MAN SUN FINANCE (HOLDINGS) LTD v. FOO SAU CHUN, RICHARD AND OTHERS

HCA 1297/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1297 of 2002

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J U D G M E N T

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Background: 

1.  These proceedings arise from a dispute amongst members of the family of the late Mr Foo Wai Yu, (Mr Foo).  The plaintiff company, (Man Sun Finance), is a family company established by Mr Foo.  The first defendant, Foo Sau Chun, (Richard), owns 20% of the shares in Man Sun Finance.  Richard was and is a director of Man Sun Finance, and his siblings, Fu Sau Tai, Raymond, (Raymond), Fu Sau Kwok, Barry, (Barry), Fu Sioe Hok, Jimmy, (Jimmy), , Fu Sau Liong, Johnny, (Johnny), Fu Mei Ngan, Penny, (Penny), and Fu Lai Ying, Suzy, (Suzy) are the other shareholders and directors.  It appears that Man Sun Finance established other wholly owned companies, for particular purposes, all of which companies were part of what may loosely be known as the Man Sun Finance Group.

2.  The factual circumstances giving rise to the dispute are largely not at issue, although there are some disputes.  The primary issue between the parties is essentially the consequences of the facts.  The facts I now state are the facts as I find them.  Where there is a dispute I shall so indicate.

The Man Sun Finance Group:

3.  Man Sun Finance was established in 1981, at which time the directors were, Mr Foo and Richard.  The second defendant, Chan Chang Yiu, David, (David Chan), had been employed by the Foo family since about 1972.  He continued to serve the family after Mr Foo died in 1987. After Mr Foo died, Man Sun Finance became a family company in which all the shares were held by his sons and daughters, and they were all directors.

4.  It is common ground that up until about May 1996, a wholly owned subsidiary of Man Sun Finance, Man Sun Finance (Hong Kong) Ltd, (MSFHK), was used by Man Sun Finance, and other companies in the group, virtually as a bank for the group.  Group funds were held by MSFHK, and distributed to subsidiary companies as required, or, after the event, allocated to subsidiary companies, apparently for best taxation or other advantage.  This was undertaken by way of internal transfer and set-off.

The Canadian investments:

5.  Prior to 1990, Man Sun Finance had entered into partnership arrangements with two other companies, Wuyi Construction Co Ltd, (Wuyi), and Strong Chance Development Ltd., (Strong Chance), to participate in property development in the city of Vancouver in British Columbia, Canada.  The partnership was established through a further company, Fuyisun Holdings (Canada) Ltd, (Fuyisun), which in turn set up other local Vancouver companies for the purpose of particular developments.  As I understand the situation, each of Man Sun Finance, Wuyi, and Strong Chance held one third of the shares in Fuyisun, which acted as a holding company for the local Vancouver companies set up for each particular development.

6.  In 1994-1995, Strong Chance refused to provide its share of the funding required for the Canadian projects, thereby seriously jeopardising the continuation and the viability of the projects.  With Strong Chance failing to provide its share, Wuyi also did not provide its share, but with the projects incomplete, expenses kept on being incurred, in particular interest and management expenses.  Canadian banks who were providing finance for the projects were pressing the joint-venture partners for action, which action could only come with the contribution of further money.

7.  All the family members were aware of the situation that had arisen.  Richard managed the day-to-day operation of Man Sun Finance, assisted by David Chan, whose role appears to have been limited to that of a bookkeeper or accountant, acting on Richard’s instructions.  Barry, and Raymond were also involved in the steps being taken in Canada. 

Family disputes and a Settlement Agreement:

8.  Following the death of the late Mr Foo’s wife in 1991, disputes arose between family members over family assets.  These disputes even reached the stage of a petition by one member of the family to wind up Man Sun Finance.  Notwithstanding these ongoing disputes the family members agreed to continue with the Canadian property developments.  But with pressure arising on the Canadian operations as a result of the restricted availability of funds, further disputes arose between the Foo family siblings in Hong Kong.

9.  Both sides sought legal advice, and as a result, on 8 May 1996, a general settlement agreement was signed between family members, (the Settlement Agreement), in an effort to resolve the future conduct of family affairs.  As a result of the Settlement Agreement, Richard became the sole owner of MSFHK, the company that had previously been used by Man Sun Finance, and all its subsidiary companies as a banker.  Richard renamed the company Fook Tai Credits Limited, (Fook Tai).  Accounts between Man Sun Finance and Fook Tai were closed off and settled at the time of the Settlement Agreement, although the books of Fook Tai continued to maintain a ledger for Man Sun Finance.  The Settlement Agreement was silent as to whether Fook Tai would continue to act as a banker for the group.

10.  Richard continued to manage Man Sun Finance following the Settlement Agreement, although the document imposed limitations on his authority.  In particular:

(i)  any material decision or action regarding the affairs or business of Man Sun Finance or its subsidiary and associate companies could only be effected with the prior written consent of Richard, Barry, and Raymond.  It was not necessary for those three to seek the agreement of other shareholders, (clause 1.14):

(ii)  the bank mandates of Man Sun Finance, its subsidiaries and associates were to be amended so that no payments and remittances could be made without the prior written authority of Richard, Barry, and Raymond, (clause 1.16).

Both Man Sun Finance and Fook Tai operated from the same premises.  David Chan continued to work faithfully for the family and appears to have been engaged in work for both Man Sun Finance and Fook Tai.

11.  The Settlement Agreement provided that the Canadian property developments were to be sold or otherwise realised on stated terms, “in so far as it is possible for (Man Sun Finance) to procure the sale of the assets”, (clause 1.7(a)).  In the event that they had not been disposed of by 31 December 1996, provision was made for reference of the issue to an expert, accustomed to acting as a liquidator, to arbitrate in the matter.  The family members agreed that Man Sun Finance would not take on any new business transactions, but would confine its activities to the disposal of its remaining assets: (clauses 1.8 & 1.13).

12.  Attempts were made to sell the Canadian projects but the sale of all projects as contemplated could not be secured.  No steps were taken to appoint the arbitrator.  As at 29 October 1998, the position was as follows:

(i)	a project known as the Victoria project, (in the name of 356353 BC Ltd.), had been completed in 1995, and Man Sun Finance was trying to negotiate with Wuyi to buy out its shares;
(ii)	as to a project known as the Austin project, (373888 BC Ltd.), Man Sun Finance was seeking to have Wuyi absorb its shares as the project had a close to zero balance;
(iii)	the Bramwell project, (345438 BC Ltd.), was sold but at a lower price than expected by the Settlement Agreement;
(iv)	as to the Burrard project, (356533 BC Ltd.), an agreement had been reached for Wuyi and Richard to buy out Man Sun Finance’s shares in the company although a formal agreement was never executed.

13.  It was the case for Richard that until from mid-1996, after the completion of the Settlement Agreement, until mid-1998, he, through Fook Tai, made numerous payments of expenses in relation to the Canadian properties which expenses were strictly the immediate liability of the particular company involved in a project, but ultimately through the network of companies, a liability of Man Sun Finance.  In addition, Richard says that he has made other payments, again through Fook Tai, which are the direct liability of Man Sun Finance.  The dispute has arisen over steps taken by Richard, through Fook Tai, to recover those expenses from funds admittedly belonging to Man Sun Finance.

