ASPIAL INVESTMENT LTD AND ANOTHER v. MAYER CORPORATION DEVELOPMENT INTERNATIONAL LTD

HCA 238/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 238 OF 2012

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HCCL 3/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION. 3 OF 2012

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(Consolidated by Order of the Honourable Mr Justice Reyes
dated 22^nd day of March 2012)

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J U D G M E N T

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I. INTRODUCTION

1. Aspial and Bumper (BVI companies) are nominees of Chen Shu Jun and Lin Jin He respectively.

2. The companies each agreed to buy 100 million shares of Mayer Holdings Ltd. (Mayer HK) (a Caymans company listed in Hong Kong) from Capital Wealth Finance Company Ltd. (acting by its CEO Lam Chin Chun).  Aspial paid $10 million, while Bumper paid $10.5 million for their parcels of shares.  The relevant share certificates were nos. 70 and 71, each representing 100 million shares.

3. In early 2012 Aspial and Bumper submitted stamped executed transfer forms for the certificates to Computershare (Mayer HK’s registry) for processing.  But Computershare refused to execute any transfer of the shares to Aspial and Bumper.

4. Computershare refused to do so because certificates 70 and 71 are registered in the name of Mayer Corporation Development International Ltd. (Mayer BVI) (a BVI company which is a wholly-owned subsidiary of Mayer Steel Pipe Corporation (Mayer Taiwan) (a Taiwan listed company)).  In late 2011 Mayer BVI reported to the police that the certificates had gone missing from the custody of Alliance Financial Intelligence Ltd. (AFIL) (a Hong Kong company).  Mayer had asked for replacements to be issued by Computershare, shortly before Aspial and Bumper presented the reportedly lost certificates to the latter.

5. Aspial and Bumper sue Mayer BVI in HCA 238, while Mayer BVI sues Aspial, Bumper, AFIL, Charles Chan, and Lam in HCCL 3. The principal issue which I have to determine in these proceedings is who owns the 200 million shares underlying certificates 70 and 71.

6. Aspial and Bumper contend that they properly purchased the shares through Capital Wealth.  They say (and AFIL, Lam and Charles Chan agree) that Capital Wealth had been authorised by Mayer BVI to sell the 200 million Mayer HK shares represented by certificates 70 and 71, in any way and at any price that Capital Wealth saw fit.

7. Mayer BVI, in contrast, denies that it authorised Capital Wealth to sell the shares on its behalf.  Mayer BVI instead says that AFIL breached a Custodian Agreement whereby AFIL agreed to hold certificates 70 and 71 to Mayer BVI’s order.  Mayer BVI accuses Charles Chan and Lam of dishonestly assisting AFIL to breach the fiduciary obligations which AFIL as custodian of the certificates owed to Mayer BVI.  Mayer BVI asks that Aspial and Bumper account for the certificates on the basis that the latter must have had notice of suspicious circumstances surrounding the sale of the Mayer HK shares to them.

II.  BACKGROUND

8. There are 2 competing accounts of how certificates 70 and 71 ended up with Capital Wealth.  The accounts are contradictory and cannot be reconciled. In this section, I shall set out essential facts which are not in dispute, while also sketching out the main matters in contention among the parties.

A.  Companies

9. Mayer Taiwan was incorporated in 1959.  It was listed on the Taiwan Stock Exchange in 1993.  Its chairman and guiding force has been (and continues to be) Huang Chun Fa.

10. Mayer BVI does not employ staff in Hong Kong. It does not have a Hong Kong office.  Its sole purpose has been to hold 300 million (later reduced to 200 million as set out below) Mayer HK shares on behalf of Mayer Taiwan.  Those 300 million shares represent about 52.08% of Mayer HK’s issued share capital.  Mayer BVI’s sole director is Lai Yueh Hsing.

11. Mayer HK is a holding company.  Its subsidiaries are principally engaged in the processing and manufacture in the Mainland of steel sheets and pipes for the manufacture of sports equipment, spare parts for household appliances and motor vehicles, and computer, communication and consumer electronic equipment.  At the relevant time, Mayer HK employed 3 employees here.  Among the 3 was Tommy Chan, Mayer HK’s company secretary.

12. Between 2004 and 2010 Mayer HK’s auditors were CCIF CPA Ltd., founded by Charles Chan.  CCIF then changed its name to Crowe Horwath (HK) CPA Ltd.  Crowe Horwath remained as Mayer HK’s auditor until 2011.  For convenience, I shall simply refer here to CCIF and Crowe Horwath as CCIF.  Charles Chan is an accountant and the principal behind CCIF.

13. In 2009 Mayer HK’s annual profit dropped substantially as a result of the 2008 global financial crisis.  The daily trading volume of Mayer HK’s shares has been low.  Currently, trading in Mayer HK is suspended.

B.  April to June 2009

14. There are differing accounts as to when, how and why Lai, Lam and Charles Chan initially got together.

15. According to Lai, in early April 2009 Charles Chan suggested to him that Mayer HK should engage a corporate finance expert to revitalise its business.  Charles Chan recommended Lam for this purpose.

16. Lai says that, as a result, he and Tommy Chan first met Lam in April 2009 at a meeting at which Charles Chan was present. Lam (Lai alleges) proposed that Mayer HK acquire energy or infrastructure projects in Argentina or Vietnam to attract investors.  Lam is further said to have advised Mayer BVI to reduce its shareholding in Mayer HK so as to increase the number of publicly available shares in the listed company.  Lam (Lai claims) thought that by taking these steps Mayer HK’s share value could be enhanced by $2 to $3 per share.

17. Lam (Lai says) persuaded Mayer BVI to deposit the share certificates for its entire 300 million shares with CCIF together with transfer forms executed in blank.  The thinking (according to Lai) was to enable Mayer to take advantage of gains in Mayer HK’s share price from time to time.

18. CCIF would hold the certificates in escrow for one year.  By depositing the certificates in Hong Kong, Mayer would be relieved of having to send a representative from Taiwan to Hong Kong on every occasion when a share transfer had to be effected.  If no increase in Mayer HK’s share price resulted from pursuing Lam’s proposals for revitalisation, then the certificates were to be returned.

19. Lai claims that Charles Chan introduced AFIL for the purpose of holding the certificates.  Charles Chan (Lam alleges) represented that AFIL was controlled by CCIF and Alex Ku (AFIL’s managing director) was a colleague at CCIF.

20. Lai deposes that there were meetings between Lam and himself in May and June 2009.  Those were primarily to discuss an Argentine oil project which it is alleged by Lai that Lam introduced as a possible investment project for Mayer HK to acquire.

21. Charles Chan, Ku and Lam all tell another story.

22. According to this alternate version, in April 2009 Lai approached Charles Chan as Mayer HK’s auditor.  Lai told Charles Chan that Mayer HK’s business was not going well and that Mayer Taiwan and Lai were both in need of funds for their future businesses.  Lai told Charles Chan that Mayer BVI would consider selling the entire of its 300 million shares in Mayer HK to the right investor.  Lai asked Charles Chan to introduce parties for that purpose.

23. At a lunch in the Farm House Restaurant on 6 May 2009, Charles Chan says that he first introduced Lai to Lam.  The lunch was attended by Lai, Lam, Tommy Chan, Charles Chan and Flora Kao.  Charles Chan contends that Lai and Lam largely discussed matters between themselves at the lunch, while Tommy Chan, Kao and he were silent for most of the meal.

24. Note that Kao works for Lai.  She has helped him out from time to time, much in the manner of a personal assistant.  Although she routinely handed out name cards identifying herself as Mayer HK’s Associate Director, she has never been employed by Mayer HK, much less been appointed as one of its directors.  The name cards were supposed to open doors for her, people being more likely to deal with someone described as a “director” rather than someone identified as a mere “secretary”.

