LI TIN SANG v. POON BUN CHAK AND OTHERS

CACV 153/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 153 OF 2002

(ON APPEAL FROM HCA NO. 2038 OF 1997)

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J U D G M E N T

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Hon Le Pichon JA :

1. I have had the advantage of reading the judgments of Cheung JA and Stone J in draft and agree that this appeal should be dismissed.

2. This case concerns a claim by the plaintiff that notwithstanding the transfer of 300,000 shares in Megawell Industrial Limited ("Megawell") registered in his name to the 2nd defendant on 1 January 1992, he remained the beneficial owner and that the 2nd defendant held those shares on trust for him. The plaintiff put his claim on the basis of constructive and/or resulting trust said to arise because, inter alia, he was paid dividends attributable to the shares after the transfer by him in January 1992. It was part of the plaintiff's case that although he did not pay for the shares when they were originally allotted to him by the 1st defendant on 19 January 1990, he had an understanding with the 1st defendant that payment for the shares would be made out of future dividends. It was also part of the plaintiff's case that he paid interest on his share capital out of dividends to which he was entitled as beneficial owner. The receipt of such dividends ("the dividends issue") formed a central plank of the plaintiff's claim. The 1st and 2nd defendants' case was that the transfer was an outright transfer to the 2nd defendant. The judge found that the 2nd defendant was in a similar position as the plaintiff in that they had simply carried out the 1st defendant's bidding. The judge considered that the evidence 'suggested' that the 2nd defendant was the 'nominee' of the 1st defendant.

3. The plaintiff contended that that was effectively a finding by the judge that the shares were held by the 2nd defendant in trust for the 1st defendant. He submitted that it was not open to the judge to make a finding that was not what either party had contended for and to do so amounted to a denial of justice. I agree with Cheung JA and Stone J that the answer lies in Rhesa Shipping Co. S.A. v Herbert David Edmunds (The "Popi M") [1985] 1 WLR 948, 955H-956A, [1985] 2 Lloyd's Rep. 1 at 6, where Lord Brandon observed that the judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties and may decide the case on the burden of proof. This was what happened below: the judge found that the plaintiff had failed to prove his case.

4. The plaintiff then sought to impugn the judgment on the basis that the judge had misunderstood the evidence, overlooked certain evidence and failed to make findings of fact on a number of matters. But, in my view, the single most important issue arising from the myriad challenges made in this court relates to the judge's finding on the dividends issue. Unless the plaintiff were to succeed in overturning the judge's finding on this issue, his appeal would almost inevitably be doomed. This is because the dividends issue was central to the plaintiff's claim, such that a rejection of the plaintiff's case on that issue would necessarily wholly undermine his credibility regarding the share transfer and the trust said to arise therefrom. For this reason the plaintiff's challenge on the dividends issue merits detailed consideration.

5. The judge did not find the plaintiff a credible witness and rejected his evidence that the payments he received on 28 May 1993, 11 October 1993 and 4 February 1994 respectively represented dividends due to him after deducting therefrom the cost of the shares and interest. The judge found that the plaintiff never paid for the shares, that they were a gift to him from the 1st defendant and that was consistent with a pattern of conduct which showed that the 1st defendant had been very generous in his dealings with the plaintiff and had given the plaintiff shares in several other companies without payment.

6. Mr Bunting SC sought to demonstrate that the judge's rejection of the plaintiff's case on the dividends issue was fundamentally flawed. Because the dates of the three payments relied on did not correspond to the dates on which dividends were declared and paid (there being a time lag in each case of several months) and the amounts were also at variance with what should have been received by way of dividend in respect of the shares, the plaintiff proffered explanations for the various sums received and their computation.

7. The first payment of $180,000 received on 28 May 1993 was said to comprise the dividend declared on 5 March 1993 of $1.60 per share less the cost of the shares. The judge made two points in respect of that computation. First, a second dividend of $0.35 had been declared and paid on 31 March which preceded the first payment by some 2 months. There was no explanation why the first payment did not include this second dividend. The plaintiff took no issue with this first criticism. Second, the judge commented that it would have been more convenient to deduct not only the cost of the shares but also the interest thereon from the dividends which had been declared by the time of the first payment. Mr Bunting submitted that the judge had misapprehended the plaintiff's evidence in that the agreement for interest only took place after the date of the first payment and that therefore the judge's second criticism was unwarranted. But the passage in the transcript (at page 135 R-U) relied on by Mr Bunting was flatly contradicted by the plaintiff's evidence to be found on the same page of the transcript (at 135 M-N, T). At best, the plaintiff's evidence on this point was confused. When regard is had to the fact that Mr Bunting's submission is also contradicted by the plaintiff's pleaded case as well as his witness statement, it is evident that there was no valid basis for impugning the judge's criticisms as regards the first payment.

8. The second payment of $108,000 received on 11 October 1993 was said to comprise the dividend payment of $0.35 per share declared on 31 March as well as the final dividend of $0.37 per share less interest on the cost of the shares and the third payment of $600,000 received on 4 February 1994 was said to comprise the first interim dividend of $2.00 per share for the year ended 31 March 1994 paid by Megawell on 18 January 1994. Mr Bunting's criticisms of the judge's conclusions relating to the second and third payments were inter-related. They essentially centred round a single point, namely, whether the judge was right in holding that the second payment could not have included the final dividend of $0.37 per share.