Man Sun Finance deposit funds are refunded:

14.  In April 1994, one Lee Wah Yah, had acquired, in trust for Man Sun Finance, a property owned by 356533 BC Ltd, part of the Burrard project.  Man Sun Finance provided the deposit of CDN$61,860.  The purchase of the property did not proceed, and on 12 May 1998, the contract was cancelled.  Man Sun Finance were entitled to a refund of the deposit then held by the vendor’s Canadian solicitors, Messers Fraser & Company.

15.  Also in April 1994, David Chan had acquired, in trust for Man Sun Finance, again from 356533 BC Ltd, another part of the Burrard project.  Three individual properties were involved, and again Man Sun Finance provided the deposit.  Again, the purchases did not proceed and the contract was cancelled on 12 May 1998.  Man Sun Finance were again entitled to a refund of the deposit, also held by Messers Fraser & Company.

16.  Fraser & Company, initially refunded the deposits that had been paid, together with accrued interest, but after deduction for non-resident withholding taxes and legal fees, totalling CDN$213,626.32 to David Chan by three cheques dated 25 May 1998.  On the instructions of Richard, David Chan returned the three cheques to the solicitors, and asked them to remit the funds directly to his bank account in Hong Kong.  They did so on 11 June 1998, the Canadian dollars yielding HK$1,127,911.65, which David Chan, on the instructions of Richard, immediately withdrew, and paid to the bank account of Fook Tai, on 12 June 1998.  Again on the instructions of Richard, David Chan entered that sum in the books of Fook Tai in a suspense account.

The application of the deposit refunds by Fook Tai:

17.  On 14 August 1998, by a journal transfer in the books of Fook Tai, the sum of HK$1,127,911 65 was transferred from the suspense account to the Man Sun Finance ledger, which at that time showed a sum owing to Fook Tai of $361,440.28.  That had the effect of putting the account in credit, in favour of Man Sun Finance, in the sum of $766,471 37.  (I interpolate here that the Man Sun Finance ledger account in Fook Tai’s accounting system shows a credit balance when Man Sun Finance owes money to Fook Tai, and a debit balance when Man Sun Finance is in credit with Fook Tai; see Document Bundle A, (DBA), p. 382).

18.  Immediately, a sum of $132,000 was paid to David Chan.  I will detail the circumstances of that payment in paragraphs 19-23 below. Subsequently further payments were made, all of which had the effect of reimbursing Richard for payments which he said he had made on behalf of Man Sun Finance.

19.  Subsequently other payments made by Fook Tai were debited to the Man Sun Finance ledger, and payments made by Fook Tai to Fuyisun were also debited to the Man Sun Finance ledger.  The effect was to use up, apparently in reimbursement of payments made by Fook Tai in relation to the Canadian investments and other Man Sun Finance payments, the whole of the refunded deposits.

The payment of $132,000 to David Chan

20.  David Chan had worked for the Foo family for many years.  There is nothing in the evidence to indicate that he did not work diligently or faithfully for the family.  He was paid a modest salary, yet had significant responsibilities for the accounting matters on behalf of the family.  In addition to his salary he had, for quite some time, been paid HK$8,800 per month by way of entertainment expenses.  At a meeting of the directors on 1 February 1996, a resolution was passed in the following terms:

“That Mr David Chan should no longer receive HK$8,800 per month as entertainment expenses.  Defeated, but it was agreed and clarified with Mr Chan that such payments do not form part of his contractual remuneration package.”

21.  Following the Settlement Agreement, in theory, Man Sun Finance was no longer in business, as part of the settlement agreement was that it would not enter into any new business transactions.  It had however numerous transactions which were incomplete and it was clear that for a number of years to come there would be accounting matters for Man Sun Finance requiring completion.  Following Richard’s acquisition of MSFHK David Chan ceased to an employee of Man Sun Finance, but continued to work in the same premises, now an employee of Fook Tai. 

22.  Following the settlement agreement Man Sun Finance’s financial documents and other documents were kept in a separate room in the offices previously generally occupied by Man Sun Finance and the Foo family for their business affairs, but taken over by Richard.  Richard was to pay Man Sun Finance a monthly rental of HK$90,000 for the use of the premises but had to make that separate room available for the use of Man Sun Finance. Notwithstanding the fact that he was no longer an employee of Man Sun Finance, that company continued to require David Chan to undertake various activities.  These are demonstrated in various minutes of meetings between August 1996 and November 1998.  It is clear that David Chan continued to attend as required, and when requested, to the accounts of Man Sun Finance and any other matters relating to Man Sun Finance that Richard or other family members required him to do.

23.  David Chan had been at the premises of Man Sun Finance when the directors meeting took place on 1 February 1996 but was not present throughout the meeting.  He was called into the meeting and was present when the motion to terminate his entertainment expenses was defeated.  It was his evidence, and the evidence of Richard, that both took the fact that the motion had been defeated to mean that David Chan was still entitled to payment of entertainment expenses.  I am satisfied that he had no reason to believe that the sum would not be paid. However the payment was not made.  Both Richard and David Chan pressed other family members to make to the payment to David Chan, but no action was taken.  In terms of the Settlement Agreement three signatures were required to make the payment.

24.  There was no proper explanation in the evidence of any of the family members as to why they were not willing to sign the cheques, either for the monthly payment, or for any other payments that Man Sun Finance was obliged to make, which were in fact paid by Fook Tai.

25.  On receipt of the deposit refund, and after its transfer from the suspense account to the Man Sun Finance ledger, Richard authorised the drawing of a cheque for the sum of $132,000 being 15 months entertainment allowance owed to David Chan by Man Sun Finance of the previous 15 months.  The case for Man Sun Finance is that the payment of HK$8,800 per month to David Chan was discretionary and that no decision was made to make that payment to him.

The basis of Man Sun Finance’s claim:

26.  Notwithstanding any benefit received by Man Sun Finance from the payments allegedly made by Richard on the Canadian investments, or otherwise, Man Sun Finance now says that the appropriation of the deposit refunds by Richard, to recompense Fook Tai, were unlawful, and ought to be repaid.  Man Sun Finance says also that the payment of $132,000 entertainment allowance David Chan was not authorised and must be repaid.  The case against both Richard and David Chan has been couched in terms of a breach of fiduciary duty and the tort of conspiracy.

The issues:

27.  Mr Ng, for Man Sun Finance, has distilled the issues into 13 discreet areas separated between the claims against Richard and David Chan.  I propose to address these issues not precisely in the manner suggested by him, but by reducing the issues to ten, as one has been abandoned and in respect of two, there is duplication between the two defendants.  I accept Mr Ng’s submission that the issue is not simply, whether the amount of expenses were incurred or paid by Richard on behalf of Man Sun Finance exceeds the total amount of the two posit refund sums received, as suggested by Mr Soo.  That is so because it is necessary to analyse the precise nature of the receipts by Fook Tai of the funds.  It does not automatically follow that if Fook Tai makes a payment that may be attributed to the benefit of Man Sun Finance, that Fook Tai is entitled to reimbursement.

