YU JIANG AND ANOTHER v. CHENG WAI LIN ROSALIND AND OTHERS

HCA 2562/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2562 OF 2005

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J U D G M E N T

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Background

1.  This is a case in which the rival accounts of the facts and events given by the parties are polarized to the extreme.  Central to the determination of this case, as to whether there were oral agreements made between the 1^st plaintiff Mr Yu Jiang (“Yu”), and the 1^st defendant Madam Cheng Wai Lin Rosalind (“Rosalind”), in 2000, 2002 and 2003 as to their alleged joint venture in China, is the credibility of Yu and of Rosalind, and which of their diametrical accounts is to be believed.

2.  In this action, Yu claims to be a partner of Rosalind under and by virtue of an oral agreement made between them in June 2000 (“2000 Agreement”), whereby they were to co-operate “in developing tobacco business with BAT (“BAT Business”) and other regulated business in the PRC including media, investment bank, finance and insurance (collectively “Other Business”)”.  This is the pleaded and defined formulation of the alleged co-operation agreement. 

3.  At this juncture, it should be explained that the BAT Business as defined in the Amended Statement of Claim  relates to the alleged co-operation between Yu and Rosalind in the plan by British American Tobacco (Holdings) Limited (“BAT”), to develop and expand its tobacco business in Mainland China (for ease of reference referred to hereinafter as “PRC”), with a view to establishing BAT’s own factories and manufacturing facilities in the PRC and to import and sell its tobacco products through its own sales network to be established in the PRC, all of which require the appropriate licences to be issued by the authorities in the PRC. 

4.  The one matter on which the parties are in agreement is that at the material time, the tobacco industry in the PRC (“Industry”) was a monopolized and strictly regulated business, in that no foreign company or investor could either manufacture, import, market or sell any tobacco products (“Products”) without a licence.  The Industry was and still is under the exclusive control of the State Tobacco Monopoly Administration (“STMA”) and the China National Tobacco Corporation (“CNTC”).  It can hardly be disputed that the tobacco monopoly is of fiscal importance in the PRC, protecting at the material time 8.7% of the total government revenue.  On the plaintiffs’ own pleaded case, STMA controls and supervises the Industry, and is itself under the supervision of the Ministry of Foreign Trade and Economic Cooperation, the State Planning Commission and State Economic and Trade Commission, all of which report to the State Council.  CNTC is a state owned enterprise which controls and regulates all the entities in the different sectors of the Industry, both at the provincial and municipal levels, and CNTC supervises and regulates the activities of the China National Tobacco Import and Export (Group) Corporation (“Tobacco Group Corporation”) which is a state owned company.  CNTC is the only entity authorized to sell and distribute the Products in the PRC, through an extensive network of distributors across the different cities and provinces in the PRC.  The Tobacco Group Corporation is the only entity authorized to import and export cigarettes the Products into and out of the PRC, and carries on its business through 17 wholly owned subsidiaries established in different cities in the PRC, each of which operates the business of importing and exporting the Products in a city or region as a monopoly.

5.  Under the Tobacco Monopoly Law of the PRC and the Regulations for the Implementation of the Tobacco Monopoly, the production, wholesale trade, retail trade, cross-boundary transportation, cross-city and cross-country transportation and even the warehousing of the Products can only be done under the appropriate licence, permit, approval from and/or registration with the authorities.

6.  Under the 2000 Agreement, Yu claims that he and Rosalind would be equal partners, with each of them taking 50% interest in the BAT Business and the Other Business, and contributing 50% of the capital required by the BAT Business and the Other Business, with entitlement to share 50% of the profits generated by such businesses.  The 4^th defendant (“Jade”) would be the vehicle of Yu and Rosalind to undertake the partnership business, with Yu being appointed as the chief representative (“Chief Representative”) of Jade’s representative office  to be established in Beijing (“Representative Office”), and to manage and oversee the BAT Business and the Other Business.

7.  Yu further claims that in April 2002, it was orally agreed (“2002 Agreement”) between himself, Rosalind, the 2^nd defendant (“Holm”) and the 3^rd defendant (“CEICL”) that CEICL would be used as the vehicle of Yu and Rosalind to provide the services relating to the import, retail and sale of the Products (“Distribution Services”), with each of Yu and Rosalind being entitled to 50% interest in CEICL and its property, including CEICL’s revenue from the Distribution Services.  Yu would be appointed as the Chief Executive Officer of CEICL, Yu and Rosalind would be the authorized signatories of CEICL’s bank accounts, and Holm would be Yu’s trustee to hold one share in CEICL on his behalf, and his directorship in CEICL as Yu’s nominee.

8.  By virtue of a further oral agreement made between Rosalind and Yu in January 2003 (“2003 Agreement”), Yu claims that the 2^nd plaintiff (“ZP”) was established, as a company wholly owned by Yu, for the purpose of undertaking (as CEICL’s agent) all activities relating to the Distribution Services.  According to the plaintiffs, CEICL agreed to pay “2% to 3% of the total sales revenue of CEICL to ZP” as remuneration for the Distribution Services.  It was allegedly agreed that Rosalind was to advance an interest-free loan to Yu for the purpose of establishing ZP.

9.  The plaintiffs claim that in breach of the 2000 Agreement, Rosalind has failed to account to Yu for the consultancy fees received by Jade from BAT, and that Jade purported to terminate his appointment as Chief Representative.  Yu seeks an account of the commission and fees Jade had received from BAT, payment of the amounts found to be due on an account, and damages for breach of the 2000 Agreement.

10.  It is further claimed that the purported termination of Yu’s appointment as Chief Representative is breach by Holm of his duties owed to Yu as trustee.  Consequently, Yu seeks damages and conversion as a result of his having been deprived of the use and possession of the assets and revenue of CEICL.

11.  Finally, the plaintiffs claim that CEICL was in breach of the 2003 Agreement in failing to repay to ZP its expenses incurred in carrying out the Distribution Services (in the sum of US$3,704,931.96), and commission due to ZP in the sum of US$1,096,579.62 to US $1,644,869.43, being 2% to 3% of CEICL’s total sales revenue from distribution of BAT’s products in PRC.

12.  The defendants deny the existence of all the oral agreements relied upon by the plaintiffs.  They claim that there was never any agreement that Yu and Rosalind would be partners or joint venturers, and that Yu was only employed by Jade as its Chief Representative.  By way of counterclaim, Jade seeks an order that Yu should account for the total sum of US$12,921,377 and GBP2,462,988.88 which was paid to Yu for the purposes of Jade, CIECL and the discharge of Yu’s duties.

How the issues are to be determined

13.  In determining the issues in dispute, the starting point is that as plaintiff, Yu bears the burden of proving his claims for relief in these proceedings.  Similarly, the defendants by counterclaim bear the burden of proof on the counterclaim.

14.  In this case, Yu relies upon and pleads the existence of an oral 2000 Agreement, which he says is evidenced by a letter of authority dated 1 July 2000 signed by Rosalind on behalf of Jade, and is partially confirmed by an agreement dated 28 November 2002 made between Yu and Jade (“November 2002 Contract”) - paragraph 15 of the Amended Statement of Claim.  In paragraph 22 of the Re-Amended Defence and Counterclaim, the defendants admit that Rosalind signed a letter of authority on 1 July 2000 on behalf of Jade, which confirmed Yu’s appointment as the Chief Representative of Jade’s Beijing office, but deny that such letter of authority made any reference to the provision of money by Jade, or to the sharing of profit made by Jade, as Yu alleges in paragraph 16 (2) and (3) of the Amended Statement of Claim.  The defendants claim that the letter of authority produced and relied upon by Yu is a forgery.

15.  It is clear from the authorities, and I accept the submission made by Mr Bleach SC, that the legal or persuasive burden of establishing that the letter of authority in question is genuine rests on the plaintiffs (Pacific Electric Wire & Cable v Texan Management Limited, unreported, CACV 90/2012, 17 September 2013 at paragraph 61 to 63; Lee See Wo v Chan Chun Fai, unreported, CACV 10/2013 9 May 2014 at paragraph 24).  The defendants have the evidential burden to adduce sufficiently cogent evidence to raise a case that the document is not genuine, but if they do so, it remains for the plaintiffs (and defendants to counterclaim) to overcome that evidence and to satisfy the court that it is genuine.

16.  As Mr Bleach further highlighted, the burden of proof lies on the plaintiffs to establish the existence of the oral agreements and partnership they allege, on a balance of probabilities, and that it is not for the defendants to convince the court of the truth of the defendants’ alternative account of the relationship between Yu and Rosalind, as they claim (Rhesa Shipping SA v Edmunds [1985] 1 WLR 948, 951B-C).

17.  The key issues between the parties in this case turn on the court’s findings as to whether the oral 2000 Agreement, 2002 Agreement and 2003 Agreement had in fact been made between Yu and Rosalind.

18.  In deciding factual disputes, the crucial considerations for the court include the inherent probability of the parties’ assertions, whether these assertions are consistent with the parties’ conduct and the contemporaneous documents (if any), and the credibility and demeanour of the witnesses.

19.  On assessment of the credibility of witnesses by reference to their demeanour, I have borne in mind the observations made by the courts in cases such as Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336, where Bokhary PJ explained, at p 348:

“It is common to speak of a trial judge’s advantage of having ‘seen and heard’ the witnesses…. the words ‘seen and heard’ are perhaps capable of giving an exaggerated impression of the role which demeanour plays in the resolution of disputes of fact - demeanour being, as Lord Pearce put it in Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at p 431, ‘mostly concerned with whether the witness appears to be telling the truth as he now believes it to be’. (Emphasis supplied)

Having said that about demeanour, I should make it clear that I accept that trial judges are entitled to take demeanour into account when assessing testimony. In life what really happened is not always what afterwards seems objectively probable. So demeanour has a role to play. Of course trial judges must bear in mind that demeanour can be deceptive and is therefore to be approached with care. In general, I would trust them to do that. Unless good reason to think otherwise appears, trial judges should be taken to have considered demeanour with caution, doing so only in the context of such inherent probabilities as may exist and the whole of the evidence.

