and Pearl had no personal liability to the banks, it would not have been in their interests if Lim should be sued, and the banks be given grounds to take recovery and enforcement action against either Lim, or against the shares in HF, or the interests in the Project. If, for the sake of argument, Koo and Pearl were indeed totally ignorant of the basic fact of the existence of the banks’ security interests against the Project, they would know that it would not take long for Lim to find out about the disposal of the HF shares behind his back (allegedly), and Koo and Pearl would not have been prepared to incur the risk of Lim’s discovery and then truly withdrawing further financial support for them and for the Project. As Counsel submitted, the scheme alleged to have been devised by Koo and Pearl would have been totally self-defeating.

125.  Pearl also pointed out that if she and Koo had indeed wanted to conceal the transfer of HF’s shares from Lim, then it does not make sense that they would have arranged for the shares in HHL (the transferee) to be registered in their own names. The devious scheme allegedly orchestrated by Koo and Pearl would appear to achieve more harm than good, contrary to what the liquidator suggests.

126.  Counsel for Koo and Pearl further argued that in fact, in around August 2000, the loan from HSBC to HF had been fully repaid and the charge in favor of HSBC over the Company’s shares in HF was replaced by a charge over the Project (and not over the HF shares held by the Company) in favor of the Bank of East Asia (“BEA”). It was contended that the Transaction in fact formed part of Lim’s refinancing plans for the Project, as evidenced by HF’s audited financial statements for the years ended 31 December 2001 and 2002, which referred to loans from BEA, with a loan period from 18 August 2000 to 17 August 2007, secured by HF’s inventory comprising “real estate development products”. Prior to that, HF’s audited financial statements for the year ended the 31 December 1999 had recorded long-term loans of RMB 334,994,521.75, consisting of a loan of US $40,455,657.09 from HSBC, with a maturity date of 17 February 2003. Counsel pointed out that by the time of the Transaction, there was no longer any issue of breach of HSBC’s charge, and no impediment to the transfer of shareholding in HF, and that it was more likely that Lim had arranged for these loans for the refinancing of the Project, and that the Transaction was part of such refinancing. In his affirmation (signed in August 2002) made in HCA 1700/2002 commenced by HSB, Lim himself referred to the fact of the earlier HSBC loan being repaid by a fresh loan from BEA.

127.  This is not accepted by Counsel for the liquidator, who pointed out that, in a letter from Lim to Koo dated 2 January 2002, Lim stated that he had “recently” found out that the Project was undergoing a “restructuring of finances and other aspects”, and complained that he had not been consulted. Lim referred to the fact that as he was the largest investor of the Project, with accumulated investments exceeding RMB 950 million, his consent was required for all forms of restructuring and changes in the Project. It was argued for the liquidator that since Lim had not known about the transfer/discharge of the HSBC indebtedness and its replacement by the BEA loan, until January 2002, the argument remains that Lim would not (in August/September 2000) have risked the consequences of committing a breach of the HSBC security documents by entering into the Transaction, and be exposed to personal liability under his guarantee, such that it was unlikely that Lim was the one who had orchestrated the Transaction.

128.  It is not totally clear which aspects of the “restructuring” referred to in Lim’s letter to Koo were unknown to him before January 2002. Counsel for the liquidator referred to a letter dated 21 March 2002 from solicitors acting for HF, as evidence of Lim’s “complaint” to BEA about the loan, but all that can be gathered from such letter is that Lim/Lai Sun had written to BEA around March 2002, concerning litigation between Lim and HF on “debts due” to Lim, and that as a result, BEA had suspended negotiations it was then conducting (in March 2002) with HF about some “financing” taking place then. There was no express reference to the BEA loan and security which replaced the HSBC charge in around August 2000. Moreover, it is clear from Lim’s affirmation in HCA 1700/2002 that, by August 2002 at least, he accepted that there had been a BEA loan, which had repaid the HSBC loan.

129.  On Pearl’s evidence, Lim had expressed to her after his return from Taiwan (in February 1999) his concerns about his wealth, and told her that he would try to find ways to do refinancing, if possible, and for that reason, Lim had suggested setting up a new company, HHL, for the purpose. Pearl recalled attending one or two meetings with the bankers about such refinancing, after having been briefed by Lim’s assistant Liu Kwai Wah.

130.  As evidence of Lim’s attempts made and his negotiations with the banks for refinancing, Counsel for Koo and Pearl pointed out that at the time when the Transaction was being arranged and executed, from around May 2000 (when HHL was renamed Highfit Holdings Limited) to September 2000 (when the Transaction was executed), Lim had in fact been actively engaged in negotiations with HSB concerning the overdraft facilities extended to the Company. When the Company’s account with HSB was overdrawn in May 2000, and HSB required the excess to be paid and asked for a repayment plan, Lim executed a further guarantee in favor of HSB on 19 May 2000, extending his guarantee for the overdraft to the increased amount of $155 million. Further, on 1 September 2000, the Company wrote to HSB to say that it had been “diligently working towards a refinancing package”. This letter was signed by Pearl for the Company, but on her evidence, it was prepared and drafted on the instructions of Tim Ho. She explained that the letter stated her name as “Pearl Lam” instead of “Pearl Meng Chu Ling” which was her usual practice. It is of course improbable that Tim Ho would have arranged for this without Lim’s knowledge and approval.

131.  What is clear is that the documents relating to the Transaction (ie the EGM Resolution and minutes), and the BEA loan and security which was used to discharge the HSBC loan, had been prepared by or with the help of professionals. According to Pearl, the EGM Resolution and minutes must have been prepared and then circulated to Koo, Pearl and Eric for signature. In my judgment, it is more probable for those documents to have been prepared on Lim’s instructions, rather than on the instructions of Koo or Pearl, and in any event, it is highly unlikely that the professionals and staff familiar with the Project and likely to be responsible for the documents would not have reported to or consulted Lim, on the matter.

132.  I do not consider that there is any factual basis or evidence for me to find that Koo and Pearl’s plan of siphoning off the Company’s assets began in April 1998 when ZM and Gee Club were siphoned off, as alleged by the liquidator. ZM was a Mainland company used to develop the sports club on property adjacent to the Land. On 5 April 1998, the Company’s interests in Gee Club were transferred to a Hong Kong company (“HOIL”) in which Koo, Pearl and Eric were the only shareholders. Lim was then removed as a director of ZM on 11 April 1998, and as a director of HOIL on 29 July 1998. Eric’s shares in HOIL were transferred to Pearl, with Koo and Pearl remaining as the only shareholders and directors of HOIL up to at least 2021.

133.  According to Koo and Pearl, there was no secrecy to the transfer of the Plaintiff’s interests in the Club to HOIL. The board resolution of ZM dated 11 April 1998 noted the transfer of the Company’s rights in ZM to HOIL, and approved the appointment of Koo, Pearl and Maria Tam (“Tam”) as new directors in place of Lim. The resolution was signed by Koo, two other directors, and Pearl, as proxy for Lim and Tam.

134.  According to Pearl’s evidence, the transfer of the Company’s interests in ZM was orchestrated by Tim Ho with Lim’s agreement, for the purpose of obtaining additional bank finance to complete the construction of the Gee Club. There is nothing to contradict such evidence.

135.  It was pointed out for the liquidator that the board meeting in question for Gee Club/ZM took place in 1998, when Lim was detained in Taiwan. The proxy referred simply to a board meeting to be held, with no reference as to what was to be discussed, and Counsel argued that it should not be considered as evidence of Lim’s knowledge and consent of the arrangement to transfer the company’s interests, and to remove Lim as director.