25. However, Lai claims that, despite her high-sounding title, Kao was little more than his personal secretary.  Kao first became Lai’s secretary in 1997 when Lai was working for Durban Development Co Ltd.  A few years later Kao married Lai’s nephew Lin Chih Huang.  Kao continued to do work for Lai even after he ceased to be a director of Durban in around 2005.

26. Kao herself left Durban in September 2009.  She then worked for Wang Ing Jye at Aplus Capital Partners Inc.  Wang had been introduced to her by Lai in June 2009 and it seems that from around that time Kao began to help Wang out informally, even before taking up employment at Aplus in September 2009.

27. Aplus is a financial consultancy business.  Kao describes Wang as the controlling shareholder and “top boss” of Aplus.  But in the course of trial it emerged that Wang no longer works for Aplus.  He now works for a company known as British Mining.

28. Relying on his appointment logbook (produced in evidence), Charles Chan claims that there was another lunch meeting among himself, Lam, Lai and Kao on 13 May 2009.  At this meeting, Charles Chan says that Lai engaged Lam to find a buyer for 400 million Mayer HK shares, that is, the 300 million Mayer HK shares held by Mayer BVI as well as a further 100 million shares alleged to be owned by Lai beneficially through nominees.  Lam is said to have replied that Lai could possibly get $100 million from the disposal of those shares.  But no concrete agreement (Charles Chan recollects) was reached at the lunch.

29. Charles Chan believes that Lam and Lai had several other meetings thereafter.

30. On a day prior to 3 June 2009 (Charles Chan can no longer be sure just when), Lai asked Lam in Charles Chan’s presence to sell through a broker 100 million of Mayer BVI’s shares in Mayer HK.

31. In response, Lam (Charles Chan deposes) told Lai that Lam would find a buyer for the 400 million shares held by Mayer BVI and Lai within one year on condition that Lam was given the exclusive right to sell the shares.  Lam proposed that any excess over a price of $100 million for the 400 million shares was to be treated as Lam’s profit.

32. Lai is said to have been amenable to the deal, provided that Lam deposited $50 million with Mayer BVI as “promise money”.  But Lam refused to do that.

33. Lam was only prepared to deposit $50 million promise money with a third party middleman or stakeholder and then only if Lai executed blank transfer forms in respect of 200 million of Mayer BVI’s shares in Mayer HK.  The thinking appears to have been that, in the event that Lam found a buyer, a sale could be done immediately through the middleman without further reference to Mayer BVI.  Lai (Lam says) agreed to Lam’s proposals.

34. Charles Chan says that it was originally suggested that he be the middleman stakeholder.  But, since he was Mayer HK’s auditor, Charles Chan declined so to act as he thought that there would be a conflict of interest.  Instead Charles Chan introduced AFIL and Ku to Lam and Lai.  Charles Chan observed to Lai that, although the two were separate entities, CCIF and AFIL shared a close relationship and frequently cooperated with each other.

35. The result (according to Charles Chan) was that AFIL through Ku agreed to be the stakeholder.  Ku claims to have told Charles Chan that AFIL would take a 2.5% fee on the agreed transaction sum of $100 million.  Charles Chan says that he communicated this to Lai and the latter agreed to the fee.

C.  3 June 2009

36. On 3 June 2009 Lam handed over Capital Wealth’s cheque for $50 million to AFIL pursuant to the deal said to have been struck between him and Lai.  Charles Chan claims that the cheque was given to Ku at a meeting at CCIF’s offices attended by Lai, Lam and Tommy Chan.

37. Ku deposited the cheque in AFIL’s account following receipt.  There is a letter dated 3 June 2009 from AFIL to Capital Wealth acknowledging receipt of $50 million as promise money.

38. Lai accepts that, with Lam’s help, Mayer BVI sold 100 million of its 300 million Mayer HK shares through GF Securities.  That sale fetched about $55 million dollars.

39. But otherwise Lai denies having reached any deal with Lam for the sale of Mayer BVI’s remaining 200 million shares in Mayer HK. Mayer BVI (Lai stresses) was not interested in selling its shares otherwise than to capture gains in its share price from time to time due to investment opportunities introduced by Lam.

40. Lai further denies that he is the beneficial owner of any Mayer HK shares, whether in his own name or in that of nominees. He points in support to Mayer HK’s annual interim and final reports (prepared by CCIF), which make no mention of Lai having any or any significant beneficial shareholding in Mayer HK.  If Lai beneficially held as many as 100 million shares in the manner Charles Chan alleges Lai told him, then surely (Lai argues) that fact ought to have been disclosed in accordance with the law by Charles Chan and CCIF as Mayer HK’s auditors in the annual reports.

41. The balance of Mayer HK’s 200 million shares were agreed (Lai says) to be deposited with AFIL as custodian, just because certificates 70 and 71 (both issued on 2 June 2009) had to be held for safekeeping somewhere.  To enable market gains in share price to be captured from time to time, the transfer forms at the back of the certificates were executed in blank.  This would enable sales of Mayer HK shares to be effected without the certificates having to be sent back and forth between Taiwan and Hong Kong every so often when something was to be sold.  On that basis, rightly or wrongly, Hong Kong (Lai says) was deemed by Mayer BVI to be more convenient than Taiwan as the place for keeping certificates 70 and 71.

42. Lai and Tommy Chan are adamant that there was no meeting on 3 June 2009 at CCIF’s offices where Capital Wealth’s cheque was shown and handed over to AFIL.  The AFIL letter of 3 June 2009 acknowledging receipt of Capital Wealth’s cheque is denounced by them as a recent fabrication.

D.  19 June 2009

43. The Charles Chan faction says that in the afternoon of 19 June 2009 Kao and Tommy Chan delivered certificates 70 and 71 to Ku at CCIF’s offices in accordance with the deal which the Charles Chan faction says Lam had reached with Lai.  The $50 million cheque having previously been deposited with AFIL, Mayer BVI’s 200 million Mayer HK shares were correspondingly lodged with AFIL on the same day.

44. Charles Chan says that he was not at the meeting, but was kept informed by his staff over the phone as developments unfolded.  Charles Chan relies on his appointment logbook in support of this, as that shows he had a meeting in the afternoon.

45. At the CCIF meeting among Ku, Kao and Tommy Chan, a Custodian Agreement (in Chinese) was executed between Mayer BVI and AFIL.  According to Ku, upon arrival at CCIF’s office, Kao produced the Custodian Agreement for Ku’s signature in exchange for the certificates.  Ku says that Lai was not present at the meeting, but had pre-signed the Custodian Agreement.

46. The Custodian Agreement identifies Party A as “Mayer Corporation Development Limited”.  This is in fact not strictly Mayer BVI’s English name.  As is apparent from a chop imprint at the bottom of the Agreement, Mayer BVI’s precise English name is “Mayer Corporation Development International Limited”.  I doubt, however, that anything can be deduced from this small discrepancy.

47. The Custodian Agreement stipulates that AFIL is to keep custody of certificates 70 and 71 for 1 year.  It is to be governed by Hong Kong law.  It recites that Mayer BVI has requested AFIL (Party B) to hold certificates 70 and 71 “on trust” and to “execute disposition in accordance with future reorganization plan of Party A or its other needs”.

48. The Custodian Agreement further provides that any disposition of Mayer BVI’s shares in Mayer HK is to be carried out subject to Mayer BVI’s written instructions and any cheques representing proceeds from the sale of the shares shall be made payable to Mayer BVI.

49. The parties agree that the Custodian Agreement says what it says.  But the Lai faction has a different account of its genesis.