It can of course happen that neither rival account is appreciably more inherently probable or improbable than the other, and there may be little or no evidence other than the testimony of the protagonists, each with an interest to serve.  In such a situation, there will be little or nothing for the fact-finding judge to go on apart from demeanour.”

20.  In EPI Environment Technologies Inc & Anor v Symphony Plastic Technologies plc & Anr [2005] 1 WLR 3456, 3470-3471 at para 74, Peter Smith J emphasized that it is essential to have regard to the entirety of a witness’s evidence.  As he observed, witnesses can make mistakes, but the mistakes do not necessarily affect other parts of their evidence.  Likewise, witnesses regularly lie.  However, lies themselves do not mean necessarily that the entirety of that witness’s evidence is to be rejected.  A witness may lie in a stupid attempt to bolster his case, but the actual case may nevertheless remain good irrespective of the lie.

21.  I acknowledge and bear in mind that a standard of proof commensurate with the seriousness of the allegation is required, and that evidence to a very high standard of cogency is necessary, before a court would be justified in finding that a document has been forged, or that a party has committed an act which is tantamount to a criminal offence.  Inferences of fraud and serious misconduct are not to be reached by conjecture, nor on a mere balance of probabilities.  The inherent greater improbability of serious misconduct has also to be factored in, such that a party bearing the burden of proving the allegation should be required to do so with evidence of a commensurate cogency.  (HKSAR v Lee Ming Tee & Securities and Futures Commission [2003] 6 HKCFAR 336, at paragraph 70-71)

The 2000 Agreement

22.  According to Yu’s evidence, he was introduced to Rosalind at the beginning of 2000 by Mr Zhang Xian Zheng (“Zhang”), the deputy head of the department of the Office of the Finance Working Committee of the Central Government.  On Yu’s case, Rosalind told him shortly after their meeting that she was looking for a business partner with substantial background and business experience in the PRC, as the PRC government had pledged, as a member of the World Trade Organization, to open up certain businesses, including the Industry, to foreign investors.  At a meeting which took place in June 2009, Yu claims that he met with Rosalind and Mr Russell Cameron, the regional director of the North Asia Pacific region of BAT, to discuss the prospect of a joint development of the Industry in the PRC. 

23.  It is Yu’s case that prior to July 2000, BAT had engaged various representatives to liaise with or seek approval from the PRC to establish a tobacco manufacturing, sales and distribution joint venture company in the PRC, with no success.  According to Yu, it was already agreed at the June meeting that due to his connections in the PRC, he should be responsible for making inquiries with the relevant authorities as to the viability of a joint development of the Industry (paragraph 9 of his witness statement made on 15 August 2009 “Y-Statement1”).  Yu claims that because of his education background, professional qualifications, past experience and connections with the government authorities, BAT and Rosalind were fully aware, at all material times, that without his “participation in liaising and negotiating with the administrative authorities of the PRC government on a policy level”, BAT and Rosalind would not be able to import, distribute or sell, let alone manufacture, any Products in the PRC.  He claims that without his participation, BAT and Rosalind would not have been able to even get in touch with the government authorities above the level of STMA, such that after some discussions in July 2000, Rosalind agreed with him that they should co-operate in developing the Industry, by being equal partners in such venture.  This was the 2000 Agreement, particularized in paragraph 14 of the Amended Statement of Claim and as summarized in paragraph 6 above.

The rival accounts on the Letter of Authority

24.  There is no contemporaneous document which refers to either the “partnership” or joint venture between Yu and Rosalind, or Yu’s entitlement under the 2000 Agreement to share, as equal partner, 50% of the profits of the BAT Business, the Other Business or of Jade, apart from the letter of authority dated 1 July 2000 signed by Rosalind, which is referred to in paragraph 15 (1) of the Amended Statement of Claim (“Letter of Authority”).  This is the document appearing on page 5 of Bundle C of the trial bundles, as distinct from another letter of authority of the same date issued by Jade and signed by Rosalind, at page 4 of Bundle C, the contents of which are similar, absent the pertinent paragraph providing for Yu’s entitlement.  It is this document which Rosalind disavows, as a forgery.

25.  The Letter of Authority is in English and reads as follows:

“This letter confirms that Mr Yue Jiang (Yu Jiang, Passport No 14440078) has been appointed Chief Representative of the Beijing Office of Jade for the purposes of representing Jade in discussions and negotiations with governments (sic) authorities in China.

Jade will provide 200 thousands (sic) USD at the basic launch and 100 thousands (sic) USD for the monthly outlay.  And Mr Yue Jiang (Yu Jiang) will share the 50% profit of Jade.”

26.  The Letter of Authority is dated 1 July 2000, and bears the imprint of the Common Seal of Jade. 

27.  Yu’s evidence is that the Letter of Authority was faxed to him by Rosalind, and that he never had the original of this document. He recalled that Rosalind had shown him the original of the Letter of Authority at a meeting which he had with Rosalind at the China World Hotel in September 2000.  After the meeting, the Letter of Authority was faxed to Yu’s office by Rosalind in about September or October 2000.  According to Yu, the faxed copy of the Letter of Authority which he received has been lost, and he only has a copy of the copy of the document.

28.  On Rosalind’s part, her case is that since the 1980s, she had been providing advisory and consultancy services to overseas corporations on establishing their businesses in the PRC.  Her role was to liaise between these companies and the regulatory authorities in the PRC from which approvals are required for the carrying on of the business activities of the companies in question.  In the late 1990s, she had advised well-known insurance companies on their entry into the PRC market.  Jade was a company set up by Rosalind in Australia in 1982, and from its inception had been used by her as the corporate vehicle to conduct her advisory and consultancy business in the PRC.  CEICL (the 3^rd defendant) was incorporated in January 1997, and was beneficially owned and controlled by Rosalind.

29.  According to Rosalind, she had been in discussion with BAT since November 1999, when she was informed of BAT’s intentions and business plan to expand its activities in China, by establishing a factory to manufacture cigarettes in the PRC, to increase the volume of the Products to be exported to the PRC from 1 billion sticks per annum to 20 billion sticks per annum, and to establish a sales and distribution network in the PRC, all of which required the approval and co-operation of the PRC government.  The licences required to implement BAT’s business plan would include a manufacturing licence from STMA for the factory to be established by BAT, a licence for the BAT entity which was to operate the proposed sale and distribution network independent of the network then operated by CNTC, and the grant of additional quotas from STMA and/or the Tobacco Group Corporation for BAT’s importation of increased volumes of its Products into the PRC. 

30.  BAT’s investment in the manufacture, sales and distribution in the PRC would be in the region of US $1 billion.  Rosalind claims that in the further discussions which took place between BAT and herself in November 1999 and February 2000, it was agreed that Jade would be appointed as BAT’s chief negotiator and adviser in the PRC.  This is evidenced by a letter from BAT dated 7 March 2000, confirming that Rosalind, chairman of Jade, was appointed as BAT’s Senior Adviser for China with effect from 1 April 2000. There is also a letter dated 28 March 2000 from BAT to Rosalind as chairman of Jade, confirming her appointment as BAT’s chief negotiator and adviser for seeking joint venture projects and licenses, and assisting in securing government approvals in China.  Yu does not accept the authenticity of the letter of appointment, but there is no evidence whatsoever which even suggests that the document in question is not genuine or that its contents are untrue as to what they state.

31.  Rosalind claims that after Jade had been appointed as BAT’s adviser in March 2000, she considered that it would be necessary for Jade to have someone on the ground in the PRC, to assist in dealing with government officials in applying for and obtaining the requisite approvals for BAT.  She had worked with Zhang before on some projects in the PRC in the 1990s, and Zhang introduced Yu to her and Holm.  In fact, as evidenced by a letter of authority dated 1 June 2000, both Zhang and Yu were initially appointed as Rosalind’s official representatives in matters related to Rosalind’s role as BAT’s adviser and negotiator.

32.  Holm had been practising law in New Zealand since 1980.  He was a partner of Mallesons Stephen Jaques (“Mallesons”), solicitors, and chief representative of Mallesons’ representative office in Beijing in 1993.  He worked as a legal adviser on various investment and infrastructure projects in PRC for Australian and other overseas clients.  Since 1993, Holm had acted as Rosalind’s legal adviser and was involved in a number of her projects.  According to Holm, he first met Rosalind in the early 1990s when she was based in Australia.  According to Holm, Rosalind had been advising multinational corporations in developing their business presence and operations in the PRC, and she was reputed in the foreign direct investment industry in the PRC.

33.  According to Rosalind, at the introductory meeting when she met Yu, he had “flashed” an official looking business card, and represented that he worked as an administrator in the State Council.  He assured Rosalind that given his position at the State Council, and his connections with different levels of the PRC government, he would be able to shepherd the licences and approvals required for the establishment of the factory and the sales and distribution network contemplated under the BAT business plan which Rosalind had explained to him, through the various authorities at both ministerial and departmental levels.  In the course of the further discussions which took place between Rosalind, Holm and Yu, Rosalind claims that Yu represented that he had been recognized and authorized by STMA as representing the interests of the PRC state entities in the manufacturing joint venture and the sales and distribution joint venture envisaged under the BAT business plan.  According to Rosalind, Yu had produced a letter on STMA’s note paper, which purported to show that STMA welcomed BAT’s interest in investing in the PRC, and that Yu was a representative of STMA with respect to BAT’s proposed investment.