9. In his written submissions, Mr Bunting thought that the judge's finding was that this "dividend was not declared until 12 November 1993." In fact, the finding was that at the time the second payment was made, the final dividend had not yet been declared and the basis for her finding was that it was only in the director's report dated 12 November 1993 that it was recommended that a final dividend of $0.37 be paid. Be that as it may, the complaint was that the point was never put to the plaintiff in cross-examination and that therefore it was unfair and a miscarriage of justice for the judge to have found against the plaintiff on this point.

10. In my view, this criticism is devoid of merit. I do not myself see why it was incumbent on the defendant to put this particular point to the plaintiff in cross-examination. The audited financial statements of Megawell for the year ended March 1993 contained the director's report dated 12 November 1993 which specifically referred to the recommendation of the proposed final dividend. They were in evidence in the court below. Since it was the plaintiff's assertion that the second payment did include the final dividend of $0.37 per share, it was incumbent on him to satisfy the court that that was so. It was for the plaintiff to adduce evidence as to the date of the final dividend was declared. That inevitably would have been a date post 12 November 1993 and hence several weeks after the second payment which fact would have called for an explanation by the plaintiff. Tellingly, there does not appear to be any evidence in the appeal bundles relating to the date the final dividend was actually declared. In these circumstances, it was disingenuous for the plaintiff to suggest that he had been disadvantaged.

11. There are further reasons why I do not see that it was in any way unfair and a miscarriage of justice for the judge to have found against the plaintiff regarding the second and third payments. The two dividends said to have been comprised in the second payment would have resulted in a sum of $216,000 but the amount of the second payment was only $108,000. The plaintiff's explanation for the difference of $108,000 was that it represented interest paid on the share capital. It has to be borne in mind that the plaintiff's evidence was to the effect that the 1st defendant never charged him any interest in respect of various loans made to him, viz. (a) a loan of $500,000 when he purchased a residential flat; (b) a loan of $8 million for approximately 21/2 to 3 months; and (c) a loan of approximately $4.8 million for investment purposes for about 4 months. He agreed that it would be "out of [the 1st defendant's] character" to ask him (the plaintiff) for interest. It was against that background that the judge had to assess the payment of interest on the Megawell shares.

12. In his witness statement, the plaintiff proffered the explanation that interest had been calculated at 1% per month, "adopting the round figure of 3 years". But this explanation falls to be contrasted with the following passage from the plaintiff's cross-examination:

" Q. Did you think that you should pay interest as well, although he did not mention you specifically?

A. Yes.

Q. You positively thought that you should pay interest?

A. Yes.

Q. Did he mention how to calculate interest?

A. No.

Q. All right. When, if at all, did he mention about interest on your part?

A. He did not mention how much was the interest, but he mentioned interest at the time when the second cheque of $108,000 was given to me.

Q. Mr Li, when did Mr Poon first mention about interest on your part?

A. As I have told you earlier, on that occasion he asked me whether interest should be calculated.

Q. Did he tell you how?

A. No.

Q. And did you agree?

A. Agreed."

(Transcript, pages 136N - 137A.)

What the plaintiff was saying was that he was not told how the interest was calculated. It will readily be appreciated that the so-called interest calculation was contrived: it was nothing more than an ex post facto rationalization of the figure of $108,000. It was only by adopting a rough and ready approach, contracting a period of some 31/2 years to 3 years and adopting an arbitrary rate of 1% that the plaintiff was able to come up with the 'necessary' figure of $108,000, thus squaring the circle.

13. Whilst it is true that the judge made no specific finding as to the nature of the three payments, she did not specifically reject the defendants' case on that issue either. The 1st defendant had maintained that they were loans. Loans by the 1st defendant to the plaintiff were not unknown: see, for example, those mentioned in paragraph 11 above. Even if the judge had made no finding as to what those payments represented, that would not render any the less valid her reasons for rejecting the plaintiff's case on the dividends issue.

14. Mr Bunting also sought to capitalise on what he submitted was the judge's 'conclusion' that the 2nd defendant held the Megawell shares as trustee for the 1st defendant rather than as beneficial owner. It was argued that if the 2nd defendant held the shares as trustee, the logical beneficiary must be the plaintiff rather than the 1st defendant. What I say about this is that the judge's 'conclusion' cannot be taken as the starting point of the plaintiff's claim even if it had amounted to a specific finding. In view of the language used, that is far from clear. The burden was upon the plaintiff to establish that the shares were held by the 2nd defendant for him. That was the issue in the court below. Once that claim had been validly rejected, that was the end of the matter. The correctness or otherwise of the judge's 'conclusion' cannot, as it were, lend credence to a claim that had not been made out.

15. As regards the other arguments made by the plaintiff, they are addressed in the judgments of Cheung JA and Stone J and I do not propose to add to the reasons given by them on those matters.