50. According to this account, Lai and Tommy Chan went to CCIF’s offices in the morning of 19 June 2009.  Charles Chan is said to have met them.  They deposited certificates with Ku and at that point Ku produced the Custodian Agreement for signature by Lai.  Lai then signed the same in Ku’s presence.

51. Lai says that at the meeting he handed over to Charles Chan a resolution of Mayer Taiwan for the sale of the 100 million shares to be sold by GF Securities.  Lai stressed that the sale of any more of Mayer BVI’s shares in Mayer HK would require another resolution by Mayer Taiwan and, in any event, the latter would not be prepared to sell Mayer HK shares at a unit price less than $1.50.

52. Lai’s evidence is that, coincidentally, as Tommy Chan and he were being shown out by Charles Chan and Ku, they all bumped into Kao in the lift lobby.  As Chan was introducing Ku to Kao, Lai says that Tommy Chan and he left because they were in a hurry to go elsewhere.

53. Kao and Wang take up the story from here.

54. Kao claims to have been accompanying Wang to meet Ku and Charles Chan.  Wang had to do some personal errands, so he arrived after Kao.  By that time Lai and Tommy Chan had left.

55. Upon Wang’s arrival, then Charles Chan, Ku, Kao and Wang had a meeting wherein Wang deposited 7 share certificates corresponding to 99 million Mayer HK shares with AFIL.  The shares were in the names of various persons who were said either to own the shares beneficially or to hold them for others.

56. Kao and Wang produced a sheet setting out how many of the 99 million shares belonged to a given person and to whom such shares belonged beneficially.  A copy of the sheet is at Annex 1 to this Judgment.  Kao and Wang also gave Charles Chan bought and sold notes signed by the persons in whose names the shares were registered.

57. The 99 million shares were being deposited with AFIL (according to Wang and Kao’s evidence) for sale by Charles Chan.  Apparently, upon Lai’s earlier introduction, Wang had met Charles Chan in March 2009 to explain that Wang was acting for various owners of the 99 million Mayer HK shares.  Those owners were all said to be interested in selling their shares at a reasonable price.  Charles Chan had (Wang says) responded that it would not be difficult to fetch at least $1 per share, but to do so might take time.

58. Charles Chan is thus said to have suggested to Wang in March 2009 that Wang deposit the shares with CCIF for 1 year.  In return, Charles Chan would arrange an initial deposit of $42.5 million to be paid to Wang or other nominees of the investors owning the 99 million shares.

59. When the 99 million shares were handed over on 19 June 2009, Ku is said to have produced another Custodian Agreement.  That Agreement is in similar terms to the earlier one executed between Mayer BVI and AFIL, except that the contract was now between Wang (as Party A) and AFIL (as Party B).

60. Wang had brought photocopies of the 7 share certificates deposited with AFIL as well as photocopies of the relevant bought and sold notes to the meeting.  He says that Ku signed the photocopies.  Wang took the photocopies away with him as well as a copy of the Custodian Agreement when he and Kao left CCIF’s offices on 19 June 2009.  Wang produced the original Custodian Agreement and photocopies signed by Ku to this Court as Exhibit Mayer-1 at the start of his oral evidence at trial.

61. Charles Chan denies that he met Wang in March 2009. He and Ku deny that they met Wang and Kao at some sort of separate meeting on 19 June 2009, Ku going so far as to say that he has never met Wang to date. They both deny that Wang and Kao deposited 99 million shares with AFIL.  They say the story is a fabrication by Kao and Wang.  Ku, in particular, denies that he signed a Custodian Agreement with Wang or that he signed photocopies of the relevant certificates or bought and sold notes.  Ku denounces Mayer-1 as a forgery.

62. Lam’s evidence is that on 19 June 2009 Tommy Chan delivered 99 million Mayer HK shares to him.  Lam was supposed to sell those shares as part of the deal whereby Lam agreed to sell 400 million shares on behalf of Mayer BVI and Lai.

63. Tommy Chan (Lam says) gave Lam a copy of the sheet which appears in Annex 1 of this Judgment.  Tommy Chan said that the registered owners of the shares and the persons in the sheet said to be the beneficial owners of the shares actually held their shares as nominees of Lai. Tommy Chan then produced for Lam the 7 certificates corresponding to the 99 million shares.

64. Tommy Chan explained that Lai did not yet have a certificate for the further 1 million shares which Lam was supposed to sell on Lai’s behalf.  But Tommy Chan assured Lam that Lai would send a share certificate for 100 million shares as soon as possible.  But, according to Lam, Capital Wealth never received a certificate for the 100 million shares.

65. In due course, it was only possible to sell 52 million shares (12 million shares in the name of Jan Uen-he; 20 million shares in the name of Chen Wen Ching; and 20 million shares in the name of Brocheng International Ltd.).  The certificates for the remaining 47 million shares were collected by Tommy Chan in around June 2010.

66. Capital Wealth has a photocopy (Exhibit Lam-1) of one of the certificates with a post-it note bearing a stamped June 2010 date and the handwriting of Maria Kwok (Lam’s then secretary) indicating that the certificate had been given to Tommy Chan.

67. Thus, if Lam is to be believed, the share certificates which Kao and Wang say they deposited with AFIL for sale, were actually lodged with Lam.

68. Needless to say, the Lai camp strenuously denies Lam’s account.

E.  24 June 2009

69. There are diametrically opposed versions of what happened on 24 June 2009.

70. According to Charles Chan, while he was on his way to Shenzhen by car that morning, Lai called him to say that GF Securities had sold Mayer BVI’s 100 million Mayer HK shares for about $55 million.  But Lai also said that he was still short of cash and wished to withdraw the $50 million promise money which Lam had paid to AFIL.

71. Charles Chan then telephoned Lam to see what could be done.  Lam suggested that, the 100 million shares having been sold for $55 million, it was only necessary for AFIL to retain $45 million (that is, the previously agreed minimum sale price of $100 million less $55 million) of the promise money.  Lam was not averse to Lai taking up the $45 million, but only on condition that Mayer BVI released to Capital Wealth the 200 million shares held by AFIL.

72. Charles Chan checked on the phone with Ku to see whether there was any objection.  Ku said that he saw no problem about releasing the promise money to Lai, and certificates 70 and 71 to Lam, if that is what Lam and Lai agreed to do.  Ku, however, reminded Charles Chan that $2.5 million would still be due to AFIL as a fee.

73. Charles Chan went back to Lai on the phone.  Lai confirmed that the proposed arrangement had been agreed with Lam.  Lai also said that Kao was on her way to CCIF’s office with a list of designated payees for the $42.5 million (that is, $45 million less AFIL’s $2.5 million fee) promise money.

74. Charles Chan verified the matter with Lam on the phone and then called Ku to tell him that Kao was on her way.  Ku, however, was busy and could not meet Kao.  Charles Chan therefore suggested that accounting staff at CCIF prepare the relevant papers for the transaction.  Charles Chan would call Ku once everything was ready for signature.

75. Charles asked Momny So of his staff by phone to get everything ready.  So later called Charles Chan to say that Kao had arrived and Kao had provided So with a list of persons to whom various amounts (totaling $42.5 million) were to be transferred.  Charles Chan called Lai who confirmed that the monies were to be transferred to the payees in Kao’s list. A copy of the list (with Kao’s handwritten annotations) is at Annex II to this Judgment.

76. Charles Chan asked So if he could speak to Kao over the telephone.  He told her that So would arrange the transfers according to her list of payees and Ku would deal with the details of the transaction.

77. In the meantime, Ku went to CCIF’s offices to ensure that all relevant documents (cheques, deposit forms, remittance applications) were signed.  Because Ku was busy he did not go to meet Kao (who was with So).