34.  On Rosalind’s case, it was on 1 July 2000 that she agreed, on behalf of Jade, to employ Yu as the person on the ground to deal with local government officials.  He was to set up the Representative Office in Beijing for Jade, and was to be the Chief Representative of the Representative Office, on a salary of RMB 6000 per month.  It was agreed that Yu would be charged with the task of negotiating with the various organs of the PRC government at ministerial and departmental levels, to obtain the requisite regulatory approvals and licences for the establishment of a manufacturing joint venture, and a sales and distribution joint venture , as contemplated and required under the BAT plan.  According to Rosalind, Yu asked for the appointment to be recorded and formalized in writing.  On that basis, at the Business Centre of the China World Hotel, Holm drafted the contents of a letter of authority on a blank piece of paper, to record Yu’s appointment.  The contents were discussed and agreed between Yu, Holm and Rosalind.  With the assistance of the staff from the Business Centre of the hotel, the letter of authority prepared by Holm was finalized and printed on Jade’s letterhead which was produced by Rosalind, and affixed with the seal of Jade, which was in Rosalind’s possession.  The drafts of the letter of authority prepared by Holm in manuscript at the business centre of the hotel were produced at the trial. 

35.  According to Rosalind, she signed the letter of authority prepared by Holm on 1 July 2000, by which she confirmed, on behalf of Jade, Yu’s appointment as Chief Representative of Jade’s Representative Office. The letter (“Rosalind’s Letter of Authority”) is in the following form:

“This letter confirms that Mr Yue Jiang (Yu Jiang) has been appointed Chief Representative of the Beijing office of Jade for the purposes of representing Jade in discussions and negotiations with government authorities in China concerning the British American Tobacco licence application.”

36.  On the defendants’ case, the Letter of Authority relied upon by Yu was a forgery by someone, or somehow doctored  from another document which Rosalind had signed, the contents of which are different to the Letter of Authority, in order to show Rosalind’s signature and Jade’s seal.  Rosalind’s evidence is that she would never have signed any document in the language used in the second paragraph of the Letter of Authority relied upon by Yu.

37.  I accept that the defendants do not have the burden of proving that the Letter of Authority was forged, or how it was forged. What is required of the defendants is to adduce sufficiently cogent evidence to raise an issue as to forgery (Pacific Electric Wire & Cable v Texan Management Limited, unreported, CACV 90/2012, 17 September 2013 at paragraph 61 to 63).

38.  On Yu’s case, the Letter of Authority was not prepared by him, but was prepared or produced by Rosalind and shown and faxed to him.  It has never been his case that he (or his staff) had been asked by Rosalind to prepare the Letter of Authority for her signature.  This, in my judgment, is significant when considering the question of the probabilities of the case.

39.  On the defendants’ case, Rosalind’s Letter of Authority was drafted by Holm himself, as supported by the drafts in Holm’s handwriting under the letterhead of the Business Centre.

40.  It is true that the language and standard of English used in the second paragraph of the Letter of Authority is distinctly at odds with the language and standard of English used in the other documents which emanate from Rosalind and Holm.  Rosalind’s testimony in court was in fluent, native English.  The documents issued in her name, such as her letters or faxes to Yu of 13 September 2000 and 7 May 2002, and her letter to Tony Johnston of BAT of 25 April 2001, are in fluent English.  As is the letter from Holm to Yu of 7 November 2000.

41.  The standard of English used in the second paragraph of the Letter of Authority is low.  The use of “200 thousands USD” and “100 thousands USD” in particular is grammatically wrong, and cannot be regarded as appropriate or acceptable in an official or business document.  A primary school student in English would be chastised for the formulation of the first sentence of the second paragraph (if not also for the second sentence which commences with “And”).

42.  Yu endeavoured to claim that a letter of authority was not important to him, and that the Letter of Authority was “restricted to Rosalind and himself”, to record the contents of their oral agreement, so that he could trust her (Day 7, pp 23-25 of Transcript).  However, by its very nature, a letter of authority is a document which may, as required, have to be shown to third parties to evidence the agent’s power to do an act or to enter into a transaction.  The defendants claim that the it was Yu who had asked for a letter of authority to be given, to record and formalize his appointment as Chief Representative, a senior title so that he could show to the government officials that he had the authority to represent Jade as BAT’s chief negotiator and adviser in his negotiations with state ministries and departments.  The tenor of the letter of 5 September 2000 from Yu to Rosalind goes to support the significance Yu placed at the material time on formalizing the authority of Jade and its representatives on the ground tasked with dealing with the officials.  The efforts Yu and his team were making had apparently been thwarted by some members of the BAT offices in Hong Kong or the PRC.

43.  On Yu’s case, the second paragraph of the Letter of Authority was included by Rosalind on her own initiative, to record their oral 2000 Agreement, and to make Yu trust her.  Yet, the reference in the Letter of Authority to Jade’s agreement and obligation to provide US$200,000 “at the basic launch” is totally unclear, and I fail to see how this could have been intended to give any assurance to Yu.  Jade had already been in operation for some years, so “basic launch” could only have been a reference to the Beijing Office of Jade.  No reference has ever been made, and no evidence has been adduced at any stage of these proceedings, as to what constituted the “basic launch” within the meaning of the Letter of Authority, and when such “basic launch” occurred.

44.  In my view, it is inherently improbable that Rosalind (or Holm) would have drafted a Letter of Authority which contains the obvious errors and low standard of English on the face of its second paragraph. The document was likely to be shown to government authorities.  It was also supposed to have the effect of binding BAT.  The errors in question would have reflected badly on the standard, competence, and quality of work of Rosalind and Jade, as the principal named in the Letter of Authority, in a project of the size and importance of the BAT Business. 

45.  The language used in the disputed paragraph of the Letter of Authority is in fact more consistent with the standard of the English language used in the English documents emanating from Yu and in his name to Rosalind: namely, the letter from Yu to Rosalind of 5 September 2000, and the faxes from Yu to Rosalind of 21 November 2000, 29 November 2000, 30 November 2000, and 1 December 2000.

46.  Ms Chan SC for Yu has referred to other documents of the defendants, which she says contain errors similar to those apparent from the Letter of Authority.  With respect, the directors’ resolution of CEICL purportedly dated 2 December 2002 and what appears to be typographical mistakes or omissions contained in the document, are totally not comparable to the Letter of Authority, in terms of the errors made and the different nature of the documents.

47.  Mr Bleach highlighted the fact that apart from the Letter of Authority relied upon by Yu, none of Rosalind’s Letter of Authority which she admitted to have signed on 1 July 2000, a Chinese version of Rosalind’s Letter of Authority signed by Rosalind on 1 July 2000, and a different format of a letter of authority dated 1 July 2000 which only bears the chop of Jade, contain the disputed second paragraph of the Letter of Authority.  An earlier letter of authority, dated 1 June 2000, whereby both Yu and Zhang were named as authorized representatives of Rosalind in discussions with government authorities on BAT’s licence application, likewise did not contain any reference to any fee or remuneration or contractual entitlement of Yu or Zhang.  I agree that this lends support to the proposition that letters of authority would not normally deal with expenditure, profit sharing, or remuneration, as opposed to confirmation of authority of the agent to deal with third parties.

48.  The defendants further pointed out that despite Yu’s claim that the Letter of Authority had been faxed to him, the document does not show the fax header or telephone number of the sender, normally seen in a document received by fax, and as shown in some of the documents produced for the trial.

49.  I agree that in all the circumstances, the defendants have adduced sufficiently cogent and probative evidence to raise an issue as to whether the Letter of Authority is genuine.  It remains to be determined whether, in the light of all the evidence, I accept that it is genuine, as Yu claims.

Whose evidence is to be believed

50.  Rosalind and Holm gave evidence in court, and testified to the facts and history of their dealings with Yu and BAT, and their experience and encounters in the PRC throughout the years between 2000 and 2005, to the best of their recollection, in a straightforward and honest manner.  They gave their answers directly, confronted cross-examination as to the retrospectively created resolutions of the companies (to which I shall return) in a forthright manner, and with their composure and quiet confidence, they struck me as witnesses who were telling the truth as to the difficult and often exasperating situation in which they found themselves in the PRC and in their dealings with the government authorities through Yu.  Rosalind was at the material time a mature and veteran businesswoman, with experience of dealing with foreign clients with businesses in the PRC.  The correspondence from BAT and the evidence show that the top senior management of BAT reposed a high degree of trust and confidence in her.  She could not have been a novice so far as dealings in the PRC are concerned.

51.  I have carefully, and objectively, considered the evidence of Yu.  He is obviously an intelligent man.  He was born in Liao Ning and was about 32 years old at the material time when he met Rosalind in 2000.  In his witness statement, Yu referred to his experience as having “worked in various PRC government departments” and having “taught in academic units”.  He claimed in his witness statement to have a Master’s degree in economics and another Master’s degree in business management, but admitted in cross-examination that this was only a single degree, which he obtained in 2004. It has consistently been Yu’s case that he had built up “very good connections with different PRC government departments, enterprises and academic units” and had “participated in various important strategic planning process relating to the economic development of the PRC” (paragraph 3 of Y-Statement1).  Yu has not volunteered any specific particulars, nor any documentation to support such a general description of his alleged role, although it gives, and was no doubt aimed to give, an aura of significance to the work he allegedly did in the PRC. He claimed, for the first time when cross-examined on his experience and financial resources, that he made a lot of money from his “other work in business and trading”, but again, no particulars were ever given as to the nature of such other work or business.

52.  I regret to say that, when the entirety of Yu’s evidence is considered as a whole, I have not found Yu to be an honest or reliable witness.  The statements he made in Y-Statement1, referred to in the preceding paragraph, are only examples of his tendency to make grandiose and broad claims without any supporting evidence or even particulars.  He was generally evasive to the questions put to him in cross-examination, and had a tendency to rely on or refer to documents which do not support the allegations he made.  Put mildly, he was under a misconception as to the claims he made or the nature of the evidence on which he relies.  The other conclusion which can be drawn is that he made inflated and exaggerated claims, totally without evidence in support.  I will only refer to a few examples, including some of those highlighted by Mr Bleach, to illustrate the unreliability of Mr Yu’s evidence.