Hon Cheung JA :

The 300,000 shares

16. Megawell Industrial Limited ("Megawell") is a limited company with a share capital of $3 million, divided into 3 million shares. As at 19 January 1990, there were five shareholders and directors and their shareholdings were as follows :

The 1st defendant	900,000 shares (30%)
The plaintiff	300,000 shares (10%)
The 1st defendant's brother, Poon Kei Chak ("K C Poon")	300,000 shares (10%)
Wong Kwok Keung ("K K Wong")	750,000 shares (25%)
Li Kwok Leung ("K L Li")	750,000 shares (25%)

17. It is common ground of the parties that all the $3 million share capital was provided by the 1st defendant.

18. On 1 January 1992, the 1.5 million (50%) shares in Megawell held by the plaintiff, the 1st defendant and K C Poon were transferred to the 2nd defendant. The plaintiff transferred his shares at a nominal value of $1. The transferors also ceased to be directors of Megawell. The 2nd defendant had not paid the $1 consideration.

19. On 9 October 1995, the 2nd defendant sold the 1.5 million shares standing in his name to the 3rd defendant, a company owned by the 1st defendant, at $21 million ($14 per share). The 2nd defendant had not collected this $21 million and it was kept by the 1st defendant.

20. On 18 February 1997, the 3rd defendant announced a conditional agreement with a company called Trustland Inc. ("Trustland") for the sale of the 1.5 million shares.

The action

21. On 26 February 1997, the plaintiff commenced the present proceedings seeking the following relief :

1) A declaration that his 300,000 shares were held by the 2nd defendant (as nominee of the 1st defendant and under his direction) and subsequently by the 3rd defendant on trust for him;

2) A declaration that the consideration for the transfer or sale of the 300,000 shares from the 2nd defendant to the 3rd defendant and from the 3rd defendant to Trustland, received by the 2nd and 3rd defendants as nominees for the 1st defendant, was received by the 2nd and 3rd defendants on trust for him;

3) An inquiry into the circumstances whereby the 300,000 shares were transferred or sold and what has become of the consideration paid for the transfer or sale;

4) An account and payment of the dividends, income, interest and benefits derived from the shares.

5) Damages for breach of trust and procurement of breach of trust.

The appeal

22. The plaintiff's action was dismissed by Chu J. The plaintiff now appeals against the judgment.

The plaintiff's case

23. The 1st defendant is the chairman and managing director of Texwinca Holdings Limited ("THL"), a company listed on the Hong Kong Stock Exchange since 6 August 1992. THL is within a group of companies known as the Texwinca Group. The Texwinca Group is principally engaged in the textile and garment business.

24. The plaintiff was an experienced dyeing technician. In 1989 he was a director and shareholder of a company called Texbloom Limited ("Texbloom"). On 1 October 1989, he joined Nice Dyeing Factory Limited ("Nice Dyeing") as a director. Nice Dyeing is one of the companies of the Texwinca Group. He was responsible for its production and the technical aspect of the operation.

25. On 17 June 1994, the plaintiff resigned and later left Nice Dyeing and THL on 1 October 1994.

26. The plaintiff stated that he was invited by the 1st defendant to join Nice Dyeing and they had reached an agreement on the terms for him to join Nice Dyeing. Among the terms agreed was that the plaintiff would be given shares in the new endeavours of the 1st defendant.

27. The plaintiff stated that at that time the 1st defendant had already conceived the idea of having one of his companies listed as a public company and that the listing was the common objective of both him and the 1st defendant.

28. Megawell was acquired as part of the expansion of the 1st defendant's group of companies and in preparation for listing. K K Wong and K L Li, who were former senior staff from Giordano, a well-known local garment producer, also joined Megawell. The plaintiff claimed that the three of them together would form a strong team and Megawell would be a useful limb to the 1st defendant's group of companies.

29. The plaintiff agreed that he did not pay for the 300,000 shares when they were allotted to him. He said that the 1st defendant told him at that time it was small money and that it could be settled when the dividends were declared. Then in about the end of 1991, the 1st defendant told him that the shares had to be transferred to a third party to avoid conflict of interest, but the benefits and future profits arising from the shares remained with the plaintiff notwithstanding the transfer. The plaintiff said he executed the transfer papers in reliance on the assurances.

The defendants' case

30. The 1st defendant's case is that the idea of listing was only conceived after 1990 at the suggestion of his bankers. The preparations were only carried out in 1991. The acquisition of Megawell was not part of the plan for the listing. He was approached by K K Wong and K L Li to co-operate in the setting up of a garment business. The discussion involved only the three of them. It was agreed that K K Wong and K L Li would jointly hold 50% of the shares in the new company. Megawell was formed for that purpose. The share capital was agreed at $3 million to be provided by the 1st defendant. K K Wong and K L Li would be responsible for the operation and management of the company.

31. Of the remaining 50% shares, the 1st defendant gave 10% each to K C Poon and the plaintiff. The 10% was given to the plaintiff as an incentive as the 1st defendant hoped that the plaintiff would be more vigilant with the fabric to be dyed and supplied by Nice Dyeing to Megawell. The 1st defendant had not asked for the payment of the shares in Megawell and he also had not received payment from the plaintiff. He denied that there was any understanding that the plaintiff would pay for the shares when Megawell declared dividends.

32. Megawell was a failure in the first two years of its operation and incurred substantial loss and there was no intention to include it in the listing exercise. The 1st defendant's financial director advised the 1st defendant that because of the common directorship in THL and Megawell, it might cause problems in the listing of THL.

