JIANGXI QIANXI CHENG REAL ESTATE CO LTD v. CHEUNG LEUNG SUM AND OTHERS

HCA 503/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 503 OF 2010

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J U D G M E N T

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Introduction

1.  The plaintiff’s claim against the defendants was based mainly on conspiracy to injure by unlawful means and was in essence for the return of 4 sums of money totaling RMB 22.1m.

Dramatis Personae

2.  The plaintiff 江西仟禧城置業有限公司 (“P”) is a limited company incorporated under the laws of Mainland China (“PRC”), and said to be engaged in property development in Jiangxi Province.  There had been 5 directors on the board in 2001, of which Madam Wu Kan Jun 吳侃君 (“Wu’) was one of them.  According to Wu, P’s shareholders had always been 江西智源産業發展有限公司, and 香港保成國際投資有限公司.  Initially, there were 5 directors but after re-structuring of the board in August 2006, there were only 4 directors with Wu becoming the chairman of the board and the legal representative/法定代表人.

3.  Wu’s husband is one An Guang Bao 晏廣保 (“An”).  Both Wu and An reside and were at all material times resided in Nanchang city in Jiangxi Province.

4.  The 1^st defendant 張良琛 (“D1”), an Indonesian Chinese,  and the 2^nd defendant Ng Chau Ping 吳秋萍 (“D2”) are husband and wife and are/were at all material times the only two directors and shareholders of the 5^th defendant杜邦帝亞(香港)有限公司, a limited company incorporated under laws of Hong Kong (“Tuban Tia HK”).  D1 and D2 reside in Hong Kong.

5.  The 3^rd defendant Cheung Wa (also known as Ding Shao Hua)章華 (又名丁少華) (“D3”) and 4^th defendant Cheung Lik Hung 張力虹(“D4”) are husband and wife and are/were at all material times, same for a period 2005/2006, the directors and shareholders of the 6^th defendant杜邦帝亞國際控股有限公司, a limited company incorporated under laws of Hong Kong (“Tuban Tia International”).

6.  D3 and D4 are respectively the son-in-law and daughter of D1 and D2 and they are both residents of Hong Kong, although D3 was frequently in PRC.

7.  D3’s father is one Ding Xin Fa 丁鑫發 (“Ding”) who, in about 2001 was the Head of the Jiangxi Province People’s Prosecution Department 江山省人民檢察院院長.

8.  Jiangxi Zhong Shun International Hotel Co Ltd 江西中順國際大酒店有限公司 (“Zhong Shun”) was formerly a company set up under laws of PRC with foreign capital from a Taiwanese investor.  Tuban Tia HK acquired 100% shareholding in the company and renamed it Zhong Shun in January 2002.  Subsequently in 2004, the 100% shareholding of Tuban Tia HK in Zhong Shun was transferred to Tuban Tia International.

Brief Background

9.  D3 and An were both from Nanchang in Jiangxi, and it was not really disputed that they were close friends in 2001.  D1 had said he first met An in 2001 or may be earlier through D3, but only met Wu the first time when she and An were on a holiday trip to Indonesia in 2001.  

10.  According to Wu, it was while she and An were in Jakarta that D1 had invited them to visit his family’s factory there and they met D1’s elder brother.  This was denied by D1 who said he only accompanied An and Wu to lunch and shopping in Jakarta for one day.  Anyway, it was Wu’s evidence that she was given to understand that D1’s family had many businesses, including a tyre factory, and also a bank.

11.  It was also Wu’s evidence that she was first approached by D1 at about end of 2001 for a short term loan from P, since it would take time for D1’s remittances from Indonesia to PRC to be approved by the PRC Foreign Exchange Bureau.  Wu said it was from then on that P started to lend money to D1 and D3, and that very often D1 asked D3 to approach P, and thus the loans were often paid to D3’s company 江西華强消防安技系統工程有限公司 (“Hua Qiang”) of which D3 was the legal representative, and that such loans reached over RMB 80m at one stage[1].

12.  D1’s evidence was however in 2001, An approached him to ask him to take over, from the former Taiwanese investor, a PRC foreign investment company which was involved in developing a 5 star hotel called Jianngxi Zhong Shun International Hotel 江西中順國際大酒店(“Hotel Project”), and that it was An who had offered to lend money for the Hotel Project through P.

13.  What was not disputed was that it was on 11 January 2002   the PRC foreign investment company bought by Tuban Tia HK was renamed Zhong Shun.  D1 became the chairman of the board of directors of Zhong Shun, the sole business of which was the Hotel Project.

14.  The 5 star hotel was on a prime site and was considered to be a major foreign investment at the time, and there was wide media publicity about the Hotel Project.

15.  Whether the loans had at one stage reached RMB 80m or not,  what was clearly not disputed was that prior to the payment of the subject amount of RMB 22.1m, there had been loans made by P, whether at D1’s request or D3’s request, to Zhong Shun, the principal of which had been repaid. 

16.  It was Wu’s case that around 19 April 2004, D3 telephoned again to request a loan for urgent use, and that he agreed that the loan was to be made in D1’s name, and that D3 and Tuban Tia HK would be the guarantors, and further he asked the loan amount to be remitted to the bank account of a company in Zhuhai called Peng Cheng Trading Co Limited 鵬程貿易有限公司 (“Peng Cheng”). 

17.  According to Wu, she had insisted on D1 going to Nanchang to sign the loan documentation, but D3 said both he and D1 were busy, and asked Wu to arrange for P to remit the money first.  Wu said in light of past transactions and the fact that there had been repayments, P agreed to advance the loan first.

18.  As a result thereof, P remitted 4 sums of money on 13 and 14 April 2004 totaling RMB 22.1m from P’s bank accounts to the bank accounts of Peng Cheng in Zhuhai (“Zhuhai Payment”).

19.  D3 gave a different version of events leading up to the Zhuhai Payment.  According to him, in late 2003, D1’s physical health condition was deteriorating and D1 also had disagreement with D3 and Zhong Shun’s management team over business investment and operational strategy.  D3 said he had discussed this matter with An who had great interest in the Hotel Project.  An had encouraged him to acquire the Hotel Project from D1 and promised to support D3 financially to complete the later stage of the Hotel Project.

20.  According to Ds, subsequently on about 10 March 2004, D1, D2 and Tuban Tia HK agreed to assign their 100% interest in Zhong Shun to Tuban Tia International at no consideration (“Shareholding Transfer”). The board of directors of Zhong Shun passed a resolution to approve the Shareholding Transfer on 8 April 2004, and an agreement dated 25 April 2004 was later entered into by Tuban Tia HK and Tuban Tia International for the Shareholding Transfer.

21.  D3 said when An was told that D1, D2 and Tuban Tia HK had agreed to the Shareholding Transfer to D3’s company Tuban Tia International at no cost, An was very pleased and he agreed to inject part of the investment money into Zhong Shun, and D3 agreed to allot P shareholding in Zhong Shun when all registration formality of the Shareholding Transfer had been completed.  D3 had explained as Zhong Shun was a foreign owned company in Jiangxi, all investment money would have to be remitted from Hong Kong into Zhong Shun’s bank account in PRC.  That was why the Zhuhai Payment had to be made through the conduit Peng Cheng, which was converted into Hong Kong Dollars and remitted to the account of Tuban Tia International in Hong Kong, in order for Tuban Tia International to make the formal remittance into Zhong Shun, to complete the formality.

22.  In short, D3’s evidence was that the Zhuhai Payment was in fact investment capital from P into Zhong Shun, for the Hotel Project.

23.  P’s case was that it was not aware of the Shareholding Transfer at the time of making the Zhuhai Payment.  P had alleged that the Shareholding Transfer was a “sham” transfer for the “false reason” that the transfer was necessary for the intended listing on the Hong Kong Stock Exchange.  P further alleged that it subsequently discovered that Tuban Tia International was merely a bare shell company.

24.  What was not denied was that after the Zhuhai Payment, D3 had signed a Chinese letter of undertaking承諾書 dated 30 April 2004 to P, in which D3 undertook to repay the Zhuhai Payment with interest at 1% per month if the Zhuhai Payment had not been repaid with interest within 3 months (“Undertaking Letter”)[2].  D3’s explanation for providing the Undertaking letter was to assure An that the Zhuhai Payment would be safely be remitted back to Zhong Shun’s bank account in PRC, and to “calm down” An’s “nervousness”, and also to facilitate him “to calm down his stakeholders”[3].  It was further D3’s case that upon the Zhuhai Payment having duly been remitted to Zhong Shun, the Undertaking Letter became void and “retired accordingly”.

25.  Wu said P was not satisfied with the Undertaking Letter signed only by D3, and that P had continued to remind D1 to go and sign loan documentation and a letter of undertaking, but D1 never turned up.   Then, according to Wu on 15 May 2004, D3 sent to P a Chinese letter dated 15 May 2004 issued by Zhong Shun confirming that the Zhuhai Payment had been used in the Hotel Project, and stating its intention to repay the Zhuhai Payment as per the terms in the Undertaking Letter (“Confirmation Letter”)[4].

26.  This was denied by Ds who alleged that the Confirmation Letter was “fabricated” and “back-dated” to 15 May 2004.

27.  D1’s case was after he had agreed to Tuban Tia HK disposing its interest in Zhong Shun to Tuban Tia International as of 10 March 2004, he had thereafter disassociated himself from Zhong Shun, and had no further role or authority in the day to day business management of Zhong Shun, and he had no knowledge of the Zhuhai Payment.   

28.  Thereafter, it seemed the Ding family fell from grace.  On about 22 May 2004, D3 was detained in Nanchang by the People’s Prosecution Office.  He was later formally arrested on 23 June 2004 and charged on 11 July 2004 for tax evasion, and deliberate destruction of accounting evidence of Hua Qiang.  A judgment was eventually issued by the People’s Court of Xihu District, Nanchang City, about a year later on 26 August 2005 and D3 was sentenced to 4 years imprisonment[5].  He was only released in about June 2007.

29.  D1 was detained at about the same time when he was in Shenzhen and was taken to Beijing.  While in detention, D1 had a stroke in August 2005, and was hospitalized while under supervision for about 5 months, and when he was released from hospital in January 2006, he was allowed to go home.  He returned to Hong Kong and had not returned to PRC since.