136.  Applying common sense, however, I am inclined to believe that the proxy was signed precisely because Lim was detained in Taiwan and could not be in Hong Kong to deal with matters necessary to seek financing for the Project. In all probability, the proxy was prepared by Lim’s trusted assistants and advisers in Hong Kong, and it is reasonable to infer that Lim would have been briefed on the purpose of the proxy, and was well aware of and had consented to giving Pearl the power to attend company meetings on his behalf, and to implement whatever was required for securing finance for the Company and the Project, during the period of his absence from Hong Kong. It is unbelievable that the documents for ZM would have been prepared for Lim’s signature, without Lim having been briefed, and without his agreement.

137.  As for the suggestion made by the liquidator (as part of the submission that the Transaction was orchestrated by Koo and Pearl), that HHL was acquired off the shelf by Koo and Pearl in May 2000 to facilitate the Transaction, there is again no evidence to establish either this, or that Koo and Pearl were the ones behind, or had instructed the change of name of the company from Huang Ting Development Limited to HHL, a name resembling the Company, to avoid alerting Lim to the Transaction and transfer planned. I cannot agree that it is more probably the case that Koo and Pearl were behind or were responsible for these steps.

138.  I accept the submissions made for Koo and Pearl, that there is evidence to show that all along, Lim had contemplated a refinancing of the Project, and to achieve that, some restructuring of the manner in which the interests in the Project were held. In his letter of 10 September 2001 to Koo, he asked for a meeting to discuss (inter alia) the investment and development concept, and setting up a new company. His letter of 20 September 2001 also referred to his negotiations with two banks for funding (at that time for the purpose of enabling his repurchase of 14 units in Gee House). In particular, his letter to Koo of 15 October 2001 referred to a meeting to discuss converting part of the loan into capital of the Company and HF, to mortgage the interests in Gee House to creditors, and further to set up another company, and to convert the entire outstanding loan into shares of the new company, with the new company holding all the property interests in Gee House and Gee Club.

139.  The letter from Lim to Pearl dated 19 January 2002, is further evidence of the fact that refinancing the Project with the BEA loan had always been at the forefront of Lim’s mind. In the letter, Lim states:

“The current debt of the Project is estimated to have reached $1.2 billion. Except for the approximately $300 million borrowed from the Bank of East Asia, almost all the remainder were invested or guaranteed by me.” (Emphasis added)

There is a similar statement in his letter dated 23 February 2002 to Koo and Pearl. Counsel pointed out that these show that Lim was aware not only of the existence of the BEA loan, but also what was used as security.

140.  The letter of 1 February 2002 from Lim referred to his investment of 950 million, and repeated the request for a meeting to discuss converting the indebtedness into shares of the Company, and HF.

141.  I agree with Counsel for Koo and Pearl that these letters cannot be taken to mean necessarily that Lim had no knowledge of the Transaction having taken place, and the fact that the Company’s interests in HF had already been transferred out of the Company to HHL, as Lim referred in these letters to the shareholding not only in the Company, but also in HF, when he mentioned capitalizing the indebtedness. Counsel highlighted the fact that even without reversing the Transaction through his control of the Company, Lim could still have received dividends from HF directly as a means of repayment of the indebtedness he was concerned with. It is also worth noting that in the letter of 19 January 2002, Lim asked for full authority to manage not only the operations of the Company, but also HF and the Project. As Counsel for Koo and Pearl pointed out, if Lim was not aware of the Transaction, he would simply have requested control over the Company, which would have been adequate.

142.  To conclude, my judgment on all the evidence is that on a balance of probabilities, given the pattern and practice of how the Company was run under the rein and control of Lim, with Koo and Pearl following his instructions and direction, and Lim’s substantial interests in the Project as an investor (as he described himself in the correspondence), it is more likely that the Transaction and the BEA loan formed part of a series of transactions for refinancing the Project which Lim and his advisers and staff were working on at the relevant time in 2000, from around May 2000 when HHL acquired its name. When all the evidence is considered together, the obvious inference is that Lim was aware of the Transaction and the BEA loan, and that he was the one who had, with his staff reporting to him, procured and engineered the documents to implement the Transaction.

143.  The fact that the EGM Resolution and the company documents relating to the Transaction were not signed by Lim, cannot by itself detract from the fact that they could have been prepared on the instructions of Lim, and with his knowledge and consent. The documents were obviously prepared by Lim’s staff (and not by Lim himself), and they would have considered it unnecessary to procure Lim’s formal signature to the documents, when he was the one who had instructed their preparation in the first place, for signature by Koo and Pearl, as I find more probable.

144.  The separate issue is whether the EGM Resolution would have the effect, in law, to validate the Transaction, or to excuse any breach of fiduciary duty on the part of Koo and Pearl that may be found against them.

Whether Koo and Pearl were in breach of their fiduciary duties to the Company

145.  At paragraphs 97 and 98 of the Closing Submissions of the Plaintiff, Counsel contended that the relevant fiduciary duties claimed to be in play, and to have been breached, are those of Koo and Pearl (i) to act in good faith in the best interests of the Company; (ii) not to misapply corporate assets; (iii) not to make a profit out of their trust; and (iv) not to place themselves in a position where their duty and interest may conflict.

146.  It is pertinent that at paragraph 21(5) and (6) of the SOC, what is alleged against Koo and Pearl is that they caused the Company to enter into the SPA and the Transaction, “knowing that the assets sold pursuant thereto were at a gross undervalue”, and “knowing that the terms of the SPA were unreasonably favorable to HHL and not in the interests of the Company”.

147.  Koo and Pearl claim that, by the Duomatic principle, there was no breach of any fiduciary duty on their part, since their acts of signing the SPA and authorizing the Transaction on its terms had been agreed to by, and represented the unanimous consent of, the shareholders of the Company. Alternatively, they claim that even if the Duomatic principle does not apply, there is no evidence to show that they knew that the Transaction was at undervalue, or that the Consideration stated had not been paid. In the absence of such evidence of their knowledge, Counsel contended that they cannot be in breach of fiduciary duty, relying on Re Simmon Box (Diamonds) Ltd [2002] BCC 82, para 24; Madoff Securities International Limited (In Liquidation) v Raven [2013] EWHC 3147, para 192; and Re Guardian Care Homes (West) Ltd (in liq) [2018] EWHC 2664 (Ch), para 119.

148.  In Re Simmon Box (Diamonds) Ltd, the teenage son who was a director of a company run by his father was initially held to be in breach of duty owed to the company, for having surrendered his duties as a director and delegating the duties of management, supervision and decision making to his father. On appeal, the Court held that there was no evidence that the father to whom the son delegated the duties was unsuitable to be trusted with powers of management, and the pleadings in the case went no further than to allege that the son was negligent in his delegation, whereas the finding of his “abject” surrender of duties went further than the case pleaded against him.

149.  Counsel for Koo and Pearl also referred to Re Guardian Care Homes (West) Ltd (in liq) [2018] EWHC 2664, where the Court (at para 119) pointed to the lack of allegation that the director had knowledge of the alleged transaction at undervalue which it was said the director had allowed, to constitute the director’s breach of fiduciary duty, and highlighted the fact that one cannot allege a breach of fiduciary duty against someone who had no relevant knowledge (Cohen v Selby [2001] 1 BCLC 176).