53.  Yu claimed that he had directly negotiated and dealt with the State Council.  In cross-examination, he was asked to confirm that he had not adduced a single document to evidence his negotiations.  Yu first claimed that emails were not common at the time (which could only have meant 2000 to 2005).  Leaving aside the question of whether this is credible, when confronted with the suggestion that he could have written letters, Yu claimed that he had dealt with the State Council orally.  When it was pointed out to him that the negotiations with the State Council had lasted 4.5 years, Yu then claimed to have kept notes of his negotiations.  When confronted that no such notes had been produced in discovery, Yu complained that the question was “too general”.  I do not consider that Yu has given any satisfactory or credible explanation.

54.  It is Yu’s case that under the 2003 Agreement, Rosalind and CEICL agreed (inter alia) to reimburse and indemnify ZP the expenses incurred by ZP in relation to the Distribution Services, and that the defendants had acted in breach of such agreement in failing to repay US$3,704,931.96 to ZP.  First, there has been no document produced at trial to support the substantial amount of expenses allegedly incurred by ZP.  Further, there is no document produced of any request ever having been made by Yu (or ZP) for payment.  When Yu was asked to confirm the absence of documentation showing any request for payment, Yu evaded the question (Day 9 Transcript, p 30 (19) to p 31 (18)), and finally, could only say that he could not answer. 

55.  It was pointed out to Yu in cross-examination that the rental expenses stated in ZP’s audited accounts contradict the “rental and miscellaneous expenses” claimed by way of reimbursement in the Amended Statement of Claim.  He gave contradictory and irrational responses, arguing that some expenses could not be included in the audited accounts, then claiming that rent had to be paid in advance, that the figures were “approximately the same”, and then making the excuse that documents had been taken away by Rosalind, despite the fact that the plaintiffs were able to formulize the rental expenses claimed in the Statement of Claim, to the exact amounts of RMB3,503,371.67 and RMB236,294.79.  None of the explanations he gave for the discrepancies between the amounts stated in the audited accounts, and the inflated amounts stated in the Statement of Claim, are convincing.

56.  Another example of Yu’s ever-shifting evidence relates to his claim that BAT had agreed to pay to Jade “a commission of 2% to 3% of the gross investment to be made or undertaken by BAT in the PRC” (paragraph 20 (2) of the Amended Statement of Claim), and that in breach of the 2000 Agreement, Rosalind and Jade had failed to account to Yu or to pay him any of the commission so received by Jade from BAT.  Yu claimed in his Supplemental Statement signed on 28 March 2011 (“Y-Statement2”) that he was present when the payment of commission was orally agreed between BAT and Jade at the meeting around the end of 2000.  In cross-examination, he claimed that BAT had agreed to pay commission at 2% to 3% of whatever amount BAT intended or planned to invest (Day 6, pp 23 & 24), irrespective of whether BAT’s project would proceed (Day 6, p 24).  He accepted that BAT’s intended gross investment was in the excess of US$1 billion, and that an estimated US$800 million was to be invested by BAT to build a factory in Mianyang.  Eventually, the building of the factory never materialized because the necessary licences were never issued.  When asked whether this meant that BAT would pay Jade the commission of 2% to 3%, in an amount in the region of US$16 million, even if the project was never proceeded with, which would be incredulous, Yu changed his evidence to say that the commission would only be based on 2% to 3% of the “actual amount invested”.  In my view, Yu’s evidence on BAT’s alleged agreement to pay commission shows not only that he was changing and making up his evidence, but that it is inherently improbable from a commercial sense, and incredible.

57.  Although Yu insisted that there were documents to prove that ZP had incurred expenses on marketing activities, when he was asked to identify the documents in the trial bundle over the luncheon adjournment on Day 9, Yu could only produce one document which was a staff list. On re-examination by his own counsel, Yu was only able to produce another document which mentioned one golf tournament.  This is more pertinent when considered in the light of the fact that Yu and ZP are claiming, in this action, substantial amounts of allegedly unpaid expenses incurred during the period from January 2003 to December 2005, in the sum of US$3,704,931.96, and further monthly expenses thereafter of US$26,066.55.  Despite Yu’s persistent references in his evidence to the numerous work allegedly carried out by himself and ZP, and the substantive amount of expenses allegedly incurred and claimed by way of reimbursement, there has been a scarcity of documents produced at trial to show what these expenses were (other than the broad categories referred to in Schedule 2 of the Amended Statement of Claim, eg “meeting expenses” of RMB3,081,681.47, “reception expenses” of RMB1,681,932.10, and “material expenses” of RMB 1,350,422.78), how they were incurred, or when they were incurred.  If work had indeed been carried out over a period of 3 years, for which expenses were indeed disbursed, there should be a mass of documents relating to the expenses charged and paid, and I find it totally unbelievable that Yu could not have managed to retrieve any document to substantiate his claim.

58.  A good illustration of the incredible lack of documentation and of Yu’s tendency to make bare assertions is his case on his work on the Other Business (as defined in the Amended Statement of Claim).

59.  On Yu’s own case, the 2000 Agreement was that he and Rosalind would co-operate not only in developing the BAT Business, but in the Other Business (of “other regulated business in the PRC including media, investment bank, finance and insurance”).  When cross-examined about his work in relation to the Other Business, Yu insisted that he had done all the work to enable Allianz to obtain regulatory approval to enter the PRC insurance market. He referred to a fax from Allianz to his wife (“Bao”) dated 28 March 2002 to support his claim of the work he had carried out.  I agree with Mr Bleach that this fax cannot show that either Bao or Yu had carried out any significant amount of work.  Nor can the later fax dated 27 May 2002, relating to the reception of the Allianz delegation, give any further credence to Yu’s assertion of the substantial work carried out on the Other Business. 

60.  It is to be borne in mind that in answer to Rosalind’s counterclaim for an account by Yu of the total amount of US$12,921,377 and GBP2,462,988.88, representing the funds she had sent to Yu as Chief Representative of the Representative Office for the BAT Business, it is Yu’s claim (in paragraph 47 of Y-Statement2) that the transfers which are the subject matter of the counterclaim were unrelated to “the BAT co-operation project or CEICL business”, but were the costs to be shared, disbursements, or dividends that were to be paid by Rosalind in respect of “other businesses or projects operated by (Yu and Rosalind) in co-operation”.  Yu has never referred in his pleadings to any other business in which he had worked or invested in co-operation with Rosalind, besides the BAT Business and the Other Business pleaded in paragraph 14 of the Amended Statement of Claim.  It is therefore clear from paragraph 47 of Y-Statement2 that Yu was alleging that the significant amounts included in the counterclaim relate to the Other Business only.  If that is true, it is then incredible that Yu has not been able to explain and particularise the work which he allegedly carried out and to which these significant amounts relate, nor to identify the documents in support, apart from the faxes from Allianz in March and April 2002 (and the limited work to which they referred).

61.  Yu confirmed in his testimony that the document entitled “Work Status of Jade Beijing Office” is an accurate summary of the work undertaken by him.  If work related to the BAT Business is taken out from the summary, it can be seen that any remaining work carried out, in respect of the Other Business, between October 2000 and November 2002 was extremely limited in extent, and can hardly support the amount of expenses claimed to have been incurred.

62.  On the circumstances as to how the Letter of Authority came about, Yu’s evidence is unreliable and inconsistent in an important aspect.  He had sought to disassociate himself entirely from the preparation of the Letter of Authority, by denying that he was present at the Business Centre of the China World Hotel where Holm and Rosalind prepared Rosalind’s Letter of Authority which Rosalind claimed she signed on 1 July 2000.  He maintained that he was only shown the original Letter of Authority at a meeting at the hotel, but only received a copy by fax later.  He even claimed that the Letter of Authority was produced by Rosalind on her own initiative in order to give him comfort.  However, in the course of his cross-examination on the Letter of Authority on Day 7, Yu said that Rosalind had asked him to put the contents of their oral agreement (of sharing profit) in writing (Day 7 Transcript, p 24).  He quickly changed his evidence later, to say that Rosalind gave the Letter of Authority to him, and that it was an English document which he did not understand.

63.  Yu’s case and his evidence on the November 2002 Contract has important bearing on his general credibility, to which I now turn.

The November 2002 Contract

64.  Leaving aside the Letter of Authority and whether it is genuine, the November 2002 Contract is the basis of Yu’s claim of his entitlement to share in the 50% of Jade’s profit.  It is to the November 2002 Contract that Yu constantly referred, in the course of his testimony, as the document which supports his claims, and which evidences the 2000 Agreement.  However, on a simple analysis of the November 2002 Contract, it becomes clear that it does not in fact refer to or make any provision for Yu’s claim to the profit of Jade at all.

65.  The November 2002 Contract was signed, in English and in Chinese, between Jade and Yu.  Both the English and Chinese versions are provided in Article 7.1 of the November 2002 Contract to be the “official texts”.  It refers in its recitals to Jade having been authorized to be the sole exclusive agent of BAT: to set up a foreign business investment company under licence from the PRC government; and in respect of the import, sale, distribution and purchase of tobacco leaf in the PRC.  The November 2002 Contract further recites Jade’s appointment of Yu as Jade’s general agent for these purposes.  Under Article 3.1, Jade was to guarantee Yu’s profit, on the basis of Article 4.