30.  D3’s father Ding was also detained for investigation and later charged in about December 2004.  He was convicted of bribery and sentenced to 17 years imprisonment.

31.  According to Ds, Wu and An were also arrested by the Jiangxi Public Security Bureau at about the same time.  This was denied by Wu. D3 had, however, produced a copy of an opinion for prosecution from the Jiangxi Public Security Bureau dated 31 September 2005 (“Prosecution Opinion”)[6], and from this document, it could be seen that P had since May 2004 been under investigation for alleged tax offences, and that both An and Wu were eventually detained on 5 February 2005 by the Public Security Bureau for tax offences.  An was later formally charged on 13 March 2005 for a number of alleged criminal offences.  Wu seemed to have been placed under home supervision since 11 March 2005, and was on bail since 26 August 2005 pending trial.  Whether they were later formally charged or sentenced or not was not disclosed.

32.  Anyway, as a result of D1, D3 and Ding being detained, the Hotel Project collapsed and Zhong Shun suffered financial difficulty in about October 2004.

33.  On 8 August 2005, the Nanchang City Commercial Bank (“NCCB”) issued a claim against P and Zhong Shun, under a judgment issued by Nanchang Middle People’s Court on 27 October 2005, Zhong Shun was ordered to repay the bank some RMB 200m with interest and penalties and P was ordered to repay the bank RMB 32m with interest and penalties, as a guarantor[7] (“NCCB Judgment”).

34.  Thereafter, P issued a claim against Zhong Shun on 9 September 2005 in the Jiangxi Province Superior People’s Court (“PRC Proceedings”) for, among other things, repayment of the Zhuhai payment with interest.  The Jiangxi Superior People’s Court heard the case on 19 October 2005 and issued a civil judgment on 9 November 2005 and ordered Zhong Shun to repay the sum of RMB 22.1m to P, with statutory interest (“PRC Judgment”)[8].  I will be considering the effect of the PRC Judgment later in this judgment.

35.  Eventually, the Hotel Project was auctioned off and Zhong Shun was wound up.

36.  D3 had produced a notice issued by the Superior People’s Court 17 October 2007 to P (“Notice”)[9], which indicated that P had applied for enforcement of the PRC Judgment on 8 December 2005, but later as P was unable to provide evidence of assets of Zhong Shun its enforcement proceedings of the PRC Judgment were terminated.

37.  It was not until 4½ year later, on 12 April 2010, that P issued the writ herein in Hong Kong, based mainly on conspiracy of Ds.  It was P’s case that the Shareholding Transfer was a “sham” and that the evidence of the “sham” was not available at the time of the hearing before the Higher People’s Court in the PRC Proceedings.

38.  Counsel Mr Edward TC Chan appeared for P throughout the trial.  As for Ds, initially, Counsel Mr Raymond HM Kong appeared for all of them.  During the trial and arising out of the cross examination of D1 and D2, a query was raised as to whether there would be any conflict of interest between D1, D2 and Tuban Tia HK of one group, and D3, D4 and Tuban Tia International the other.  Although Ds confirmed that there would not be any conflict between the two groups, Counsel Mr Alan Kwong was separately instructed for D3, D4 and Tuban Tia International and appeared as from 10 November 2014 onwards.

The Witnesses

39.  P only called one witness, namely Wu, who had made two witness statements.  I have had the opportunity to observe Wu when she was giving oral evidence.  As seen from later in this judgment, I find her evidence confusing and contradictory at times and I do not find her a reliable witness.

40.  D1, D2, D3 and D4 each made two witness statements and attended trial to give oral evidence.  In brief, D1’s and D2’s evidence was simply they had no knowledge of the Zhuhai Payment or most matters pleaded in their defence although they both signed a statement of truth.  Although their respective case was not pleaded or set out properly in the joint defence, I accept that, as D2 had pointed out, the failure to do so was probably an omission on the part of their lawyer as their respective witness statements had made their positions clear.  As mentioned above, after they completed their evidence, a separate Counsel was instructed to appear for D3, D4 and Tuban Tia International. 

41.  I accept D1’s evidence was also at times confusing, but I find this could be due to his age and health, as he had a serious stroke in 2005 while being detained by the PRC authorities.  He obviously felt much aggrieved by the detention.  Having observed their demeanour during the trial, I find D2 and D3 on the whole truthful witnesses. 

42.  As for D3, he was caught not being forthcoming when asked about his parents’ aliases.  He is not an entirely reliable witness.  D4, being his wife, had supported his evidence and her evidence had to be considered in that light.  I will consider their evidence in detail later.

43.  For the avoidance of doubt, insofar as the matters set out in this judgment differ from the evidence of the witness, this is because I have preferred the evidence of the other party and/or another witness, as I have had the chance of observing the demeanour of these parties during the trial, and/or also because I consider the documents produced have confirmed my finding of fact. 

Disputed Issues

44.  The agreed disputed issues were as follows:

(i) Whether the Zhuhai Payment was a loan or an investment;

(ii) Whether Ds were barred by the principles of issue estoppel or abuse of process or res judicata (in the wide sense) to argue the Zhuhai Payment was an investment, given the PRC Judgment;

(iii) Whether the elements of the tort of conspiracy by unlawful means had been made out, the elements being:

(a) Was there any agreement or combination between Ds;

(b) Was there any intention to injure P;

(c) Whether the acts were carried out pursuant to the agreement or combination and the stated intention;

(d) Whether there was any damage caused to P; and if yes, how much.

45.  Under issue (i), there was also a sub-issue as to who was the borrower, if the Zhuhai Payment were held to be a loan.

46.  I will first consider issue (ii), namely whether Ds were barred by the principles of issue estoppel or abuse of process or res judicata (in the wide sense) to argue the Zhuhai Payment was an investment, given the PRC Judgment.  This would mean considering the effect of the PRC Judgment.

The PRC Judgment

The Findings in the PRC Judgment

47.  The claim in the Jiangxi Province Higher People’s Court (“Higher People’s Court”) was lodged by P as plaintiff on 9 September 2005 (“PRC Proceedings”) and there was only one named defendant, namely Zhong Shun.  The trial took place on 19 October 2005.  P had authorized a lawyer to attend the trial, and Zhong Shun also authorized a lawyer to attend the trial.

48.  P’s claim against Zhong Shun was in relation to 2 loans made by P to Zhong Shun, namely (i) a loan in April 2003, the principal of which was repaid by Zhong Shun on 8 October 2003, leaving unpaid interest of RMB 1.5m, in respect of which there was an agreement dated 24 December 2003 for payment of interest and penalty; and (ii) an unpaid loan of RMB 22.1m borrowed on 15 May 2004 (sic) by Zhong Shun through D3, together with interest and penalty.

49.  Zhong Shun had not filed any defence, and during the trial, had indicated that it raised no objection regarding the loans, only that it was in financial difficulties and was not able to repay the loans and/or interest/penalties.

50.  To support P’s case in relation to the loan of 22.1m, namely the Zhuhai Payment, P had produced 3 items of documentary evidence, namely (i) the Undertaking Letter signed by D3; (ii) the Confirmation Letter signed by Zhong Shun; (iii) copies of 4 remittance slips from P to Peng Cheng on 13 and 14 April 2004.

51.  Zhong Shun did not produce any documentary evidence in defence.  It had raised an objection to (i) above, as the document produced by P was only a photocopy of the Undertaking Letter and not the original.  There was no challenge by Zhong Shun to the other items of P’s documentary evidence, which were then accepted by the Higher People’s Court.

52.  So far as the loan of RMB 22.1m or the Zhuhai Payment was concerned, the Higher People’s Court accepted P’s case based on the Confirmation Letter, and that Zhong Shun had up to the trial not yet repaid the principal and interest of the loan[10].

53.  The Higher People’s Court then held[11]:

(i) “仟禧公司與中順公司之間的借貸屬於企業間的相互借貸，但企業不具備進行自由借貸的權利，企業之間無論以什麼理由、何種形式的借貸，都違反了國家金融管理法規，應認定為無效行為”, namely the loans between P and Zhong Shun were made between two enterprises, but enterprises were not entitled to freely make loans, and that loans for whatever reason or in whatever form would be in contravention of the National Financial Regulations, and would be considered void;

(ii) Zhong Shun should repay the principal of RMB 22.1m to P, and to pay the statutory interest of having had the use of the Zhuhai Payment;

(iii) Regarding D3’s Undertaking Letter, as there was no original produced by P, there was no confirmation of this document;

(iv) Even if D3’s Undertaking Letter was authentic, as the loan was void, the interest and the penalty stated in the Undertaking Letter would not be enforceable;

(v) P’s claim for RMB 4.33m and penalty of RMB 2.21m of the loan principal of RMB 22.1m could not be supported.

54.  The Higher People’s Court ordered that Zhong Shun to repay P the loan principal of RMB 22.1m within 10 days of the effective date of the PRC Judgment, and the statutory interest from 15 May 2004 until date of payment, in accordance with the loan interest of the People’s Bank of China for that period.

Effect of the PRC Judgment on Ds

55.  It was P’s case that in view of the findings of the Higher People’s Court Ds were barred from denying that the Zhuhai Payment was a loan, and from alleging that it was an investment by P in Zhong Shun.

56.  Mr Chan had referred to the UK Supreme Court case of Virgin Atlantic Airways Limited v Zodiac Seats UK Limited [2013] UKSC 46, [2014] AC 160.  There was a clear exposition of the law on estoppel in the judgment of Lord Sumption JSC of 3 July 2013(with whom Baroness Hale, Lord Clarke and Lord Carnwarth agreed).