33. Two options were suggested. The first was to wind up Megawell and the second was to sell the shares in Megawell. Both options were not feasible. For the first option, Megawell was heavily indebted to the companies within the Texwinca Group and its dissolution would cause harm to the group. Dissolution of Megawell would also affect the 1st defendant as he had given a personal guarantee over its indebtedness. The second option was also not feasible because given its loss it was unlikely to attract any buyer.

34. Eventually the 1st defendant decided to give the 50% shares to the 2nd defendant "to let him have a try". He related this idea to the plaintiff and the plaintiff did not object. He told the 2nd defendant about this and also promised him that he i.e. the 1st defendant would remain responsible for the finance of the company. It was under such circumstances that the instruments of transfer were executed.

35. The 1st defendant's evidence is that the Megawell shares were basically worthless at that time. He denied that he had assured the plaintiff that the future benefits and profits of the shares would remain with the plaintiff despite the transfer. It was his decision to give 1.5 million shares to the 2nd defendant and that was final. At that time nobody was bothered about the shares in Megawell as all the attention was focused on the listing of THL.

36. In 1995, the Texwinca Group wanted to set up a garment retail business and was in need of a garment manufacturing factory. Consequently, the 2nd defendant was asked to sell the Megawell shares to the 3rd defendant which was the 1st defendant's personal company.

37. Owing to the common shareholding of the 3rd defendant and THL, a disclosure of the transactions between Megawell and THL had to be made in the annual report of THL. By 1996, the garment retail business was in operation and under THL's control. Accordingly, in 1997, the Megawell shares was sold to Trustland. In so doing, Megawell became 50% owned by THL and became part of the Texwinca Group.

The decision

38. The learned judge rightly stated that the issue in this action is whether the 300,000 shares were transferred to the 2nd defendant to be held on trust for the plaintiff. She said that this is primarily an issue of fact to be determined by the credibility of the parties. After reviewing the evidence she came to the view that the plaintiff's evidence and his case were incredible and inherently improbable.

Appeal on finding of fact

39. This appeal is an appeal on a finding of fact. This Court has on many occasions stated the approach to be adopted when faced with a challenge to a judge's finding of primary fact.

" Although an appeal to this Court is by way of rehearing, that does not mean that this Court re-tries the case. It is in the first instance the function of the trial judge, not this Court, to find the facts; and we ought not to substitute our own findings of fact for his merely as a result of our own appreciation of the case. In respect of a judge's finding of primary fact, particularly a finding based on the credibility of a witness, before we disturb such a finding, we must be satisfied that there was no evidence to support it; or that it ran counter to documentary or other incontrovertible evidence which the judge must have overlooked; or that it can only have been based on a misapprehension of the facts or some faulty process or reasoning. So the burden on a party who seeks to convince us that a trial judge's findings of primary fact were unjustified is a heavy one, especially in a case where the judge has refused to find fraud. Nevertheless, it is our duty to reconsider all the materials before the judge and to make up our own minds, not disregarding the judgment below, but carefully weighing and considering it, and not shrinking from overruling it, if on full consideration we find ourselves convinced that his finding was wrong. We cannot excuse ourselves from the task of drawing our own conclusions, but in doing so we must be careful to make due allowance for the disadvantage under which we labour in that we, unlike the judge, have neither seen nor heard the witnesses."

per Godfrey J.A. and Liu J.A. in Aktieselskabet Dansk Skibsfinansiering v. Wheelock Marden & Co. [1998] 3 HKC 153 at page 162.

Overview

40. Before I consider the specific challenges to the judgment, it is necessary to have an overview on some very important features of the case because ultimately the case is to be decided on the basis of inherent probability or credibility of the parties' case, tested against contemporaneous events and documents.

41. Between 1990 and 1992 and before the public listing of THL the plaintiff was given shares in three companies of the Texwinca group, namely Megawell, Nice Dyeing and Nice View Dyeing and Bleaching Ltd. ("Nice View").

42. On 19 January 1990, the plaintiff was allotted the 300,000 Megawell shares. On 4 May 1990, he was allotted 6,250 shares of $100 each in Nice Dyeing, whereupon he became a 20% shareholder. The following year, on 10 May 1991, he was allotted 450,000 shares at $1 each in Nice View. The shares were given by the 1st defendant to the plaintiff without requiring him to pay for them (it is recognized that the plaintiff's case on Megawell shares was that he had later paid for the shares). These shares were subsequently transferred by the plaintiff.

43. The first transfer was on 1 January 1992 when the 300,000 Megawell shares were transferred.

44. In February and March 1992 when plans for listing were in progress, the plaintiff was allotted 639 shares in Trustland without payment. On 27 March 1992, the Nice View shares were exchanged for another 729 Trustland shares. On 14 July 1992 the Nice Dyeing shares were sold to Trustland for HK$142.50 each. At the same time 438 Trustland shares were sold to THL in return for 24,333,333 THL shares. The remaining 930 Trustland shares were transferred to Great Wizard Corporation in exchange for shares in that company. Great Wizard Corporation holds shares in THL.

45. On 1 August 1992, the plaintiff was allotted 10,215,600 THL shares at $1.03 per share. The plaintiff did not pay for any of the shares.

46. The 1st defendant was the person in control of the Texwinca group of companies. He allotted the shares to the plaintiff and he directed the transfer of shares by the plaintiff.