66.  The important provision is Article 4 of the November 2002 Contract, but before I deal with that, it is not disputed that an English version of the November 2002 Contract  contains the amendments and deletions made by Rosalind in her writing, together with her signature only.  That amended version of the English November 2002 Contract does not bear Yu’s signature at all.  A Chinese version of the November 2002 Contract bears the same deletions and manuscript amendments, but was signed by both Rosalind and Yu.  The final English and Chinese versions of the November 2002 Contract, with the omission of the clauses deleted in the earlier versions, were signed by both Yu and Rosalind on 28 November 2002. 

67.  Yu denies that the November 2002 Contract was prepared by him, and claims that it was Rosalind who “provided” to him the documents in English and in Chinese.  He claims to be the one who suggested the amendments to Clause 7.1, to provide for both the Chinese and English versions of the contract to be official, instead of the original provision, that the Chinese version should be the official text.  He claims however that it was Rosalind who deleted Article 5.1, and makes much point of that fact. 

68.  Considering the manuscript writing and deletions which were made in both the English and Chinese versions of the November 2000 Contract, the fact that only the English version of the November 2002 Contract was signed by Rosalind, and the different pens used by Rosalind and Yu, I reject Yu’s evidence and find it more likely that it was Rosalind who had initiated all the amendments made to the November 2002 Contract.  This suggests, and I find it to be more inherently probable, that the English and Chinese versions of the November 2002 Contract were produced by Yu to Rosalind for her consideration, and that on her review of what was produced by Yu, Rosalind made the amendments in her handwriting, signed the documents with her amendments, which amendments were discussed and agreed with Yu who signified his agreement to the amendments, and both of them then signed the final English and Chinese versions of the November 2002 Contract with the deletions omitted, and the additions included.

69.  The English version of Article 4 of the November 2002 Contract makes reading and comprehension difficult, but provides as follows:

“According to this contract, when have gained relating licence, the Party B (ie Yu) have the rights below on itself:

The Party B can share the stock and their generated profits and benefits in given proportion of the BAT enterprise established in China with Party A.”

70.  As can be seen from the above, the language and standard of the English used in Article 4 of the English version of the November 2002 Contract is bad, and consistent with that used in the second paragraph of the Letter of Authority.  Article 4 is incomprehensible without reading the Chinese version of the November 2002 Contract.  Article 4 of the Chinese version reads as follows:

“乙方依本合同，取得有關許可證照後，自動獲取以下權利：

與甲方以一定比例共有BAT在中國所設立企業之股份及由此而産生的利潤和利益。”

71.  Article 4 only provides for Yu to have a “certain proportion” (and not 50%, as allegedly agreed) of the shareholding in, and the consequent profit and benefits of, “the enterprise to be established by BAT in the PRC”, and only after the requisite licence has been obtained.  There is no mention in Article 4, or elsewhere in the November 2002 Contract, of Yu’s right to share in the profit or shareholding of Jade.  Jade is not BAT’s enterprise.  It is indisputable, and even Yu has not ventured to dispute, that no licence has ever been issued in respect of the joint venture company or business applied for on behalf of BAT, as contemplated or referred to either in recital 2 or Article 2 of the November 2002 Contract.  Despite some feeble attempt on Yu’s part to argue the definition of “China” in the November 2002 Agreement, it cannot be disputed that BAT has not established the licensed enterprise contemplated in Article 4.  The November 2002 Contract simply does not in any way support Yu’s claim as a partner to Jade’s business or profits.

72.  It was argued by Yu and on his behalf that Articles 3.2 and 4 confirm the existence of the 2000 Agreement of co-operation between Rosalind and Yu as equal partners.  It was persistently maintained by Yu that Rosalind had deleted a clause in the November 2002 Contract which contained his right to share in profits, or which referred to the 2000 Agreement.  Ms Chan argued on behalf of Yu that the deletion of the original Article 5.1 of the November 2002 Contract supports Yu’s case, as it shows that Rosalind and Yu knew that previous agreements were in existence, such that it was necessary to delete Article 5.1 to make clear that the previous agreements would not be superseded. 

73.  I do not accept these arguments.  It is Yu’s case that the November 2002 Agreement was signed “in order to protect his interests and entitlement in the Joint Venture” (paragraph 53 of Y-Statement 1). Article 4 only provides for some unspecified proportion (which may be less than 50%) of the shares and profits of some company to be established by BAT in the unspecified future, upon the successful issue of the necessary licence, which may or may not be granted.  Article 4 does not protect his interest and entitlement under the undocumented, oral 2000 Agreement at all - as Yu well knew and realized, by reading the Chinese text of Article 4, which he cannot claim to not understand.

74.  Neither Article 4 which provides for Yu’s profit, nor Article 3.2 by which Jade guarantees Yu’s profit, makes reference to Yu’s earlier, oral agreement in 2002 whereby he was to have 50% interest in Jade and its profits from the BAT Business.

75.  The original Article 5.1 which was in the earlier version of the November 2002 Contract, but deleted by Rosalind, is the usual entire agreement clause, which provides as follows:

“This contract supersedes all previous agreements or arrangements between the Principal and the General Agent relating to which shall henceforth cease and terminate with effect from the date hereof.”

76.  The deletion of the entire agreement clause is, in my view, at most equivocal.  It may suggest either that there was no previous agreement to be superseded, or (as Yu suggests) that there was a previous agreement which should not be superseded.  However, bearing in mind that it is and was the kernel of Yu’s case that he is entitled to 50% of the profits made by Jade from the BAT Business, it would have been natural for him to have asked for this right, if it had allegedly been agreed already under the 2000 Agreement, to be expressly dealt with and provided for in the November 2002 Contract, when the whole object of signing such Contract was to “protect Yu’s interests and entitlements in the Joint Venture”, and “to ensure Jade and Rosalind could not renege from their agreement”.  Jade was a company in which Yu did not have any shareholding.  It must have been clear to Yu that the expansion of BAT’s business and the proposed joint venture in the PRC was extremely lucrative.  The 2000 Agreement was an oral one.  The November 2002 Contract was the written document which, on Yu’s case, gave him the opportunity to protect his interests by recording his entitlements.  Yet, it failed to spell out the kernel of his claim to the 50% of the profits of Jade.  This leads me to the conclusion that Yu was prepared to agree to the deletion of Article 5.1, because he accepted that the November 2002 Contract adequately and correctly set out his entire agreement with Jade.  On a balance of probabilities, I can only conclude that the reference to previous agreements in Article 5.1 was deleted because there were no such previous agreements.

Yu’s role

77.  The remaining evidence on which Yu seeks to rely, to support his claim as a partner, is the fact that he had carried out extensive and significant work for Jade and BAT in the PRC, had made huge contribution to the development of the BAT Business, and that he could not have been entrusted to do all this if the 2000 Agreement did not exist, or if he was a mere employee as Rosalind claims.

78.  Yu may have signed contracts, conducted negotiations, and carried out work on the BAT Business, and the Other Business, throughout the period from 2000 to 2005.  On the defendants’ case, huge sums had been transferred to Yu for the purpose of the operations in the Representative Office, and the work of Jade or CIECL in the PRC.  I am prepared to accept that Yu must have done some work in relation to Jade’s representation of BAT in its application to the government authorities for the necessary approvals to conduct and expand their business in the PRC.  Rosalind accepts, and the early correspondence in 2000 and 2001 show, that BAT and Rosalind were impressed by what Yu was able to deliver, from the signing of the Memorandum of Understanding dated 30 October 2000 between CNTC and BAT which sets out a framework for future co-operation, to the signing of the contract between BAT, Jade and Mianyang High Tech Zone Land Bureau in May 2002, regarding land-use rights in Mianyang. 

79.  However, the fact that Yu had carried out work does not mean that he must be Rosalind’s partner or is entitled to a share of Jade’s profits.  Many employees and senior executives carry out important work. Not all of them are entitled to share in their principal’s or employer’s profits.  The fact remains that Yu was appointed the Chief Representative of Jade’s Representative Office in Beijing.  That is a role which entails important functions and duties, including representation of Jade in its dealings with third parties in Beijing.  Jade admits that Yu was authorized under a genuine letter of authority to represent Jade in discussions and negotiations with government authorities in the PRC concerning BAT’s licence applications.  As Chief Representative tasked with negotiating with the authorities, I would expect Yu to do the work which he said he did.

80.  Some emphasis was placed on the letter dated 5 September 2000 from Yu to Rosalind, which is said to support Yu’s claim to a share of Jade’s profits.  There is an English text, and a Chinese text, of this letter, and Yu claims that both these were sent to Rosalind (although Rosalind denies the receipt of the English text).  In this letter, Yu referred to difficulties encountered in Jade’s representation of BAT, and urged Rosalind to sign an official agreement with BAT about the licence, including the rights, profits and obligations of Jade.  Yu also pressed for the establishment of the “official authority of Jade in China”, in order to protect all profits of Jade and “to protect the profits of Yue Jiang’s working team”. 

81.  As in the case of the Letter of Authority and the November 2002 Contract, the English standard of the letter of 5 September 2000 is much less than perfect, and the Chinese text is a more reliable and accurate expression of the writer’s meaning.  The Chinese text of the letter refers to the protection of the “many connection benefits” (許多關係的利益) of Yu’s work team.  In my view, the Chinese term used imports a much wider meaning than monetary profits.  It is Yu’s own case that he was brought into Jade’s BAT Business because of his connections in China and his ability to negotiate and secure the appropriate and necessary licences for BAT’s operations.  It is conceivable that if the difficulties referred to in Yu’s letter cast doubt on Jade’s authority to represent BAT in the negotiations with the government authorities, Yu’s credibility as the broker of the deals, and the party using his connections to bring the government representatives to the negotiating table, would be damaged, such that Yu’s interests in this regard need to be protected.  In my judgment, the one sentence in the letter of 5 September 2000 does not advance Yu’s case of entitlement to the profits of Jade.