57.  Lord Sumption had set out an analysis on the different legal principles which could loosely be regarded as coming with the ambit of “res judicata” as follows:

“Res judicata is a portmanteau term which is used to describe a number of different legal principles with different juridical origins. As with other such expressions, the label tends to distract attention from the contents of the bottle. The first principle is that once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings. This is “cause of action estoppel”. It is properly described as a form of estoppel precluding a party from challenging the same cause of action in subsequent proceedings. Secondly, there is the principle, which is not easily described as a species of estoppel, that where the claimant succeeded in the first action and does not challenge the outcome, he may not bring a second action on the same cause of action, for example to recover further damages: see Conquer v Boot [1928] 2 KB Third, there is the doctrine of merger, which treats a cause of action as extinguished once judgment has been given upon it, and the claimant’s sole right as being a right upon the judgment. Although this produces the same effect as the second principle, it is in reality a substantive rule about the legal effect of an English judgment, which is regarded as “of a higher nature” and therefore as superseding the underlying cause of action: see King v Hoare (1844) 13 M & W 494, 504 (Parke B). At common law, it did not apply to foreign judgments, although every other principle of res judicata does. However, a corresponding rule has applied by statute to foreign judgments since 1982: see Civil Jurisdiction and Judgments Act 1982, section 34. Fourth, there is the principle that even where the cause of action is not the same in the later action as it was in the earlier one, some issue which is necessarily common to both was decided on the earlier occasion and is binding on the parties: Duchess of Kingston’s Case (1776) 20 St Tr 355. “Issue estoppel” was the expression devised to describe this principle by Higgins J in Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537, 561 and adopted by Diplock LJ in Thoday v Thoday [1964] P 181, 197-198. Fifth, there is the principle first formulated by Wigram V-C in Henderson v Henderson (1843) 3 Hare 100, 115, which precludes a party from raising in subsequent proceedings matters which were not, but could and should have been raised in the earlier ones. Finally, there is the more general procedural rule against abusive proceedings, which may be regarded as the policy underlying all of the above principles with the possible exception of the doctrine of merger[12].”

58.  Summarising the above, Lord Sumption identified the following 6 principles:

(i) Cause of Action Estoppel;

(ii) The principle, which is not easily described as a species of estoppel, that where the claimant succeeded in the first action and does not challenge the outcome, he may not bring a second action on the same cause of action, for example to recover further damages;

(iii) The doctrine of merger, which treats a cause of action as extinguished once judgment has been given upon it, and the claimant’s sole right as being a right upon the judgment;

(iv) Issue estoppel;

(v) The principle first formulated by Wigram V-C in Henderson v Henderson (1843) 3 Hare 100, 115, which precludes a party from raising in subsequent proceedings matters which were not, but could and should have been raised in the earlier ones;

(vi) Finally, there is the more general procedural rule against abusive proceedings.

59.  Mr Chan relied largely on (v) the Henderson principle and also (iv) issue estoppel, and also generally on the abuse of process.

60.  Mr Chan also referred to the case of Ko Hon Yue v Chiu Pik Yuk and others (2012) 15 HKCFAR 72, FACV 8 of 2011.  The case was over the construction of an employment contract of a teacher at a secondary school. The teacher had issued his first set of proceedings in the Labour Tribunal claiming only arrears of wages, and after the first proceedings were settled, he issued his second set of proceedings in the Labour Tribunal for unearned salaries, loss of provident fund and loss of mortgage interest.  The second proceedings were then transferred to the Court of First Instance and the plaintiff’s claims were struck out.  Such decision was then reversed by the Court of Appeal, which held that the plaintiff’s employment with the defendants was not lawfully terminated, with the consequence that damages for wrongful termination should be awarded to the plaintiff.  The defendants then applied for leave to appeal to the Court of Final Appeal.

61.  One of the issues before the Court of Final Appeal was  whether the plaintiff’s claim in the second proceedings was an abuse of process and whether the issues raised in the second proceedings could and should have been raised and litigated in the first proceedings between the parties.

62.  Ma CJ had set out some facets of the exercise of the power to strike out on the ground of Henderson v Henderson abuse of process, or res judicata in the wider sense or the Yat Tung abuse (named after the decision of the Judicial Committee of the Privy Council in Yat Tung Investment Co Ltd v Dao Heng Bank [1975] AC 581), and had said that the nomenclature was not important, and that the essence of the doctrine was that a party ought generally not be permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings, and that the doctrine was founded on an abuse of process[13].

63.  Ma CJ had further referred to Johnson v Gore Wood [2002] 2 AC 1 and went on to explain as follows:

“(3) It must therefore be essential when striking out a claim on this basis (and thus preventing a litigation of that claim) that an abuse is found to exist in seeking to raise in subsequent proceedings claims or issues which could and should have been raised in earlier proceedings. This abuse will usually take the form of the other party being “vexed” (or in some cases, the terms “oppressed”, “unjustly harassed” or “unjustly hounded” are used) by the subsequent set of proceedings: Johnson v Gore Wood at 31A-B.

(4) The abuse can also take the form of the administration of justice being brought into disrepute: see Chiang Lily at 256D-G (para 58) referring to Hunter v Chief Constable of the West Midlands Police [1982] AC 529. With the procedural reforms introduced by the Civil Justice Reform in 2009, the courts in Hong Kong must now, when exercising their procedural powers, increasingly bear in mind not just the parties before them in any particular litigation but also the position of other litigants in the court process. RSC O.1A r.1(f) states as one of the underlying objectives of the court’s procedural powers under the Rules to be “to ensure that the resources of the court are distributed fairly”.

(5) In examining aspects such as abuse, the court is concerned with balancing interests: not just those of the litigants before it, but also taking into account the other interests involved in the administration of justice. It is important therefore here to emphasise that when the court is dealing with the Henderson v Henderson type of abuse, it is not looking at an absolute bar to litigation such as issue estoppel or cause of action estoppel. On the contrary, in considering this type of abuse, the court is required to assess a number of factors and balance competing interests. See here, Bradford and Bingley Building Society at 1490F-H. It is also worth making the following observations at this juncture:-

(a) There is conceptually an important distinction between absolute bars such as issue estoppel and the type of abuse with which we are concerned. In the former situation, the party who seeks to re-litigate an issue or cause of action has already had his day in court, whereas in the latter situation, that party has not: cf Johnson v Gore Wood at 59D (“It is one thing to refuse to allow a party to re-litigate a question which already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which is not previously being adjudicated upon” per Lord Millett).

(b) The assessment of different factors and balancing competing interests can be said to be an exercise of a discretion.  A number of decisions of the English Court of Appeal have cast doubt on whether the court does indeed exercise a discretion as such: see Aldi Stores Ltd. v WSP Group Plc. [2008] 1 WLR 748, at 762C-D (para 16) and Stuart v Goldberg Linde (a firm) [2008] 1 WLR 823, at 845E-846C (para 81).  It is unnecessary for present purposes to decide whether or not a discretion is actually being exercised. The more important point to bear in mind is that an appellate court is obliged to pay sufficient regard to the decision of the court below and should be reluctant to interfere where the decision is based on the assessment or balancing of a number of factors.  Nothing in the two said cases suggests otherwise; in fact, quite the contrary[14].”

64.  There was also the case of Ho Kin Man and others v Commissioner of Police [2014] 3 HKLRD 478 referred to by Mr Chan, which concerned four separate actions, in which four former police officers had sued the Commissioner of Police for damages in respect of what they alleged to be wrongful termination of their services. The claims in their respective action were based on the wrongful prohibition against legal representation at the disciplinary hearings.  The four plaintiffs had earlier challenged their respective dismissal/compulsory retirement after the disciplinary hearings by applications for judicial review but were unsuccessful, but such applications and appeals were concluded before the decision of the Court of Final Appeal which held that an absolute bar against legal representation in disciplinary proceedings against police officers was unconstitutional.

65.  The Commissioner of Police succeeded in their application to strike out the four police officers’ claims, and the four police officers appealed.

66.  In the Ho Kin Man case Lam VP had referred to the Virgin Atlantic case and Lord Sumption’s judgment.  In Ho Kin Man, it was plain that the plaintiffs could not get leave to appeal out of time in their respective judicial review applications, and thus the issue before the Court of Appeal was whether there were valid reasons for allowing these plaintiffs to have a second bite of the cherry in the form of civil claims for damages in respect of the same decisions on the termination of their services when they could no longer challenge such decisions by way of judicial review.  It was held by Lam VP that after balancing competing interests, that the plaintiffs could not, and their appeal was dismissed.

67.  In the present case, Mr Chan had submitted that P was “vexed” by Ds’ denial that the Zhuhai Payment was a loan, as Zhong Shun’s legal representative, namely this should have been raised in 2005 before the Higher People’s Court, and yet Zhong Shun chose not to and further chose not to file evidence in the PRC Proceedings.  Mr Chan also submitted applying Virgin Atlantic on the doctrine of issue estoppel, it was not open for Ds to argue that the Zhuhai Payment was an investment, as Zhong Shun had agreed before the Higher People’s Court that the Zhuhai Payment was a loan.

68.  The PRC Judgment was delivered after a trial in the presence of both parties’ lawyers.  Although there was no opposition from Zhong Shun, it had an opportunity of being heard, and its lawyer had objected to the copy of the Undertaking Letter produced by P being a photocopy.  Even though there was no defence filed and no evidence produced by Zhong Shun, the PRC Judge did not simply “rubber stamp” and allowed P’s claims.  The Judge who had an inquisitorial role had considered the evidence, and came to the conclusion that the loan was void, and did not allow P’s claims as to interest and penalties as set out in the Undertaking Letter.

69.  In my view, Zhong Shun could and should have raised the issue that the Zhuhai Payment was not a loan but an investment during the PRC Proceedings, but it failed to do so.  The Henderson principle should clearly apply to Zhong Shun.  Would the Henderson principle also apply to Ds, who were not parties to P’s claim in the PRC Proceedings ?

70.  Mr Chan had submitted that Zhong Shun was the alter ego of D1, as after the Shareholding Transfer, D1 had remained registered as the legal representative of Zhong Shun, notwithstanding that D3 was said to be the person who was the “boss” of Zhong Shun and D4 was the vice chairman.

71.  In the case of Carl-Zeiss-Stiftung v Rayner & Keeler (No 2) [1966] 2 All ER 536, Lord Guest had said that the three requirements of issue estoppel were:

“(i) that the same question has been decided;

(ii) that the judicial decision which is said to created the estoppel was final; and

(iii) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.”[15]

72.  In the same case, Carl-Zeiss-Stiftung, and in respect of identity of parties in the two sets of litigation, Lord Reid had also said:

“There is no doubt that the requirement of identity of parties is satisfied if there is privity between a party to the former litigation and a party to the present litigation[16].”

73.  Further, in Spencer Bower and Handler on Res Judicata, 4^th Ed, it was stated therein: “Since privity of interest is a matter of substance, not form, courts have been prepared to pierce the corporate veil and recognize the substantial identity between a company and its controlling directors and shareholders”[17].  In fact, in Johnson v Gore Wood, Lord Bingham had held that Johnson and his company were privies, or the company was the “corporate embodiment” of Johnson.