28.  The issues are:

(i)	whether or not the appropriation of the two sums of deposit refunded to Fook Tai was authorised by Man Sun Finance, (the Authority point);
(ii)	how the two sums of deposit refunded to Fook Tai were used, (the Destination point);
(iii)	whether the two sums of deposit refunded to Fook Tai were used contrary to the resolutions of the shareholders of Man Sun Finance, (the Resolutions point);
(iv)	whether or not Richard is liable for breach of fiduciary duty as a constructive trustee in respect of the appropriation of the two sums of posit refunded to Fook Tai, (Richard’s Breach of Fiduciary Duty);
(v)	whether or not Man Sun Finance has acquiesced in any breach of fiduciary duty by Richard, (the Acquiescence point);
(vi)	whether Richard had the express or implied or ostensible authority of Man Sun Finance to instruct David to transfer the deposit refund to Fook Tai, (the Authority point);
(vii)	whether David Chan is liable for any breach of fiduciary duty as an agent/trustee/constructive trustee of the deposit refunds, (David Chan’s Breach of Fiduciary Duty point);
(viii)	whether Richard was entitled to instruct David Chan to recover a sum of $132,000 by way of entertainment allowance, (the Entertainment Allowance point);
(ix)	whether or not Richard and David are liable for the tort of conspiracy, (the Conspiracy point).
(x)	if liability is found against Richard and David Chan, both seek relief under s 60 Trustee Ordinance Cap 29.

29.  An argument for compound interest on any sum awarded was abandoned by Man Sun Finance in the course of submissions.

30.  Finally, David Chan has joined Richard as a third party to the proceedings, contending that if any liability is found against him in favour of Man Sun Finance, he is entitled to indemnity from Richard, having acted throughout on Richard's instructions.

The Authority point:

31.  The case for Richard was that he was authorised by Man Sun Finance to appropriate the two sums of deposit refund.  His argument is based upon the pre-existing practice of the use of MSFHK as a banker for the Group.  He said that notwithstanding the fact that he had acquired MSFHK, and accounts between MSFHK and Man Sun Finance had been closed off and settled, and MSFHK had been renamed Fook Tai, the practice of using that company in its new form as a banker, at least in respect of the Canadian investments by Man Sun Finance, continued.

32.  I have reached the conclusion that all those involved in Man Sun Finance were aware of the payments being made by Fook Tai, and took no exception to those payments, thereby impliedly authorising them.  I reach that conclusion for the following reasons.

33.  First, all of those involved in Man Sun Finance knew that following the Settlement Agreement, although Man Sun Finance would not be entering into any new business transactions, it would take time to dispose of its interests in Canada and that inevitably expenses would arise and would have to be met.  Contrary to Mr Ng’s submission, it simply does not follow from the provision in the Settlement Agreement that Man Sun Finance would not undertake in new business transactions and would confine its activities to the disposal of its remaining assets, (clause 1.13), that running expenses arising as a result of existing liabilities were not to be met.  It is not possible to characterise the payment of running expenses arising from existing investments as “new business transactions”.  It is right that the shareholders in Man Sun Finance were reluctant to contribute to the Canadian investment, as Strong Chance was not contributing, but a decision that no further payments would be made at all was not made until 26 November 1998.  The terms of clause 1.13 did not constitute a decision in relation to meeting existing liabilities.

34.  It is clear from its terms that clause 1.13 of the Settlement Agreement did not relate to any obligation to meet existing liabilities pending the winding up of the Canadian activities.  I did not find the witnesses for Man Sun Finance believable in their assertions that they understood that the clause meant that no payments at all would be made.  That assertion is quite inconsistent with the documentary record, evidencing the attitude of Man Sun Finance prior to the issue of the proceedings.

35.  It is clear from the minutes of the directors meeting of Man Sun Finance (Holdings) Ltd, (the wholly owned subsidiary of Man Sun Finance which held the shares in Fuyisun), of 19 February 1997, and 22 September 1997, that the family were fully aware of the obligation for continuing expenses.  It is right that Strong Chance were not contributing their share, but that did not absolve Man Sun Finance of their obligation.

36.  It is clear from the minutes of a meeting held on 29 October 1998, that the directors of Man Sun Finance knew that they had been making continuing contributions to the Canadian properties.  The minutes recorded, in reference to a sale of part of the Burrard property:

“In reference to the above contract Wuyi has bought Strong Chance’s shares.  The argument is that Man Su should also receive, from this sale of around C$100,000 as Man Sun has already contributed more than Strong Chance.” (The emphasis is mine).

If, as was contended for Man Sun Finance, the directors other than Richard believed that no payments were being made, the minutes would not have recorded a greater contribution by Man Sun Finance.  The statement is a clear recognition that the directors knew that payments were being made.  There was no suggestion that Man Sun Finance itself had made any payments.  The only source of payments, and known to all, was Richard and Fook Tai.

37.  Second, the minutes of a directors meeting held on 26 November 1998 recorded as follows:

“iii) There is a dispute between Man Sun and Richard as to whether Man Sun should reimburse Richard forall the expenses incurred between ’96-’98 which Richard has paid.  Jimmy suggests that Man Sun should look at the accounts before making a final decision regarding the amount to be reimbursed.” (the emphasis is mine).

It is clear from that minute at all those involved in Man Sun Finance were aware that Richard had independently been making payments for which he would be seeking reimbursement.  The use of the word “all” makes it clear that the dispute was related not to the fact of reimbursement, but the extent of the reimbursement that was to be made.  The only inference to be drawn in the absence of any dispute as to the fact of reimbursement is that not only were the Man Sun Finance directors aware that the payments had been made on their behalf, but that their attitude was that so long as they were proper payments they would be authorised and reimbursed.

38.  Further, the minutes recorded as follows:

“If Wuyi pays Man Sun interests for the 2 years period, then Richard will also charge us interests for the expenses that he’s paid for the Canadian projects.  But if Wuyi pays no interests, then he will not charge us.  Yet he will charge us interests for accounts of Man Sun Finance (Holdings) Ltd.” (sic)

It is abundantly plain that the reference to Richard in this record is a reference to payments made by Richard independently through Fook Tai.  No one has ever suggested that Richard made the payments personally, and all knew that he had taken over the “banker” company which continued to operate.  The minute in that form makes it plain that all involved in Man Sun Finance were fully aware of the fact that such payments had been made, and that they had been made by Fook Tai.  No exception is taken to the situation other than that referred to in paragraph 37 above.

39.  The minutes further recorded:

“And from this minute, Man Sun will stop all future expenses as of today's meeting  26 November 1998 and no reimbursement of any kind will be made.”

The manner in which the situation was dealt with in that minute is entirely consistent with the family members having assumed and agreed that just as MSFHK had met expenses in the past, on behalf of Man Sun Finance, so too Fook Tai would meet expenses in relation to the continuation of the Man Sun Finance business.  A decision not to make any further reimbursement at that time is consistent with an acknowledgement of awareness of the earlier payments and an obligation to reimburse in respect of those payments.

40.  Third, in September 1999, Richard prepared a summary document described as a “Assets Report Sept/1999”, which was circulated to all members of the family.  Amongst the documents included was a copy of the ledger sheet of Fook Tai, which showed various payments being made on behalf of Man Sun Finance.  Also attached was a ledger sheet of Fook Tai which also showed payments being made by Fook Tai on behalf of Fuyisun.