82.  It was argued for Yu that there was no reason for him to be Jade’s employee, at the salary of RMB6000 as the defendants claim. There are myriad conceivable reasons for Yu to accept the role of Chief Representative of Jade and to do the work he was tasked to do.  His “connections” with the state and provincial authorities might gain from contracts that may be concluded with BAT.  The November 2002 Contract provides the incentive of a share in the shareholding and profits to be generated from the company ultimately to be established by BAT, if and when the requisite licence was issued to BAT.  On the defendants’ case, there had been some general discussions with Yu on the possibility of either a success fee, or some shareholding in the licensed entity, should the necessary licences be obtained for BAT ultimately.  As Holm concluded in his evidence, the salary for Yu may be small, but the prospects for him were enormous.

The defendants’ retrospectively created documents

83.  The plaintiffs found out in the course of discovery that the 12 written board resolutions and minutes of Jade and CIECL, purportedly dated August 2000 to September 2005, were actually created after the event of the purported resolutions and meetings, in April 2006.  The resolutions purported to record the alleged employment of Yu, the transfer of CEICL shares to Yu as trustee of PRC government entities, the establishment of ZP, the removal of Yu for misrepresentations and deficiencies of performance, etc.  The retrospectively created documents (“RCD”) have afforded much ammunition to the plaintiffs, in their attack against the defendants and the credibility of their case.  It is claimed that the defendants, in creating the RCD which are plainly forgeries, and by referring to and relying on the RCD in the Defence and in their witness statements, have perverted the course of justice.

84.  The defendants admit that the RCD were created ex post facto, not for the purpose of misleading the court or to pervert the course of justice, but that they were prepared simply to create a record of what had occurred at the material time, and as requested by the auditors and bankers of the defendants.  They accept that the court should give no weight to the RCD in the determination of the issues at trial.  Rosalind and Holm maintain however that the contents of the RCD to the extent of the matters recorded are true.

85.  The court accepts that as a matter of commercial reality, parties often sign paper resolutions and documents which record, after the event, certain things which had happened or acts which had been performed. However, the court would never encourage any party to be untruthful in any way in relation to any form of evidence which is presented to the court.

86.  I accept that the defendants’ lack of total candor in relation to the fact that the purported resolutions and records of meetings were not created contemporaneously, but years after the event, reflects badly on the defendants.  As referred to in paragraph 20 of my judgment, however, even the fact that a witness has lied in one aspect does not necessarily affect other parts of their evidence.  The entirety of the defendants’ evidence in this case has to be considered in the whole, when I decide on the credibility of their case and the issues raised. 

87.  I have borne in mind the fact that the defendants had retrospectively created board resolutions to bolster their case that discussions had taken place on Yu’s role and on his shareholding in CEICL.  Yet, I do not consider that their lack of candor in this regard is something which makes the evidence of Rosalind and Holm in this case unbelievable.

88.  In weighing the defendants’ evidence, I have also borne in mind the inconsistencies in some aspects of the evidence of Rosalind and Holm concerning the details of some of their discussions with Yu. These discussions took place between 2000 and 2005, and the witnesses’ recollection of the minor details of their meetings cannot be expected to be perfect. 

89.  Taking the matter to the extreme, even if I should reject and ignore the entirety of the defendants’ evidence (and I am not saying that I should in this case), the plaintiffs must nevertheless discharge their burden of proving to my satisfaction, on the balance of probabilities, that the plaintiffs’ evidence is inherently probable, reliable, and can be believed.

Summary on 2000 Agreement

90.  Having considered the available contemporaneous documents and the November 2002 Contract, and having evaluated the doubts surrounding the execution of the Letter of Authority, the unsatisfactory nature of Yu’s evidence and the evidence of all the witnesses as a whole, I have concluded that it is totally unreliable to accept Yu’s evidence on the genuineness of the Letter of Authority. 

91.  The November 2002 Contract, which Yu relies upon persistently as the basis and foundation of his claim to share in the BAT Business of Jade and Rosalind, simply does not support his case.  Put mildly, and giving Yu all the benefit of the doubt as to whether he was deliberately telling untruths, Yu was laboring under a misconception of his contractual entitlement, a misconception which he has totally convinced himself to be based on solid foundation.  However, when Yu’s evidence is considered in its entirety, I have to conclude that he has in fact made inflated and fictitious claims, and that he is a witness who has no regard for the truth.  In the light of all the evidence, I agree with Senior Counsel for the defendants that there are serious doubts cast on Yu’s claim to be a partner of Rosalind, that such claim is more fiction than fact and, like his other exaggerated claims, simply a magnification of his role as Chief Representative or senior employee, but nevertheless an employee, of Jade.  I reject the plaintiffs’ claim of the existence of the 2000 Agreement, as he alleged.

92.  In fact, Yu’s evasiveness, his refusal and inability to directly answer the questions put to him, his tendency and attempts to make unfounded claims on the basis of irrelevant materials, and his unsubstantiated assertions have all led me to the inevitable conclusion that the entirety of Yu’s evidence on all the oral agreements he allegedly made, in 2000, 2002 and 2003, is utterly unreliable and should be rejected.

The 2002 Agreement

93.  On Yu’s case, notwithstanding his alleged oral agreement with Rosalind in 2000, that he was to have 50% interest in the BAT Business of Jade, in about April 2002, it was (for reasons which he never satisfactorily explained) further agreed orally between Rosalind and himself that another of Rosalind’s companies, CEICL, would be used as the vehicle to import and distribute BAT’s Products in the PRC.  Documents were accordingly signed in 2002 to reflect that one share in CEICL (representing 50% of its share capital) was held by Holm on trust for Yu.  According to Yu, Rosalind suggested the share to be held on trust for him as it was a common practice.

94.  The defendants’ case is that by October or November 2001, Rosalind and BAT had expressed concerns over the fact that formal approval had not been obtained for the application for a manufacturing licence.  Thereafter, Yu produced various official letters, purportedly issued by the government authorities, when Rosalind or Holm made inquiries with him as to the progress of the licence application, and it was in reliance upon Yu’s representations that the necessary official approvals were coming, that BAT spent significant sums of money to pursue the application.

95.  Looking at matters objectively and from the documents produced, it can be seen that although a Letter of Intent was signed between BAT and CNTC in October 2000 to record their intended co-operation in the areas of tobacco leaf and cigarette production, no real progress had been made in 2001 in BAT’s proposal to establish a manufacturing plant in the PRC, and to have direct access to the distribution and sale of the Products in the PRC.  A letter of intent was signed by BAT, Jade and the Mianyang State High Tech Industrial Park (“MSHIP”) in December 2000 in respect of negotiations for BAT’s establishment of a factory in Sichuan.  A contract was later signed in May 2001 for the grant of rights to BAT to use state owned land for the manufacturing factory, pursuant to which BAT made payment upfront of RMB 47.5 million as 30% of a land grant fee.  However, without the necessary licence to manufacture, the right to use land was not of much significance. 

96.  On Rosalind’s evidence, it was around this time that BAT requested for a meeting with a high-level state official of the PRC government, in order to obtain some assurance that its proposal to build a factory had the support of the State Council, before committing to further investment.  Yu’s promises to arrange such a meeting came to no avail, as each meeting purportedly arranged by him was cancelled at the last minute.  By mid-2002, the proposal to build a factory in Mianyang had come to nothing, and Yu proposed instead to establish a factory in another province, Anhui.

97.  Rosalind explained that it was against such background that BAT changed its focus in 2002 to seeking an increase in the number of cigarettes to be exported by BAT to the PRC, and to establishing a sales and distribution network in the PRC, whilst the application for a manufacturing licence took its time to proceed.  It was agreed between BAT’s senior executives and Rosalind in early 2002 that Jade would be appointed as the exclusive importer of BAT’s products.

98.  On 26 April 2002, an agreement was signed between Jade and BAT, whereby Jade was exclusively to provide services to “facilitate” and organize the importation of BAT products into, and sale and distribution of the same, in the PRC.  It was further agreed that Jade would provide such services through CEICL, which was to be interposed between BAT and the Tobacco Group Corporation for the sale of Products to and the purchase of tobacco leaf from the Tobacco Group Corporation.  CEICL obtained a tobacco export licence in Hong Kong, and it was envisaged that CEICL would enter into contracts with the Tobacco Group Corporation, to import BAT’s Products into the PRC, for distribution and sale in the PRC.  A contract was at the same time signed on 26 April 2002 between BAT and CEICL, as nominee of Jade.  CEICL agreed (under clause 5.3) to be responsible for securing all the necessary government approvals and permits for the import of BAT Products and the sale of such Products in the PRC.

99.  Rosalind further explained in her evidence that from the time of her initial discussions with BAT in 2000, BAT’s senior executives and Rosalind had appreciated that it was highly unlikely that STMA or CNTC would be prepared to allow BAT to establish a factory, and to set up a separate and parallel sales and distribution network in the PRC, without their being given an economic stake in the business model contemplated by BAT.  They had anticipated that the various entities involved in the state monopoly, such as STMA, CNTC, the Tobacco Group Corporation and the local government in the province in which the factory was to be established, would require some form of shareholding, both in the factory to be built and in the entity which was to hold the licence to operate the sales and distribution network contemplated by BAT.  It was agreed that the specifics of a proposal would be worked out, whereby the state entities would be given the appropriate form of shareholding interest under the business model to be proposed.

100.  According to Rosalind, when BAT’s focus changed in 2002 to establishing a sales and distribution network and increasing the number of cigarettes to be exported to the PRC, it was agreed that 50% of CEICL’s shares would be allocated to the relevant PRC state entities, to provide some incentive for the PRC entities such as CNTC, STMA and the Tobacco Group Corporation to agree to BAT establishing its sales and distribution network in the PRC outside the one operated by CNTC, and for the Tobacco Group Corporation to start placing orders with CEICL for the Products to be imported and distributed in the PRC. 