74.  There was no real dispute that Zhong Shun was through Tuban Tia, the “corporate embodiment” of D1 and D2, prior to the Shareholding Transfer.  After the Shareholding Transfer, at the time of P launching the PRC Proceedings, Zhong Shun was through Tuban Tia International the “corporate embodiment” of D3 and D4.  

75.  Having considered the evidence, I am satisfied that Ds were privies of Zhong Shun, or there was privity between Zhong Shun and the Ds, albeit at different periods.  In my view, it is not now open for Ds, in particular D3, D4 and Tuban Tia International to allege that the Zhuhai Payment was not a loan, but an investment, having had the opportunity to do so through Zhong Shun during the PRC Proceedings.

76.  The PRC Judgment was a “foreign” judgment.  Lord Diplock had said in the case of the The Sennar (No 2)(HL(E))[1985] 1 WLR 490 (HL) that to make available an issue estoppel to a defendant to an action brought against him in an English court upon a cause of action to which the plaintiff alleges a particular set of facts give rise, the defendant must be able to show : 1) the same set of facts has previously been relied upon as constituting a cause of action in proceedings brought by that plaintiff against that defendant in a foreign court of competent jurisdiction; and (2) that a final judgment has been given by that foreign court in those proceedings, and that it is often said that the final judgment of the foreign court must be “on the merits”[18].

77.  In the present case, there was no challenge to the Higher People’s Court being a court of competent jurisdiction, or that the PRC Judgment was not a final judgment.  There was no appeal against the PRC Judgment.  Even though Zhong Shun did not oppose P’s claim, as I have said earlier, the function of the Higher People’s Court was inquisitorial, and it had considered the evidence before making its findings and conclusions and that in my view the PRC Judgment was on the merits.

78.  After considering and balancing competing interests, and the interest involved in the administration of justice, I find that the Henderson principle would apply to Ds in the present action as they could have raised the issue of the Zhuhai Payment was an investment in the PRC Proceedings and they did not.  I am of the view that it would be an abuse of process if Ds, in particular D3, D4 and Tuban Tia International, were to be allowed now to dispute that the Zhuhai Payment was a loan, and to argue that it was an investment.

79.  Mr Chan had also relied on issue estoppel as the Zhong Shun did not dispute the loan, and the Higher People’s Court had accepted that it was a loan.  I accept Mr Chan’s submission, and find that the principle of issue estoppel also applied and Ds were estopped from denying the Zhuhai Payment was a loan.

Effect of the PRC Judgment on P

80.  Mr Kong had in his opening submissions submitted that P’s claim in the present action should be dismissed as the issue of the Zhuhai Payment had already been decided and settled and concluded by the PRC Judgment in that the Zhuhai Payment alleged by P to be a loan was already held by the Higher People’s Court to be a void transaction between P and Zhong Shun.

81.  Apart from submitting that P’s claim should be dismissed, there were no detailed submissions on which principles under res judicata  Mr Kong was relying on, although the authorities referred to by him were mainly on issue estoppel. 

82.  Mr Chan submitted that the only cause of action in the PRC Proceedings was money borrowed and unpaid, against Zhong Shun whereas P’s cause of action against Ds in the present action was based on conspiracy to defraud/to injure[19].  P had alleged the Shareholding Transfer was a sham transfer unknown to P at the time of the PRC Proceedings.  P had pleaded that at the material times of the PRC Proceedings, the evidence of sham transfer and conspiracy of the directors of Tuban Tia HK and Tuban Tia International were not available to P and therefore could not have been brought by P before the Higher People’s Court.

83.  What was decided in the PRC Judgment was that the Zhuhai Payment to Zhong Shun was a void loan transaction.  As Mr Chan had submitted, P’s present course of action was one based on conspiracy by unlawful means and the allegations raised by P in the present action had not been decided by the Higher People’s Court.  Having considered P’s statement of claim, I accept Mr Chan’s submissions.  I am thus of the view that P’s claim should not be dismissed outright simply by reason of the PRC Judgment.

84.  Having said this, the PRC Judgment was, however, relied on by P itself in its present claim, and the findings by the Higher People’s Court should have a bearing on P’s own case.  Having considered all parties’ interests, and the interest in the administration of justice, I am of the view that the Henderson principle should equally apply to P in respect of the issue as to who was the borrower of the loan of RMB 22.1m/Zhuhai Payment, and that it would not now be open for P to say that the borrower of the loan was not Zhong Shun.

85.  There was also another issue raised by Mr Kwong in relation to the validity of the Undertaking Letter under Hong Kong Law. 

86.  In the PRC Judgment, the Higher People’s Court had declined to accept or confirm the Undertaking Letter as only a photocopy was produced, and the authenticity was challenged by D3.  The Higher People’s Court had stated that even if the Undertaking Letter were an authentic copy of the original, or assuming the Undertaking Letter was authentic, it would be void and the interests and penalties stated therein could not be upheld/enforced, as the loan itself was a void transaction[20]. 

87.  Mr Kwong had referred to 惠州市東方聯合實業有限公司v Wong Wai Tsang (HCCT 73/2010, 28^th February 2012) §30 (per Recorder Paul Shieh SC), citing Guangzhou Green Enhan Bio-Engineering Co Ltd & Anor v Green Power Health Products International Co Ltd (HCA 4651/2002, HCA 2802/2003, HCMP 74/2004, 21^st August 2004) §2 (per Lam J, as he then was).  In Guangzhou Green Enhan case, Lam J, as he then was, had also referred to First Laser ltd v Fujian Enterprises (Holdings) HCA 4414 of 2001, 12 December 2002 and Shenzhen Development Bank v New Century International (Holdings) Ltd HCA 2976 of 2001, 31 July 2002[21].  Mr Kwong submitted those cases demonstrated that the courts in Hong Kong had accepted the judgments of courts in PRC as evidence of PRC law.

88.  Although the Higher People’s Court did not list out the relevant application law or regulations in declaring the loan was a void transaction, it clearly stated that the loan transaction of RMB 22.1m was void and also the Undertaking Letter was void and unenforceable, and declined to order interest and penalties stated in the Undertaking Letter.

89.  I accept Mr Kwong’s submission, that the validity issue in relation to the Undertaking Letter having been decided, P should be bound by the decision, and it was an abuse of process for this issue to be re-litigated.

Whether the Zhuhai Payment was a loan or an investment

Loan or Investment?

90.  Notwithstanding my above views, even if it were open to Ds to now argue that the Zhuhai Payment was not a loan, it is my finding that the Zhuhai Payment was in fact a loan and not an investment.  My reasons are set out below.

91.  The Confirmation Letter clearly indicated that the Zhuhai Payment was a loan.

92.  What Ds pleaded in their defence about the Confirmation Letter was rather confusing and convoluted[22].  The gist of what they pleaded seemed to be that the Confirmation Letter was a “fabricated” statement of indebtedness “ordered” by P, and back-dated to 15 May 2004, for the purpose of misleading the liquidator/receiver of Zhong Shun.  I accept what was pleaded came from the evidence of D3 and D4, and D1 and D2 did not have knowledge of the Confirmation Letter.  It was further pleaded that Zhong Shun was “undue-influenced” to follow P’s order.  When asked to provide further and better particulars, the answer was that An was the one who had given all the directives and instruction in managing the Hotel Project and that D3, D4 and Tuban Tia International were under An’s undue influence.

93.  What D4 said in her witness statement was that in order to protect P’s “investment money” in the Hotel Project, P requested Zhong Shun to issue the “IOU” back dated to 15 May 2004, to the Higher’s People’s Court as evidence of creditor status. 

94.  Under cross examination, D4 said that the “IOU” referred to her in her witness statement was the Confirmation Letter, and that it was she who placed the chop of Zhong Shun on the Confirmation Letter.  She had said, that D3’s lawyer had approached her towards the latter half of August 2005 as at that time NCCB had issued proceedings against P.  According to D4, D3’s lawyer had told her to co-operate with P and to facilitate and assist P, and that the Confirmation Letter was drafted by P, and she only chopped it.  She admitted that it was she who instructed Zhong Shun’s lawyer to attend the PRC Proceedings and as Zhong Shun did receive the Zhuhai Payment, she was of the view that there was no need to defend the PRC Proceedings.

95.  D3’s evidence supported what was said by D4.  He said that while he was in prison, Wu came to visit him at about end of August 2005 informing him that NCCB had issued proceedings against Zhong Shun and that the Hotel Project would be auctioned off, and that Wu had asked him to facilitate or assist P in the legal proceedings, in order for P to recover some money.  D3 then asked his lawyer to visit him, and told his lawyer to inform D4 to co-operate with and to assist P. 

96.  Wu denied what was said by D3 and D4 in relation to the Confirmation Letter, in particular any back-dating to 15 May 2004.  She also denied that she had gone to visit D3 in prison to ask him to prepare the Confirmation Letter to assist P in recovering the sum. 

97.  Having considered the evidence of Wu, D3 and D4, on a balance of probabilities, I am more inclined to accept the version of D3 and D4 in relation to how the Confirmation Letter came about.  Had they wished to make up a story, it would have much simpler just to say Wu went direct to D4 and asked for the Confirmation Letter to be prepared, rather than a convoluted story involving Wu visiting D3 in prison, and D3 having to call the lawyer who then contacted D4.  Further, the Confirmation Letter had referred to the Zhuhai Payment having already been spent by Zhong Shun on the Hotel Project and this would indicate the Confirmation Letter was back-dated since as at 15 May 2004, the Zhuhai Payment had not yet been remitted or received by Zhong Shun.

98.  Having said this, whether the Confirmation Letter was in fact issued by Zhong Shun in August 2005 and back-dated to 15 May 2004 or not, more importantly, the contents of the Confirmation Letter stated that Zhong Shun had authorized D3 to borrow from P a loan, and the amount of the loan was remitted on 13 and 14 April 2004 by 4 payments, and thus the Confirmation Letter clearly indicated that the Zhuhai Payment was a loan, and that this was acknowledged by Zhong Shun.