78. Ku also caused CCIF’s staff to type a letter dated 24 June 2009, addressed to Mayer BVI, stating that Capital Wealth’s promise money of $50 million had been distributed in accordance with the payment schedule provided by Kao.  Ku signed that letter on AFIL’s behalf.

79. So handed the 24 June 2009 letter to Kao.  So also gave Kao copies of the cheques, deposit forms and remittance applications.  Kao then left without seeing Ku.

80. Lam’s evidence supplements that of Charles Chan and Ku on the matter.

81. Lam notes that GF Securities informed him that on 23 June 2009 third parties had agreed to buy 100 million of Mayer BVI’s shares in Mayer HK.  Lam told Lai and Tommy Chan of this on the same day over the telephone.

82. When Charles Chan relayed Lai’s request for the release of the $50 million promise money, Lam said that $45 million could be released.  But Lam also stipulated that the 200 million shares held by AFIL should be released to Capital Wealth to sell at such price as it saw fit without time limit.

83. On 24 June 2009, the $42.5 million having been remitted as instructed by Kao, Lam received from Charles Chan a cheque made out by AFIL in favour of Capital Wealth for $5 million as well as the 200 certificates previously held by AFIL.

84. Kao denies ever having seen or received the 24 June 2009 letter.

85. Kao instead says that she went to CCIF’s offices to provide the schedule in Annex II on 23 June 2009.  The payment schedule was supposed to indicate how the $42.5 million (which (Kao says) Charles Chan had agreed to pay by way of security for the 99 million shares lodged with AFIL on 19 June 2009) was to be remitted.

86. Kao says that she returned to CCIF’s offices on 24 June 2009 because she was told that there had been a problem with the remittance to one of the Taiwanese payees on her schedule.  She therefore came back to clarify the remittance information.  At that time, she obtained copies of the relevant cheques, deposit forms and remittance applications.

87. In the event, only 52 million of the 99 million shares (Kao says) were sold.  The total consideration for the 52 million shares being about $58 million, a further $15.5 million is alleged to have been remitted by AFIL to Wang as follows: $4 million on 14 May 2010; US$320,533.37 on 17 June 2010; and $9 million on 18 June 2010.  The unsold 47 million shares were then returned to Wang in late 2010.

88. Otherwise, Kao claims that the Charles Chan faction’s account of what happened on 24 June 2009 is a fabrication.

F.  Later events

89. Lam claims that, as early as June 2009, he had lined up a potential buyer for Mayer BVI’s shares in Mayer HK by the name of Zhang Wan Feng.  Zhang was prepared (Lam deposes) to buy the 400 million shares (that is, including the 100 million shares alleged to be owned by Lai through nominees) for $120 million.

90. But Zhang’s involvement would be subject to 5 conditions.  First, Zhang should be able to appoint 50% of the board.  Second, Mayer HK must pass a due diligence review.  Third, Mayer BVI and Mayer HK had to warrant that Mayer HK was free of liabilities.  Fourth, all of Mayer HK’s business had to be conducted for the benefit of Mayer HK and its shareholders. Fifth, Mayer HK should not incur liability without Zhang’s prior approval.

91. Zhang (Lam claims) agreed to the sale of 100 million of Mayer BVI’s holding in Mayer HK by GF Securities, because it made little difference whether Zhang controlled Mayer HK through a majority bloc of 300 or 400 million shares.  If only 300 million shares were to be sold to Zhang, the price of the 100 million shares sold by GF Securities could be subtracted from the $120 million which Zhang was prepared to pay for 400 million shares.

92. Lam claims that pursuant to Zhang’s conditions Lai agreed to cause certain directors (Cheng Koon Cheung, Chan Kin Sang, Peter Nguyen, and Chen Guoxiang) to be appointed to Mayer HK’s board in June and September 2010.  But Lai refused to make further appointments as requested by Lam in mid-2011.

93. Lai is also alleged by Lam to have refused a due diligence review of Mayer HK.

94. As a result, Zhang decided in late 2011 to pull out of his commitment to buy into Mayer HK.

95. In the meantime, Lam says that, on an annual basis, Tommy Chan would ask him for the temporary release of certificates 70 and 71 to Mayer BVI.  That was for the purpose of checking by Mayer BVI’s auditors.  This happened in November 2009 and November 2010.  Lam agreed to the certificates being so released to Tommy Chan.  But there is now no written record of the same.

96. In November 2011 Tommy Chan (Lam says) again asked to borrow certificates 70 and 71 for audit checking.  This time Lam refused as Mayer BVI had not honoured its arrangement with Zhang and Lai had refused to repay various loans allegedly made to him by Lam or Lam’s companies.  Lam also told Tommy Chan that he would find other buyers to purchase the shares.

97. In December 2011 (when Mayer HK was selling for $0.12 per share), Capital Wealth offered to sell the 200 million shares to Lin and Chen.  Lin is Lam’s nephew.  He agreed to buy 100 million shares for $0.105 per share.  Chen is Lam’s personal friend.  He agreed to buy 100 million shares for $0.10 per share.  Both have given evidence that in their eyes the price seemed exceedingly cheap for a listed company.  The sales took place on 10 and 11 January 2012.

98. For the purposes of stamp duty, Capital Wealth appears to have declared the shares to be worth $0.123 per share (the last traded value of Mayer HK’s shares before suspension by the Exchange). According to Lam, this was done on the advice of the Stamp Duty Office.  No bought and sold notes were provided to the Stamp Duty Office as Mayer BVI never signed any.

99. Tommy Chan denies having asked Lam to release certificates 70 and 71 from time to time.  According to Tommy Chan, exceptionally in 2010, he asked Charles Chan to release the certificates temporarily for a special audit.  Charles Chan, however, says that this never happened.

100. Lai denies that there was any arrangement between Mayer BVI and Zhang.  Lai claims that he agreed to the appointment of directors suggested by Lam because he was open to ways of improving Mayer HK’s business.

101. Lai counters that in July 2011 Charles Chan told him that certificates 70 and 71 had gone missing.  Lai claims not to have been unduly perturbed as he was confident that the certificates were in a safe place.  In any event, Lai says his health was not good at the time.  He did not follow up on the shares until November 2011 when Charles Chan (Lai says) confirmed that they were missing.  Then he asked Kao to report the share certificates as missing to the Hong Kong police in December 2011.  Kao made a further statement to the police in January 2012

102. Charles Chan denies that he ever reported to Lai that certificates 70 or 71 were missing.

103. Mayer BVI told Computershare about the loss of the share certificates and asked for replacements.  Computershare therefore alerted Mayer BVI when it received certificates 70 and 71 from Aspial and Bumper for processing.  The share certificates are currently held by Computershare pending the outcome of these Court proceedings.

G.  Need for expedited but minimalist approach

104. When the matter first came before this Court, it was agreed by all concerned that there should be an expedited hearing.  It was undesirable to have the ownership of a large bloc of shares in a Hong Kong listed company left in limbo for any longer than necessary.

105. Nonetheless, the Court is acutely aware that the present action is only one of several inter-related proceedings.  Those other proceedings include persons who are and persons who are not parties to these proceedings.

106. For instance, in HCA 686 of 2012 Capital Wealth is suing Lai, Tommy Chan, Wang and others for unpaid loans.  The 47 million Mayer HK shares which are alleged to have been returned by Lam to Tommy Chan in June 2010 feature in that litigation.  In HCA 64 of 2012, Mayer HK is suing Lam (among others) for alleged misrepresentations in relation to a Vietnamese port project which Lam is alleged to have introduced to Lai for the purposes of revitalising Mayer HK’s business.  Such allegation against Lam also features in the sidelines of the present action.