Constructive and resulting trust

47. The plaintiff's case is based on constructive and resulting trust. He said that he had actually paid for the Megawell shares. There was an agreement between the 1st defendant that he would have to pay for the Megawell shares together with interest. The payment was by way of set off from the dividends declared by Megawell. The plaintiff said that later on he actually used this method to pay for the shares. This was done after he had transferred the Megawell shares.

48. It is clearly within the fact finding function of the learned judge for her to reject this evidence because this does not sit comfortably with the approach of the 1st defendant towards his employees. The 1st defendant had shown great generosity to the plaintiff and other employees by giving them shares in other companies of the group and in Megawell without asking them to pay for the shares. There clearly was evidence for the learned judge to come to this view, particularly bearing in mind the value of the Megawell shares as compared with the THL shares.

49. The plaintiff obviously wished to establish that he had actually paid for the shares in order to support his case that the 1st defendant cannot simply ask him to transfer his shares to someone else without accounting to him for the disposal.

50. Once the learned judge rejected his evidence on this point, clearly she was entitled to come to the finding that the transfer of shares was carried out with the agreement of the plaintiff. She held that, "The pattern that emerges suggests that the plaintiff came to hold shares in the companies of the Texwinca Group as and when directed by the 1st defendant. He would give up the shares either absolutely or in exchange for shares of other companies as and when required by the 1st defendant and in accordance with the plan for listing". Clearly there was ample evidence for the learned judge to come to this view.

51. Again it was within the fact finding power of the learned judge when she held that as the shares were transferred at the direction of the 1st defendant, who gave the shares to the plaintiff in the first place, there was no conceivable reason why the 1st defendant would assure the plaintiff that he would retain a beneficial interest in the shares. In other words the plaintiff had simply given up his interest in the shares. As a result he no longer had any interest in these shares. It would be extremely odd that despite the re-structuring that was proceeding at that time, the plaintiff would, nonetheless, be able to retain a beneficial interest in the Megawell shares after they had been transferred. This is inherently improbable because the plaintiff had actually been given over 10 million shares in THL. Obviously he had received value for giving up the Megawell shares.

52. The learned judge specifically rejected the evidence that the 2nd defendant had acknowledged to the plaintiff that he was holding the shares on trust for him. The result is that the plaintiff had failed to establish a case either under constructive trust or resulting trust. The learned judge did not decide the case simply on the basis of burden of proof. She decided this crucial matter by testing the plaintiff's case against the background of the re-structuring. Her approach cannot be faulted.

Assessment of credibility

53. The learned judge found that the plaintiff was not a credible witness. She disbelieved his evidence on the terms for joining Nice Dyeing and his evidence on the agreement that the employer would pay for his tax. Obviously, in the light of the discrepancy between the plaintiff's pleaded case, his witness statement and what he said in Court, the learned judge was entitled to come to this view.

54. Mr. Bunting S.C., counsel for the plaintiff, submitted that these are peripheral matters and the plaintiff was consistent on his case that he would be given shares in the new companies in the Group. In my view once there was evidence on which the learned judge may find that that the plaintiff was not a credible witness, this Court should not disturb the finding simply because there may be other evidence which showed that the plaintiff was consistent with some other aspect of his case. Of course, it is recognized that the fact he was incredible in one aspect of the case does not mean he was not to be believed in other aspects. But in this case, the plaintiff was disbelieved in other matters as well. This is not simply based on matters concerning the terms of employment and tax but because his case on the other matters was incredible and inherently improbable.

Dividends

55. The plaintiff's case that he had received dividends from Megawell after the transfer was not accepted by the learned judge. Obviously there was ample evidence for her to come to this conclusion.

56. The first payment was made on 28 May 1993 after two dividends had been declared. Yet the amount the plaintiff received was said to be based only on the first dividend. Further the plaintiff said that the 1st defendant had insisted that the plaintiff would have to pay for the consideration of the 300,000 shares with interest. Yet the deduction of the first payment did not include interest.

57. In respect of the second payment on 11 October 1993, the plaintiff alleged it was in respect of a dividend when the evidence showed that it had not even been recommended by the board, much less declared, at the time of the payment. Clearly this cast doubt on his case.

58. The plaintiff argued that he was not cross-examined on this topic and he might have given an explanation if he had been asked. This may be so, but the evidence on when the dividend was recommended by the board was available. Clearly the plaintiff had to show that he had a credible case in the light of the evidence.

59. As to the third payment on 4 February 1994, although it tallied with the dividend that was declared for that year, it did not account for another dividend declared in the previous year of which the plaintiff was not paid. The learned judge held that there is no explanation why the plaintiff was not given this dividend.

The major attack

60. Mr. Bunting's most substantial challenge is the finding by the judge on the nature of the transfer of the Megawell shares. The plaintiff's case is that 300,000 shares were held upon trust for him by the 2nd defendant. The 1st defendant's case is that the shares were given to the 2nd defendant without any conditions attached. The 1st defendant did not say that they were held upon trust by the 2nd defendant for him. Yet according to Mr. Bunting, the learned judge decided the case on a basis that neither party had contended for, namely, that the 2nd defendant was the nominee of the 1st defendant in holding the Megawell shares.