99.  I do not find there was any sufficient evidence of undue influence as alleged by Ds prior to the issue of the Confirmation Letter, and I find that D4 chopped the Confirmation Letter of her own free will, having been told by D3’s lawyer to assist P.  There was no challenge to D4’s evidence by the other Ds, in particular that it was D3’s lawyer who told her to co-operate with P.  If the Confirmation Letter was indeed “fabricated” to mislead the liquidator/receiver of Zhong Shun, and the Higher People’s Court, it was fabricated with the full knowledge and agreement of Zhong Shun, D3 and D4.  I see no reason as to why Ds should not now be bound by the contents of the Confirmation Letter.

100.  As for the Undertaking Letter, I have said earlier, in view of what was declared by the Higher Court in the PRC Judgment, the Undertaking Letter was void and unenforceable.

101.  However, from what was averred in the defence, D3 did not deny having signed the Undertaking Letter.  As I have said earlier, D3’s explanation was only that he signed the Undertaking Letter to “calm down” An and that after the Zhuhai Payment was remitted to Zhong Shun, the Undertaking Letter became void and “retired” accordingly.  In the Undertaking Letter, it was stated that if the company was unable to repay the Zhuhai Payment within 3 months with monthly interest of 1%, D3 undertake to repay to P, plus the relevant penalty of 10%.  There was no dispute that the company referred therein was Zhong Shun.

102.  The Undertaking Letter was typed on P’s letterhead.  Although I do not find that there was sufficient evidence that the Undertaking Letter had become void or “retired” upon the Zhuhai Payment being remitted to Zhong Shun as alleged by D3, it was void or unenforceable under the PRC law.  In any event, whether the Undertaking Letter had become void or retired or not, I find that the contents of the Undertaking Letter again clearly indicated that there was an acknowledgement by D3 that the Zhuhai Payment was a loan at the time when the Zhuhai Payment was made.

103.  Further, as pointed out by Mr Chan, based on Ds’ case that the Zhuhai Payment was an investment which had to be remitted from the Payment  was a foreign investment into Zhong Shun, which necessitated the remittance from P to be made to Peng Cheng, and converted to Hong Kong currency, and transferred back to PRC, the Zhuhai Payment should thus be “new” capital injected Zhong Shun, but there was no evidence of any increase in the registered capital or paid up capital, nor was there any fixed percentage for the equity interest to be allocated for P.  The explanation from D3, and D4, was, however, that the books of Zhong Shun had been taken away from PRC authorities for investigation, and thus the increase of registered capital could not be recorded.  The evidence, however, showed that even at the time of 2004 Annual Inspecting (年檢) applied for in April 2005, there was no record of any increase in capital in Zhong Shun.

104.  D3 was the main witness in relation to Ds’ case that the Zhuhai Payment was an investment, and the discussions were said to be between An and D3.  D3 was, however, rather confused in his evidence as to who the investor was, whether it was An or P.

105.  Anyway, it was Ds’ case throughout that An was the person who was actually behind P and who controlled P.  There were 5 directors of P in 2001, of which the then chairman was one Mr Yu Jian (“Yu”), who was said by D3 to be An’s cousin and one of the other directors at that time was a Madam Hou, said to be An’s former wife.  Wu had denied that An was the real owner of P, but as seen from the Prosecution Opinion, it was stated by the Public Security Bureau therein that An was the de facto boss of P, and that from beginning to end, An had participated in the business of P, and had made decisions in relation to major matters concerning P, including giving instructions to transfer P’s assets while under custody[23].  There was no challenge to the authenticity of the Prosecution Opinion.

106.  D4 had said in her witness statement that she was told by D3 that it was P which “solicited for investment” into Zhong Shun for the Hotel Project.  Further, her evidence was that in December 2004, she met with An and Wu in Lo Shan Hotel in Lo Wu, and An had requested the shareholding in Zhong Shun be transferred to P as P had injected the Zhuhai Payment, and D4 said she agreed and they agreed for An to go ahead to arrange for the formality for the transfer of the shareholding to P, and that An and Wu were going to arrange for the preparation of documents for D4 to sign, but then later An and Wu were both detained and the matter did not proceed.  Wu, however, completely denied what was said by D4.

107.  Whether the above meeting took place, and whether there was an agreement in relation to the transfer of shares to P in December 2004, I find the evidence from D3 in relation to the alleged investment indicated that at the time when the Zhuhai Payment was made, there were no details as to valuation of Zhong Shun, no agreement in relation to the percentage of P’s shareholding/interest in Zhong Shun, and that all other formalities would be determined later. 

108.  As submitted by Mr Chan, and I accept, even though he was good friends with An, what was said by D3 seemed inherently implausible, if the Zhuhai Payment were indeed an investment.

109.  Further, according to D4, the entire shareholding in Tuban Tia International, and thus the entire interest in Zhong Shun, was sold by D3 and D4 to new Singapore entities on 17 August 2005 for RMB 250m (which sale was subsequently not approved by the PRC authorities).  There was no evidence that the purported sale was subject to any interest of P.

110.  D3 had relied on the circular way of transferring the Zhuhai Payment to Peng Cheung, said to be an “underground bank”, to Tuban Tia International in Hong Kong, and then remitted back to Zhong Shun and explained this was because Zhong Shun was a “WOFE”, or a “wholly owned foreign enterprise”, and that any investment capital from a foreign investor would need to go through PRC foreign exchange procedures.

111.  The circular transfers could equally be consistent with the Zhuhai Payment being regarded as a loan to Zhong Shun from a foreign lender.  As seen from the PRC Judgment, a loan from P direct to Zhong Shun would be a void transaction. 

112.  I accept that Wu’s evidence was that for all the previous loans, there had been loan agreements signed, with payment of interest and the interest rate, and personal guarantees before money was lent.  Notwithstanding that there was no loan documentation signed prior to the Zhuhai Payment, there were the Undertaking Letter and Confirmation Letter signed afterwards.

113.  Having considered and weighed up the evidence, I reject D3’s evidence in this regard.  I do not find there was sufficient evidence to support Ds’ case that the Zhuhai Payment was an investment by P.  As I have said earlier, irrespective of whether the res judicata principles were applicable or not, I conclude that the Zhuhai Payment was a loan from P, and not an investment as alleged by Ds.

Who was the borrower

114.  I have already said that the Henderson principle should also apply to P in respect of the issue of who was the borrower.  I would further add that it was P which produced the Confirmation Letter in the PRC Proceedings, and such evidence was accepted by the Higher People’s Court.

115.  There was no reason why P should not be equally bound by the contents of the Confirmation Letter, as Zhong Shun/Ds and the Confirmation Letter indicated that the borrower was Zhong Shun.

116.  As for the Undertaking Letter, again this was produced by P, and the contents indicated that the primary borrower was Zhong Shun[24].

117.  In any event, P’s case as to who was the borrower was rather inconsistent and confusing.  In the statement of claim, it was pleaded that the amount was to be advanced to Zhong Shun for the Hotel Project and upon the collateral guarantee of D1, D3 and Tuban Tia HK for repayment[25]. In Wu’s witness statement, she had said that D1 through D3approached P for a loan, and that the loan was to be in the name of “Zhong Shun”[26], but she went on to say P only agreed to lend to D1, with D3 and D5 as guarantors[27]. 

118.  During the trial, Wu gave several versions as to who was the borrower of the loan, firstly, she had said it was D1 and D3 who approached her for loan for use for Zhong Shun, and that the loan was to D1 and D3.  Later, when she was cross-examined about the Undertaking Letter, she had said the Undertaking Letter was written and signed by D3, but the borrower was D1, and D3 and Tuban Tia HK were the guarantors. She then changed and said the borrowers were D1, D3, Tuban Tia HK, plus Zhong Shun.

119.  When asked what her final version was, and Wu then said the borrowers were D1, D3 and Tuban Tia HK jointly, but not Zhong Shun. 

120.  Wu clearly changed her evidence, and her evidence was inconsistent with what was pleaded.  There was no documentary evidence to substantiate the different versions, bearing in mind that according to her for the past loans, there were loan documentations and personal guarantees.

121.  Further, Wu’s evidence was that she received the Confirmation Letter on 15 May 2004 and she said the Confirmation Letter was meaningless to P, and that P kept on reminding D1 and D3 to ask D1 to go and sign loan document and guarantee, but neither of them appeared.  It was not quite clear from Wu’s witness statement as to what form such reminders took place, whether the reminder was by telephone, and if so, who at P made the telephone calls, and to whom was the telephone calls made.  It was only during re-examination when Wu then said she had telephoned D1 who said he would go over to her office to sign loan documentations.

122.  There had been no reminder letters, faxes or draft loan documentations sent by P to D1 or D3.  There was no telephone attendance record and it was not clear which number of D1 she called.  Wu was the only witness called to give evidence on behalf of P, and An was not called. 

123.  Wu’s explanation as to why P lodged the PRC Proceedings against Zhong Shun only and not any of the other Ds who she said were the borrowers, was that by that time D1 and D3 were in prison, and P could not find them, and Tuban Tia HK was a Hong Kong company, and P was unable to serve the PRC Proceedings on it.  I do not find this explanation convincing.

124.  I reject Wu’s evidence on this issue due to her inconsistent and unsatisfactory answers.  I do not find her a reliable witness and I find there was no sufficient evidence that D1 had directly approached P or Wu for the loan.  Further, the evidence as seen from the Confirmation Letter indicated it was D3 who was authorized by Zhong Shun to approach P for the loan to Zhong Shun.

125.  Having considered all the evidence, it is my finding that the borrower of the Zhuhai Payment made by P on 13 and 14 April 2004 was Zhong Shun, and that it was D3 who approached P for the loan.

126.  The Notice from the Higher People’s Court produced by D3 also indicated that P had proceeded to enforce the PRC Judgment, and was distributed a sum of about RMB 13m, save that the sum had to be paid to the NCCB under the NCCB Judgment.  In its reply to the defence, P had denied this.  During the trial, when asked by Mr Chan to clarify, Wu had said as Zhong Shun was wound up, there were no assets against which P could enforce the PRC Judgment, and P had no further evidence for tracing the assets. 

127.  Thus, Wu did not really challenge the contents of the Notice. The Notice indicated that P had applied for enforcement of the PRC Judgment against the liquidation proceeds of the Hotel Project and/or Zhong Shun, and P had been credited with an amount of some RMB 13m from such liquidation proceeds, as part payment towards the PRC Judgment debt, save that the amount was then ordered to be paid direct to NCCB, to discharge its liabilities as a guarantor, as ordered under the NCCB Judgment.  The amounts due to P under the PRC Judgment by Zhong Shun should in any event have been be reduced by the amount of RMB 13m.