41.  The ledger sheet for Man Sun Finance showed the credit for the deposit refunds, although it did not identify them as such in terms.  No particular question was raised by any of the family members as to the source of the funds.  The clear inference is that they knew and had no objection to the way in which the matter was dealt with.

42.    No complaint was made at the fact that payments had been made, although queries were raised as to whether or not Man Sun Finance would be liable for all of the payments recorded.  That the other family members did not complain about the fact that payments had been made raises the clear inference that they were aware that Fook Tai was making payments on behalf of Man Sun Finance and Fuyisun.  All of these documents were subjected to checking by Raymond, Penny, and Suzy at the time.  None of them raised any question, other than to say that in the absence of supporting documentation in relation to some of the payments, no reimbursement should be made.  No suggestion was made either that they were not aware that Fook Tai was making such payments on behalf of Man Sun Finance or Fuyisun, or that any such payments were not authorised.  That is entirely consistent with the attitudes demonstrated by the minutes of directors meetings held prior to the Assets Report.

43.  It is right that Man Sun Finance, on the one hand, and Fuyisun itself are quite different entities, and both held ledger accounts in Fook Tai.  But I am satisfied that that was merely for accounting convenience and no legal consequence can be drawn from that fact.

44.  In year 2000, Richard sued 356535 BC Ltd for monies advanced by Fook Tai and obtained a default judgment.  It was submitted that that was strong evidence that Richard regarded the advances as his own, and that accordingly payments by Fook Tai could not be payments by Man Sun Finance.  I reject the argument.  An action against 356535 BC Ltd must be by the lender, whether the lender advances the money in his own right or on behalf of another.  The inference sought does not follow.

45.  It is right that the Settlement Agreement required that any material decision or action regarding the affairs or business of Man Sun or its subsidiary and associate companies could only be effected with the prior written consent of Richard, Barry, and Raymond.  But the absence of a formal written consent does not indicate that the tacit agreement which I have found to exist, that Fook Tai would fund the payments required on behalf of Man Sun Finance, did not exist.  The argument that there was no such document was one not raised until the litigation began.  Had the other family members genuinely been of the view, prior to the litigation, that they had not agreed to any payments whatsoever on behalf of Man Sun Finance by Fook Tai I have no doubt that they would have said so, instead of taking steps to check supporting documents prior to making a reimbursement.

46.  No such written documents were obtained in relation to many of the steps involved in the resolution of the Canadian affairs.  In particular, there was no written approval to the cancellation of the contract which produced the refund of the deposits, steps which were plainly “material” decisions or actions.  It is clear that the provisions of clause 1.14 of the Settlement Agreement were simply disregarded by all parties to the Agreement.

The Destination point:

47.  This point essentially boils down to an assertion that in the absence of documentation, Richard has failed to establish that the payments made through Fook Tai were payments actually made on behalf of Man Sun Finance.  I am satisfied on the balance of probabilities that the payments claimed by Richard were proper payments made on the half of Man Sun Finance for which he is entitled to reimbursement.  Some of the sums may be shortly dealt with. 

48.  A sum of HK$264,285.69 was said by Richard to be a severance payment to Lee Wah Yau.  There was no dispute from Man Sun Finance that Lee Wah Yau was entitled to that severance payment.  In the absence of such a dispute I accept the sum, even in the absence of supporting documents.  There is no suggestion in any of the documents that the payment went anywhere else.

49.  Payments were debited for annual returns and filing fees and audit fees paid to chartered accountants, Charles Hau & Co, on behalf of Man Sun Finance.  The supporting documents were not, as they should have been, produced by Richard.  But again there was no dispute that Man Sun Finance were liable for those payments, and no suggestion that they had been paid by any other means.  Although I accept that the onus was on Richard to produce the documents, it was entirely within Man Sun Finance’s power to check the matter and satisfy itself.  As to the audit fees they only needed to ask their own auditor, Charles Hau & Co, whether the fees had been paid.  There was no suggestion that they themselves had paid the fees.  If they were paid, Richard must have paid them.  It was as simple as that.  But Man sun Finance elected not to do so, but not to dispute that it was liable for the payments.  Again in the absence of such a dispute I accept the sums, even in the absence of supporting documents.  The same applies to fax and phone charges.

50.  A substantial portion under this head related to the Fuyisun ledger account at Fook Tai.  Mr Ng contended that Fuyisun and Man Sun Finance were separate legal identities, and a payment for Fuyisun could not be considered a payment in behalf of Man Sun Finance.  As I have indicated I am satisfied that the separate accounting was merely a matter of convenience.  The Fuyisun ledger account at Fook Tai merely represented the interest of Man Sun Finance in Fuyisun, and was a convenient way of recording payments made by Man Sun Finance to Fuyisun, to meet obligations of Man Sun Finance under its joint-venture arrangements, and not payments separately by Fook Tai to Fuyisun. 

51.  It is right that Richard has accepted that he has been negligent in not producing all of the supporting documents in relation to these payments.  Mr Ng said that in the absence of supporting documents an adverse inference must be drawn against Richard.  He relies on the maximum omnia praesumuntur contra spoliatorem, as explained in Tullet v Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKC 713 at 723-724.

52.  The decision in Hongkong & Shanghai Banking Corporation v Chan Yui-wah [1988] 1 HKLR 457, shows that the maxim operates at two quite different levels.  At the higher level, when there is evidence suggesting the deliberate destruction of documents or evidence, in bad faith, the maxim operates to its full rigour.  But where there is no indication that a party has intentionally and in bad faith destroyed or concealed subject matter there arises not a presumption, but an inference which transfers the evidential burden of proof.  A recent statement of approval of that decision may be found in Incorporated Owners of Million Fortune Industrial Centre v Jikan Development Ltd & Another [2003] 1 HKLRD 455 at 464.

53.  It was not suggested by Mr Ng that Richard had acted in bad faith, nor that he had intentionally destroyed or concealed the relevant documents.  The submission was simply that Richard was negligent.  That submission, carrying with it the necessary concession that the situation was not at the higher level, is itself enough to dispose of an argument as to the application of the maxim.  The question then becomes whether the court is satisfied, on the balance of probabilities, in the absence of the precise documents, that payments made were for the reasons Richard said they were.  Notwithstanding Richard’s failure to produce all the documents the evidence is such that I am satisfied on the balance of probabilities the payments were all proper payments.  I reach that conclusion for the following reasons.

54.  First it was acknowledged by Man Sun Finance in the course of the evidence that a significant number of the payments were in fact proper payments.  The minutes of the directors meeting shows that Man Sun Finance had accepted that there were payments that would be reimbursed to Richard.  All family members were aware that payments were required to be made to maintain properties, particularly in the face of the refusal of Strong Chance to make its payments.  Throughout the whole of the relevant period other family members regularly attended at the office of Fook Tai.  Following the Settlement Agreement Man Sun Finance maintained a room at that office and other family members were quite able, at any time they wished, to inspect documents.  There is no suggestion that they were refused access to the relevant ledgers in Fook Tai’s books.  They apparently chose not to make any check or inspection.  The opportunity having been available to them to inspect documents, they having elected not to take it, they cannot now complain.