150.  In this case, I accept the submissions of Counsel for Koo and Pearl, that there is no evidence which can show that Koo and Pearl knew that the Transaction was at undervalue, or that the Consideration had not been paid, or that the terms of the SPA (allegedly) included the Company’s waiver of the Shareholder Loan.

151.  The Consideration stated in the EGM Resolution was HK$192,369,835 (roughly equivalent to RMB 204,258,290). On the Plaintiff’s own case, the net asset value of HF as at 31 December 1999 was RMB 164,219,215.64 (paragraph 15 and 20A of the SOC), and RMB 160,614,725.99 as at 31 December 2000. It was contended for Koo and Pearl that by definition, the net asset value is the asset value, net of any outstanding loans due from HF to third parties. The Consideration was higher than the net asset value of HF. As such, it would not have been apparent to Koo and Pearl, at the time when they signed the EGM Resolution and the company documents or the SPA, that the Consideration was below the book value of HF.

152.  There is also no evidence to show that Koo and Pearl knew or would know that the Consideration had not been paid or would not be paid to the Company, or that under the SPA, the Company had waived its rights to the Shareholder Loan. On their evidence, they had no knowledge of the details of the Transaction and the Consideration, and it was Lim and his staff who had arranged the Transaction and arrived at the Consideration and the terms of the SPA, and Koo and Pearl had no knowledge of how the Consideration was calculated.

153.  Koo and Pearl might have been negligent, by not examining the documents relating to the Transaction, the accounts or statements of the Company, or by not paying attention to the Consideration and whether it was fair or adequate, but that is not the case pleaded against them (Re Simmon Box (Diamonds) Ltd [2002] BCC 82; Cohen & another v Selby & ors [2001] 1 BCLC 176).

154.  At the same time, there is no sufficient evidence which can lead me to find that Koo and Pearl had knowingly permitted Lim to commit a breach of trust, in authorizing and entering into the Transaction.

155.  In Madoff Securities International Limited (In Liquidation) v Raven [2013] EWHC147, Popplewell J made pertinent observations on the duties of directors to act in good faith in the interests of the company (from paragraphs 190 to 194 of the judgment):

“190. As expressed in the classic formulation by Lord Greene MR in Re Smith & Fawcett Ltd [1942] Ch 304, 306, the duty is to act in what the director believes, not what the court believes, to be the interests of the company. The test is a subjective one. As Jonathan Parker J put it in Regentcrest Plc v Cohen [2001] BCC 494, at [120]:

“The question is not whether, viewed objectively by the court, the particular act or omission which is challenged was in fact in the interests of the company; still less is the question whether the court, had it been in the position of the director at the relevant time, might have acted differently. Rather, the question is whether the director honestly believed that his act or omission was in the interests of the company. The issue is as to the director’s state of mind. No doubt, where it is clear that the act or omission under challenge resulted in substantial detriment to the company, the director will have a harder task persuading the court that he honestly believed it to be in the company’s interest; but that does not detract from the subjective nature of the test”

191. It is legitimate, and often necessary, for there to be division and delegation of responsibility for particular aspects of the management of a company. Nevertheless each individual director owes inescapable personal responsibilities. He owes duties to the company to inform himself of the company’s affairs and join with his fellow directors in supervising them. It is therefore a breach of duty for a director to allow himself to be dominated, bamboozled or manipulated by a dominant fellow director where such involves a total abrogation of this responsibility: see Re Westmid Packing Services Ltd; Secretary of State for Trade & Industry v Griffiths (No 3) [1998] BCC 836 at 842B-843D; Re Barings Plc (No 5) [1999] 1 BCLC 433 at 486h-489c; Lexi Holdings Plc v Luqman No2 [2008] 2 BCLC 725 per Briggs J at [31], [32] and [2009] BCC 716 per Sir Andrew Morritt C at [37]. Similarly it is the duty of each director to form an independent judgment as to whether acceding to a shareholder’s request is in the best interests of the company: Lonrho Ltd v Shell Petroleum [1980] 1 WLR 627, 634F. The duty to exercise independent judgment is now reflected in s 173 Companies Act 2006.

192. Moreover, it has long been established that a trustee who knowingly permits a co-trustee to commit a breach of trust is also in breach of trust. A director who has knowledge of his fellow director’s misapplication of company property and stands idly by, taking no steps to prevent it, will thus not only breach the duty of reasonable care and skill (which is not fiduciary in character: Ultraframe v Fielding [2005] EHWC 1638 (Ch), [1300]-[1302]), but will himself be treated as party to the breach of fiduciary duty by his fellow director in respect of that misapplication by having authorised or permitted it: Walker v Stones [2001] QB 902, 921D-E; Gidman v Barron and Moore [2003] EWHC 153 (Ch) at [131]; Neville v Krikorian [2006] EWCA Civ 943, [49]-[51] and Lexi Holdings v Luqman (No 1) [2007] EWHC 2652 (Ch) at [201]-[205].

193. In fulfilling this personal fiduciary responsibility, a director is entitled to rely upon the judgment, information and advice of a fellow director whose integrity skill and competence he has no reason to suspect: See Dovey v Cory [1901] AC 477 at 486, 492. Moreover, corporate management often requires the exercise of judgement on which opinions may legitimately differ, and requires some give and take. A board of directors may reach a decision as to the commercial wisdom of a particular transaction by a majority. A minority director is not thereby in breach of his duty, or obliged to resign and to refuse to be party to the implementation of the decision. Part of his duty as a director acting in the interests of the company is to listen to the views of his fellow directors and to take account of them. He may legitimately defer to those views where he is persuaded that his fellow directors’ views are advanced in what they perceive to be the best interests of the company, even if he is not himself persuaded. A director is not in breach of his core duty to act in what he considers in good faith to be the interests of a company merely because if left to himself he would do things differently.

194. Where a director fails to address his mind to the question whether a transaction is in the interests of the company, he is not thereby, and without more, liable for the consequences of the transaction. In such circumstances the Court will ask whether an honest and intelligent man in the position of a director of the company concerned could, in the whole of the existing circumstances, have reasonably believed that the transaction was for the benefit of the company: Charterbridge Corp Ltd v Lloyds Bank Ltd [1970] Ch 62 at 74E-F. If so, the director will be treated as if that was his state of mind. ”

(Emphases added)

156.  On the evidence of Koo and Pearl, they had simply signed the documents provided to them in relation to the Transaction, and had relied on Lim’s decision, trusting that he would know best what was in the ultimate interests of the Company. Counsel for Koo and Pearl rely on Tam Po Kei v Tam Bo Kin (No 1) [2011] 1 HKLRD 537, to contend that Koo and Pearl were entitled to rely on Lim (the dominant shareholder) to decide what the best interests of their family company are, and that they should not be held to have acted in breach of their duties, when Lim had arranged and decided on the Transaction on the basis that it was in the interests of the Company to do so. Paragraph 67 of Harris J’s judgment in Tam Po Kei was cited in support:

“If as a matter of fact the directors and shareholders of a company accept that one director and shareholder can treat a solvent company as his creature and use its assets as his own it seems to me difficult to characterise what would in different circumstances be breach of duty as such for the reason that the parties have agreed expressly or, perhaps as in the present case, tacitly that the best interests of a company are what the dominant shareholder decides and therefore there has not been a failure to act in the best interests of the company or to neglect the company’s interests. This can be analysed in terms of what represents the interests of a particular company, the act being ratifiable or in terms of estoppel depending on the precise facts. This accords with common sense because it is both artificial and unfair to suggest that if directors and shareholders accepted, or would have if they had been asked at the time, that a particular act was unobjectionable years later a shareholder can come forward and argue that the act analysed conventionally is in breach of fiduciary duty. An act that would have been authorised if directors and shareholders had been alive to the need for formal approval by the board or the company, but was not, can be treated as approved and therefore lawful by virtue of the Duomatic principle.” (Emphasis added).