128.  Mr Chan had argued that P’s claim against Zhong Shun was unaffected by NCCB calling in the guarantee signed by P due to the doctrine of a guarantor’s right of indemnity against the principal debtor.  I accept P, as guarantor, was entitled to seek an indemnity from Zhong Shun over the amount P had to pay the bank under its guarantee, but this issue was irrelevant to the Zhuhai Payment or the present action, in that P’s guarantee was in relation to an amount of RMB 40m borrowed by Zhong Shun from the NCCB, of which RMB 8m had been repaid by Zhong Shun, leaving RMB 32m unpaid.  As stated in the NCCB Judgment, P had the right to claim against Zhong Shun for RMB32m plus interest and penalty.

Whether any of Ds liable as guarantors

129.  Although in Mr Chan’s opening submissions, P’s case was said to be that the Zhuhai Payment was a loan from P with D1, D3, and Tuban Tia HK and Zhong Shun as “obligors”[28], according to Wu’s final version, the borrowers of the Zhuhai Payment were D1, D3 and Tuban Tia HK and not Zhong Shun.  I have rejected her evidence in this respect, and it is my finding that the borrower of the Zhuhai Payment was Zhong Shun only.  Any action against Zhong Shun arising out of this loan had been dealt with and concluded in the PRC Proceedings.

130.  As Wu’s final version was that D1, D3 or Tuban Tia HK were borrowers, they were not thus guarantors.  In any event, as Mr Kwong had pointed out, there were no sufficient particulars pleaded by P in its statement of claim, namely there were no concrete terms of any alleged personal guarantees, or any alleged circumstances of any such guarantees, or any oral discussion, or consideration.  The only possible guarantee could only be the Undertaking Letter from D3, the original of which was missing, and the validity of which had been decided in the PRC Judgment. In any event, I find no sufficient evidence that D1, D3, Tuban Tia HK, or D4 was a guarantor.

131.  It is my view that any cause of action based on any alleged personal guarantee must fail.

Whether the elements of the tort of conspiracy by unlawful means had been made out

The Legal Principles

132.  Mr Chan had referred this court to various authorities on conspiracy to injure.  As summarized by Ma CJHC, as he then was, in Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537 (CA), the tort of conspiracy to injure is an economic tort, and there are two types of conspiracy to injure, (1) the conspiracy to injure using lawful means where a requisite element of the tort is the predominant motive to injure; and (2) the conspiracy to injure by the use of unlawful means, where the mental element is not the predominant motive to injure, but merely an intention to do so, and this is a lower requirement of intention, but it is still “needed” to found the cause of action[29].  Further, as a matter of pleading, a case based on conspiracy must contain the following elements[30]:

(a) The agreement between two or more persons.  The means of carrying the agreement, whether lawful or unlawful, must be set out;

(b) The intention to injure the plaintiff, whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in the case of unlawful means conspiracy);

(c) The acts that were carried out pursuant to the agreement and the stated intention;

(d) The damage caused to the plaintiff.

133.  Sakhrani J had also said in De Krassel v Vincent Chu [2010] 2 HKLRD 937 (CFI):

“On the claim for conspiracy to injure by unlawful means, it is incumbent on the plaintiff to prove:

(a) The nature of the agreement;

(b) The unlawful means alleged;

(c) Each of the unlawful acts relied on;

(d) The fact that each act was carried out pursuant to the conspiracy;

(e) The relevant state of mind of the alleged conspirator[31].”

134.  It had been held in Midland Bank v Green (No 3) (CA)[1982] 1 Ch 529 that the old doctrine of unity between husband wife should not be applied to the modern tort of conspiracy and that there was no reason for relieving a husband and wife, who had agreed together to injure a third person and by their concerted action had injured him, from liability in damages[32].

135.  Also, on unlawful means conspiracy, as stated in Clerk & Lindsell on Torts, 20^th edition, this form of tort is committed where two or more persons combine and take action which is unlawful in itself with the intention of causing damage to a third party who doe incur the intended damage, and it is not necessary for the injured party to prove that causing him damage was the main or predominant purpose of the combination but that purpose must be part of the comginers’ intentions.  The main issues raised by this form of the tort are first the degree of intention required and second the ambit of unlawful means[33].

136.  There was no real dispute on the above principles, and with these principles in mind, I turn to the facts of the present case.

P’s Case

137.  P’s claim was based on unlawful means conspiracy, and it was P’s pleaded case that in or around April 2004, it was under false representation/deceit by D1 and D3 that Tuban Tia HK was in need of funds for the Hotel Project that P agreed to the loan[34].  The particulars of conspiracy pleaded included :

(i) D1-D4 are family members;

(ii) D1 was the initiator of the borrowing of the Zhuhai Payment and perpetuated by D3 as his agent and guarantor, and they knew the details and common design of the conspiracy;

(iii) D2, being director and shareholder of Tuban Tia HK was deemed to have known of the sham borrowing and of the Shareholding Transfer, and the evasion of liability of Tuban Tia HK of the collateral guarantee for repayment;

(iv) D4 was appointed by D1 as agent to implement the Shareholding Transfer;

(v) D2 had used the unlawful means of falsifying the reason for the Shareholding Transfer that the Tuban Tia Group would be listed on the stock market for the Shareholding Transfer and that the Shareholding Transfer would be used in the construction of the Hotel Project;

(vi) The Zhuhai payment was transferred directly or indirectly to Hong Kong and received by Tuban Tia HK and Tuban Tia International and shared by Ds.

138.  It was Wu’s evidence in her witness statement that it was only recently that P discovered that the reason given by Ds for the Zhuhai Payment was false, and that she had referred to “new” evidence discovered by her which showed that Ds conspired to defraud P, and that led to the present action[35].

139.  As I understand, what Wu described as new evidence recently discovered (presumably by recently, she meant shortly before her issuing the writ) were as follows:

(i) After investigation, P discovered that Peng Cheng was an “underground bank” which assisted customers to transfer monies to Hong Kong from PRC, and was not a company belonging to D1, and that the Zhuhai Payment was not transferred from Peng Cheng to Zhong Shun, but remitted to Tuban Tia International in Hong Kong instead, and thereafter went missing.  Wu thus questioned if the Zhuhai Payment was a loan to Zhong Shun, why was the amount remitted to  Hong Kong, and thus D3 must be making up a story to deceive P in lending the money, which was then pocketed by Ds themselves;

(ii) After investigation, P obtained a letter dated 7 April 2004 written by Zhong Shun to the Jiangxi Province State Administration of Industry and Commerce (“State Administration”) to explain why Zhong Shun was not able to carry out the 2004 annual audit (“Explanation Letter”)[36], and Wu said in this letter Zhong Shun had admitted that Zhong Shun was already under investigation and that all accounts record had been seized.  Thus, D1, D2, D3 and D4 clearly knew on 7 April 2004 that Zhong Shun could be prosecuted for tax problems or false accounting, and D1 and D3 had failed to disclose to P that fact, and approached P for a loan, and this was evidence that they had no intention of repaying the amount.

140.  As a result of P’s searches of the documents filed with the State Administration, P had also obtained 4 documents filed by Zhong Shun which Wu had produced to support P’s case.

141.  Chronologically, the 1^st document was the board resolution of Zhong Shun dated 8 April 2004 in relation to the proposed Shareholding Transfer of the company[37] (“Resolution”).  It was stated therein that due to the public listing of the foreign investor, it was proposed to transfer the 100% shareholding held by Tuban Tia HK in Zhong Shun to Tuban Tia International at no cost, and after the transfer, Tuban Tia International would become the sole foreign/Hong Kong enterprise of Zhong Shun.  It was further resolved that there would be no change to the board membership, and also that the business of the company was to be expanded to running a hotel, with guest accommodation and restaurant services.  The Resolution bore the signatures of D1, D3 and another director, and attached to the same was a list of the members of the board, with D1 stated to be the chairman, and D4 as vice chairman.

142.  The 2^nd document was an amendment to the constitution of Zhong Shun dated 12 April 2004 (“Amendment”) reflecting the Shareholding Transfer and the expansion of the business area of the company[38].  This bore the signature of D1.

143.  The 3^rd document was a letter of authorization dated 20 April 2004 (“Authorisation”), which bore the signature of D1, which stated that D1, as legal representative of Tuban Tia International, authorized appointed D4 of Tuban Tia International as the representative to deal with the formalities of the Shareholding Transfer[39].

144.  The 4^th document was an agreement dated 25 April 2004 signed by D1 on behalf of Tuban Tia HK and D4 on behalf of Tuban Tia International in relation to the Shareholding Transfer[40] (“Agreement”). There was a list of the board members attached dated 10 May 2004, indicating D1 was the chairman, D4 was the vice chairman, and there was a third director[41].

145.  As submitted by Mr Chan, the elements in deciding whether the tort of conspiracy by Ds by unlawful means had been made out in the present case, the court has to consider:-

(i) Was there any agreement or combination between Ds;

(ii) Was there any intention to injure P;

(iii) Whether the acts were carried out pursuant to the agreement or combination and the stated intention; and

(iv) Whether there was any damage caused to P; and if yes, how much.

Was there any agreement or combination between Ds?

146.  I have found earlier that Tuban Tia HK was the “corporate embodiment” of D1 and D2, and Tuban Tia International of D3 and D4. 

147.  D2 had been married to D1 for 44 years by the time of the trial.  Her witness statement was brief, so was her oral evidence.  She said she had been diagnosed with serious diabetes in 1992, and had been in semi-retirement since, and had no involvement or knowledge in respect of the PRC business of Tuban Tia HK although she was in name a shareholder and director of the company.  She denied all knowledge of money matters, and said she had no contact with P, or with Wu at all. She only saw Wu in the trial.  She had also said after D1 had a stroke in August 2005, he was in hospital, and she went to look after him, but D1 was not conscious for some time, and when he woke up, he suffered a loss of memory.  She also said she had never went to Nanchang during the Hotel Project. 