55.  Both Barry and Raymond attended the meeting of the Fuyisun partners, in Hong Kong, on 16 September 1999.  Neither raised any questions concerning the expenditure that had been incurred, nor did they suggest any inability to be able to access the accounts.  On 19 September 1999, Suzy was in Canada for the purpose of inspecting the Fuyisun books.  She was given access to the accounts and although it is right to say that she had been unable to ascertain details of some payments in the accounts it is plain that she had substantial access to the accounts.  Any complaints there were at that time were not directed at Richard’s conduct of the accounts but the way in which matters were handled at the Canadian end.

56.  I have already referred to the 21 September 1999 “Assets Report” was prepared for family members by Richard, Raymond and Penny.  There were substantial details of actual spending by Fuyisun and various accounts documents were enclosed.  Those and further details were again enclosed in a second Assets Report in November 1999, and again no complaint was raised as to the fact that payment had been made.  Questions were limited to a requirement that documentary evidence to support payments.  In a fax by Penny to Fuyisun, copied to Richard and Suzy, it is clear that the only concern that existed at that time, (the fax is undated), was the issue of interest.  No questions were being raised with Fuyisun as to whether or not payments had actually been made.

57.  At no stage has Man Sun Finance, after it became legally represented for these proceedings, sought clarification of the payments from any of the Canadian companies.  It has always been open to Man Sun Finance to satisfy itself as to the payments that have been made by appropriate inquiries in Canada.  For a very long time they raised no complaint.  It was only with the commencement of these proceedings, in which Man Sun Finance raises a legal technicality as to the procedure by which the reimbursement was effected, that complaint was raised as to the validity of payments.

58.  The position adopted by Man Sun Finance appeared to be that of putting Richard to strict proof of all payments he made before any reimbursement at all should be made.  A requirement for “strict proof” does not alter the nature of the burden of proof in civil cases.  All Richard need to do is to satisfy me on the balance of probabilities that the payments that he has made the proper payments.  In the absence of documents, that the payments are proper payments may be found from the whole of the circumstances.

59.  Weighing all these matters I am satisfied that there is nothing at all to support a suggestion that funds remitted by Richard to Fuyisun were not properly applied on behalf of Man Sun Finance in meeting liabilities of the joint-venture partners.  That is the only viable alternative to the position adopted by Man Sun Finance.  There is not a shred of evidence to indicate that Richard was somehow making payments for his own private purposes, or to himself, under the deceitful guise of payments by Man Sun Finance to Fuyisun or other Canadian activities.   In all of the circumstances I am satisfied the payments for which Richard claimed reimbursement are proper sums paid by him, through Fook Tai, for the ultimate benefit of Man Sun Finance.

The Resolutions point:

60.  With the greatest respect to Mr Ng, I do not understand this point.  It seems to be that because Strong Chance refused to contribute to the joint-venture, thereby occasioning financial difficulties to the joint-venture, and because Man Sun Finance had decided, in the Settlement Agreement, not to take on any new business transactions, but to confine itself to the disposal of its remaining assets, it follows that there could have been no decision, or “resolution”, to make any payments at all in relation to the Canadian properties.  The argument then goes that in the absence of such a resolution there is no authority for the payments, and therefore, even if actual payments were made there should be no reimbursement.

61.  The submission is predicated on an assertion that it was the “intention/position on the part of all the shareholders (except Richard) not to contribute any further fund to the joint-venture in Canada”, (see plaintiff’s submissions Para 34).  The statement does not accurately reflect the terms of the Settlement Agreement.  There is a world of difference between “not undertaking any new business transactions”, which certainly would be a bar to funding new transactions, and the appropriate support of existing positions, an obligation that necessarily follows from decision to “confine its activities to the disposal of its remaining assets”, (see Settlement Agreement 1.13).

Richard’s breach of fiduciary duty:

62.  Mr Soo, for Richard, did not dispute that Richard owed a fiduciary duty to Man Sun Finance and its shareholders.  The contention made by Mr Ng was that in appropriating the refund of the deposits to Fook Tai, instead of paying them directly to Man Sun Finance, Richard was in breach of that duty.  Mr Ng argued that Richard’s fiduciary duty should be assessed in the light of the fact that the Settlement Agreement had effected the sale of the interest of Man Sun Finance in MSFHK to Richard, and imposed limitations on the authority that Richard had previously had generally in relation to the affairs of Man Sun Finance.  That is right.  But his duty must also be assessed in the light of the factual circumstances and conclusions that I have found.

63.  Richard accepted, as he was obliged to, that the deposit refunds were the property of Man Sun Finance.  It must be that he was consequently obliged, without anything else, to pay those sums directly to Man Sun Finance.  To do otherwise, he having received those sums, would be a breach of fiduciary duty.  But the matter cannot be looked at in isolation.  There was something else.  Richard had made substantial payments on behalf of Man Sun Finance.  I am satisfied that an equity arises in those circumstances which justified Richard’s payment of the funds to Fook Tai in reduction of the obligation of Man Sun Finance to Fook Tai.

64.  Mr Ng, relying on Goff & Jones; The Law of Restitution, 6^th Ed, p 578 et. seq., set out the following statement, (I have adapted the references to identities to reflect the parties in this case):

“If Richard has borrowed money from Fook Tai on Man Sun Finance’s behalf but without its authority, and has applied that money in the discharge of the legal liabilities of Man Sun Finance which he had authority to discharge, or possibly in some other authorised manner on Man Sun Finance’s behalf, Richard can proceed directly against Man Sun Finance in equity and recover from Man Sun Finance a sum equal to such part of Richard’s money as has been so applied.  (The emphasis is that of Mr Ng).

It was argued that for reasons relating to each of the points upon which Mr Ng placed emphasis, the equity does not apply to relieve Richard.  I reject the submission for the following reasons.

65.  First, it was contended that there was no evidence that Richard had borrowed money from Fook Tai to make the payments.  It was plain that the money used was that from Fook Tai’s account.  Richard’s act in using that money could not have been any other act than using a gift to him form Fook Tai, or using loan monies.  It is plain that it was a loan.

66.  Next, there is no doubt that the payments were made in respect of Man Sun Finance’s legal obligations.  Whether Man Sun Finance intended to make further investments in Canada or to support its existing investments while it disposed of them matters not.  It had a legal obligation to its joint-venture partners, an obligation of which Strong Chance was in breach, to make the necessary payments to support project is being undertaken by the partners through Fuyisun.  If the others failed to make those payments, and Man Sun Finance made them, there would be no doubt at all that in the accounting resolution between the joint-venture partners Man Sun finance would be entitled to recover from the share of other join-venture partners any payments made on their behalf.  So too ought Richard to be able to recover payments he made on behalf of Man Sun Finance.

67.  Finally, from the whole of the circumstances in which Richard took over MSFHK, and, in relation to the Canadian projects, and in which Fook Tai tacitly became the banker for Man Sun Finance, just as MSFHK had been, Richard had authority to discharge the liabilities.  There is nothing in the evidence to support the contention that a decision was made by Man Sun Finance that it would not contribute further because of Strong Chance’s refusal to contribute.  No such resolution was passed until after the deposits had been refunded and applied by Richard to reimburse Fook Tai for the payments that had been made.  Instead, while there had admittedly being a reluctance to contribute further, all family members realised that if payments were not made the losses would be substantial.