107. The other proceedings are in various stages of preparation.  HCA 686, for example, has yet to see a Defence.

108. Accordingly, given that the Court has only seen evidence immediately relevant to the issue of the ownership of the 200 million Mayer HK shares, I must be careful about making findings which will unnecessarily prejudice the conduct of the other ongoing proceedings.

109. At trial, I pointed out to counsel (and they accepted) that the Court’s approach should be to decide only the minimum necessary to resolve the narrow dispute of share ownership which is the focus of this case.  It would wrong and dangerous to speculate on matters which are of only peripheral (if any) relevance to what I have to determine.

110. To this end, I gratefully adopt the list of 7 issues which Mr. John Litton QC (appearing for Aspial and Bumper) put forward in his closing submissions as embodying the minimalist approach which I invited counsel to adopt.  The 7 issues appear as the sub-headings in the next section of this Judgment.

III.  DISCUSSION

111. The parties differ as to whether meetings took place on various dates in May or June 2009; who attended such meetings as did take place; whether such meetings took place in the morning or afternoon; and whether any meetings took place in hotpot or shark’s fin restaurants.  I doubt that it would be fruitful to attempt to resolve all such details.  After 3 years, the parties’ memories would understandably be vague as to the circumstances of a particular meeting and, on the contrary, it would be odd if any person’s memory could reliably recall precise details at this remove in time.

112. The important point is (and it does not really seem to be disputed) that there were meetings among different permutations of Lai, Tommy Chan and Kao on the one hand, and Lam and Charles Chan on the other, in May and early June 2009.  What I have to determine for the purposes of this issue is what the outcome of those initial meetings was.

113. Did the early meetings result (as the Charles Chan faction contends) in an agreement whereby within 1 year Lam was supposed to sell 400 million Mayer HK shares beneficially owned by Mayer BVI and Lai for no less than $100 million?

114. Or, did the meetings merely result (as the Lai faction contends) in an arrangement whereby 100 million shares belonging to Mayer BVI were to be sold by GF Securities; 200 million shares were to be lodged by Mayer BVI with AFIL; and Lam was to introduce Mayer BVI to investment opportunities which might revitalise Mayer HK’s fortunes?

115. There is evidence supporting each side’s contentions.

116. Thus, for example, Mayer BVI caused certificates 70 and 71 to be issued by Computershare on 2 June 2009.  This could well have been a prelude to the sale of such shares by Lam.  On that footing, the issue of the certificates was done in anticipation of Lam issuing a $50 million cheque as promise money.  Certificates and cheque could then be simultaneously deposited with a stakeholder as soon as possible thereafter.

117. Under cross-examination, Lai suggested that the certificates were issued on 2 June 2009 only because Mayer BVI had never applied for the same until then.  But the neat coincidence between the 2 June 2009 date when the certificates were issued and the 3 June 2009 date when Capital Wealth’s $50 million cheque was issued indicates that there is a connection between the 2 events.

118. The $50 million cheque itself constitutes evidence supporting the Charles Chan faction’s case.  No one disputes that Capital Wealth issued such a cheque to AFIL on 3 June 2009.  Why would Capital Wealth have done so, otherwise than pursuant to an agreement reached between Lam and Lai for the sale of Mayer BVI’s shares in Mayer HK?  No other explanation has been proffered for the payment.

119. There is also the fact that Lai executed the transfer forms on the reverse of certificates 70 and 71 before lodging the same with AFIL.  Although not conclusive as evidence, that execution indicates that Mayer BVI was prepared to sell its entire shareholding in Mayer HK off-market at the right price.  If Mayer BVI had merely intended some Mayer HK shares to be sold on the market from time to time to take advantage of upward price movements, the obvious thing to have done would have been to deposit the certificates with a broker (such as GF Securities) for safekeeping.

120. It would be difficult to dispose of a large bloc of 200 million shares at one go on the market without causing a severe disruption in Mayer HK’s share price.  The deposit of the Mayer HK shares with AFIL (which is not a broker) is consistent with an intention that the shares should be sold by way of an off-market deal.

121. It is true that no bought and sold notes were deposited by Mayer BVI with AFIL and no board resolution was passed for the sale of the 200 million shares represented by the certificates.  But this may merely have been because the parties did not think of this at the time or possibly because they envisaged that technicalities and formalities could be dealt with once a buyer had been found.

122. One thing that was obvious at trial was that Lai, Lam and Charles Chan were all practical, rough-and-ready businessmen searching for deals in the difficult environment of the global financial crisis.  They each spoke of “trusting” each other.  Notably, they negotiated and reached understandings without lawyers present to dot the “i’s” and cross the “t’s” of arrangements reached.  They struck me as more involved with the broad picture.  They are not persons with an eye for details.

123. Mr. Warren Chan SC (appearing for Mayer BVI) criticised the Charles Chan camp’s account in a number of respects.

124. For instance, Mr. Chan attacked the vagaries of the 400 million share arrangement supposedly reached between Lam and Lai.

125. Where is the evidence (Mr. Chan asked) that Lai beneficially owned the parcel of 99 million shares said by Lam to have been lodged with Capital Wealth as part of the deal reached?  Was it plausible (Mr. Chan queried) that Zhang should be prepared to buy 400 million Mayer HK shares at $120 million and then still be willing to pay that much less $55 million for 300 million Mayer HK shares?  If there was an existing arrangement with Zhang for the purchase of 400 million shares, how (Mr. Chan continued) could 52 million of the 99 million shares supposedly belonging beneficially to Lai, have been sold by Lam to third parties for $58 million between mid-June 2009 and mid-June 2010?

126. It was announced on 8 December 2009 that Mayer HK would be acquiring the entire issued share capital of Maxipetrol HK for $1.264 billion.  Maxipetrol’s business was essentially the Argentine oil project mentioned above.  The $1.264 billion consideration was to be raised from the issue of promissory and convertible notes and through an increase in Mayer HK’s share capital from $200 million to $300 million by the creation of an additional 1 billion shares.

127. The proposed acquisition (which eventually did not materialise) would have meant not only that Zhang might be buying into a company with a huge debt, but also that any shareholding that Zhang acquired in Mayer HK might be severely diluted.  Mr. Chan asked whether, in light of all this, it was believable (as Lam claimed in cross-examination) that Zhang had no problems with the proposed acquisition?

128. I accept that there are obscurities with Lam’s account of his arrangement with Zhang.  But I do not think that the obscurities are enough to cast doubt on the thrust of Lam’s case.

129. Lam’s evidence is that there was an arrangement with Lai to sell Mayer HK shares at $100 million with any surplus accruing to Lam as profit.  Pursuant to that deal, Lam lined up Zhang as a potential investor. The arrangement with Zhang may have been extremely loose and wanting in detail.  There may not even have been a firm deal with Zhang in the sense of something which was fully enforceable in Court.  But whatever vagaries there may have been in the understanding between Zhang and Lam, such would not logically impinge on the separate question whether an arrangement had been reached been Lam and Lai.

130. Insofar as the 99 million shares are concerned, there is nothing implausible in Lam’s evidence that Tommy Chan told him that, despite appearances to the contrary, Lai was the beneficial owner of the same. Lai may or may not have been the true beneficial owner of those shares.  But it is possible that (rightly or wrongly) Lam was informed (and so came to believe) that Lai was the true owner.  I shall deal with the question whether the 99 million shares were actually lodged with Lam in connection with Issues 3 and 4.

131. As for the 100 million shares sold by GF Securities, it is just plausible that Zhang would have not have been too concerned about whether he owned 200 or 300 million shares.  What was more important to Zhang could conceivably have been gaining a controlling bloc of shares.