61. There are two ways of looking at the matter. First, the learned judge did not decide the case on a basis different from the one put forward by the 1st defendant. Some rather loose language was used when she referred to the 2nd defendant holding shares as nominee for the 1st defendant. Reading the relevant part of the judgment, one does not get the impression that the learned judge was making a specific finding that, apart from the plaintiff relinquishing his interest in the shares, the 2nd defendant was holding the shares on trust for the 1st defendant. Rather the judge was stating that the 1st defendant had directed or nominated the 2nd defendant to receive the shares.

62. Second, even if the learned judge had made such a finding, I really do not see how it would affect the outcome of the case. This is clearly not a case such as Lloyde v. West Midlands Gas Board [1971] 1 W.L.R. 749, where the defendants in a personal injury case were successful in meeting the plaintiff's case as pleaded i.e. constant leaks of a gas meter and failure to heed complaints, but found themselves confronted at the end of the trial with an entirely different case i.e. defective installation or maintenance. It is also not like Kaner and Another v. Jerwood and others [1986] HKLR 571 where on some rather complicated facts, the judge's conclusion was far removed from the contentions put forward by the parties. One party's case was that there was an agreement to sell shares. The other party denied there was a sale or even discussion of a sale. The judge found there was a sale but the date and consideration were not one the parties had contended for.

63. In this case, on the facts relied upon by the 1st defendant, the learned judge placed a different interpretation on the nature of the transfer. It was not an outright transfer but a transfer in which the 1st defendant retained an interest. Whether this was in breach of the listing requirements or not has no bearing on the crucial question of whether the plaintiff himself retained any interest in the shares. The learned judge found that he did not. A judge is not bound always to make a finding one way or the other with regard to facts averred by the parties. While the court does not generally favour deciding a case on the basis of burden of proof, a judge has open to him this third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden : Rhesa Shipping Co. S.A. v. Herbert David Edmunds, ("The Popi M.") [1985] 2 Lloyd's Law Report 1. In my view, the learned judge's finding is not vitiated by her decision on the relationship between the 1st and 2nd defendants.

Assessment of the 1st defendant's case

64. The plaintiff argued that the learned judge while holding the plaintiff's case was incredible and inherently improbable, did not assess the 1st defendant's case beyond using the words that it was "on the whole more credible and probable". Some of the important issues that had not been resolved include : the plaintiff remained a guarantor after the transfer, the actual value of the Megawell shares, the reason for giving the shares to the 2nd defendant and the 1st defendant's case on the payment to the plaintiff.

Guarantees

65. It is true that the learned judge had not made an express finding on the guarantees, but the judgment had set out the 2nd defendant's explanation that any change to the guarantors would prompt the bank to review the credit facilities granted to Megawell and in view of the loss suffered by Megawell, problems might arise if the bank were to conduct a review.

66. Again it is important to focus on the 'larger picture' in this case, which is the background and events leading to the listing of THL. While the lack of specific findings on some of the issues, when viewed in isolation, may suggest that the learned judge had not conducted a comprehensive analysis of the parties' respective case, this criticism will fall by the side once the plaintiff's contention is tested against the backdrop of this case.

Value and transfer of the Megawell shares

67. As to the value of the Megawell shares, the plaintiff argued that the learned judge had misunderstood the actual value of the Megawell shares in the light of the accounting records, in particular, whether Megawell was trading at a loss or profit.

68. The learned judge held that, "Irrespective of whether the loss incurred by Megawell was mere loss on paper or actual loss, the value of the shares was no comparison to the prospect and potential of THL and its shares". The learned judge was clearly entitled to come to this view. She was not glossing over some important evidence on the value of the Megawell shares. Clearly the focus must be on the benefit of the listing : the Megawell shares had to be divested in order to comply with the listing rules. In the event, the IPO was successful and the plaintiff was allotted 10,218,610 shares without having to pay for the same which upon listing had a value in excess of $10.5 million.

Loans

69. The 1st defendant's case on the payments is that they were loans to the plaintiff. The 1st defendant had a pending action against the plaintiff on the various loans he had made to the plaintiff. Mr. Kwok S.C., counsel for the 1st and 3rd defendants, informed the Court that he had suggested to the learned judge that she should not decide more than strictly necessary because of the pending action. The learned judge did not decide whether the payments to the plaintiff were loans. Maybe the absence of a decision in this respect is due to the request by counsel. We do not need to speculate. What is clear is that, the plaintiff had to show the money he received were dividends and he had failed to do so.

Delay

70. There are other criticisms such as the delay in rendering the judgment. This is not a case decided on the recollection or demeanour of the parties. Rather the case is decided by testing the parties' contention against the contemporaneous events and documents. While the delay may prevent the parties from receiving an early determination of their dispute, it does not affect the foundation on which the judgment is based.

Cross-examination

71. Another criticism is that the learned judge had stopped the cross-examination by the plaintiff's counsel of the 2nd defendant on the dividends he received for the Megawell shares. The cross examination was said to test the credibility of the 2nd defendant on whether he was the true beneficial owner of the shares. I do not think this would carry the plaintiff's case further in light of what I have said on the relevance of the nature of the transfer.

Declaration

72. I also do not need to deal with the point made by Mr. Kat, counsel for the 2nd defendant, that the plaintiff had signed a declaration that his shares had been transferred to an independent party. The learned judge did not rule on this point. It is not necessary to do so now. There was ample evidence to support the decision.

Conclusion

73. The judgment is a correct one. I will dismiss the appeal and make an order nisi that the plaintiff is to pay the costs of the appeal.