157.  In Madoff, the Court considered the question of whether an honest and intelligent man in the position of a director of the company concerned (who had not addressed his mind to the question of whether an impugned transaction or payment was in the interests of the company) could, in the whole of the circumstances, have reasonably believed that the transaction was for the benefit of the company. Amongst the matters taken into consideration by the court was that the directors in the case held the chairman and major shareholder of the company (who instructed them to make the payments and told them that they were of benefit to the company) in high regard, respected his views and had no reason to question his competence, integrity, experience or motives. They had deferred to his view, with a legitimate recognition that the Chairman’s position equipped him to know what was best for the company, and put him in a better position to make that judgment. Having considered (inter alia) the nature of the payments and the accounts, the court accepted that an honest and intelligent man in the position of each of the directors (who had not addressed their minds to the specific question of the company’s interests) could reasonably have believed that the payments were in the interests of the company.

158.  The same considerations apply to the facts of this case. Koo and Pearl had been accustomed to act in accordance with Lim’s wishes, over the past decade. They had trusted his judgment and experience in property development and business, and it had been Lim who had all along controlled the Company’s operations and overseen the finances of the Project. Lim was the person who had dealt with the banks, in whom the banks placed their trust and with whom the banks had negotiated on the finances and funding for the Company, the Project as well as the security for such lending. Pearl maintains in her evidence that the Transaction, including any transfer of the Shareholder Loan and the use of HHL, were all arranged by Lim and his advisers, and according to her understanding it was all “to try to get bank loans”. Neither Koo nor Pearl had any reason to doubt Lim’s decisions concerning the arrangements for and any restructuring of the Company and its financial matters and interests in the Project, and they both recognized Lim as the person in the position to know and decide on what was best for the Company, in its interests and for its overall purposes. In fact, this was particularly so when Lim was the person bearing personal liability for the loans made by the banks. They had left it to Lim to set up the arrangements which could be understood by them as being for the perceived purpose of refinancing the Project, and for the debts of the Company to be restructured. The transfer of HF’s share and interests in the Project was to another company, but although Koo and Pearl were the only shareholders of HHL, Lim was controlling Koo and Pearl and they would be following Lim’s instructions and decisions on the new company’s operations, including how the loans due from HF to the Company would be restructured/repaid, all in accordance with their established practice, so that it would not make any essential difference amongst Koo, Pearl and Lim.

159.  In all the circumstances, I consider that Koo and Pearl cannot be shown to have acted in breach of their fiduciary duties to the Company to act in its best interests or for any improper purpose to profit themselves.

160.  To show dishonesty, for the purposes of either a fraudulent or dishonest breach of fiduciary duty, Millett LJ explained in Armitage v Nurse [1998] Ch 241, 251D-F that it:

“connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not.

It is the duty of a trustee to manage the trust property and deal with it in the interests of the beneficiaries. If he acts in a way which he does not honestly believe is in the interests then he is acting dishonestly. It does not matter whether he stands or thinks he stands to gain personally from his actions. A trustee who acts with the intention of benefiting persons were not the objects of the trust is not the less dishonest because he does not intend to benefit himself.” (Emphasis added)

161.  Koo and Pearl deny that they knew that the Transaction was at undervalue, or that the purpose of the Transaction was to siphon the interests in the Project to themselves and to exclude Lim, and claim that the transfer from the Company to HHL was all arranged by Lim and his staff under his instructions. If Koo and Pearl deferred to and trusted Lim’s decision that it was in the interests and for the purposes of the Company, then I consider that there was no dishonesty on their part.

162.  Even if they had failed to exercise the independent judgment required of them, and had failed to apply their independent minds to the question of how the Transaction might be in the Company’s interests, I do not consider it to be a deliberate omission, to constitute a deliberate breach of trust.

163.  A breach of the duty to exercise reasonable diligence and care is not dishonesty (see para 328 of the judgment in Madoff), nor is it a breach of any fiduciary duty. In Bristol and West Building Society v Mothew [1998] Ch 1, at 16C-F, Millett LJ explained that not every legal claim arising out of a relationship with fiduciary interest will give rise to a claim for breach of fiduciary duty (citing LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 TLR (4^th) 14 cited at p 28, per La Forest J). His Lordship further went on to explain (at 16F-17B):

“It is similarly inappropriate to apply the expression to the obligation of a trustee or other fiduciary to use proper skill and care in the discharge of his duties. If confined to cases where the fiduciary nature of the duty has special legal consequences, then the fact that the source of the duty is to be found in equity rather than the common law does not make it a fiduciary duty. The common law and equity each developed the duty of care, but they did so independently of each other and the standard of care required is not always the same. But they influenced each other, and today the substance of the resulting obligations is more significant than their particular historic origin. In Henderson v Merrett Syndicates Ltd [1994] 3 WLR 761 at p 799 Lord Browne-Wilkinson said:

“The liability of a fiduciary for the negligent transaction of his duties is not a separate head of liability but the paradigm of the general duty to act with care imposed by law on those who take it upon themselves to act or advise others. Although the historical development of the rules of law and equity have, in the past, caused different labels to be stuck on different manifestations of the duty, in truth the duty of care on bailees carriers, trustees, directors, agents and others is the same duty: it arises from the circumstances in which the defendants were acting, not from their status or description. It is the fact that they have all assume responsibility for the property or affairs of others which renders them liable for the careless performance of what they have undertaken to do, not the description of the trade or position which they hold.” ”

(Emphases added)

164.  In my judgment, there is on the evidence no established case against Koo and Pearl for being in breach of fiduciary duty, by failing to exercise due care and skill in managing the affairs of the Company.

165.  Since my finding is that there is no breach of fiduciary duties, it is not necessary to decide whether such breach had been or can be waived, or ratified, or condoned or acquiesced, or if estoppel applies, or whether the claims are time-barred.

166.  However, if I should be wrong in my decision on breach of fiduciary duties, I will deal more briefly with the remaining issues.

Whether the Duomatic principle can apply

167.  The key issue in dispute is whether, in the event of a breach of fiduciary duty being held against Koo and Pearl, the Transaction was duly authorized by virtue of the EGM Resolution which, according to Koo and Pearl, constituted and represented the consent of all, or the majority of, the shareholders of the Company. Although the Defence also pleads acquiescence, waiver, ratification and estoppel, the arguments made by Counsel for Koo and Pearl in Opening and Closing submissions focused only on shareholders’ consent under the Duomatic principle (which the liquidator claims is not a pleaded defence).

168.  As succinctly explained in the judgment of Lord Burrows JSC in Ciban Management Corporation v Citco (BVI) Ltd and anor [2021] AC 122 (at para 31) the Duomatic principle is, in short, the principle that anything the members of a company can do by formal resolution in a general meeting, they can also do informally if all of them assent to it. The principle derives its name from In re Duomatic Ltd [1969] 2 Ch 365, in which it was encapsulated by Buckley J (as he then was) at p 373, as follows:

“where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.”

169.  Dealing first with the objections raised by the parties on the pleadings, I accept that Koo and Pearl have pleaded the material facts to invoke the Duomatic principle.