132. 300 million shares constitute about 52.08% of Mayer HK.  In that case, 200 million shares would be about 34.72%.  There might possibly have been considerations as to whether, by acquiring a smaller bloc of 200 million (as opposed to 300 million) shares, Zhang would not need to make a general takeover offer pursuant to the Listing Rules.  A smaller bloc might therefore have its attractions.

133. In cross-examination, it was put to Charles Chan that he and Lam accompanied Lai, Kao and Tommy Chan to Argentina look into the oil project.  Charles Chan agreed.  The implication of the cross-examination was that Charles Chan and Lam had merely agreed to help Mayer HK rejuvenate its business.  That was why (it was suggested) they went to Argentina.  Neither Charles Chan nor Lam (it was further suggested) had been engaged to sell Mayer BVI’s shares.

134. I am unable to see an inconsistency between Charles Chan and Lam travelling to Argentina to help Mayer HK source business on the one hand and Lam selling Mayer HK shares to a third party investor on the other.  The two activities could have been regarded as complementary.  To the extent that Mayer HK became involved in a major investment project in Argentina, to that extent would ownership of a large bloc of Mayer HK shares be more attractive to outside investors.

135. On balance, therefore, on Issue 1, I am not persuaded that the gaps in Lam’s account of his agreement with Lai, especially in relation to Zhang’s role, outweigh the evidence favouring the version put forward by the Charles Chan faction.  I attach particular weight on the existence of the $50 million cheque.  I note in this respect that the 3 June letter from AFIL to Capital Wealth acknowledging receipt of the cheque is decried by the Lai camp as a fabrication essentially for no reason other than that it does not fit the Lai camp’s case.

136. I find that Lai on behalf of Mayer BVI and Lam on behalf of Capital Wealth entered into an oral agreement whereby Lam would sell Mayer BVI’s 300 million shares in  Mayer HK for at least $100 million.

137. The terms of the Custodian Agreement largely speak for themselves.

138. There are differences among the parties on whether the Agreement was executed in the morning or afternoon of 19 June 2009 and whether the Agreement was drafted by AFIL or Mayer BVI.  But again these are minor details.

139. No one disputes that the Agreement was entered into between AFIL and Mayer BVI on 19 June 2009.  The question whether Kao was or was not present when the Agreement was executed will be dealt with in connection with Issue 3.

140. The terms of the Agreement were the foundation of Mr. Chan’s analysis of Mayer BVI’s case.

141. On Mr. Chan’s reading, the Custodian Agreement provided for Mayer BVI’s 200 million shares in Mayer HK to be held by AFIL on trust for Mayer BVI for 1 year.  The shares (Mr. Chan contended) were only to be sold at some future time (if at all) on Mayer BVI’s written instruction with the proceeds of any sale being remitted by cheque payable to Mayer BVI.  Mr. Chan argued that the express terms of the Agreement contradicted the allegation that Lam had been authorized to sell Mayer BVI’s shares in Mayer HK.

142. I do not think that the Agreement is as free from ambiguity as Mr. Chan submits.

143. The recital to the Agreement in referring to a disposition of Mayer BVI’s 200 million shares could conceivably be referring to a sale pursuant to an authority previously conferred (for instance, upon Lam) to sell the shares.  Any disposition pursuant to that already existing authority would (on this alternate reading) be executed as part of a contemplated future reorganisation of Mayer HK.

144. Clause 3 of the Agreement refers to any disposition of the 200 million shares being subject to Mayer BVI’s written instruction.  But the clause does not preclude the possibility of a prior authority to sell the 200 million shares having already been conferred upon Lam.  On this reading, a sale by Lam of the 200 million shares would, however, have to conform to such written instructions (if any) which Mayer BVI might give in the future.

145. Thus, I do not find the terms of the Custodian Agreement to be conclusive on the question of whose version of events is right.

146. I was not impressed by Wang’s evidence, much of which struck me as implausible.

147. First, it strikes me as unlikely that 7 individual investors should all approach Wang at around the same time and ask him to cause their Mayer HK shares to be sold in Hong Kong.  Why should they approach Wang?  This is too much of a coincidence.

148. Wang alleged that he was well-known in Taiwan for helping clients make substantial amounts of money (in the hundreds of millions of dollars) in connection with industrial transactions.  But Wang said that he knew little, if anything, about selling securities in the Hong Kong market.  In that case, why would the 7 investors approach Wang to help them individually to sell their shares in Hong Kong?  Why would these 7 investors not simply go to a Hong Kong securities broker?

149. Second, the story of Charles Chan at his own suggestion offering to pay $42.5 million as some sort of security or advance against the lodging and eventual sale of the 99 million shares is improbable. In a difficult financial market, why would Charles Chan put up so much money in the hope that the 99 million shares would be sold for at least $1 per share within a year, especially when between April and May 2009 the closing prices of a Mayer HK share ranged between $0.52 and $0.64?  Charles Chan is neither a stockbroker, nor money-lender.

150. I note, in this respect, that Wang lodged the shares with AFIL on 19 June 2009, apparently well before the $42.5 million was remitted to the account of his nominees.  If the $42.5 million was meant to be some sort of security deposit against the lodging of the 99 million shares of AFIL, why did Wang not insist that the $42.5 million should be paid at the same time as the 99 million shares were lodged with AFIL.  On 19 June 2009 Wang would barely have known Charles Chan or Ku.  Why then would he be entrusting the shares of his 7 investor clients to them without first receiving the $42.5 million.

151. Third, how exactly was the $42.5 million payment calculated in the first place?  Wang intimated in Court that the amount was the bottom line for his 7 investors.  But that was not what Wang said in his witness statement.  There he originally claimed that $42.5 million was “worked out based upon the five-day average, monthly average and quarterly average of the share price of Mayer [BVI’s] shareholding for a period from 3 to 11 June 2009”. At the start of his oral testimony, Wang corrected that evidence by inserting the word “latterly” before “worked out” and the words “and confirmed” before “based upon”.

152. But what does it mean for a price to be “latterly worked out”?  One normally proceeds by working out one’s bottom-line price before, not after, one commits shares to an agent for sale.

153. It is also unclear how the period from 3 to 11 June 2009 could have any bearing on a price which according to Wang’s evidence in Court had been agreed in March 2009.  Between February and March 2009, there was almost no trading of Mayer HK shares.  The price thus remained at $0.64. Why would Wang or (if Wang is to be believed) Charles Chan have believed in March 2009 that Mayer BVI’s shareholding could readily command at least $1 per share?

154. Fourth, only 52 million shares were apparently sold.  The 52 million shares were not allocated pro-rata among the 7 investors.  Instead the 52 million was attributed to only 3 of the 7 investors for whom Wang claimed to have been acting.  According to Wang, he had not stipulated any sort of priority or ordering as to whose shares should be sold first and whose shares would be sold last.  In effect, there was a lottery, with 3 investors striking it lucky.  It is unlikely that any investor would consign shares to Wang to be sold on that uncertain basis.

155. Fifth, it is strange that the $42.5 million should be remitted on 24 or 25 June 2009 to the accounts of persons who did not correspond to the registered or beneficial owners of the shares.

156. A substantial amount ($23.4 million) was remitted to Wang’s account with Fubon Bank (Hong Kong) Ltd.  $8 million was remitted to the Hong Kong account of Lin Chih Huang, Kao’s husband.  $3.5 million was remitted to the Fortis Wealth Management Hong Kong account of Chiang Tung Chun.  Two payments of $3.8 million each were remitted to bank accounts of Hsueh Yung Hsiang in Taiwan.

157. Wang explained in his witness statement that this was done because “most of the Taiwanese Investors did not have any available bank account in Hong Kong” and “foreign exchange control in Taiwan could pose difficulty in remitting the payment back to Taiwan”.  But this reason does not make sense.