68.  In reaching the conclusion that Richard was not in breach of his fiduciary duty I have not overlooked two significant facts.  First the sums of deposit refund were not described as such in the ledger of Fook Tai.  But subsequently the ledger sheets from Fook Tai for both Fuyisun and Man Sun Finance were made available as part of the Asset Reports that were prepared.  No question was ever raised, either at the time, or in evidence, that the family members did not all understand clearly the source of the funds which reduced the liability of both Fuyisun and Man Sun Finance to Fook Tai.  Nobody was misled, and the evidence is not such that a conclusion can be drawn against Richard that he intended to mislead in this respect.

69.  Next, and more importantly, at the directors meeting on 29 October 1998, Richard admittedly mislead the other directors as to the whereabouts of the deposits, implying in a response, that they were still in Canada.  But at the next meeting on 26 November 1998, it became clear to all that the deposits had been received and applied the reimbursement of expenses made by Richard on behalf of Man Sun Finance. Mr Ng characterised the circumstances as being:

 “that the misappropriation of the two sums of deposit refund was dawned on the other directors and shareholders”. (sic)

With respect to Mr Ng the minutes do not justify such a characterisation.  It is abundantly plain from the minutes that the only concern of all, other than Richard, was the justification of the amounts to be reimbursed.  The matter was expressed in this way by Man Sun Finance:

“Man Sun pointed out that there is also a Trust Fund of 1.6 million it should be subtracted from the expense.” (sic)

The Trust Fund was of course the deposit refund.  To subtract the trust fund from the expense is to acknowledge liability to reimburse Richard for the expenses paid by Fook Tai.  The manner in which the matter is expressed in the minutes simply does not justify a description as a “dawning of an awareness of a misappropriation”.  Such a circumstance would undoubtedly result in quite different language.

70.  In The Law of Restitution the learned authors point out that a plaintiff can not recover a payment made on behalf of another where he has officiously exposed himself to the liability because in those circumstances it could not be said that the defendant had requested him to make the payment, see para 15-09.  Having regard to the whole history of the transactions, and even bearing in mind the disputes that there had previously been between the family members, it is disingenuous for it to be submitted that Richard acted in an “officious” manner in making payments, and that consequently Man Sun Finance ought not to be bound by the pavements.  The submission is one which relies upon a literal interpretation of the expression of “officious”.  As the learned authors of The Law of Restitution point out at p 431:

“The plaintiff’s payment will not be officious if he has exposed himself to liability at the true request, express or tacit, of the defendant, or, perhaps, if he has intervened as a matter of necessity.”

This certainly cannot be said to be a situation where Richard has freely and without request undertaken a risk of liability.  With Richard taking over MSFHK, which had in the past acted as a banker for Man Sun Finance, and all involved knowing that payments needed to be made, but Man Sun Finance not providing the finance, there arose a tacit request from the circumstances that MSFHK, in its new form, Fook Tai, would make the payments.  That that is so is demonstrated by the response of the members of Man Sun Finance on learning of the payments and their attitude to reimbursement.  They made no objection to the fact of payment, but rather sought simply to clarify the payments that had been made before reimbursement.

71.  It may also be argued that a Richard found himself in a position of necessity.  He certainly recognised that unless payments were made, in the light of the attitude of Strong Chance, the investments were at real risk.  In the light of the disharmony amongst the family and the difficulty in securing formal agreement that resulted from the general internal family disputes, rather than any proper reason not to make payment, in order to protect everybody’s situation, he made the payments.  That is a situation which may usefully be contrasted the difficulty in which the plaintiff found himself in Owen v Tate [1976] 1 QB 402.  It may not be without significance that the fact situation in Owen v Tate is described in The Law of Restitution as “exceptional”.  There is nothing exceptional about the factual circumstance here.  It is simply a case of one family member providing funds to support family investments, when others in the family, by reason of internal, unrelated disputes, cannot reach formal agreement as to what should be done.

72.  Mr Soo relied upon Article 16 of the Articles of Association of Man Sun Finance which, inter alia, the effect of which is to provide as follows:

(a)	no director shall be liable to account to the company for any profit realised by any transaction provided the nature of his interest in any transaction in which he is interested is disclosed;
(b)	a general notice that any director is a member of any specified firm or company and is to be regarded in any contract or arrangement with such verbal company shall be sufficient disclosure;
(c)	after such a general notice it shall not be necessary to get any special notice in relation to any particular contract or arrangement with such firm or company.

73.  It is beyond argument that Man Sun Finance had general notice of Richard’s interests in Fook Tai.  Mr Ng contended that Article 16 was not available to Richard because there was no evidence that he had given general notice to the board that he was to be regarded as interested in any arrangement or contract with Fook Tai.  The “arrangement” referred to is the arrangement that Fook Tai was making payments on behalf of Man Sun Finance, as MSFHK had before it.  The arrangement with Fook Tai was not formal, but informal.  It arose out of the continuation of the prior practice of using the predecessor to Fook Tai as a banker for Man Sun Finance.  The continuation was limited to the Canadian activities and did not extend to any other activities of Man Sun Finance.  All were aware of all features of the situation and no formal notice was, in my view, required.

The Acquiescence point:

74.   Mr Ng did not challenge the proposition that where a person having a right, and seeing another person about to commit, or in the course of committing, and act infringing that right, stands by in such a manner as really to induce the person committing the act, and who otherwise might have abstained from it, to believe that he assents to its being committed, then that person cannot afterwards be heard to complain of the act.

75.  As I have found I am satisfied that the family members were aware that payments were being made to support the Canadian investments and that the only source of those payments could have been Fook Tai.  No query, other than a query as to the extent of the obligation to reimburse, was raised by any family member when in September or November 1999, Richard supplied the Assets Reports, which included the detailed ledger monthly transaction reports with Fook Tai for both Fuyisun and Man Sun Finance.

76.  Further, in the audited accounts of Man Sun Finance, for the year ended 31 March 1999, and dated 28 January 2000, approved by both Raymond and Penny, the deposits, which had previously been booked as current assets, no longer featured.  Mr Ng contended that the approval of the accounts being ex post facto could not amount to acquiescence.  But it is not the act of signing of the accounts that indicates acquiescence.  The acceptance of the accounts in that state indicates a prior awareness and acceptance of the circumstances.  If Raymond and Penny, as was contended for them, did not know about, and objected to payments being made on behalf of Man Sun Finance or that the deposits were applied in reimbursement, then I have no doubt at all that they would have said so and would not have been willing to sign accounts in which the deposits were no longer recorded as an asset of Man Sun Finance.

77.  Their approval of the accounts in that form is important.  It must be borne in mind that the application of the deposits in that manner was known to them through the Assets Report.  There is no suggestion that they did not read and fully understand the accounts before approving them.  Had the directors not been aware of and agreed to the application of the deposits by way of refund to Richard they could not have signed off on the accounts.  They would have had to have required that the deposits remain shown as an asset of the company, and made a decision of their to commence these proceedings against Richard.  But the proceedings did not commence until 2002.

The Authority point:

78.  This point relates to the case against David Chan.  Just as the case against Richard was mounted on the basis of a breach of fiduciary duty, so was the case against David Chan.  It is clear that David Chan was a trustee of the funds on deposit, and when the deposits were refunded to him he was obliged to account to Man Sun Finance for those funds.  David Chan’s case was that at all times he acted upon the instructions of Richard, and that he honestly and reasonably believed that Richard had authority from Man Sun Finance to give him the instructions upon which he acted.  In those circumstances it was contended that there could be no liability at all upon David Chan, as an employee, who merely followed instructions.