148.  I have mentioned earlier, D2 said she only knew about the Shareholding Transfer as D1 had told her.  It was D2’s evidence that she had never liked D1 investing and going to PRC and had even threatened to divorce him, and that was why when he told her about the Shareholding Transfer, she was very pleased.  D2 had said previously when D1 returned home from Nanchang, their conversations would be on mainly family matters, and nothing else. D2 had denied knowledge about other matters averred in the joint defence, including matters concerning Zhong Shun, the Hotel Project and/or the Zhuhai Payment. 

149.  D2 was cross examined that as she had signed the joint defence together all the other defendants, she must have knowledge of the matters pleaded therein. She accepted she had signed confirming the contents without having actual knowledge of the matters therein, and as I have mentioned earlier, she had said her solicitor should have made it clear in the joint defence as to what exactly each defendant knew.

150.  I have observed D2 during the trial.  There was nothing to contradict what she said, that since 1992, she had been semi-retired due to health reasons, and this was almost 10 years prior to D1 being involved in Zhong Shun and the Hotel Project.  There was no sufficient evidence to show that she had ever been involved in Zhong Shun, other than being in name a shareholder and director of Tuban Tia HK.  I find her overall a truthful witness.  I have no reason to doubt what she said and find that there was no sufficient evidence that she had any knowledge as to what was going on with Zhong Shun, or that she had any contact with P or Wu.

151.  As for D1, his evidence was that he had regarded that the Shareholding Transfer as having taken place on about 10 March 2004, after he orally agreed to transfer Zhong Shun to D3 and D4, and that thereafter he was no longer involved in the affairs of Zhong Shun.

152.  Although D1 had said the Resolution was signed by a staff in his name, he confirmed that it was approved by him, and the Resolution showed that there was to be no change to the board of directors.  D1 denied that it was his signature on the Amendment and said he had not seen the document.  D1 also denied that it was his signature on the Authorisation and he had added he was not in Nanchang on the date of the Authorisation, and that this signature was forged. D1, however, admitted having signed the Agreement and said D3 and D4 brought the document to Hong Kong and asked him to sign and also to chop it with the company seal of Tuban Tia HK.

153.  I accept that all the documentations produced, whether admitted by D1 to be signed by him or not, showed that D1 had remained the chairman of the board and legal representative of Zhong Shun.  Even on the Company Information dated 29 June 2010[42], D1 was still listed as the legal representative. 

154.  D1’s evidence was, however, that he had not agreed to continue to be the chairman and legal representative of Zhong Shun, and that he had left it to D3 and D4 to deal with the formalities after about 10 March 2004.  He was not aware that he had remained the chairman of the board and legal representative of Zhong Shun.  In any event, he had not, or could not have, carried out the duties of being the chairman and legal representative as he had not been back to the office of Zhong Shun in Nanchang to work after 10 March 2004.

155.  D1 maintained that he only returned to Nanchang about 7 April 2004 for about 3 days, to sign all the necessary documentation.  This was confirmed by the evidence of the other Ds.  There was no evidence from P to contradict what D1 had said.

156.  I accept that there was no documentary evidence to support what D1 had said, that he orally agreed to the Shareholding Transfer on about 10 March 2004, and thereafter took no part in the operations or business of Zhong Shun.  Although D1 said he had gone back to Nanchang on 7 April 2004 only to sign documentations, he had denied 3 of the 4 documents relating to the Share Transfer was signed by him.

157.  P had relied on those documents which bore D1’s signature to support its case that D1 was still in control of Zhong Shun after 10 March 2004.  D4 had, however, explained that Zhong Shun had appointed an agent to deal with the filing of the documentations with the State Administration, and that copies of the Resolution, the Amendment, and the Authorisation which P had obtained from the State Administration were of those signed by the agent and not by D1 although D1 had signed earlier versions when he was in Nanchang on 7 April 2004, such as the Resolution signed by D1 needed amendment and the agent was authorised to sign the amended filed version.  She said she could not recall whether the agent had sought their consent before signing D1’s name, but had said, if they had been asked, they would have agreed. 

158.  There was one other document which bore D1’s signature, namely 2004 Annual Inspection which contained a report dated 14 April 2005.  Again D1’s evidence was that this report was not signed by him.  D4 confirmed this and said that D1 was in prison at the time and would not have been able to sign it. D1 was also cross examined about the PRC Judgment, and that his name appeared as the legal representative of Zhong Shun therein and that he must have authorized a lawyer to appear in the PRC Proceedings.  D1 denied all knowledge of the PRC Proceedings, and said that he first learnt of the PRC Judgment was after the commencement of the present action.  D4 explained that it was she who instructed a lawyer to appear for Zhong Shun during the PRC Proceedings.  I note that when the PRC Proceedings were issued in September 2004, D1 had just had a stroke and was in hospital.

159.  I have observed D1 in the witness box. He repeatedly denied any involvement in Zhong Shun after 10 March 2010.  Although his evidence was at times confusing, having regard to his age and his health, I find on a balance of probabilities that D1’s evidence was overall believable.  From what I could observe of the demeanour of D1 and D3, they appeared to be of very different personalities, that they had differences over the Hotel Project was not unbelievable.  What was clear was that the Resolution was dated 8 April 2004, and the Shareholding Transfer would in my view at least have been agreed by D1 before that date, and this would be consistent with D1’s evidence that he had orally agreed to the Shareholding Transfer in March 2004.  Having orally agreed to the Shareholding Transfer at a time when he was having differences with D3 and the management of Zhong Shun, it would seem unlikely that D1 would wish to be involved in any money matters concerning Zhong Shun.

160.  Even if D1 had signed the Resolution, the Amendment and the Authorisation, there was no sufficient evidence that D1 had any knowledge of the discussion between D3 and An or the approach by D3 to P for the Zhuhai Payment, notwithstanding that D1 was at that time still, and had remained throughout, on record, the chairman of the board and legal representative.  Further if D1 did have knowledge of the Zhuhai Payment, there was no sufficient evidence that he was a party to any agreement of conspiracy.

161.  So far as D4 was concerned, her evidence was that D3 told him around the second half of April 2004 about P’s “soliciting for investment” into Zhong Shun, and that the money was remitted into Zhong Shun on 21 May 2004, but the next day, D1 and D3 were taken away by the Public Security Bureau for investigation.

162.  There was also no sufficient evidence that D4 was involved in any discussion with An or P in relation to the Zhuhai Payment.

163.  The burden was on P to show that there was an agreement between two or more of the Ds.  As submitted by Mr Kwong and as seen in the Pido case, the means of carrying out the agreement must be set out by P.

164.  There was simply no sufficient evidence before the court showing any discussion, or agreement amongst Ds to conspire to injure P, in particular, there was no sufficient evidence as to when any such agreement to injure was formed, when the related discussion took place, what were the circumstances surrounding the conspiracy, why would Ds wish to defraud P, and what was the exact content of the alleged conspiracy agreement.  There was also no evidence of any agreed roles of each of the Ds in carrying out the alleged conspiracy.  

165.  The Zhuhai Payment was received by Tuban Tia International from Peng Cheng and then remitted out by Tuban Tia International immediately upon receipt to Zhong Shun.  There was also no sufficient evidence that Tuban Tia International was a party to any agreement of conspiracy.

166.  P had thus failed to establish the first element.

The alleged wrongful acts

167.  According to P, Ds had carried out the following alleged wrongful acts:-

(i) 1^st Wrongful Act: - P alleged that D1 and D3 made a false representation that Tuban Tia HK needed funds for the Hotel Project;

(ii) 2^nd Wrongful Act: - P alleged that it was not notified of the Shareholding Transfer, and that the Shareholding Transfer was for the false reason that there was some listing plan;

(iii) 3^rd Wrongful Act: - P alleged that it was not notified by P of the investigation by PRC authorities and that Ds, despite knowing that Zhong Shun was under investigation by the PRC authorities back in April 2004, Ds still induced P to grant the Loan.

168.  In relation to the 1^st Wrongful Act, it was D1’s evidence that when he orally agreed to the Shareholding Transfer, Zhong Shun was not in need of funds.  He had produced a copy of Zhong Shun’s bank statement of NCCB as at 31 March 2004 to show that the company had a balance of some RMB 17m in the bank account.  D1 had also produced the 2003 audited accounts submitted on 20 March 2004[43] (“2003 Accounts”).

169.  It can be seen from item 6 of the 2003 Accounts that the total amount injected in the Hotel Project as at 31 December 2003 was some RMB 229m.  Under item 8, there were “short term loans” from NCCB of RMB 81m. The “payables” under items 9 and 10 included a sum of about RMB 27m for the Hotel Project, and also about RMB 5.2 m to creditors.  The amounts paid to the company and “receivables” under item 2 said to be from “major debtors” totalled some RMB 83.7m.  The net capital received for the year ended 31 December 2003 was stated to be RMB 120m.

170.  There did not appear from the 2003 Accounts that there was a need for urgent funds in March/April 2004. However, for the short term loans from NCCB of RMB 81m, as seen from the NCCB Judgment, out of the 4 short term loans, 2 of them totaling RMB 41m fell due on 27 January 2004.  The 3^rd one would become due in August 2004, and Zhong Shun had borrowed the 4^th term (secured) loan, in the sum of RMB 42.9m from NCCB in February 2004.  Whether the funds were needed urgently or not, I accept that in order to carry on the Hotel Project, Zhong Shun would need further funds.

171.  It was not exactly clear from what was pleaded by P as to what was “false” or what was the “deceit”.  Even if D3 had told P that Zhong Shun was in need of urgent funds to carry on with the Hotel Project, I do not see why this would be a wrongful act. 

172.  P’s case seemed to be that the Zhuhai Payment was shared by Ds, and was not received by Zhong Shun.  In this respect, D3 had produced bank remittances and statements[44] to show that the Zhuhai Payment was received by Tuban Tia International via Peng Cheng on 18 May 2004, in the sum of HK$20,396,450 at the then RMB to HKD exchange rate, and immediately after clearing, on 20 May 2004, it was remitted out to the bank account of Zhong Shun, and a sum of RMB 21,212,000 was received by Zhong Shun on 21 May 2004 in its bank account held at the Jiangxi Branch of the Industrial and Commercial Bank of China.  There was no real challenge to the authenticity of these banking documents.  I accept D3’s evidence that almost the full amount of the Zhuhai Payment was remitted to and received by Zhong Shun on 21 May 2004. 