170.  At paragraph 4(3) of the Re-re-Amended Defence (“Defence”), the fact of Koo and Pearl as shareholders holding 99.99999% of the shares of the Company having resolved at an EGM to sell the interest of the Company in HF to HHL at the Consideration has been pleaded. Paragraph 7(3A) of the Defence further pleads that Lim was at all material times in de facto control of the Plaintiff and HHL. Paragraph 7(3B) then pleads that the Transaction was engineered and/or procured by Lim deciding the terms of the Transaction and arranging for Koo and Pearl to sign papers in connection therewith, which papers include the EGM Resolution.

171.  At paragraph 7(6) of the Defence, the Defendants plead the alternative case that if they were in breach of any fiduciary duties and/or breach of trust as alleged, such breach “had been acquiesced and/or waived and/or ratified and/or condoned by the Company by virtue of the EGM Resolution which authorized, endorsed and positively directed” the acts of Koo and Pearl.

172.  On the basis of these pleaded facts, of the majority shareholders having resolved and consented at a general meeting to sell the interest complained of on the decision of Lim, I accept that it is open to Koo and Pearl to argue the effect in law of those facts, and whether the Duomatic principle applies on those pleaded facts.

173.  On the other hand, I also accept the liquidator’s case, that fraud and dishonesty have been pleaded in the SOC, to enable the liquidator to argue whether the Duomatic principle is excluded by virtue of the fraud exception, on the facts of the Defendants’ alleged dishonesty. Paragraphs 39 to 51 of this Judgment set out my analysis of the pleaded claims made by the liquidator, and in my judgment, the claims of fraud and dishonesty, and the facts relied upon to establish fraud and dishonesty, have been adequately pleaded.

174.  On behalf of Koo and Pearl, it has been highlighted that for the Duomatic principle to apply, there is no requirement for there to be an omission or some failed attempt to comply with certain formalities, as all that is necessary is unanimous consent amongst the shareholders of the company. Counsel further pointed out that assent can be oral, or in writing, or by conduct, and that it is not necessary for members to meet or give their assent at the same time. Although para 7.434 of Palmer’s Company Law makes it clear that a “mere internal decision of the shareholders with no outward manifestation or acquiescence is not enough”, Counsel for Koo and Pearl argued that provided that there is objectively ascertainable evidence of informed unanimous assent of the requisite members, the principle applies.

175.  Counsel for Koo and Pearl rely on Tam Po Kei, where Harris J held that if directors and shareholders accepted, or would have if they had been asked at the time, that a particular act was unobjectionable, a shareholder cannot later argue that the act analyzed conventionally is in breach of fiduciary duty.

176.  In reply to this, Counsel for the liquidator pointed out that nothing in the judgment of Harris J should be taken to depart from the rule that the Duomatic principle does not apply to a case where the transaction is dishonest. Ms Sit referred to para 67 of the judgment in Tam Po Kei, where Harris J explained the Duomatic principle by reference to EIC Services Ltd v Phipps [2003] 1 WLR 2360:

“It was explained by Neuberger J (as he then was) in EIC Services Ltd v Phipps [2003] 1 WLR 2360, paras 121-1 to 2, in the following way:

This principle, on which the first and second defendants rely, is named after Re Duomatic Ltd [1969] 2 Ch 365, and it has been expressed in slightly different ways in different cases. In Duomatic itself, Buckley J said at p 373:

Where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.

In Parker & Cooper Ltd v Reading [1926] Ch 975, the principle was expressed in these terms by Astbury J at p 984:

Where the transaction is intra vires and honest … it cannot be upset if the assent of all the corporators is given to it. I do not think it matters in the least whether that assent is given at different times or simultaneously.

More recently Meagher JA in Herman v Simon (1990) 8 ACLC 1094 at p 1096 described the principle as:

a doctrine that formalities may be disregarded if they have been waived by all shareholders acting in concert who want the same substantial result.

Although the principle has been characterised in somewhat different ways in different cases, I do not consider that that is because its nature or extent is in doubt or the subject of debate. The difference in language is attributable to the fact that the principle will have been expressed by reference to the particular facts of the case. The essence of the Duomatic principle, as I see it, is that, where the articles of a company require a course to be approved by a group of shareholders at a general meeting, that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval. Whether the approval is given in advance or after the event, whether it is characterised as agreement, ratification, waiver, or estoppel, and whether members of the group give their consent in different ways at different times, does not matter.”

177.  I would observe that even at para 67 of his judgment, when Harris J first made the remark that it was not the correct analysis to simply give regard to Bishopsgate Investment Management Ltd v Maxwell (No 2) and conclude that a director could not simply follow what another director told him to do, His Lordship pointed out the importance of analyzing the question “in terms of what represents the interests of a particular company, the act being ratifiable or in terms of estoppel depending on the precise facts”. The particular facts have to be examined, in considering whether they are either ratifiable or could have been waived, or assented to by the shareholders and directors. EIC Services Ltd v Phipps cited in Tam Po Kei, Ciban and Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258 clearly show that the Duomatic principle comes into play only where the transaction is “intra vires”, “honest”, where the matter is “one which a general meeting of the company could carry into effect” and where the shareholders “acted intra virus and in good faith”.

178.  Koo and Pearl further rely on Sun Hing Holdings Co Ltd v Li Kwok Po David [2020] HKCA 309, where Lam VP (as he then was) observed at para 45 of his judgment that the Duomatic principle may be relied upon to exonerate a director for breach of fiduciary duty, citing Sharma v Sharma [2014] BCC 73, and the summary made by Jackson LJ at para 52, that if the shareholders with full knowledge of the relevant facts, consent to the director’s act in question, then that conduct is not a breach of his fiduciary duty.

179.  I have found on a balance of probabilities that the Transaction was more likely orchestrated by Lim, and that the company documents relating to the Transaction including the EGM Resolution were prepared on Lim’s instructions and with his knowledge and approval. By deciding on the Transaction, instructing the preparation of and approving the EGM Resolution and the other company documents relating to the Transaction, and causing his staff to circulate same to Koo and Pearl for their signature, I accept that there is evidence of manifestation of Lim’s informed assent.

180.  By signing the EGM Resolution and minutes, and the documents sent to them for signature, Koo and Pearl likewise manifested their consent to the terms set out in the documents. The fact that they may not have read the contents of the documents to which they put their signature does not detract from the validity and effectiveness of their consent demonstrated by their signature (Ng Kwok Pui Philip v To Pui Kui [2020] HKCA 724, paras 60 and 61).

181.  The Duomatic principle applies to cure irregularities in the calling or conduct of the meeting, to replace the need to have a meeting at all, and further cures procedural irregularities stemming from shareholders’ agreement as well as any defect in the statutory written resolution procedure (para 7.440, Parma’s Company Law, citing Euro Brokers Holdings Ltd v Monecor (London) Ltd [2003] EWCA Civ 105). The fact that no actual meeting was held in this case, or that there was allegedly no proper notice of the EGM to Lim are not material, if the EGM Resolution and minutes reflect the informed consent of the shareholders.

182.  On the facts, I am satisfied that there is evidence of assent of Lim, Koo and Pearl as shareholders of the Company to the Transaction.