79.  It was accepted by Mr Ng that Richard had the express and implied authority of Man Sun Finance to manage its day-to-day operations and to give instructions to David Chan in relation to the day-to-day operation of the business of Man Sun Finance at all material times.  It is right that there were limitations on the way in which Richard could manage the business of Man Sun Finance.  Those limitations are found in the Settlement Agreement, in particular in clause 1.14, as to material decisions being effected only with the prior written consent of Richard Barry and Raymond, and clause 1.15, requiring the amendment of the bank mandates so that no payments or remittances could be made without prior written authority of Richard, Barry and Raymond.

80.  The argument was that in the light of those limitations it was simply not open to Richard to instruct David Chan to credit the deposit refunds to Fook Tai.  The starting point requires an examination of the steps taken which resulted in the deposits being refunded.  When the contracts upon which the deposits were paid were brought to an end it was necessary for cancellation agreements to be signed. David Chan signed those agreements on the instructions of Richard.  There was no suggestion by Man Sun Finance that Richard was not acting properly in that respect.  There is no evidence at all that the requirements of the Settlement Agreement, clause 1.14, as to the written instruction of Richard Barry and Raymond was met.  It was not suggested that a written instruction had been shown to David Chan from which he may know that he had proper instructions.  The matter was simply left to Richard to tell David Chan to act.  In those circumstances there appears to be no reason at all why David Chan should not accept Richard’s instructions as to the disposal of the funds when received.

81.  I accept that the action of receiving the deposits and crediting them to Fook Tai was not a mere matter of the day-to-day operation of Man Sun Finance, and constituted a material action regarding the business affairs of Man Sun Finance.  Absent any thing else, Richard would not have had any authority to deal with the deposit in the manner that he did.

82.  But the argument alone does not dispose of the issue as far as David Chan is concerned.  First, it does not recognise the equity that I have found that existed in Richard, entitling him to recover by way of reimbursement payments that he had made on behalf of Man Sun Finance.  It is that equity which gave him the authority to act is he did.  Richard having authority in that manner, no criticism or liability can be levelled at David Chan for acting in accordance with Richard’s instruction as to the credit of the deposit refunds to Fook Tai.

83.  Even absent that equity, there is nothing in the evidence to indicate that David Chan was not entitled to rely upon instructions from Richard.  The evidence does not establish that David Chan was instructed by Man Sun Finance of the limitations on any authority in Richard flowing from the terms of the Settlement Agreement.  In fact, the evidence was to the contrary.  Raymond’s evidence was that he believed that David Chan simply did not know the content of the Settlement Agreement. David Chan was certainly aware that there had been disputes in the family and that those disputes had apparently been resolved by an agreement which resulted in Richard acquiring MSFHK, which he renamed Fook Tai.  Richard took over responsibility for the employees of MSFHK, which included David Chan, and took over responsibility for paying David Chan.  He was aware that Richard was responsible for the day to day management of Man Sun Finance, as he had been in the past.  But he was not shown the Settlement Agreement, nor was he given instructions by Man Sun Finance as to any of its terms, particularly any terms that might limit
Richard’s authority.

84.  David Chan, in those circumstances, was perfectly entitled to rely upon the instructions of Richard, as he had in the past.  He was not given a direction by Man Sun Finance that he must have the instructions of Richard Barry and Raymond, in writing, in relation to any material matters in the business of Man Sun Finance.  In the whole of the circumstances it simply cannot be said, as was submitted by Mr Ng, that David knew or ought to have known that Richard did not have appropriate authority.

85.  Further, it must be remembered that David Chan was still required to deal with winding up matters in relation to Man Sun Finance and was expecting to receive his monthly entertainment allowance of HK$8,800 as recompense for those additional duties.  There is no evidence that any explanation was given to him as to why the payment of entertainment allowance was not being made.

86.  The whole of the circumstances are such that there can be no liability upon him for following the instructions of Richard.  For these reasons I am satisfied that David Chan was entitled to rely upon the instructions he received from Richard.

David’s Breach of Fiduciary Duty point:

87.  For precisely the same reasons no liability can arise on David Chan for any breach of fiduciary duty.

The Entertainment Allowance point:

88.  Prior to the Settlement Agreement David Chan had been an employee of Man Sun Finance, but whose particular duties as an accountant and bookkeeper had been primarily in relation to MSFHK, in its capacity as the banker for the Man Sun Finance group.  After the Settlement Agreement David Chan remained an employee of Man Sun Finance with duties in relation to the tidying up affairs of Man Sun Finance, as it was wound down.  But his duties as accountant and bookkeeper for MSFHK continued, in his new employment by Fook Tai.

89.  The case for Man Sun Finance in relation to the entertainment allowance was that the sum was discretionary, and that no decision had been made to pay that sum.  The case seemed to be that Man Sun Finance were perfectly happy to have David Chan, their faithful employee for many years, continue to attend to the company’s affairs as required, albeit on a much reduced scale, but not to pay for that work at all.

90.  It was not in dispute that prior to the board meeting on 1 February 1996, David Chan was entitled not only to salary from Man Sun Finance but also an entertainment allowance of $8,800 per month.  At that board meeting the resolution recorded in paragraph 20 above was passed.  Mr Ng contended on the basis of that resolution that the entertainment allowance then became discretionary, at the whim of Man Sun Finance.

91.  At the same time it was clear that Man Sun Finance expected David Chan to continue his duties for Man Sun Finance in tidying matters up.  That was demonstrated by a resolution, recorded at the same meeting, noting that David Chan was dealing with the closure of dormant subsidiaries of Man Sun Finance.  David Chan was retained as the secretary to Man Sun Finance subsidiaries.  Minutes of meetings in October 1998 and November 1998, show that his advice was sought as to supporting documents in relation to particular aspects of Man Sun Finance subsidiary accounts.  It is clear that he continued as an employee of Man Sun Finance, as well as becoming an employee of Fook Tai.

92.  The terms of the resolution are ambiguous.  It is not at all clear what the status of the HK$8,800 per month was, if it was not to be part of a contractual remuneration package.  David Chan remained, to a limited extent, an employee of Man Sun Finance and in that capacity was entitled to expect some form of remuneration.  He was brought into the meeting when the resolution was passed.  There was no evidence at all that he was told that the payment would be discretionary, and that Man Sun Finance would need to make decisions from time to time as to whether or not it would be paid.  He said, and I accept, that after the meeting he believed that he would continue to receive that some on a monthly basis.  He pressed Raymond and Barry for payment and was never told that he was not entitled to receive that payment or that matter was discretionary, the matter was merely deferred.

93.  Remarkably, although asserting that the payment was discretionary and no decision had been made to pay it, in its annual accounts, Man Sun Finance records, by way of entertainment expenses over the relevant periods, precisely the same sum as was received by David Chan.  The accounts, for the years ended the 31 March 1999, and 31 March 2000, had been signed by Raymond.  It is difficult to understand how Man Sun Finance can assert that David Chan is not entitled to the payment, but at the same time deduct the sum in the accounts for taxation purposes.