Hon Stone J :

74. I have not found this an easy appeal to resolve. The criticisms aimed at the judgment of the court below are not insignificant and cannot lightly be dismissed. After some reflection I too agree that this court should not interfere with the decision of the learned trial judge. In deference to the arguments, however, I wish to add some observations of my own.

75. The apparent finding of the learned judge that the 2nd defendant held the Megawell shares as "nominee for the 1st defendant" provided the starting point for Mr Bunting's argument. In fact, two distinct lines of argument were advanced.

76. The first struck me as distinctly ambitious. Mr Bunting submitted that it simply was not open to the learned judge to find as she had in that this conclusion represented neither party's case, the plaintiff having maintained that the 2nd defendant held the shares on trust for him, whilst the defendants had argued for an outright transfer to the 2nd defendant. On this ground alone a retrial was called for, he suggested.

77. In my view this argument cannot succeed. A trial judge is not bound to find one way or the other, and it is open to the court to decide the case on the burden of proof: see here the observations of Lord Brandon in The "Popi M" [1985] 2 Lloyd's LR 1, at p.6. Even if the learned judge was in error in her characterization of the legal position, it does not follow that her apparent rejection of the defendants' case (that is, that the shares were gifted outright to the 2nd defendant) means that she must find that the plaintiff's case has been proven. To the contrary, it remains incumbent upon the plaintiff to establish his case, and in this instance the learned judge held that he had failed to do so on the evidence before her.

78. Which brings me to Mr Bunting's second line of attack. He submitted that the treatment of the evidence by the learned judge was flawed, and that the omission to deal with key evidential areas, together with errors of reasoning and a failure to make important findings of fact, had had the cumulative effect of rendering her ultimate conclusion unsafe.

79. At the threshold of this argument was the submission that the learned judge had failed to look at the evidence in the round, and that had she done so the overwhelming probabilities supported the plaintiff's case as the beneficial owner of the Megawell shares as opposed to the 1st defendant, "the big boss" (and the only other realistic candidate for the position of beneficiary). In this context Mr Bunting isolated a variety of evidential matters which appeared not to have been considered, namely the absence of real consideration for the transfer, the value of the shares, the continuing guarantees, the continuing management role of the 1st defendant and the absence of a guarantee from the 2nd defendant, the lack of sensible reasons for an outright transfer of the shares to the 2nd defendant, and the latter's non-collection of the alleged proceeds of sale to the 3rd defendant.

80. He argued that the learned judge simply had not addressed these specific matters, which was particularly important because findings of credibility had been made by the learned judge on the basis of 'compartmentalized' evidence, citing here the observations of Lord Steyn in Smith New Court v. Scrimgeour Vickers [1997] AC 254, at 276, who noted that "an initial and provisional conclusion that a witness is not credible on a particular point may be falsified when considered against the possibilities, probabilities and certainties emerging from the whole body of evidence before the court ..." Moreover, submitted Mr Bunting, treatment of the evidence was rendered the more unsatisfactory by reason of the learned judge's 'blanket' treatment of the defence evidence when she stated that in light of the deficiencies of the plaintiff's evidence it was "not necessary to go into detailed analysis of the 1st defendant's evidence and account" and that it was "sufficient for me to say that the 1st defendant's evidence and account are on the whole more credible and probable than those of the plaintiff's", notwithstanding that these were the defendants whom she had disbelieved on their primary case.

81. It was also suggested, in my view with some justification, that the evidential consideration of which criticism now was made had its genesis in the manifest delay wherein it had taken the learned judge a few days over a year to deliver her judgment. I apprehend from the authorities cited in this context that the principal thrust of the 'delay' argument was that in such circumstances an appellate court is required "to scrutinize closely the reasons of the trial judge and the conclusions arrived at" and that "it should not readily be assumed" that the trial judge had made proper use of the advantage of the position of the 'seeing and hearing' judge nor that "omitted matters were considered or that mistakes were insignificant": see the observations of the Court of Appeal of New South Wales in Vasailes v. Robertson [2002] NSWCA 177.

82. These evidential criticisms gain in resonance by reason of this delay, which is regrettable and cannot be characterized as other than excessive. The overriding question which thus arises is whether the matters relied on ultimately warrant interference by the appellate court in the learned judge's conclusion that the plaintiff's evidence and case are "incredible and inherently improbable" such that he has failed to make good his claim to beneficial ownership of the 300,000 Megawell shares as were transferred to the 2nd defendant?

83. Notwithstanding the wide-ranging criticisms of her judgment, there is no doubt that on a fair reading the learned judge has maintained a careful eye on a large number of relevant matters, dealing comprehensively with the broad shape of the case, its historical background, and rehearsing in some detail the respective cases put up by the three main protagonists, the plaintiff and the 1st and 2nd defendants. The issue for decision, namely whether the shares were transferred to the 2nd defendant to hold on trust for the plaintiff, is shortly and correctly identified, and the court has reminded itself that the plaintiff bears the burden of proof, albeit that no reference is made to the presumption of resulting trust.

84. Accordingly, it is evident, thus far at least, that the learned judge has kept her eye firmly on the relevant ball. If the plaintiff were to be successful in this appeal - and in my view the only remedy which realistically could be hoped for would be that of a retrial it seems to me that the criticisms advanced by Mr Bunting must be seen to impact upon the final section of the judgment, entitled 'Findings', in a manner sufficient to convince the court that the judgment as it stands is unsafe.