Whether there is dishonesty/fraudulent breach of fiduciary duty to disapply the Duomatic principle

183.  In this context, counsel for Koo and Pearl have, first, highlighted the fact there is no pleaded claim in the SOC that the Company was, at the time of the Transaction, insolvent. Despite the plea in the Defence that the EGM Resolution had authorized the Transaction, there was no Reply to the effect that the Company’s solvency was in issue at the relevant time, or that the Transaction would have any effect on the creditors of the Company, or that it would render the Company unable to pay its debts. Counsel for Koo and Pearl also pointed out that on the facts, the Company was only wound up in September 2008, which was 8 years after the Transaction, on the petition by a firm of solicitors for unpaid legal fees incurred since 2002 - some two years after the Transaction (Olham, Li & Nie v Highfit Development Co Ltd, HCCW 61/2008, unreported, 10 September 2008).

184.  There is therefore no issue arising from the state of the pleadings as to whether the Transaction would jeopardize the Company’s solvency or cause loss to its creditors, to constitute fraud on the creditors.

185.  As submitted by Counsel for Koo and Pearl, where there is no prejudice to creditors’ interests, the shareholders of the company acting unanimously may authorize the application of company assets for any purpose which is intra vires the company, even making a gift of the assets. Counsel referred to In re Horsley & Weight Ltd [1982] Ch 442, 453H-454F, where Buckley LJ observed:

“… a company and its directors acting on its behalf can quite properly expend contributed capital for any purpose which is intra vires the company. … A company is bound in a manner which is intra vires the company by the unanimous agreement of its members (per Lord Davey in Salomon v Salomon & Co Ltd [1897] AC 22, 57…).”

The Court in In re Horsley highlighted the fact that there was no misfeasance on the part of the directors, whose good faith was not impugned, and no evidence that the company in question was of doubtful solvency to the knowledge of the directors/shareholders who procured and authorized the impugned payment.

186.  In Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd v British Steel Corp [1986] Ch 246, the Court referred to In re Horsley and the reference made in that case to directors’ misfeasance and that misfeasance cannot be absolved by shareholders’ approval. In his judgment, Dillon LJ referred to In re B Johnson & Co (Builders) Ltd [1955] Ch 634, where the Court held that a claim based exclusively on common law negligence is not a claim for misfeasance, and that a claim for negligence is not brought into the field of misfeasance by adding “gross” to it. Dillon LJ concluded that “gross negligence amounting to misfeasance” should mean “recklessness” which is conduct “nearly approaching fraud”.

187.  The liquidator contends in this case that even if the Transaction had been arranged or agreed to by Lim, and Koo and Pearl had simply signed the company documents as they were instructed to do, they cannot be absolved from liability since the Transaction was misappropriation of the Company’s assets, being a disposition at a gross undervalue and for which no consideration was paid. Accordingly, shareholders’ unanimous assent cannot apply to give effect to, or excuse, such conduct which involves a fraud against the company (citing Ciban, paras 40-41).

188.  On behalf of the liquidator, Counsel pointed out that on the authorities, the Duomatic principle cannot apply when there is “relevant dishonesty”, meaning that the transaction in question is not one that is made bona fide, in good faith, or honestly. This is made clear in Lord Sumption’s statement in Prest v Petrodel [2013] 2 AC 415 (at para 41 of his judgment):

“… The sole shareholder or the whole body of shareholders may approve a foolish or negligent decision in the ordinary course of business, at least where the company is solvent… But not even they can validly consent to their own appropriation of the company’s assets for purposes which are not the company’s.”

189.  The issue therefore turns on whether there is dishonesty (or lack of bona fide) which can equate with a fraud against the Company, as suggested by Counsel for the liquidator.

190.  As explained above in the earlier parts of this Judgment, I have found that Lim had orchestrated the Transaction and that Koo and Pearl had simply signed the corporate documents and the Transaction documents on the instructions of Lim, and under advice from his consultants and staff. At the risk of repetition, my finding is that there is no evidence which can show that Koo and Pearl knew that the Transaction was at undervalue, or that the Consideration had not been paid, in that there was no payment reflected in the bank ledgers or the financial statements of the Company. They might have been simply negligent, by not examining the documents relating to the Transaction, the accounts or statements of the Company, or by not paying attention to the Consideration and whether it is fair or adequate, but that is not the case pleaded against them (Re Simmon Box (Diamonds) Ltd; Cohen & another v Selby & ors).

191.  I have found that there is no sufficient evidence to show that Koo and Pearl had knowingly permitted Lim to commit a breach of trust, in authorizing and entering into the Transaction, with knowledge that the Transaction was at undervalue or that the terms of the Transaction were not in the interests of the Company or for its purposes (Re Guardian Care Homes (West) Ltd (in liq) [2018] EWHC 2664; Cohen v Selby [2001] 1 BCLC 176).

192.  I have also concluded that there is insufficient evidence for me to find that Koo and Pearl had acted dishonestly, or in fraudulent breach of fiduciary duty, since they had deferred and it was reasonable for them to defer to and rely on Lim’s judgment as to what was in the best interests and for the purpose of the Company.

193.  On these findings, the Duomatic principle is not disapplied.

Whether the claims made were time barred

194.  I have found for reasons stated in the earlier parts of this Judgment that the pleaded claims of the liquidator include fraud or fraudulent breach of trust, and for recovery of trust property received by the director-trustees and converted. Hence, the claims fall within section 20(1) of the Limitation Ordinance and are not time barred.

Whether relief should be declined by laches

195.  It was contended that there was unreasonable delay in the liquidator’s commencement of these proceedings after their appointment in April 2010, and that the defence of Koo and Pearl have been prejudiced as a result of the delay as they were not able to locate and produce bank documents, such that it would be unjust in all the circumstances for the Court to grant any relief to the liquidator of the Company. It was emphasized that the liquidator was aware of the Transaction by June 2010 (when the liquidator wrote to Koo and Pearl in relation to the Transaction), and that at the very latest by 29 July 2013, the liquidator was in possession of sufficient information and documents to commence legal proceedings, but he did not do so until 10 March 2015, which was 15 years after the Transaction and nearly 5 years after his appointment.

196.  On the liquidator’s case, there had been active progress in the investigations carried out after the appointment in April 2010. Documents had to be obtained from the banks, and timely requests had been made to Koo and Pearl for information and documents. The liquidator claims that Koo and Pearl were not cooperative, and the liquidator had to apply to the Court for production and discovery orders against them. When these orders were not complied with to the satisfaction of the liquidator, committal proceedings had to be commenced in December 2012, before documents such as the general ledgers of the Company were produced by Koo and Pearl in July 2013. Thereafter, the liquidator had to spend several months going through the documents, to decide cautiously and responsibly, as an office-holder with duties to the Court, whether the Company had viable causes of action to pursue, and to obtain funding to pursue any viable claims.

197.  There was a change of lawyers in the first quarter of 2014, and the new lawyers spent months reviewing the 3000 documents available, after which Counsel’s advice was sought. It was only at the end of 2014 that Counsel’s advice was received, and the Writ was issued in March 2015.

198.  On behalf of the liquidator, Counsel referred to Spry, The Principles of Equitable Remedies (9^th edition) at 234-235, to submit that on the requirement of “unreasonable delay”, it has to be shown that the plaintiff’s delay has been excessive, and that it must appear that, in all the material circumstances, a reasonably assiduous person would have proceeded with substantially greater speed or diligence. Counsel argued that for laches to apply, there has to be more than extremely lengthy delay, before a party will be denied equitable rights, and the Court can conclude that it would be inequitable not to deny relief (Snell’s Equity (35^th edition) at para 5-012).

199.  On the timeline provided by the liquidator, I cannot say that the claims had been pursued expeditiously, and in my judgment, “a reasonably assiduous person” might have been able to proceed with greater speed and diligence after July 2013.