173.  It was also not clear from the pleadings or Wu’s witness statement as to which person at P was the alleged false representation made to.  Anyway, during the trial, Wu had denied that D3 had always communicated directly with An over loan transactions between P and Zhong Shun and seemed to suggest that it was Yu and her who liaised with D1 and D3 and that An was not involved.  Neither An nor Yu had been called to testify.

174.  Mr Kwong had referred this court to what was held by Le Pichon JA in Tullet & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 235 on drawing adverse inference. 

175.  I am of the view that An, in particular, would be able to shed light on whether he was informed by D3 about the Shareholding Transfer, and either An or Yu would be able to shed light on the communications over the Zhuhai Payment.  I accept Mr Kwong’s submission, that the inference to be drawn from P’s failure to call An and Yu was that had they testified, unfavourable facts would be exposed.  

176.  In any event, I do not find the allegation of the 1^st Wrongful Act made out.

177.  As for the 2^nd Wrongful Act, it was P’s case that the reason for the Shareholding Transfer being that there was going to be a public listing was a false reason.  When D1 was cross examined, he denied that what was stated in the Resolution, namely for intended public listing, to be the reason for the Shareholding Transfer was an “excuse”.  He said that a reason had to be given to the State Administration for the Shareholding Transfer and the reason given was intended public listing.  He disagreed that this was a false reason, and said that in 2003, he did consider a public listing. 

178.  D3’s evidence supported that of D1’s, namely in September 2003, there had indeed been a plan for a public listing, and Zhong Shun had requested a reference letter from the Industrial and Commercial Bank of China as proof of its bank balance at that time, and a copy of the bank’s reference letter dated 27 September 2003 had been produced[45]. 

179.  D3 said at the time he had contacted an agent which was selling public listed companies, but the business areas of those companies were not suitable, and the prices asked were not acceptable.

180.  D3 had also said he did explore again the possibility of a public listing later in March 2004 when D1 agreed to him and D4 taking over Zhong Shun, and he was advised by a friend that he could use Tuban Tia International to acquire a public listed company, but to do so, he would need to produce a bank reference letter.  According to D3, he then obtained from the Chiyu Bank a reference letter dated 9 March 2004 in relation to Tuban Tia International[46].  D3 also said he was also advised by his friend that the shares of Tuban Tia International should be held by an off shore company, and that was why on 12 May 2004, there was an increase of 990,000 shares in Tuban Tia International, of which 499,999 shares were allotted to D4, and 499,999 shares were transferred to a BVI company called Prospect Group Limited, and D3’s 1 share was also transferred to Prospect Group Limited.  The result of this was that D4 held 500,000 shares and Prospect Group Limited held the remaining 500,000 shares for D3.  On the same day of the transfer, D3 had also appointed a friend Mr Wong to serve as a director to assist in the intended listing and/or restructuring of the company.  According to D3, all this was done in preparation for a future public listing.  

181.  Whether the bank reference letters or D3’s transfer of shares in Tuban Tia International to an off shore company had anything to do with the intended listing or not, what the Resolution showed was that the intended public listing was the reason given by Zhong Shun to the State Administration for the Shareholding Transfer.

182.  According to the internal balance sheet of Zhong Shun as at 30 April 2004, the assets were in the region of RMB 345m[47].  That there was an intention for a public listing was not inherently implausible.  In any event, I find there was no sufficient evidence from P to dispute what D1 and D3 had said.  Even though D1 had said the Shareholding Transfer was due to personal reasons, D3 had already said he had contemplated a public listing after taking over Zhong Shun.

183.  The Resolution was only obtained by P much later.  P’s case was that it was never notified of the Shareholding Transfer at the time, and if this was the case, P could not have been said to be “deceived” by a false reason given for the transfer.  I accept what was submitted by Mr Kwong, P’s case was contradictory.

184.  Further, it was all along the evidence of D3 that he had told An about the Shareholding Transfer, and there was no evidence from An, who was not called to give evidence.  As I have said earlier, an adverse inference should be drawn against P for its failure to call An, and that had he testified, unfavourable facts would be exposed.

185.  Wu had generally alleged the Shareholding Transfer was a sham as Tuban Tia HK’s interest in Zhong Shun was transferred to Tuban Tia International at no cost and Tuban Tia International turned out to be a shell company.  First of all, D1 had explained his reason for the Shareholding Transfer was due to differences between him and D3, and also because of his health reasons and he loved his daughter.  Secondly, the Hotel Project needed further funds to proceed and Zhong Shun had liabilities. Although there was no cost for the Shareholding Transfer, Tuban Tia International had to take over the liabilities and to seek funding to proceed with the Hotel Project. Thirdly, at the time of the Shareholding transfer, the assets of Zhong Shun were said to RMB 345m.  I do not find there was sufficient evidence that the Shareholding Transfer was a sham.  I find the 2^nd Wrongful Act was not made out by P.

3^rd Wrongful Act

186.  P had not actually pleaded that Ds induced P to make the Zhuhai Payment despite knowing that Zhong Shun was already under investigation back in April 2004.

187.  In any event, P seemed to rely mainly on the Explanation Letter that Ds had known of the investigation by the authorities in April 2004.

188.  As for the Explanation Letter, it was the evidence of D1 at the trial that the date on the Explanation Letter was a mistake, and that it should read 7 April 2005, namely a year later.

189.  D1 had maintained that on 7 April 2004 when he was in Nanchang signing documentations for the Shareholding Transfer, the accounting records of Zhong Shun had not yet been seized and that everything was normal at Zhong Shun. 

190.  Wu had said the Explanation Letter was obtained by P from a search of the records at the State Administration and that none of the Ds had specifically pointed out the mistake in the year of the date on the Explanation Letter in their respective witness statements.

191.  However, in D4’s witness statement, she had stated that on 8 June 2004, the Shareholding Transfer was approved by the State Administration and on 7 April 2005, Zhong Shun had applied to the State Administration for the 2004 Annual Inspection without the audited accounts, and the State Administration had acknowledged and accepted that Zhong Shun’s 2004 financial data and accounts had been detained by the public security bureau, and the State Administration approved Zhong Shun’s 2004 Annual Inspection on 14 April 2005.

192.  D4 had produced a copy of the 2004 Annual Inspection of which the date of report by Zhong Shun was stated to be 5 April 2005 and further the 2004 Annual Inspection had contained a report of foreign remittance dated 14 April 2005[48].  The 2004 Annual Inspection bore a chop of the State Administration.  D4 had also produced a copy of the business licence of Zhong Shun bearing the date of issue of 14 April 2005 and the chop of the State Administration[49], and also on the duplicate copies of the business licence, there was a chop of the State Administration on the Annual Inspection, and the last chop for the 2004 Annual Inspection was on 14 April 2005[50].  D4 herself had also produced a copy of the Explanation Letter in her witness statement.

193.  It was Ds’ case throughout that it was only on 22 May 2004 that D1 and D3 were detained by the authorities, and placed under investigation, and that up until then, the business of Zhong Shun was normal, and up until 22 May 2004, the accounting and financial records had not been detained by the Public Security Bureau.

194.  I find that it would be unlikely for the authorities to grant initial approval to the Shareholding Transfer on 28 April 2004[51] had it been aware that Zhong Shun was under investigation. The Explanation Letter had also borne handwritten words that what was stated in the letter was correct and to proceed to process the application and there was a chop of the State Administration over the words and there was a handwritten date of 12 April 2005.  The 2004 Annual Inspection and the Renewal of the Business Licence and all the above documents produced by D4 supported Ds’ case that in fact the 2004 Annual Inspection was only applied for in April 2005, and there was a delay due to the seizure of Zhong Shun’s financial and accounting records, and that the year of the date on the Explanation Letter was wrongly typed as 2004, and it should have been dated 7 April 2005.

195.  I therefore accept the evidence of D1 and the explanation of D4 and find that the year on the Explanation Letter should have been 2005, and that it was only mistakenly typed as 2004.

196.  P had alleged it only discovered prior to issue of the writ that Peng Cheng was an underground bank and about the circular transfer of the Zhuhai payment.  As I have mentioned earlier, the reason for the circular transfer of the Zhuhai Payment to Zhong Shun given by D3 was because Zhong Shun was a WOFE.  The bank documentations were not really contradicted by P although Wu had said during the trial that the remittance from an underground bank should not take as long as one month, and that she “suspected’ the amount that was subsequently remitted to Zhong Shun by Tuban Tia International was not actually the Zhuhai Payment. 

197.  Notwithstanding the circular route, I accept D3’s evidence that the Zhuhai Payment eventually went its way into Zhong Shun and was received by Zhong Shun on 21 May 2004.  There was simply no sufficient evidence to support Wu’s suspicion that the Zhuhai Payment had been pocketed by Ds, and not remitted to Zhong Shun. 

198.  Again, this so called “new” evidence discovered by P did not really assist P’s case. 

199.  The evidence showed that after Zhong Shun received the Zhuhai Payment on 21 May 2004, the following day 22 May 2004, D1 and D3 were detained, and the accounting books and records were seized.  There was no sufficient evidence to indicate that the sequence of events was anything other than a coincidence.  In fact, had Ds indeed had prior knowledge of the investigation prior to D1 and D3 being detained on 22 May 2004, as pointed out by Mr Kwong, the last thing they would do would be to remit the Zhuhai Payment to Zhong Shun, which benefitted no one.

200.  I accept Ds evidence that the detention of D1 and D3 on 22 May 2004 was wholly unexpected by Ds and there was no sufficient evidence that Ds had knowledge of any investigation by PRC authorities prior to the detention of D1 and D3. 

201.  The 3^rd Wrongful Act was not made out by P.

Conclusion

202.  In light of my above findings, I find there was no intention on Ds’ part to injure P.  P’s case on the alleged wrongful acts were not made out, and there were no wrongful acts carried out pursuant to any agreement or combination between Ds.  P had not made out its case against Ds based on conspiracy to injure by unlawful means.

203.  In the above circumstances, I dismiss P’s action against Ds.

Costs

204.  Costs should follow the event, save that P should have the costs on 10 November 2014 thrown away as that was the day when Mr Kwong turned up to appear for D3, D4 and Tuban Tai International and lad sought to introduce new documents by way of a summons proposed to be issued that day and the summons was eventually adjourned since die with liberty to restore and it was not until about 4 pm that day that the D3 started giving evidence.  This is a costs order nisi which shall be made final after 21 days.