85. Why, therefore, has the learned judge concluded (at paragraph 60) that "the plaintiff's evidence and case are incredible and inherently improbable"?

86. The initial two reasons proffered (at paragraphs 48 and 49) seem to me, with respect, to be peripheral and inconsequential in the context of the issue for decision. It is not clear why the plaintiff's terms of employment with Nice Dyeing, including provision of a Mercedes Benz, have much if anything to do with the matter at hand, nor why the plaintiff's unsupported evidence that Nice Dyeing would pay for his tax might be thought probative. Despite Mr Kwok's efforts to argue to the contrary, at best these may be regarded as minor credibility points, and even if disbelieved on these incidental matters, as indeed the plaintiff was, this surely is nothing to the point in terms of resolution of the main issue.

87. The main thrust of the judgment, in my view, occurs in the final ten paragraphs. The learned judge focuses first on the plaintiff's evidence in relation to the three dividend payments, considering correctly that if receipt of dividends referable to the 300,000 shares could be established, such would constitute a major building block in the plaintiff's case. This part of the plaintiff's evidence is characterized by the learned judge as "most unconvincing", the short point being that the mathematics do not work in terms of correlating (and computing) the respective payments to the plaintiff of $180,000, $108,000 and $600,000.

88. Although Mr Bunting criticizes aspects of the judge's evaluation of the dividend case, suggesting that the learned judge has misapprehended some of the detail for example that the agreement for interest was made after the first cheque it is clear that significant difficulties remain in aligning the dividends recommended and declared when taken together with the alleged adjustments referable to the repayment of interest and repayment of capital. In my view the judge was entitled to come to the conclusion she did, the obvious inference being that the plaintiff's case in this regard was a post facto rationalization to fit the available figures.

89. What is unfortunate, however, is that there is no finding as to what these sums of money in fact represented. Mr Kwok SC sought to meet this point by stating that he had suggested to the judge in submission that because of other ongoing litigation between these parties that she should be cautious of making unnecessary findings. For my own part I should be most surprised if the learned judge had been deflected by this, given her duty to resolve the case before her and given the fact that a finding that these monies were not dividend payments necessarily begged the question of what such sums represented; as Mr Bunting pointed out, the 1st defendant's case was that these were loans, a fact which the learned judge herself clearly appreciated having rehearsed this earlier in her judgment. This perhaps prompted Mr Kwok's submission that there was here an implicit finding that these were loans, although whether this automatically can be assumed is moot given the apparent non-acceptance by the judge of the defendants' case. This omission apart, however, the judge's finding, to which clearly she was entitled to come, that these sums did not represent dividend payments forms a significant and important underpinning to her final rejection of the plaintiff's claim.

90. The main thrust of this rejection of the plaintiff's case is found in the final part of the judgment (paragraphs 54 - 60) which deal, appropriately, with a consideration of the 1st defendant's wholly dominant position (his "supreme authority") both within the corporate framework and in his past relations and dealings with the plaintiff and the 2nd defendant, together with the predominant fact that the parties were working toward the pot of gold represented by anticipated THL public listing.

91. These general considerations seem to me to be unassailable in the particular circumstances of this case. It was, for example, well open for the learned judge to conclude on the evidence before her that the plaintiff's version that the 1st defendant required him to pay for the Megawell shares did not "sit comfortably" with the 1st defendant's personality and past dealings, and that there was "no justifiable reason" for having treated the Megawell shares any differently. The situation is equally so in the judge's discernment of an "emerging pattern" suggesting that the plaintiff held shares in the group "as and when directed by the 1st defendant", and the reasoned conviction that there was "no conceivable reason" why, in the share transfers that had taken place, the 1st defendant would want the plaintiff to retain a beneficial interest in the Megawell shares post- transfer. The statement by the 1st defendant that the shares had been given to the plaintiff free of payment is specifically accepted (at paragraph 57), and the finding that the reality of the situation was that the plaintiff had "simply complied" with the directions of the 1st defendant pursuant to the desired end of achieving the THL listing is, in my view, a finding justifiably made, as is the further finding that the 2nd defendant essentially was in the same position.

92. The perspective and overall grasp demonstrated by the learned judge in terms of her considered conclusions in this latter part of the judgment, and her view of the inherent probabilities arising from such conclusions, serves substantially to assuage concerns raised by her failure to address the particular aspects of the evidence of which the appellant makes complaint. Whilst indeed she omits reference to certain matters, I am unconvinced that she has overlooked anything of sufficient import to have changed her overrall conclusion in this case.

93. Absent the manifest period of delay which occurred prior to delivery of judgment, it is tolerably clear that the force of the plaintiff's evidential critique greatly would have been diminished. Even in light of such undoubted delay, however, looking at the case in the round ultimately I have not been persuaded that the decision of the learned judge was wrong, and I decline to find that "the judgment is not safe and that to allow it to stand would be unfair" to the appellant, to adopt the words of Lord Scott in Cobham v. Frett [2001] 1 WLR 1775, at 1784 (PC).

94. In my judgment this appeal should be dismissed, and that costs should follow the event.

Hon Le Pichon JA :

95. There will be an order as proposed in paragraph 73.