200.  However, I am not satisfied that there has been detrimental delay, in the sense that Koo and Pearl can be seen to have suffered prejudice as a result of, or but for, the delay from 29 July 2013 (the latest date by which the liquidator allegedly had sufficient information to commence proceedings) to 10 March 2015 (the actual date when the Writ was issued).

201.  The complaint of prejudice made by Koo and Pearl is that they were not able to obtain from the banks missing documents which are relevant to establishing: (1) Lim’s de facto control over the Company and his orchestration of the Transaction; and (2) whether the Transaction was at undervalue. In the latter regard, it was claimed that a complete set of the monthly bank statements of the Company’s known bank accounts from 1999 to 2008 would have shed light on whether the Consideration, or any part of it, and the Indebtedness, had been paid by HHL to the Company. Because of the delay, the banks have destroyed the documents, as their policy is only to keep records for 7 years. Relevant documents which could not be obtained are said to include bank account opening documents, documents identifying individuals who controlled the accounts, the Company’s resolutions, all correspondence between the Company and the banks, and all monthly statements of the Company from 1999 to 2008.

202.  I accept the explanations and submissions made for the liquidator, that there is no prejudice resulting from the alleged delay. In essence, it was open to and possible for Koo and Pearl to obtain the relevant banking and financial documents of the Company before, and after its liquidation, but they themselves had failed to do so. Up until the liquidation of the Company, Koo and Pearl were the ones who were in control of the Company. Pearl admitted in cross-examination that she knew that the Transaction was the subject matter of proceedings instituted by the estate against the Company and HHL in September 2006, to set aside the Transaction as a fraudulent conveyance. When those setting aside proceedings were commenced, Koo and Pearl could, but did not, obtain all the banking or third-party documentation which they now claim are relevant to issues surrounding the Transaction. If they had done so by 2006, it would have been before the 7 year period for destruction.

203.  As Counsel pointed out, the reality is that by the time the liquidators were appointed in April 2010, the bank documents for 2000, and before 2000, would have already been destroyed by the banks in accordance with the 7 year period practice. The destruction and loss for Koo and Pearl of these documents was not caused by the liquidator’s delay in the commencement of these proceedings and the pursuit of the claims made.

204.  The liquidator also pointed out that even after the Company’s liquidation, Pearl still had access to relevant personnel and locations at which the documents of the Company and HHL were held. This is evidenced by the disclosure of these documents by Koo and Pearl after committal proceedings had been commenced against them. For example, the cheques signed by Koo were disclosed in HCA 1700/2002. Pearl also admitted that she should have obtained the relevant documents and looked at them, but she had not checked.

205.  It therefore appears that any inability to locate the relevant documents was due to Koo and Pearl’s own fault, and inaction.

206.  In the circumstances, it would not be unjust to grant relief to the liquidator, should the claims be established.

Relief sought if the claims are established

207.  In the SOC, the liquidator pleaded relief for equitable compensation, and reconstitution of the property misappropriated, with account and ancillary orders. On the liquidator’s case, the equitable compensation comprises the amount of the Shareholder Loan wrongfully discharged, and compensation for the HF shares transferred. According to the liquidator, the compensation payable to the Company should be assessed at: (1) the market value of the HF shares as at 8 September 2000, rather than the alleged net asset value contended by Koo and Pearl, which market value is RMB 378,559,000 (according to the liquidator’s expert valuation), and (2) the value of the Shareholder Loan of RMB 304,940,317.57; making a total of RMB 683,499,317.57.

208.  According to Counsel for Koo and Pearl, the Transaction was not at undervalue, the Consideration being higher than HF’s net asset value at the time according to the financial statements, and the Shareholder Loan was not part of the transfer under the Transaction.

209.  On the liquidator’s case, if there had been payment of the Consideration to the Company, then despite the incomplete banking records, the opening balance for each of the Company’s bank accounts for the period between 2001 and 2003 would have shown the payment(s) made. No such payment can be inferred from the opening balances in the general ledgers, to enable the Court to conclude that the Shareholder Loan had either been repaid by the Company before the SPA, or repaid by HHL after the SPA, up to 2003. On behalf of the liquidator, it was argued that this is more consistent with there having been either an assignment of the Shareholder Loan with the SPA, or a waiver of the loan. On the liquidator’s case, therefore, whether the waiving or disappearance of the Shareholder Loan owed to the Company was done pursuant to clause 6 of the SPA (and the parties’ dispute on its interpretation) is a red herring.

210.  In any event, Counsel for the liquidator argued in Closing that against the clear documentary evidence available, it is not necessary for the Court to determine whether the extent of the undervalue was even greater than that stated on the face of the documents, because if the valuation of Mr Leung, the liquidator’s property expert, is accepted, his valuation for Gee House (of RMB 874,200,000) would only further increase the net asset value of HF at the time of the SPA.

211.  At the conclusion of the trial, the Court was informed that the main contention between the parties on expert evidence is on two issues: whether Gee House should be valued on the basis of a sale en bloc, or on a strata titles basis (an aggregation of the values of the individual units in the building); and if the Court prefers valuation by strata title, then the appropriate years to be used for choosing the relevant comparables (2005, 2006 or 2009). The figures will then be sorted out between the experts. In gist, this is because there were no sales transactions of Gee House between 2001 and 2004, and the earliest set of transactions after 2000 (the date of the impugned Transaction) would be 2005.

The expert directions

212.  The leave granted by the Master on 2 April 2019 for production of expert evidence is (1) for evidence from a certified public accountant “on the fair market value of all 100% shareholding in HF” as at 8 September 2000; and (2) for evidence from a real estate surveyor or valuer “on the fair market value of the commercial and residential real estate project” at 41 Hengshan Road, Shanghai owned by HF, as at 8 September 2000.

213.  There is consensus between the experts that by definition, the “market value” of a property is the estimated amount which an asset should exchange on the valuation date between a willing seller and willing buyer in an arm’s length transaction, after proper marketing, and where the parties have each acted knowledgeably, prudently and without compulsion. This is by reference to the “RICS Valuation - Global Standards” published by the Royal Institute of Chartered Surveyors (“RICS Standards”).

214.  The key dispute between the parties turns on the valuation experts’ opinion on the approach for the valuation of the Gee House development (“Property”), and whether it should be en bloc (according to Mr Faulkner, the Defendants’ expert) or unit by unit (according to Mr Leung, the Plaintiff’s expert).

En bloc or strata titles valuation

215.  Mr Leung expressed the view that since the valuation of the Property is intended for determining the fair market value of 100% shareholding of HF, such valuation should “represent the property interests of the Property as stated in the financial statement of HF as at 8 September 2000”. It is on this basic premise that Mr Leung considers that it would not be appropriate or correct to value the Property on en bloc basis.

216.  I regret that I cannot follow Mr Leung’s logic. Even accepting that the overall purpose of the expert evidence is for the Court to ascertain the fair market value of the 100% shareholding of HF, Mr Leung has not been able to refer to any guidelines, practice codes or other materials to support his opinion that for such purpose, interests in the property should be valued on strata titles basis as a matter of accounting treatment, or as stated in the financial statement.

217.  I agree with Counsel for Koo and Pearl, that it is not within the expertise of Mr Leung to express opinion on how the value of the Property should be stated in the financial statement of HF. If what is stated in the financial statement already or amply represents the value of the Property, expert evidence on the valuation of the Property would not be separately required in the first place, as the accounting expert would have dealt with it. As the expert directions stand, the Court’s leave relating to property valuation evidence is for the expert to give evidence on the fair market value of the Property, leaving it to the accounting expert to give evidence on the fair market value of the 100% shareholding in HF which holds the Property.