94.  I am satisfied that in the whole of the circumstances any ambiguity in the resolution ought to be interpreted against Man Sun Finance, and in favour of David Chan.  I am satisfied that following the passing of the resolution David Chan was lawfully entitled to the monthly payment of $8,800 until his employment by Man Sun Finance was terminated in September 1999, and that the resolution did not render the payment discretionary.

95.  The payment of an employee is a normal matter, and not one that required, pursuant to the Settlement Agreement, the consent of Richard Raymond and Barry.  Richard was perfectly entitled, in his capacity in managing the affairs of Man Sun Finance, to authorise the payment to David Chan of the entertainment allowance.

The Conspiracy point:

96.  A conspiracy consists in the agreement of two or more to do an unlawful act, or to do a lawful act by unlawful means.  Mr Ng confined his submission of this point to an assertion that as both Richard and David Chan were in breach of their fiduciary duties to Man Sun Finance, so too they would be liable in the tort of conspiracy.  I have found that they were not in breach of their fiduciary duties.  Their acts were not unlawful, nor did they do lawful acts by unlawful means.  The claim in conspiracy must fail.

Judgement:

97.  In all respects therefore Man Sun Finance’s claim against both Richard and David Chan fails.  There will accordingly be judgment for the 1^st and 2^nd Defendants against the Plaintiff.

Relief under the Trustee Ordinance:

98.  If I am wrong in my conclusion that neither Richard nor David Chan were in breach of their fiduciary duty to Man Sun Finance it is necessary to consider whether they ought to be relieved under s 60, Trustee Ordinance Cap 29.

99.  The power to relieve a trustee of liability for a breach of trust under the Trustee Ordinance is designed to protect honest trustees, and is not to be construed in a narrow sense: Re Allsop [1914] 1 Ch 1.  Three circumstances must coexist to entitle a trustee to the benefit of the section, namely,

1.	he must have acted honestly, and
2.	he must have acted reasonably (honest folly is not excused) and,
3.	he ought fairly, (that is to say in fairness to himself and other persons who may be detrimentally affected) to be excused not just for the breach but also for admitting to obtain the directions of the court in the manner in which he committed the breach.

See Law Relating to Trusts and Trustees, Underhill & Hayton 16^th Ed. p 914.

100.  The onus of proof to show that the requisite circumstances exist lies on both Richard and David Chan, who seek the exercise of the power of the court to relieve any breach.

101.  It is necessary to consider the situations of Richard and David Chan separately.  First I am satisfied that Richard acted honestly.  Throughout the whole of the period of Man Sun Finance’s involvement in the Canadian investments prior to the Settlement Agreement, MSFHK had acted as the banker to Man Sun Finance and there had been no question about reimbursement.  After the Settlement Agreement, Fook Tai took on the obligation that had previously been carried by MSFHK.  In the past if MSFHK had received funds on behalf of Man Sun Finance it had been entitled to set those funds off against payments that had been made on the half of Man Sun Finance.  In continuing to act in that manner Richard was acting honestly.  It is right that shortly before the manner of application of the deposits became known, in terms, to the other directors Richard misled the other directors as to the situation in relation to the deposits.  He was wrong to do that, but I am not satisfied from the evidence that his reason for so doing was to conceal what he thought was dishonest conduct.

102.  For the same reasons I am satisfied that Richard has acted reasonably in so applying the deposits.  He had made payments on behalf of Man Sun Finance.  It is perfectly reasonable that he should be reimbursed for those payments.  It would have been quite unreasonable for Man Sun Finance to have refused reimbursement.  Patently, the only basis for refusing reimbursement would be the existence of unrelated disputes generally amongst the siblings, with Richard on one side and the others together.

103.  For that same reason it is fair to Richard that he should be reimbursed for payments he had made.  It cannot be said to be unfair to Man Sun Finance that they should reimburse someone who has made payments on their behalf.  It is right that they are detrimentally affected in the sense that they have had to make the reimbursement.  But there is nothing unfair about that.  In the scope of all the events the act of reimbursement was a minor matter and in the circumstances Richard can well be excused for not obtaining the directions of the court on the issue.

104.  The argument that David Chan ought to have relief is all the stronger.  He was an employee of Fook Tai and perfectly entitled, as I have found, to act on Richard’s instructions in relation to the affairs of Man Sun Finance.  He was an employee of Man Sun Finance as well as Fook Tai and was perfectly entitled to rely upon Richard’s instruction in relation to his entertainment allowance.  It was quite reasonable for him to seek that payment, and in the circumstances to seek it from Richard, is the person who was primarily managing the affairs of Man Sun Finance.  He had continued to carry out work for Man Sun Finance and it is perfectly fair that he should have been paid the allowance that had been agreed to.  It cannot be said to be unfair to Man Sun Finance that they should have to pay for his services, especially when they seek a taxation deduction for the amount at issue, which they refuse to pay.

105.  Mr Ng relied upon the decision in Guinness Plc v Saunders [1990] 2 AC 663 at 695, HL, where the relief was refused to a director under a provision of the Companies Act 1985 (UK), which is on an identical basis to s 60 Trustee Ordinance.  Relief was refused in that case, but the circumstances were quite different and the case is no authority to bar relief in the present case.

106.  In Guinness a grant of relief would have entitled the claimant to remuneration without the authority of the board, which would be a breach of the articles protecting shareholders in a public company.  A grant of relief in the present case would not result in the claimants receiving a benefit that would be in breach of the Articles of Association of Man Sun Finance.

David Chan’s Third Party Notice against Richard:

107.  Mr Soo in his submissions, did not appear to directly address the issue raised by the Third Party notice issued by David Chan.  That sought indemnity from Richard in relation to any liability filed against David Chan.  Mr Soo’s submissions were confined to assertions that in Richard’s view it was wrong for Man Sun Finance to drag David Chan into the proceedings, he being a long term faithful staff member of Man Sun Finance and the Foo family generally.  That is a sentiment with which I entirely agree.  As I have found no liability against either Richard or David Chan the issue does not, strictly arise for decision.  In case I am wrong in relation to my finding on liability I shall deal with the issue raised by that notice.

108.  Even Richard, against whom the Third Party notice was issued, accepted that all along that David Chan had acted honestly and in good faith.  David Chan plainly had no reason whatsoever to question the instructions he received from Richard.  As far as the receipt of the deposit refunds and the crediting of those to Fook Tai, David Chan received no commission or benefit other than the salary to which he was properly entitled.  There was no suggestion in the evidence that he acted in response to a suggestion by Richard to pay to him the entertainment allowance.

109.  Being entitled to rely upon the instructions received from Richard, David Chan must be entitled to full indemnity in respect of any liability found against him in favour of Man Sun Finance.  Had it been necessary, I would have given David Chan judgment on the Third Party Notice against Richard.

Costs:

110.  Both Richard and David Chan have succeeded in resisting the claims of Man Sun Finance.  The usual order would be that they are each entitled to their costs, to be taxed on a party and party basis, with David Chan’s costs to be taxed on Legal Aid Regulations.  The submissions of Counsel for David Chan make it plain that he wishes to seek costs at a higher level than party and party costs.  The issue of costs is adjourned to a date to be fixed in consultation with counsels diaries.