101.  Rosalind claims that in 2002, Yu (as Chief Representative of Jade’s Representative Office) was assigned the tasks of obtaining approval from the government authorities for an increase in the import quotas for BAT’s cigarettes (to 20 billion sticks per annum over a two-year period), securing the licence to operate an independent sale and distribution network in at least 10 cities in the PRC, and to continue to process the application for a manufacturing licence for the proposed factory.  Yu was to be responsible for negotiating with the PRC state entities, both as to the establishment of the sale and distribution network and regarding the allocation amongst the state entities of a 50% shareholding interest in CEICL. 

102.  According to Rosalind, Yu indicated that he would require a shareholding interest in CEICL to be registered in his name, so that he would be in the position to assure the relevant state entities that he had a stake in CEICL, and had the proper authority as such to negotiate with the government entities as to the intended allocation of the shareholding in the company which was to ultimately hold the interests in the sale and distribution network.  Rosalind’s case is that she was wary of transferring the shares outright to Yu, and hence, on Holm’s advice, a trust mechanism was established, whereby the relevant shareholding in CEICL would be transferred to and held by Holm instead, and for Holm to hold such interest on trust for Yu, on the basis and subject to the qualification that the 50% shareholding was to be allocated to the relevant PRC state entities, in proportions to be negotiated and agreed with the relevant authorities to be identified, at the end of the day.

103.  Against the background of the monopolized Industry, and on the evidence adduced in this case, I accept that the defendants’ evidence on the shareholding of CEICL to be held for Yu for the benefit of the state entities, has a credible ring of truth, and is inherently probable.

104.  By the very fact that the PRC government had an important monopoly on the Industry, it is conceivable that, at least at the initial stage of opening the market to foreign companies, the government would have required a stake in the venture to be set up by BAT.  This was in fact the case in respect of the joint venture between BAT and the PRC entities for the establishment of the cigarette manufacturing plant in Mianyang, as evidenced by the Joint Venture Contract dated 18 September 2002 (“Mianyang Contract”).  Under the Mianyang Contract, a joint venture company was to be set up in China, for the purpose of establishing a cigarette manufacturing factory in Mianyang, Sichuan and a national marketing, distribution and sales network.  The parties to the joint venture were BAT on the one part (“Group One”), and CEICL (represented by Rosalind), the Sichuan Province Government State-owned Capital Management Limited, and Mianyang Government MYSHIP Investment Holdings Limited on the other part (“Group Two”).  The shareholding in the proposed joint venture was to be allocated as to 62% to Group One, and 38% to Group Two, represented by CEICL. 

105.  In my view, the defendants’ case on how they had been asked by Yu to be given shares in CEICL, to give him authority to deal with the PRC government (as he claims) to secure the necessary consent and approval required for BAT’s activities in the PRC and for his allocation to state owned entities (as Yu claims), is supported by the contents or tenor of the letters produced under the letterhead of, and purportedly issued by, the state authorities such as the State Council. 

106.  The defendants claim that these letters were produced by Yu to them, to show that the negotiations he was conducting were progressing as planned, and as enticement for further and continued payments to be made by BAT and/or Rosalind for Jade.  Initially, Yu had through his solicitors filed notice of non-admission of the 2 letters dated 15 November 2002 and 27 December 2002 (the contents of which are identical but for the second line), purportedly issued by the State Commission for Economic Restructuring (國家經濟体制改革委員會) (“State Commission”).  However, in the course of cross-examination, Yu claimed instead that all the documents under the letterhead of the state authorities were in fact “fake” and had been forged by Rosalind.

107.  In a letter dated 7 September 2001, purportedly issued by the State Council and sent to Rosalind at the Representative Office, it was claimed that the State Council had agreed to discuss the licence, that BAT should support Jade’s actions and proposals, and made reference to Jade’s 38% interest in the profits.  This percentage is consistent with that ultimately allocated to Group Two, represented by CIECL, in the joint venture specified under the Mianyang Contract.

108.  In another letter dated 19 June 2002, purportedly issued by the State Council and addressed to the Representative Office of Jade, reference was made to consent being given to Jade to raise capital to establish a company, to develop their import and sale of BAT products, and for such capital to be returned to the investor within a year.  It seems incredible that the State Council would have to give consent to any privately owned company to raise capital and to be concerned with the return of capital to a private investor.  In my view, the letter suggests that the government had an interest in the capital and the company to be set up.

109.  Even more oddly, on 15 November 2002, a letter was purportedly issued to Rosalind under the letterhead of the State Commission, in which it was purportedly stated that upon receipt of “the borrowed capital”, the State Commission would set up a Chinese joint venture company for BAT, the shares of which are to be allocated on a 62/38% basis, “as discussed”.  This letter was unsigned, and faxed from the Representative Office on 22 November 2002.  On 27 December 2002, a letter with identical contents was issued to Rosalind, this time with a signature of one Mr Gong appearing above the date.

110.  It is also relevant that some time before the alleged 2002 Agreement, BAT received a letter purportedly from the State Council dated 19 December 2001 (“State Council December Letter”).  This was on the note paper of the State Council, purportedly signed by one Mr Pan Liang, and addressed to Rosalind.  It stated that the letter was issued to enable her to inform BAT that approval had been given for BAT to “enter the Chinese market”, that the formal licence would be issued when the relevant documents were completed, but in the interim, the decision should be kept “highly confidential”.  Reference was made to the work of Jade and BAT in connection with the Sichuan joint investment project, with the reminder that they should continue with such work.

111.  It is Yu’s claim that he had nothing to do with the production of the documents purportedly issued by the State Council and the State Commission, and that these had been somehow forged by Rosalind, or on her behalf, and provided by her to BAT “to cheat” BAT and Yu.  He claims that these documents can be obtained from anyone on the street in the PRC.  Yu further claims that he had only seen these documents after the commencement of these proceedings.

112.  I find Yu’s allegations in these respects, that the documents he claimed to be forgeries were in fact forged and created by Rosalind, to be incredible.  I have little doubt that the documents bearing the letterhead of the State Council were unauthorized.  The only agreement I share with Yu, is that the statement contained in the State Council Letter, that approval had been given to BAT’s entry into China, must have been a lie at the relevant time.

113.  It is incredulous to suggest that Rosalind would have produced or procured a forged letter from the State Council, in order to show it to BAT to convince them that approval had been granted to BAT’s business in the PRC, when BAT knew at all material times that Yu was Jade’s Chief Representative in Beijing, and the person on the ground authorized by Rosalind to deal with the negotiations with the government entities in relation to BAT’s applications for the licences.  It was inconceivable that Yu could not have found out from BAT, or the government entities with which he was supposed to be dealing, if Rosalind had indeed produced a “fake” authorization, or lied to BAT about government approval.  On such discovery, Yu would have corrected the position, and Rosalind’s lies would have been easily exposed.  Indeed, almost immediately after the date of the “fake” State Council Letter, BAT’s Asia-Pacific regional director wrote to Yu on 20 December 2001, to express his “delight to hear from Rosalind today that the State Council has formally written to Jade to confirm that approval for BAT to enter the China market has been granted”, and to thank Yu for his hard work in achieving the breakthrough.  There is no letter from Yu to BAT, expressing surprise or clarifying the mistake, to say that approval had not in fact been given by the State Council, and exposing Rosalind’s fraud.

114.  Yu claims that he had sight of the 20 December 2001 letter from BAT, but it was in English, and Rosalind had not explained the letter to him.  I unreservedly reject his evidence.  The trial bundles show that English documents had been exchanged between Rosalind and Yu (in his name), and I do not believe that Yu would not have got his wife, or the associate who Yu claims wrote some of the English letters for him, to explain to him such contents of the letter of 20 December 2001 as he failed to understand.  I do not believe his evidence that he had not seen these English documents.  It is simply one of the many lies Yu was ready to make in court.

115.  On Yu’s case, he was the person who participated in liaising and negotiating with the administrative authorities of the PRC government “on a policy level”, and that without him, BAT and Rosalind would not have been able to get in touch with the government entities above the level of STMA. 

116.  On the evidence, I am satisfied that the documents issued under the letterhead of the State Council and the state authorities emanated from Yu, rather than from Rosalind.  It was when it became apparent to Yu that upon a close and minute examination of the evidence and the documents in the court room, the letters which were purported to be issued by the state authorities would readily be dismissed as the product of a charlatan, that Yu claimed, in court, that they had all been provided and forged by Rosalind.

117.  It was argued on Yu’s behalf that it would have been easy for Rosalind to verify the claims purportedly made by Yu, either of his alleged representation of the State Council or the government authorities, or of the contents of the letters purported by Yu to have been issued by the State Council or the government authorities.  I believe the evidence of Rosalind and Holm, that Yu had emphasized to them that BAT’s application (as a foreign company) to open the PRC tobacco market and to break into the monopoly enjoyed by the state entities, at a time when reform was being contemplated by the PRC government, was a delicate and sensitive matter.  Rosalind could only trust Yu on the claims he made - of his connections with the respective authorities, and the confidentiality of the matter.  It is inherently probable that neither BAT nor Rosalind would have wished to jeopardize the sensitive negotiations in any way, whether by checking on the veracity of the claims made by Yu, the status of the negotiations and the licence applications, or the genuineness of the documents he produced.  The State Council Letter emphasized the confidentiality of BAT’s application.  If the document is genuine, it supports the evidence of Rosalind and Holm that the matter was confidential and sensitive to the authorities.  Even if the State Council Letter was not genuinely issued by the State Council, I have found that it emanated from Yu, and not Rosalind, and the contents of the State Council Letter produced by Yu supports the fact that he had made claims of confidentiality to Rosalind and/or Holm.