218.  In Mr Leung’s opinion, the en bloc transactions used by Mr Faulkner in his valuation were “likely” to be equity deals, and that the price used in such deals would not in his view truly reflect the transacted price of the Property. Mr Leung’s opinion was that en bloc sales of a building are not common, because equity deals are more complex, they do not truly involve the property only, special terms and conditions are normally attached to the sale, and information on these transactions are difficult to obtain, such that it would not be appropriate to use the consideration in such equity deals as comparables for valuation of the Property. Again, I agree with Counsel for Koo and Pearl, and as transpired during the cross-examination of Mr Leung, he was expressing opinions on matters outside his area of expertise. I do not accept for the reasons he gave, that en bloc sales are neither appropriate nor comparable. The factors referred to by Mr Leung do not mean that the price of the building in an equity deal cannot truly or fairly reflect the value of the building.

219.  In the opinion of Mr Faulkner, a sale en bloc is the appropriate method for valuation because only that can achieve a sale by a single transaction on the valuation date, as contemplated by the Court direction for valuation. He explained that a strata title sale is not appropriate for valuation in this case because it is not possible to have all the transactions of all the units in the Property taking place on one day, on the valuation date.

220.  I do not accept this reason to reject strata title sales as the basis for valuation. This is because, as the RICS Standards make clear, the market value to be ascertained is simply to reflect the figure that would appear “in a hypothetical contract of sale”, assumed to take place at the valuation date. It is not necessary for the contract(s) of sale to actually take place on the valuation date.

221.  In defining “market value”, the RICS Standards explain not only that it represents the figure that would appear in a hypothetical contract of sale of the valuation date, but also that it reflects “the highest and best use of the asset”. The highest and best use of an asset is described in the RICS Standards as “the use of an asset that maximizes its productivity and that is possible, legally permissible and financially feasible”.

222.  It was put to Mr Faulkner in cross-examination that, bearing in mind the above definition of market value, a strata title/unit by unit sale would arrive at a higher price, and a better price, than a sale en bloc. Mr Faulkner’s view is that the market value is the figure which can be agreed between a willing buyer and a willing seller, but that it is not about getting the highest price for the seller, if it is not acceptable to the buyer. In his opinion, the highest and best use of the Property is as a serviced apartment.

223.  As a matter of pure common sense, I would consider that the fact that the Property is a serviced apartment is an important matter to be borne in mind. The parties and both experts have highlighted that Gee House was at the material time a unique property development in Shanghai. It comprises 2 blocks, of 24 storeys of high luxury serviced apartments. Mr Leung’s report described the Property as:

“luxury and elegant, constructed with neoclassical architectural style with the provision of five-star hotel management service. It was located within an area, previously known as “Shanghai French Concession”. A number of consulates and old-fashioned villas were scattered in that locality. The Property was one of the most prestigious buildings when it was completed in 1997.”

224.  Mr Faulkner’s report described the Property as being located on “a tree-lined boulevard in the old French concession”, and that the Property comprised the first luxury serviced apartment building of its kind in Shanghai. The report further stated that with the exception of 2 commercial units on the ground floor, a floral shop and a gallery which was within the complex (with no direct access to the public road), the Property “solely consisted of luxury serviced apartments as opposed to luxury apartments”. The valuation was made on the basis that the Property provided a full range of daily housekeeping service, 24 hour concierge service, restaurant catering home delivery, linen changing service twice a week, daily towel changing service, private chef and butler services, with unobstructed panoramic garden and low-rise villa views.

225.  The Property was no doubt unique, which explains why it would be rare to find a comparable. Given the fact that it was developed and marketed as a luxury serviced apartment complex, there would be added value to the Property being sold en bloc, to be held by one common owner, so that the high quality of the services and facilities offered could be maintained and controlled by the owner. On that basis, I would have considered that an en bloc sale of such a building or development should fetch a higher price, and reflect the best use of the asset being valued.

226.  Counsel for the liquidator drew attention to the fact that there had in fact been individual sales of units within the Property, in 1995, and also later, after 2005. It was also contended that under the initial joint venture agreement for the development of the Property, it had been intended to be sold unit by unit.

227.  On the evidence, the initial sales in 1995 were not completed and the deposits had been repaid to the purchasers (the evidence suggesting that this was due to the delayed completion of the development). In this regard, I agree with Mr Faulkner, that if a sale is cancelled, or not completed, it should not represent the market price, when the “willing purchaser” did not agree for whatever reason to complete the purchase. Moreover, the sales in 1995 were at a time before the structure and interior decoration and renovation of the Property were completed, and the price/value then would be very different to the market value of the Property in 2000.

228.  Having heard the experts, I cannot agree that either en bloc sale or strata title sale is not possible, or cannot be used. Which approach is more appropriate depends on the particular property to be valued, the relevant market, and all the related circumstances.

229.  I agree with Counsel for the liquidator, that Mr Leung’s approach and methodology for the valuation is an impressive attempt, to extrapolate the data in 26 comparable transactions in 2009, to all 180 units within the Property, in as objective a manner as possible. This includes making adjustments for the different dates of the transactions in 2009, identifying the “best view unit” for each level and adjusting the 26 comparables against the “best view unit” in their respective levels, to arrive at another set of adjustment percentages for each level, before applying the Shanghai Real Estate Price Index (“Index”) to make final time adjustments from 31 December 2009 to 8 September 2000 (the valuation date).

230.  Nevertheless, as Mr Leung himself accepted, comparable sales further from the date of valuation are inherently less reliable than those closer to the valuation date. This is particularly so given the rapid changes in Shanghai market conditions in 2000 to 2009. Mr Leung also accepted that time adjustments have a very significant impact on his valuation. Since the valuation made by Mr Leung is based on 26 historical transactions of units in the Property in 2009, it necessitated an adjustment of 50.59% in his valuation to cater for the time factor.

231.  Further, whilst adjustments were made according to the Index, there is some evidence to suggest that movements in the Index are not equal to the more rapid movement of the market value of the Property. The sales price of units of the Property in 2009 were significantly higher than those in 2005, and were not the same as the Index over the same period.

232.  Considering all matters in the round, I would in this case conclude that it would be more appropriate to value the Property by a sale en bloc, rather than to take the aggregate of the value of all the units in the Property. I tend to agree with Counsel for Koo and Pearl that this would be more consistent with the purpose of the valuation in this case, which is to value the whole building for the purpose of determining the fair market value of the 100% shareholding of HF.

233.  Bearing in mind Mr Leung’s views on the unique nature and location of the Property, I would accept the adjustments to Mr Faulkner’s valuation, as Mr Leung proposed for view, location, and building quality.

234.  I would also disapply the 10% bulk discount used by Mr Faulkner. I accept the submission made by Counsel for the liquidator, that the present exercise of valuation is only to assume a hypothetical sale on the valuation date, and there is no need to apply a bulk discount on the basis that 172 or a large bulk of units are being put into the market altogether. Moreover, I agree that there is some element of duplication, if a further discount is made to the en bloc sale value, which conceivably already took into account any discount for bulk sales.

Disposition

235.  The claims of breach of fiduciary duties are dismissed. The order nisi is for the costs of the action to be paid by the Plaintiff to the Defendants, with certificate for two Counsel.