158. There was no problem about sending foreign exchange into a Taiwanese account.  Monies were, for example, readily sent to Hsueh in Taiwan.  Exchange controls for inward remittances of foreign currency had been abolished in Taiwan in 1987.

159. On cross-examination, Wang said that there would only be a problem if one remitted US$5 million (about $38.65 million) or more to Taiwan.  Asked specifically why in that case monies had to be sent to several Hong Kong accounts instead of just to Wang’s Fubon Hong Kong account, Wang gave a strange answer.

160. He said, if all the amounts were sent to his Hong Kong account, that would be “too much” for his personal account.  When it was pointed out that the total sum remitted to the various Hong Kong accounts ($34.9 million) could not be too much for someone who had earlier boasted in Court of regularly handling several hundred millions, Wang replied that his personal wealth was more modest than the hundreds of millions that he helped his clients to make.

161. Sixth, when remitted to various accounts on 24 and 25 June 2009, the $42.5 million does not seem to have been divided up pro-rata in any manner reflective of the holdings of the individual 7 investors.

162. Wang told the Court that the remittances were apportioned among various accounts in the manner that they were, because in June 2009 he had no idea whose shares would be sold at what price.  So he had no idea how the $42.5 million should be divided up at the time of the remittance of the $42.5 million in June 2009.  Later, upon sale of all the 52 million shares as at mid-2010, Wang said that he remitted the monies to the relevant investors whose shares had been sold less his commission of about $6 million.

163. Kao also deposed that her husband had accounted for the amount remitted to his account in similar fashion.

164. The explanation is incredible.

165. The fairest and most natural way to have divided the $42.5 million would be pro-rata according to the number of shares consigned to Wang by a given investor.  It seems odd that this was not done.  Instead, if Wang is to be believed, the amounts remained in his and Lin Chih Huang’s personal accounts for many months, presumably accruing interest, pending clarification as to whose shares would be successfully sold.

166. Seventh, although it would obviously have assisted their cases to have produced bank statements evidencing the accounting of the remittances to the 7 investors, neither Wang nor Kao did so.  In contrast, Ku produced AFIL’s bank statements to show that no monies were remitted by AFIL in mid-2010 as alleged by Wang to bring up the alleged advance of $42.5 million to the actual sale price ($58 million) of the 52 million Mayer HK shares.

167. For those reasons, Wang’s evidence must be rejected as unreliable.

168. By similar token, Kao’s evidence insofar as it echoes that of Wang must also be treated as unreliable.  Part of the $42.5 million was remitted to her husband.  Kao’s explanation of why that was done and what happened to the remitted monies afterwards is far from satisfactory. In the circumstances, I cannot treat Kao as an independent witness upon whose testimony the Court can build a solid foundation of fact.

169. Wang produced an original copy of the alleged Custodian Agreement executed by Ku and Wang on 19 June 2009.  In light of my assessment of Wang’s evidence, I cannot regard that Agreement as authentic.

170. Ku says the document is a forgery.  Ku’s signature appears there with a loop in the “F” of “Fun”.  Ku accepts that on some occasions he has signed his name with such a loop.  But (Ku stresses) that is a rare occurrence.

171. I accept Ku’s evidence on this matter and reject the apparent Custodian Agreement between Wang and him as unreliable.  On the balance of probability, the document is a fake.

172. Mr. Chan submitted that, in evaluating Wang’s evidence, the Court should not lose sight of the forest, when considering the trees.  He emphasised that, at the start of Wang’s evidence, Wang had produced the 4 share certificates corresponding to the 47 million unsold Mayer HK shares entrusted to him by investors.

173. Wang did produce the 4 certificates.  But I am unable to see how that fact alone should reassure the Court in relation to Wang’s credibility.  There is an alternate account of how the 4 certificates were returned to the hands of the Lai camp.  The certificates (Lam says) were collected by Tommy Chan from Capital Wealth.  Thus, the mere production of the certificates cannot be a pointer to the validity of Wang’s version of events.

174. Tommy Chan denies that Kao accompanied him and Lai to CCIF on 19 June 2009.  He also denies having collected any Mayer HK share certificates from Capital Wealth or Lam.

175. But I am also unable to place much reliance on Tommy Chan’s evidence.

176. There were times when I did not think that his recollection of events could be right.  Thus, for instance, he claimed that, exceptionally, on one occasion, the auditors of Mayer BVI asked to see certificates 70 and 71.  This is doubtful.  If the auditors needed to verify that certificates 70 and 71 were held by Mayer BVI in a given financial year, the likelihood is that the auditors would have needed to satisfy themselves of that continuing possession in every financial year.  Thus, Tommy Chan would have had to obtain the originals of certificates 70 and 71 more than just once.

177. The evidence of Maria Kwok (employed as a secretary by Capital Wealth from June 2005 to October 2010) was that Tommy Chan collected certificates 70 and 71 from Capital Wealth in late 2009.  Further, she checked Lam’s safe in May 2010 and found the 4 certificates corresponding to the unsold 47 million shares inside.  She also wrote on a post-it sticker attached to a photocopy of one of the 4 certificates (Lam-1) that the original had been given to Tommy Chan in June 2010.

178. Ms. Kwok (I believe) can be regarded as an independent witness as she is no longer employed by Capital Wealth.  I accept her evidence.

179. But if she is right, Tommy Chan must be wrong. In particular, Lam did not only hold certificates 70 and 71, he also held the 4 certificates.  Why would Lam be holding the 4 certificates and why should Tommy Chan be going to Lam’s office to collect the latter?  On the version of events put forward by Wang and Tommy Chan, Wang and Tommy Chan only dealt with Charles Chan in relation to the 4 certificates.

180. Consequently, I find that in all likelihood no Custodian Agreement was executed by Wang and Ku and there was no agreement that Charles Chan should sell 99 million shares on behalf of Wang.

181. It might be thought that, in rejecting the evidence of Wang, Kao and Tommy Chan, I should be taken as making a finding of fraud or perjury against them.  But I do not go so far.

182. It will be noticed that I have come to my findings by applying the normal civil law touchstone of a balance of probability.  To make a finding of fraud requires the application of a more stringent standard.  I must be satisfied beyond a reasonable doubt that there has been fraud or perjury.  On the available evidence, I am not satisfied that this higher test has been met.  I therefore refrain from finding that particular individuals have acted fraudulently or have deliberately lied in their evidence to the Court.

183. I prefer the Charles Chan faction’s version of what happened on 24 June 2009.  That account seems to me the more plausible, especially given my conclusion on Issue 3.

184. Mr. Chan sought to cast doubt on the account by pointing out that, contrary to terms of the Custodian Agreement, neither Ku nor Charles Chan obtained written confirmation of Mayer BVI’s instruction to release certificates 70 and 71 to Lam and to remit $42.5 million of the promise money to various accounts.

185. It is true that, with the benefit of hindsight, Ku and Charles Chan ought to have obtained written instructions.  That would have been the more prudent course.

186. But it is apparent that, as I have already observed, at the outset Lai, Charles Chan, Lam and Ku all appear, rightly or wrongly, to have trusted each other.  Much of their dealings with one another are undocumented.  There can be little doubt, however, that they met and came to certain understandings among themselves, even if the latter were unrecorded.  I therefore cannot treat the absence of writing or the failure to obtain a written instruction as indicative of much.

187. The Custodian Agreement did provide that any disposition of Mayer BVI’s shares was to be subject to written instruction. Nonetheless, I do not think that the failure to adhere to that term falsifies the account by Ku and Charles Chan of what happened on 24 June 2009.