118.  I do not find it surprising that Yu was made a joint signatory of CEICL’s bank account.  After all, he was the Chief Representative of Jade’s Representative Office, the Chief Executive Officer of CEICL, and the person appointed for dealing with the PRC entities and for the operation of the BAT Business.  Yu’s counsel argued that as the share in CEICL was not registered in Yu’s name, this contradicts the defendants’ assertion that Yu had asked for evidence of his shareholding in CEICL, for the purpose of convincing the government entities that he had the authority of and a stake in CEICL.  The document dated 15 November 2002 (stating that CEICL was “owned 50:50 by Rosalind and Yu”) which was signed by Holm would serve this purpose, and I believe Holm’s evidence that the 15 November document was produced at Yu’s behest, and to give him more assurance.  According to Holm, Yu complained that he had been advised by his lawyer that the trust deed signed by  Holm did not give him adequate protection, that no one would believe him should he produce the trust deed, and that he needed something more specific from Holm to give him credibility.  Since Yu was asking for a document to give him credibility, it is understandable that the “qualification” referred to by Holm was not mentioned in the 15 November document.  Nor do I find it surprising that the understanding between Rosalind, Holm and Yu, as to the trust arrangement and the qualification, were not mentioned in the letters to the bank, or by the company secretary. 

119.  According to Holm’s evidence, which I accept, he had discussed with Rosalind the lack of documentation on the full basis of the trust arrangement - that it was subject to the qualification that Yu’s share was held on behalf of the government entities.  According to Holm, Yu had indicated to Rosalind that it would be impossible for him to sign any documentation regarding the shareholding to be allocated to the PRC entities, because the issue was sensitive, the identity of the entities had yet to be sorted out, and that if the wrong entity was specified, problems would arise. 

120.  From the way Yu answered questions put to him in cross-examination, I believe that he would have similarly evaded and eluded the queries by Rosalind or Holm, whether they related to his representation of the government authorities, or to the state entities which were supposed to have interests in the shares to be allocated to him in CEICL, or to be held for him.

121.  Ms Chan raised arguments as to the uncertainties of the trust mechanism alleged by the defendants: that there is no sufficiently defined class of beneficiaries for whom the 50% interest in CEICL was to be held, when it is alleged by the defendants that the relevant shareholding was (as agreed with Yu) to be allocated in due course to some unspecified government entity or entities.  In this respect, I agree with Mr Bleach that the issue is not whether the trust mechanism as alleged by the defendants is sound as a matter of law.  The issue is whether Yu, Rosalind and Holm intended, agreed and attempted at the relevant time to set up the trust mechanism, as the defendants allege.  If the trust envisaged by the parties fails, then the share in CEICL, originally owned by Rosalind and transferred to Holm, to hold on trust by Holm for Yu and the appropriate government entities, should revert back to Rosalind.

122.  To conclude, I disbelieve and reject Yu’s claim, that there was a 2002 Agreement and that he was the beneficial owner of 50% of CEICL’s shares which were held on trust for him, and prefer the defendants’ evidence in these respects.

123.  The licences required for BAT’s manufacture of Products in the PRC and for the sale of BAT’s Products by or through a company in which BAT/Jade and the PRC government entities had joint interests were never issued. The licences which CEICL was responsible for securing under the express provisions of the contract between CEICL and BAT for the distribution services contemplated were never secured.  BAT terminated Jade’s representation and agency in 2005.  Yu can have no further claim to, or interest in, the one share of CEICL which Holm held on trust.  I agree with the defendants that the interest in the share reverts to Rosalind under a resulting trust.

124.  As Mr Bleach submitted, even if Yu was a shareholder of CEICL, he has no claim to or any interest in CEICL’s property, whether it be the revenue or profit derived from the Distribution Services, or the funds of CEICL deposited in its bank account.

The 2003 Agreement

125.  The 2003 Agreement asserted by Yu is even more incomprehensible.  On his case, it was orally agreed between himself and Rosalind in January 2003 that Yu would establish ZP, a company in the PRC, for the purposes of undertaking all the activities relating to the Distribution Services and the work to be done by CEICL.  ZP was to be wholly owned by Yu, to act as CEICL’s agent.  CEICL was to pay to ZP 2 % to 3% of CEICL’s total sales revenue, and Rosalind was to advance an interest-free loan to Yu to establish ZP. 

126.  It is Yu’s case under the alleged 2002 Agreement that CEICL was to be used as the vehicle for Rosalind and himself to provide the Distribution Services, and that they were each to have 50% interest in CEICL.  On this basis, I fail to understand why Rosalind would have agreed, in 2003 as Yu alleges, to have Yu set up a wholly owned company of his own to take over the Distribution Services, and even more incredibly, at her initial expense by way of an interest free loan of US$5 million. Yu has not given any reason to persuade me that this arrangement makes any commercial sense.  If the reason was because only a PRC company could carry out the Distribution Services, than why was CEICL, a Hong Kong company, used under the 2002 Agreement?  Coupled with the fact, to which I have referred in the earlier parts of my judgment, of the total absence of adequate documentation to substantiate Yu’s claims that work had been carried out and expenses incurred by ZP, against the background that ZP could not even engage in any import or sale activities of the Products without a licence, I reject the 2003 Agreement in its entirety.

127.  On the defendants’ case, ZP was set up at Yu’s behest for the purpose, as he informed Rosalind, of facilitating the sales and distribution work required for the BAT products, by providing the government approvals.  The defendants were given to understand by Yu that ZP was a government formed entity or had the backing of other government entities, such that the red tape could be cut through and the necessary approvals could be obtained through ZP.

128.  Rosalind’s evidence is that in order to persuade her to agree to the setup of ZP, Yu showed her a letter dated 15 November 2002 purportedly issued by the State Commission (referred to in paragraph 108 above). The contents of the letter can be translated as follows :

“Upon receiving the borrowed capital, we will establish in Beijing as soon as possible a joint venture company for BAT and China Eastern (CJV).

The shareholding allocation will, as discussed, be 62/38%. (ZP) will ensure that government gives its approval to the CJV for sale of the products of the CJV throughout China.

In the CJV shareholding contract, we have discussed with you long-term views.  Please complete the contract as soon as possible.  We will commence the operations of (ZP) within the following 2 -3 weeks.”

129.  I have found that it was Yu who had produced the letters purportedly from the State Council and the State Commission.  In my view, the contents of the 15 November 2002 letter support the defendants’ case, on what Yu had told them about ZP.

Conclusion on Yu’s claims

130.  For all the above reasons, I dismiss all the claims made by Yu in the main action, with costs to the defendants (with certificate for 2 counsel).  He has failed to prove any of his claims to my satisfaction.

The counterclaim for an account

131.  I have rejected Yu’s claims to be a partner of Rosalind. 

132.  With the exception of certain payments, Yu’s counsel has made it clear in her submissions that Yu no longer disputes that he has a duty to account for the payments listed in paragraph 74 of the Re-Amended Defence.  He only disputes that he has a duty to account as an employee. 

133.  At all material times, Yu was appointed the Chief Representative of Jade.  At all material times, he was also the Chief Executive Officer of CEICL.  He was one of the most senior persons working in the Representative Office - if not the most senior, since Rosalind did not spend much of her time in the PRC.

134.  The mere fact that there was no written contract for the employment of Yu as Chief Representative is in my view no answer to the fact that Yu had received the payments transferred to him for the operation and business of Jade and CEICL in the PRC, and should account for such payments received.

135.  From the evidence, it is indisputable that as Chief Representative of Jade’s Representative Office, and as Chief Executive Officer of CEICL, Yu was authorized to handle and in fact handled and controlled funds sent by Rosalind to Yu for the operations of Jade, the Representative Office and CEICL.  He had access to and authority to allocate and use these funds for the business and operations of the Representative Office and CEICL.

136.  In my judgment, it is indisputable that Yu was an agent of Jade and CEICL in respect of the funds he received, and whether as employee or as agent, Yu is under a fiduciary duty to use the funds only for the purposes of the business of his principal, and to account to his principal for the monies received.  His appointment and authority conferred under the letters of authority carries with it the duty to act in the interests of Jade, but in respect of the remaining issues for determination in these proceedings, it is sufficient to confine these duties to the obligation to account for the funds he received.

137.  The fact that Yu was appointed as Chief Representative of Jade, that he owed fiduciary duties as Chief Representative of Jade and as Chief Executive Officer of CEICL, and that US$12,921,377 and GBP2,462,988.88 had been transferred to Yu for the purpose of his carrying out his functions as Chief Representative for Jade and for CEICL, are all pleaded in the Re-Amended Defence and Counterclaim (paragraphs 3(4), 3(6), 19, 37(6) and 74).  There should be no doubt as to the basis of the defendants’ claim for an account against Yu.

138.  There are unchallenged sums of US$1,252,500 and GBP2,462,988.88 which Yu admits to having received from Rosalind.

139.  There has been no evidence from Yu which can show that the transfers of money he had received from Rosalind were for the “Other Business”.  In respect of the disputed sum of US$2.3 million, which Yu claims to be Rosalind’s payment of her share of the operating expenses, Yu has a duty as Chief Representative of Jade who had received the amount to give an account as to how he had spent the amount for the alleged “operating expenses”. In respect of the cash payments, I believe Rosalind’s evidence that these had been brought by her to the PRC and paid over to Yu.

140.  Accordingly, I will make an order for an inquiry and account to be made as to Yu’s receipt and use of the total amount claimed by Rosalind to have been transferred under the Counterclaim, save for the sum of US$5 million which Rosalind accepts to be a loan made to Yu for ZP’s establishment, and repaid by Yu.

141.  Yu is to pay the defendants’ costs of the Counterclaim, to be taxed if not agreed with certificate for 2 counsel.