188. It is of course possible to regard the sheet in Annex 2 as a written instruction communicated by Mayer BVI (through Lai and Kao as agents) for AFIL to remit $42.5 million of the purchase money in a particular way.  Kao was held out by Mayer BVI as an Associate Director.  In the telephone conversations which (I find) Charles Chan had with Lai on 24 June 2009, Lai would additionally have held her out as someone authorised to convey Mayer BVI’s instruction to remit the promise money otherwise than by cheque payable to Mayer BVI.

189. However, more pertinently, as matter of law, the terms of the Custodian Agreement can be varied by the subsequent agreement (including subsequent oral agreement) of the parties.  Thus, the telephone calls among Charles Chan, Ku, Lai and Lam on 24 June 2009 had the effect of varying the requirement of writing and the instruction to remit monies by cheque payable to Mayer BVI.

190. Lai on behalf of Mayer BVI agreed in effect to waive the protection afforded by the terms of the Custodian Agreement, provided that $42.5 million of the promise money was immediately released to nominees of Mayer BVI.  Lam agreed to the early release of the $42.5 million on condition that certificates 70 and 71 were handed to Capital Wealth and that Lam was irrevocably authorised to sell the underlying 200 million shares as he saw fit.  Ku agreed to release certificates 70 and 71 and the $42.5 million without a written instruction, insofar as Lam and Lai (communicating to Ku through Charles Chan) were prepared to authorise Ku so to act and provided $2.5 million was paid as AFIL’s fee.

191. Mr. Chan sought to disparage such variation arrangement.  He asked why, if everyone had agreed that Lam would become entitled to the unconditional delivery of certificates 70 and71 in exchange for the payment of $42.5 million, Charles Chan (as Mayer HK’s auditor) did not disclose in Mayer HK’s annual reports that Lam had become the beneficial owner of 200 million shares?  Why (Mr. Chan continued) did Lam not insist on managing Mayer HK himself through his then large bloc of 200 million shares?

192. When a question along those lines was put to him by Mr. Chan, Lam replied that all he had acquired by the release of his $42.5 million was the irrevocable right to sell the shares at such price as he saw fit.  To Lam’s mind, Mayer BVI remained the owner of the 200 million shares.  It would not be until the shares were actually sold to a third party that the beneficial owner of the shares would change.

193. To a lawyer, Lam’s answer may sound odd as he had effectively bought the 200 million shares by the release of the $42.5 million.  But Lam is not a lawyer.  He is a businessman.  It is plausible that he merely regarded himself as a salesman entitled to offload the shares to a willing buyer at a suitable price.  He did not think of himself as the beneficial owner of the shares.  That would explain why he was prepared to release certificates 70 and 71 to Tommy Chan from time to time for audit purposes.

194. I therefore do not think that the matters noted by Mr. Chan negate the version of events advanced by the Charles Chan camp.

195. Mr. Chan queried the genuineness of the 24 June 2009 letter which So says that she gave Kao.  The letter as disclosed (Mr. Chan submitted) apparently enclosed a remittance form covering monies sent to Hsueh in Taiwan.  The remittance form is chopped 25 June 2009.  It would not have been possible (Mr. Chan reasoned) for that remittance form to have formed part of a letter ostensibly handed to Kao on 24 June 2009.  It follows (Mr. Chan concluded) that the 24 June 2009 letter was a fabrication.

196. I am unable to agree.

197. On this matter, I accept So’s evidence.

198. She observed that some of the deposit and remittance forms had been filled out by her.

199. The remittance form dated 25 June 2009 was the second one relating to the monies sent to Hsueh.  So had originally filled out a form for the remittance on 24 June 2009.  But that initial form was rejected by the bank on the basis of some error.  A bank staff filled out a replacement remittance form, possibly on the following day (25 June 2009), after the error had been corrected.  The remittance form so filled out by the bank staff had not formed part of the materials which So gave to Kao on 24 June 2009.

200. There is some corroboration of So’s evidence that there had been an error in the remittance form which she initially filled out.  Kao said in Court that she went to CCIF’s office on 23 and 24 June 2009. The second trip (Kao said) was to correct a matter in the remittance instructions which she had given.  I have discounted Kao’s evidence of having gone to CCIF’s office with Wang.  There may, however, be a grain of truth in what she says about there having been a matter requiring clarification in her remittance instructions for the $42.5 million.

201. Mr. Chan suggested that the $2.5 million fee charged by Ku was a concoction to explain why only $42.5 million as opposed to $45 million (that is, the original promise money of $50 million less the $5 million paid back to Capital Wealth) had been remitted by AFIL to Mayer BVI’s nominees.  The fee (Mr. Chan submits) had never been agreed by Mayer BVI.  Mr. Chan further observed that Ku never issued a receipt to Mayer BVI for the $2.5 million fee.

202. I think the likelihood is that AFIL would have expected some fee for holding the promise money and certificates.  I am unable to conclude that the $2.5 million fee is a fabrication.

203. For what it is worth, I note in this connection that Wang’s evidence was that he would not have been surprised if AFIL charged an agency fee for holding the 99 million shares which Wang allegedly lodged with Ku.  Wang said that he would have expected there to have been some sort of fee.  Indeed, Wang himself claimed to have charged the 7 investors a commission amounting to about 10% of the $58 million obtained for the 52 million shares sold.

204. I therefore find that the Custodian Agreement was superseded by a further oral agreement.  That oral agreement provided that, in return for the release of the promise money to Mayer BVI or its nominees, Capital Wealth was to obtain certificates 70 and 71 and the irrevocable right to sell the 200 million shares at such price as Lam saw fit.

205. It follows from my conclusions on Issues 1 to 4 that the answer to Issue 5 must be “no”.

206. It follows from my conclusions on Issue 5 that the answer to Issue 6 must be “no”.

207. It follows from my conclusions on Issues 5 and 6, that the answer to Issue 7 must be “no”.  Lam was fully authorised to sell the shares on behalf of Mayer BVI at such price as Lam saw fit.

208. In the course of cross-examination, Mr. Chan suggested that Lam had defrauded the Stamp Duty Office.  This had been done (Mr. Chan alleged) by pretending that the 200 million shares sold to Lin and Chen had been voluntarily gifted to them.  That would obviate the need to produce a bought and sold note as required (Mr. Chan submitted) by Stamp Duty Ordinance (Cap.117) s.19.

209. I am unable to find that there has been fraud in this respect.  There is nothing to suggest that the sales to Aspial and Bumper were anything but genuine.

210. According to Lam, duty was paid on a value of $0.123 per share (that is, a higher value than the actual unit prices at which Lam sold to Lin and Chen) in accordance with the advice of the Stamp Duty Office.

211. Lam appears not to have asked Mayer BVI for a bought and sold note in relation to the transaction because (as Lam cryptically put it) there would be “inconvenience”.

212. That “inconvenience” would no doubt have been the result of the falling out in late 2011 between Lam and Lai due to the alleged failure by Lai to repay loans said to have been advanced to him by Capital Wealth, and due to Mayer HK’s alleged failure to allow a diligence review as required by Zhang.  In the circumstances, Lam probably envisaged that, despite Lam being (as I have found) irrevocably authorised to sell the 200 million shares, Mayer BVI would not be cooperative and would likely refuse to provide any bought and sold note if requested.

IV.  CONCLUSION

213. Mayer BVI’s claims against AFIL, Charles Chan, Lam, Bumper and Aspial are dismissed.

214. There will be a Declaration that Aspial and Bumper are entitled to be registered as respective owners of the 100 million Mayer HK shares under certificate 70 and the 100 million Mayer HK shares under certificate 71.

215. There will be an Order Nisi that Mayer BVI pay the costs of AFIL, Charles Chan, Lam, Bumper and Aspial, such costs to be taxed if not agreed, with certificate for 2 counsel.

216. There will be liberty to apply.

Annex 1 & 2